AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON [ ], 2006
REGISTRATION NO. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KIMCO REALTY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 6798 13-2744380
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
3333 NEW HYDE PARK ROAD
NEW HYDE PARK, NY 11042
(516) 869-9000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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BRUCE KAUDERER, ESQ.
3333 NEW HYDE PARK ROAD
NEW HYDE PARK, NEW YORK 11042-0020
(516) 869-9000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPIES TO:
ADAM O. EMMERICH, ESQ. PETER M. FASS, ESQ.
DAVID E. SHAPIRO, ESQ. STEVEN L. LICHTENFELD, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ PROSKAUER ROSE LLP
51 WEST 52ND STREET 1585 BROADWAY
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10036-8200
(212) 403-1000 (212) 969-3000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective and all other conditions to the proposed merger described herein have
been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
1
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PROPOSED
MAXIMUM PROPOSED
OFFERING MAXIMUM
TITLE OF EACH CLASS OF AMOUNT PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE PER OFFERING REGISTRATION
REGISTERED REGISTERED SHARE PRICE FEE
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Common Stock, par value Not Not $82,500,000(2) $8,828(3)
$.01 per share........... Applicable(1) Applicable
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(1) In accordance with Rule 457(o) under the Securities Act of 1933, the number
of shares is not set forth herein.
(2) Estimated solely for the purpose of calculation of the registration fee.
Pursuant to Rule 457(o), the registration fee has been computed on the basis
of the maximum aggregate offering price of the shares of the Registrant's
common stock expected to be issued. In the proposed merger, the registrant
will issue shares of common stock with a value of $82,500,000 plus the
amount of Atlantic Realty Trust's cash on hand plus approved lease expenses
less expenses associated with the merger of Atlantic Realty Trust with a
subsidiary of the Registrant, less Atlantic Realty liabilities and less
unpaid dividends. For purposes of calculating the maximum aggregate offering
price, the Registrant has assumed that the amount of Atlantic Realty Trust's
cash on hand plus approved lease expenses will not exceed the sum of
expenses associated with the merger of Atlantic Realty Trust with a
subsidiary of the Registrant, Atlantic Realty liabilities and unpaid
dividends.
(3) Calculated by multiplying the estimated aggregate offering price of
securities to be registered by .000107.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
2
[The information in this proxy statement/prospectus is not complete and may be
changed. We may not sell the securities offered by this proxy statement/
prospectus until the registration statement filed with the Securities and
Exchange Commission is effective. This proxy statement/prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
in any jurisdiction where an offer or solicitation is not permitted.]
PRELIMINARY -- SUBJECT TO COMPLETION -- DATED FEBRUARY 6, 2006
MERGER PROPOSAL--YOUR VOTE IS VERY IMPORTANT
The Board of Trustees of Atlantic Realty Trust has approved a merger
agreement authorizing the merger of Atlantic Realty Trust and SI 1339, Inc., a
wholly-owned subsidiary of Kimco Realty Corporation which we refer to as Merger
Sub. As a result of the merger, Kimco will acquire Atlantic Realty. We are
sending you this proxy statement/prospectus to ask you to vote on the approval
of the merger.
In the merger, Atlantic Realty will merge with and into Merger Sub. If the
merger is completed, each outstanding share of beneficial ownership of Atlantic
Realty, which we refer to in this proxy statement/prospectus as Atlantic Realty
common stock, will be converted into the right to receive merger consideration
with an aggregate value equal to $82,500,000 plus the amount of Atlantic
Realty's cash on hand at closing and certain lease expenses less expenses
associated with the merger, Atlantic Realty's liabilities and unpaid dividends.
On the last business day prior to the date of closing, Atlantic Realty will
declare a dividend in an amount necessary for Atlantic Realty to qualify as a
real estate investment trust under applicable federal tax law. The merger
consideration will be paid in shares of Kimco common stock valued as of the last
trading day before the date of closing. Because the value of the consideration
is dependent on amounts that will not be known until immediately prior to the
date of closing, the exact number of shares of Kimco common stock that you will
be entitled to receive for each of your shares of Atlantic Realty common stock
will not be known until that time.
This proxy statement/prospectus gives you detailed information about the
special meeting of shareholders and the proposed merger. We urge you to read
this proxy statement/prospectus carefully. YOU SHOULD ALSO CAREFULLY CONSIDER
THE RISK FACTORS RELATING TO THE MERGER BEGINNING ON PAGE 11. You may obtain
additional information about Atlantic Realty and Kimco from documents that each
company has filed with the Securities and Exchange Commission. See "Where You
Can Find More Information."
Atlantic Realty common stock is quoted on The NASDAQ Capital Market under
the symbol "ATLRS." Kimco common stock is listed on the New York Stock Exchange
under the symbol "KIM."
On August 1, 2005, Atlantic Realty's Board of Trustees formed a Special
Committee consisting of three of Atlantic Realty's independent trustees, Messrs.
Blank, Goldberg and Rosoff, to review, evaluate and make recommendations to the
Board of Trustees on behalf of Atlantic Realty's shareholders with respect to a
possible sale of Atlantic Realty. The Special Committee believes that the merger
agreement and the transactions contemplated by the merger agreement, including
the merger, are fair to and in the best interests of Atlantic Realty and its
shareholders, other than Kimco and its affiliates. THE SPECIAL COMMITTEE
RECOMMENDS THAT HOLDERS OF ATLANTIC REALTY COMMON STOCK VOTE FOR THE APPROVAL OF
THE MERGER.
BASED IN PART ON THE RECOMMENDATION OF THE SPECIAL COMMITTEE, ATLANTIC
REALTY'S BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE MERGER AT THE SPECIAL MEETING.
YOUR VOTE IS VERY IMPORTANT. We cannot complete the merger unless, among
other things, the holders of 80 percent of the outstanding shares of Atlantic
Realty common stock and holders of two-thirds of the outstanding shares of
Atlantic Realty common stock not held by Kimco or its affiliates to vote to
adopt the merger agreement. Atlantic Realty has scheduled a special meeting of
its shareholders to vote on the approval of the merger. The special meeting will
be held at [ ], on [ ], 2006 at [ ], local time.
Whether or not you plan to attend the special meeting, please submit your proxy
as soon as possible to make sure that your shares are represented at that
meeting. If you do not vote by submitting your proxy or by attending the special
meeting in person and voting, it will have the same effect as voting against the
merger proposal.
Joel Pashcow
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED IN
CONNECTION WITH THE MERGER OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated , 2006, and is first
being mailed to shareholders of Atlantic Realty on or about , 2006.
ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and
financial information about Atlantic Realty and Kimco from other documents that
are not included in or delivered with this proxy statement/prospectus. This
information is available to you without charge upon your written or oral
request. You can obtain the documents incorporated by reference in this proxy
statement/prospectus through the Securities and Exchange Commission website at
http://www.sec.gov or by requesting them in writing or by telephone at the
appropriate address below:
By Mail: Atlantic Realty Trust By Mail: Kimco Realty Corporation
747 Third Avenue 3333 New Hyde Park Road
New York, New York 10017 New Hyde Park, New York
Attention: Edwin R. Frankel, 11042-0020
Secretary Attention: Investor
Relations
By Telephone: (212) 702-8561 By Telephone: (516) 869-9000
TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE ATLANTIC
REALTY SPECIAL MEETING, YOU SHOULD MAKE YOUR REQUEST NO LATER THAN [ ], 2006.
See "Where You Can Find More Information" beginning on page 74.
VOTING ELECTRONICALLY OR
BY TELEPHONE
Atlantic Realty shareholders of record on the close of business on [ ],
2006, the record date for the Atlantic Realty special meeting, may submit their
proxies:
o by telephone by calling the toll-free number 1-800-322-2885 on a
touch-tone phone and following the recorded instructions; or
o by email at proxy@mckenziepartners.com.
ATLANTIC REALTY TRUST
747 THIRD AVENUE
NEW YORK, NEW YORK 10017
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD [ ], 2006
To the Holders of Common Stock of Atlantic Realty Trust:
A special meeting of the shareholders of Atlantic Realty Trust will be
held at [ ], on [ ], 2006 at [ ], local time, for the
following purposes:
1. To consider and vote on a proposal to approve the transactions
contemplated by the Agreement and Plan of Merger, dated as of
December 1, 2005, by and between Kimco Realty Corporation, SI 1339,
Inc. and Atlantic Realty Trust, including the merger of Atlantic
Realty Trust with and into SI 1339, Inc., a wholly-owned subsidiary
of Kimco Realty Corporation.
2. To approve an adjournment of the special meeting, if necessary, to
solicit additional proxies if there are insufficient votes at the
time of the special meeting to adopt the merger agreement.
We have included a copy of the merger agreement as Annex A to the proxy
statement/prospectus. The proxy statement/prospectus further describes the
matters to be considered at the special meeting.
Only shareholders of record at the close of business on [ ], 2006
will be entitled to notice of and to vote at the special meeting and any
adjournments or postponements thereof. The approval of the merger requires the
affirmative vote of the holders of 80 percent of the outstanding shares of
Atlantic Realty common stock and holders of two-thirds of the outstanding shares
of Atlantic Realty common stock not held by Kimco or its affiliates. TO ENSURE
YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE COMPLETE AND RETURN THE
ENCLOSED PROXY CARD TO US OR SUBMIT YOUR PROXY BY TELEPHONE OR THROUGH THE
INTERNET. You may also cast your vote in person at the special meeting. Please
vote promptly whether or not you expect to attend the special meeting.
If you do not vote in favor of the approval of the merger, you will have
the right to seek appraisal of the fair value of your shares if the merger is
completed, but only if you submit a written objection to the proposed
transaction at or before the Atlantic Realty shareholder meeting and you comply
with all requirements of Maryland law, which are summarized in the accompanying
document.
A Special Committee of the Atlantic Realty Board formed for the purposes
of reviewing, evaluating and making recommendations to the Board of Trustees on
behalf of Atlantic Realty's shareholders (other than Kimco and its affiliates)
with respect to a possible acquisition of Atlantic Realty, recommends to the
holders of Atlantic Realty common stock that they vote FOR the approval of the
merger.
BASED IN PART ON THE RECOMMENDATION OF THE SPECIAL COMMITTEE, THE BOARD OF
TRUSTEES OF ATLANTIC REALTY UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
APPROVAL OF THE MERGER.
By order of the Board of Trustees,
Joel Pashcow
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
[ ], 2006
PLEASE VOTE YOUR SHARES PROMPTLY. INSTRUCTIONS FOR VOTING ARE ON THE
ENCLOSED PROXY CARD. IF YOU HAVE QUESTIONS ABOUT THE MERGER PROPOSAL OR
ABOUT VOTING YOUR SHARES, PLEASE CALL MACKENZIE PARTNERS, INC. AT
(212) 929-5500 (CALL COLLECT) OR (800) 322-2885 (TOLL FREE).
TABLE OF CONTENTS
PAGE
QUESTIONS AND ANSWERS ABOUT VOTING PROCEDURES FOR THE
SPECIAL MEETING..........................................................1
SUMMARY........................................................................3
The Companies............................................................3
The Merger...............................................................3
What Atlantic Realty Shareholders Will Receive in the Merger.............3
Material United States Federal Income Tax Consequences of the Merger.....4
Opinion of Atlantic Realty's Financial Advisor...........................5
Recommendation of Atlantic Realty's Special Committee....................5
Recommendation of Atlantic Realty's Board of Trustees....................5
Interests of Atlantic Realty's Trustees and Executive Officers in
the Merger.............................................................5
Regulatory Approvals Required for the Merger.............................6
Conditions to Completion of the Merger...................................6
Termination of the Merger Agreement......................................6
Termination Fee..........................................................7
Special Meeting of Atlantic Realty Shareholders (see page 15)............7
Appraisal Rights.........................................................7
Accounting Treatment of the Merger.......................................8
Comparative Per Share Data and Comparative Market Prices.................8
SELECTED HISTORICAL FINANCIAL DATA OF KIMCO....................................9
SELECTED HISTORICAL FINANCIAL DATA OF ATLANTIC REALTY.........................10
RISK FACTORS..................................................................11
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS..............................13
INFORMATION ABOUT THE COMPANIES.............................................. 14
Kimco Realty Corporation............................................... 14
SI 1339, Inc............................................................14
Altantic Realty Trust...................................................14
THE SPECIAL MEETING OF ATLANTIC REALTY SHAREHOLDERS...........................15
General................................................................ 15
When and Where the Atlantic Realty Special Meeting Will Be Held.........15
Purpose.................................................................15
Record Date and Quorum..................................................15
Required Vote...........................................................15
Proxies; Revocation.....................................................16
Attending the Meeting...................................................17
Voting Electronically or by Telephone...................................17
Solicitation of Proxies.................................................17
THE MERGER....................................................................19
Background of the Merger................................................19
Atlantic Realty's Reasons for the Merger; Recommendation of
Atlantic Realty's Board of Trustees and Special Committee.............25
Opinion of Atlantic Realty's Financial Advisor..........................28
i
PAGE
Rockwood Estimate of Market Value.......................................35
Interests of Atlantic Realty's Trustees and Executive Officers in
the Merger............................................................38
Kimco's Reasons for the Merger..........................................39
Kimco's Board of Directors and Management after the Merger..............40
Material United States Federal Income Tax Consequences of the Merger....40
Accounting Treatment of the Merger......................................43
Regulatory Approvals Required for the Merger............................43
Conversion of Shares; Exchange of Certificates; Dividends;
Withholding...........................................................43
Appraisal Rights........................................................44
Restrictions on Sales of Shares by Affiliates of Atlantic Realty........46
Stock Exchange Listings.................................................46
Delisting and Deregistration of Atlantic Realty Stock after the
Merger................................................................46
Transactions with Interested Shareholders...............................46
THE MERGER AGREEMENT..........................................................48
Structure...............................................................48
Effective Time and Timing of Closing....................................48
Consideration To Be Received in the Merger..............................48
Stock Options and Other Stock-Based Awards..............................50
Representations and Warranties..........................................50
Conduct of Business Pending the Merger..................................51
Shareholders Meeting and Duty to Recommend..............................53
No Solicitation of Alternative Transactions.............................54
Employee Matters........................................................56
Indemnification and Insurance...........................................56
Estoppels...............................................................56
Casualty and Condemnation...............................................57
Title Insurance.........................................................57
Additional Agreements...................................................58
Conditions to Complete the Merger.......................................58
Termination of the Merger Agreement.....................................59
Amendment, Waiver and Extension of the Merger Agreement.................61
Fees and Expenses.......................................................62
COMPARATIVE MARKET PRICE AND DIVIDEND DATA....................................63
INFORMATION ABOUT ATLANTIC REALTY.............................................65
DESCRIPTION OF KIMCO CAPITAL STOCK............................................66
DESCRIPTION OF COMMON STOCK...................................................66
PREFERRED STOCK...............................................................68
ANTI-TAKEOVER CONSIDERATIONS..................................................69
COMPARISON OF SHAREHOLDER RIGHTS..............................................70
LEGAL MATTERS.................................................................74
EXPERTS.......................................................................74
SHAREHOLDER PROPOSALS.........................................................74
WHERE YOU CAN FIND MORE INFORMATION...........................................74
ii
ANNEX A -- Agreement and Plan of Merger, dated as of December 1, 2005, by and
between Kimco Realty Corporation, SI 1339, Inc. and Atlantic Realty
Trust
ANNEX B -- Opinion of Robert A. Stanger & Co., Inc.
ANNEX C -- Estimate of Market Value of the Hylan Plaza Shopping Center prepared
by Rockwood Realty Associates, L.L.C.
ANNEX D -- Sections 3-201 et. seq. of the Maryland General Corporation Law
ANNEX E -- Atlantic Realty's Annual Report on Form 10-K for the year ended
December 31, 2004 and Quarterly Reports on Form 10-Q for the quarters
ended March 31, 2005, June 30, 2005 and September 30, 2005
iii
QUESTIONS AND ANSWERS ABOUT VOTING PROCEDURES FOR THE
SPECIAL MEETING
THE QUESTIONS AND ANSWERS BELOW HIGHLIGHT ONLY SELECTED PROCEDURAL
INFORMATION FROM THIS PROXY STATEMENT/PROSPECTUS. THEY DO NOT CONTAIN ALL OF THE
INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ CAREFULLY THE ENTIRE
DOCUMENT AND THE ADDITIONAL DOCUMENTS INCORPORATED BY REFERENCE INTO THIS PROXY
STATEMENT/PROSPECTUS TO FULLY UNDERSTAND THE MATTERS TO BE CONSIDERED AT THE
SPECIAL MEETING AND THE VOTING PROCEDURES.
Q: WHAT IS THE PROPOSED TRANSACTION FOR WHICH I AM BEING ASKED TO VOTE?
A: You are being asked to vote to approve the transactions contemplated by an
Agreement and Plan of Merger, dated as of December 1, 2005, by and between
Kimco Realty Corporation, SI 1339, Inc. and Atlantic Realty Trust, including
the merger, subject to the terms and conditions of the merger agreement of
Atlantic Realty Trust with and into SI 1339, Inc., a wholly-owned subsidiary
of Kimco Realty Corporation.
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully read and considered the information contained in
this proxy statement/prospectus, indicate on your proxy card how you want
your shares to be voted. Then complete, sign, date and mail your proxy card
in the enclosed postage-paid return envelope as soon as possible so that your
shares will be represented and voted at the special meeting. Alternatively,
you may submit your proxy by telephone or the internet. If you sign and send
in your proxy card and do not indicate how you want to vote, your proxy will
be voted FOR the approval of the merger.
Q: WHY IS MY VOTE IMPORTANT?
A: The merger must be approved by (i) holders of 80 percent of the outstanding
shares of Atlantic Realty common stock and (ii) holders of two-thirds of the
outstanding shares of Atlantic Realty common stock not held by Kimco or its
affiliates. If you fail to vote, that will have the same effect as a vote
AGAINST approval of the merger.
Q: IF MY SHARES ARE HELD IN STREET NAME BY MY BROKER OR BANK, WILL MY BROKER OR
BANK AUTOMATICALLY VOTE MY SHARES FOR ME?
A: No. Your broker or bank will not be able to vote your shares without
instructions from you. You should instruct your broker or bank to vote your
shares by following the instructions your broker or bank provides. If you do
not instruct your broker or bank, they will generally not have the discretion
to vote your shares, which will have the same effect as a vote AGAINST
approval of the merger.
Q: CAN I CHANGE MY VOTE?
A: Yes, you may change your vote at any time before your proxy is voted at the
special meeting. If you are the record holder of your shares, you can change
your vote in any of the following three ways:
o You may send a written notice to the Corporate Secretary of Atlantic
Realty, 747 Third Avenue, New York, New York 10017, stating that you
would like to revoke your proxy.
o You may complete and submit a new proxy card or submit a new proxy by
telephone or the internet. The latest vote actually received before
the special meeting will be counted, and any earlier proxies will be
revoked.
o You may attend the special meeting and vote in person. Any earlier
proxy will be revoked. However, simply attending the meeting without
voting will not revoke your proxy.
If your shares are held in "street name," you should contact your broker or
bank and follow
1
the directions you receive from your broker or bank in order to change or
revoke your vote.
Q: IF I HOLD MY ATLANTIC REALTY SHARES IN CERTIFICATED FORM, SHOULD I SEND IN
MY ATLANTIC REALTY STOCK CERTIFICATES NOW?
A: No. Please DO NOT send your stock certificates with your proxy card.
Atlantic Realty shareholders will receive written instructions from the
exchange agent after the merger is completed on how to exchange Atlantic
Realty stock certificates you may have for the merger consideration.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We expect to complete the merger in the first or second quarter of 2006.
However, we cannot assure you when or if the merger will occur. We must first
obtain the requisite approval of Atlantic Realty shareholders at the special
meeting.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger or how to submit your proxy, or if
you need additional copies of this proxy statement/ prospectus or the
enclosed proxy card, you should contact:
Mackenzie Partners, Inc. by telephone at 1-212-929-5500 (call collect) or
1-800-322-2885 (toll free) or by email at proxy@mckenziepartners.com
If your broker or bank holds your shares, you should also contact your broker
or bank for additional information.
2
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS. IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. WE URGE YOU TO READ CAREFULLY THE ENTIRE DOCUMENT AND THE
OTHER DOCUMENTS TO WHICH THIS PROXY STATEMENT/PROSPECTUS REFERS IN ORDER TO
FULLY UNDERSTAND THE MERGER AND THE RELATED TRANSACTIONS. SEE "WHERE YOU CAN
FIND MORE INFORMATION" BEGINNING ON PAGE 75. EACH ITEM IN THIS SUMMARY REFERS TO
THE PAGE OF THIS PROXY STATEMENT/PROSPECTUS ON WHICH THAT SUBJECT IS DISCUSSED
IN MORE DETAIL.
THE COMPANIES (SEE PAGE 14)
KIMCO
Kimco, a publicly-traded real estate investment trust, has specialized in
shopping center acquisitions, development and management for over 45 years.
Kimco owns and operates the nation's largest portfolio of neighborhood and
community shopping centers with interests in 1,019 properties comprising
approximately 129.0 million square feet of leasable space located throughout 44
states, Canada and Mexico. The address of Kimco's principal executive offices is
3333 New Hyde Park Road, New Hyde Park, New York 11042, and its telephone number
is (516) 869-9000.
MERGER SUB
SI 1339, Inc., or Merger Sub, is a Maryland corporation, recently
organized as a wholly owned subsidiary of Kimco solely for the purpose of
effecting the Merger. It has no material assets and has not engaged in any
activities except in connection with the merger. Merger Sub's executive offices
are located at 3333 New Hyde Park Road, New Hyde Park, New York 11042 and its
telephone number is (516) 869-9000.
ATLANTIC REALTY
Atlantic Realty is a Maryland real estate investment trust formed for the
purpose of liquidating its interests in real properties, its mortgage loan
portfolio and certain other assets and liabilities that were transferred to
Atlantic Realty from Ramco-Gershenson Properties Trust. Atlantic Realty
currently owns one retail property, the Hylan Plaza Shopping Center, located in
Staten Island, New York. The address of Atlantic Realty's principal executive
offices is 747 Third Avenue, New York, New York 10017, and its telephone number
is (212) 702-8561.
THE MERGER (SEE PAGE 19)
We are proposing a merger of Atlantic Realty with and into SI 1339, Inc.,
a wholly owned subsidiary of Kimco, with SI 1339, Inc. as the surviving
corporation in the merger. The merger agreement is attached to this proxy
statement/prospectus as Annex A. Please carefully read the merger agreement as
it is the legal document that governs the merger.
WHAT ATLANTIC REALTY SHAREHOLDERS WILL RECEIVE IN THE MERGER (SEE PAGE 48)
Upon completion of the merger, each outstanding share of Atlantic Realty
common stock will be converted into the right to receive merger consideration
with an aggregate value equal to $82,500,000 plus the amount of Atlantic
Realty's cash on hand at closing plus specified lease expenses less expenses
associated with the merger, Atlantic Realty's liabilities and unpaid dividends.
On the last business day prior to the date of closing, Atlantic Realty will
declare a dividend in an amount necessary for Atlantic Realty to qualify as a
real estate investment trust under applicable federal income tax law. The merger
consideration will be paid in shares of Kimco common stock valued as of the last
trading day before the date of closing. Because the value of the consideration
is dependent on amounts that will not be known until immediately prior to the
date of closing, the exact number of shares of Kimco common stock that you will
be entitled to receive for each of your shares of Atlantic Realty common stock
will not be known until that time.
3
As of the date of the signing of the merger agreement, Atlantic Realty had
cash on hand and specified lease expenses of $9,667,000 and it also anticipated
at that time that it would have merger expenses and other liabilities (including
certain agreed upon liabilities) for which it is responsible of $10,434,000.
Since the date of the merger agreement, Atlantic Realty paid a dividend of $.45
per share (approximately $1,603,000 in the aggregate) which will have the effect
of reducing the merger consideration by such amount. These amounts do not
reflect the impact of future dividends that may be paid by Atlantic Realty,
property cash flow that may be received or additional liabilities that may be
incurred between the date of the signing of the merger agreement and the date of
the closing of the merger, none of which can be predicted with any certainty.
By way of example only, if Atlantic Realty's cash and specified lease
expenses at closing are $8,064,000 (the amount of such cash and expenses at
signing less the dividend paid since signing) and the estimate of the merger
expenses and other liabilities is accurate and does not change from signing,
Atlantic Realty shareholders would be entitled to receive Kimco common stock
based on a value of Atlantic Realty of approximately $80,130,000 in the
aggregate. Based on that aggregate amount of consideration, the chart below sets
forth the number of shares of Kimco common stock that would be received for each
share of Atlantic Realty common stock outstanding on the date of the closing of
the merger. There can be no assurance that as of the date of the closing of the
merger that Kimco shares will have a market value in the range indicated.
Because this chart does not account for future dividends, property cash flow or
additional liabilities and makes assumptions as to the Company's expenses and
the price of the Kimco common stock on the last trading day before the date of
closing, the actual number of Kimco shares that you will receive will likely be
different from the numbers used in this example.
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HYPOTHETICAL NUMBER OF
KIMCO KIMCO SHARES
STOCK PRICE TO BE RECEIVED
-----------------------------------------
$28.00 0.8035
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28.50 0.7894
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29.00 0.7758
-----------------------------------------
29.50 0.7627
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30.00 0.7500
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30.50 0.7377
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31.00 0.7258
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31.50 0.7142
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32.00 0.7031
-----------------------------------------
32.50 0.6923
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33.00 0.6818
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33.50 0.6716
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34.00 0.6617
-----------------------------------------
34.50 0.6521
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35.00 0.6428
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No fractional shares of Kimco common stock will be issued in the merger.
Instead of fractional shares, Atlantic Realty shareholders will receive cash in
an amount determined by multiplying the fractional interest to which such holder
would otherwise be entitled by the closing price of one share of Kimco common
stock on the last trading day before the merger.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE
PAGE 40)
The merger is intended to qualify as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended, so that,
assuming the merger does so qualify, you will not recognize any gain or loss
upon the exchange of your shares of Atlantic Realty common stock for shares of
Kimco common stock in the merger, but you will recognize gain (but not loss) for
United States federal income tax purposes as a result of the merger to the
extent of any cash received as part of the merger consideration. The merger is
conditioned on the receipt by Atlantic Realty of a legal opinion that the merger
will qualify as a reorganization for United States federal income tax purposes.
See "Material United States Federal Income Tax Consequences of the Merger"
beginning on page 40.
4
TAX MATTERS ARE COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO
ATLANTIC REALTY SHAREHOLDERS WILL DEPEND ON EACH SHAREHOLDER'S PARTICULAR TAX
SITUATION. ATLANTIC REALTY SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS TO
FULLY UNDERSTAND THE TAX CONSEQUENCES OF THE MERGER TO THEM.
OPINION OF ATLANTIC REALTY'S FINANCIAL ADVISOR (SEE PAGE 28)
Stanger has acted as financial advisor to Atlantic Realty in connection
with the Merger and has delivered to the Atlantic Realty Special Committee and
its Board of Trustees a written opinion, dated November 18, 2005, to the effect
that, as of the date of such opinion and based upon and subject to certain
matters stated therein, the consideration to be received in the merger is fair,
from a financial point of view to the shareholders of Atlantic Realty, other
than Kimco and its affiliates. The full text of the written opinion of Stanger,
dated November 18, 2005, which sets forth the assumptions made, matters
considered and limitation on the review undertaken, is attached as Annex B to
this proxy statement/prospectus and should be read carefully in its entirety.
The opinion of Stranger is directed to the Atlantic Realty Special Committee and
its Board of Trustees and relates only to the fairness, from a financial point
of view, of the merger consideration to be received by the shareholders (other
than Kimco and its affiliates), does not address any other aspect of the merger
or related transactions and does not constitute a recommendation to any
shareholder as to how such shareholder should vote at the special meeting of
shareholders of Atlantic Realty. In connection with the rendering of its opinion
and related services, Stranger was paid a fee of $150,000. See "The Merger --
Opinion of Atlantic Realty's Financial Advisor."
RECOMMENDATION OF ATLANTIC REALTY'S SPECIAL COMMITTEE (SEE PAGE 25)
On October 1, 2005, the Atlantic Realty Board of Trustees formed a Special
Committee consisting of three independent trustees, Messrs. Blank, Goldberg and
Rosoff, to review and to consider any bona fide offer to acquire Atlantic
Realty. The Special Committee believes the merger agreement and the transactions
contemplated by the merger agreement, including the merger, are fair to and in
the best interests of Atlantic Realty and its shareholders, other than Kimco and
its affiliates. Atlantic Realty's Special Committee unanimously recommends that
Atlantic Realty shareholders vote FOR approval of the merger.
RECOMMENDATION OF ATLANTIC REALTY'S BOARD OF TRUSTEES (SEE PAGE 25)
Atlantic Realty's Board of Trustees has unanimously determined that the
merger, the merger agreement and the transactions contemplated by the merger
agreement are advisable and in the best interests of Atlantic Realty and its
shareholders, other than Kimco and its affiliates. Based in part on the
recommendation of the Special Committee, the Atlantic Realty Board of Trustees
unanimously recommends that Atlantic Realty shareholders vote FOR approval of
the merger.
INTERESTS OF ATLANTIC REALTY'S TRUSTEES AND EXECUTIVE OFFICERS IN THE MERGER
(SEE PAGE 38)
Atlantic Realty's executive officers and trustees have financial interests
in the merger that are different from, or in addition to, the interests of
Atlantic Realty's shareholders. These interests include rights of executive
officers (one of whom is also a trustee but not a member of the Special
Committee) to receive retention payments in the aggregate amount of
approximately $703,725, rights to continued indemnification and insurance
coverage by Kimco after the merger for acts or omissions occurring before the
merger. In addition, two of Atlantic Realty's trustees, neither of whom is a
member of the Special Committee, will receive payments in respect of services in
2005 of $60,000 each and may receive additional payments in an aggregate amount
not to exceed $100,000 for services rendered in 2006. The Atlantic Realty Board
of Trustees and Special Committee were aware of these interests and considered
them in their decision to approve the merger.
5
REGULATORY APPROVALS REQUIRED FOR THE MERGER (SEE PAGE 43)
Neither Kimco nor Atlantic Realty is aware of any material regulatory
approvals which are required to be obtained in order to consummate the merger.
CONDITIONS TO COMPLETION OF THE MERGER (SEE PAGE 58)
As more fully described in this proxy statement/prospectus and the merger
agreement, the completion of the merger depends on a number of mutual conditions
being satisfied or waived, including:
o the required approvals of Atlantic Realty's shareholders;
o the absence of any restriction, injunction or prohibition on
consummation of the merger by a court or provision of law;
o the registration statement of which this proxy statement/prospectus
forms a part having become effective and not being subject to any stop
order or proceeding seeking a stop order, and compliance with state
securities laws;
o the listing on the New York Stock Exchange of the shares of Kimco
common stock to be issued; and
o the receipt by Atlantic Realty of an opinion of counsel that the
merger will be treated as a reorganization for United States federal
income tax purposes.
Each of Kimco's and Atlantic Realty's obligations to complete the merger is also
separately subject to the satisfaction or waiver of a number of conditions,
including:
o the other party's representations and warranties in the merger
agreement being true and correct, subject to the materiality standards
contained in the merger agreement; and
o material compliance by the other party with its covenants.
Kimco's obligations to complete the merger are further subject to the
satisfaction or waiver of the following conditions:
o there not having occurred a material adverse change in the business of
Atlantic Realty since December 31, 2004;
o the receipt of certain tax opinions relating to among other things,
that both Ramco-Gershenson Property Trust and Atlantic Realty are and
were qualified as real estate investment trusts under the federal
income tax code; and
o the receipt of tenant estoppels.
Kimco and Atlantic Realty cannot be certain of when, or if, the conditions to
the merger will be satisfied or, where permissible, waived or whether or not the
merger will be completed.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 59)
Kimco and Atlantic Realty can agree at any time to terminate the merger
agreement without completing the merger, even if Atlantic Realty's shareholders
have approved the merger. Also, either of Kimco or Atlantic Realty can terminate
the merger agreement if:
o the merger has not been completed by June 30, 2006 (other than because
of a breach of the merger agreement by the party seeking termination);
o a governmental entity issues a final non-appealable order enjoining or
prohibiting the merger;
o Atlantic Realty's shareholders fail to approve the merger at the
Atlantic Realty special meeting; or
o the other party breaches the merger agreement in a manner that would
6
entitle the party seeking to terminate the merger agreement not to
consummate the merger, subject to the right of the breaching party to
cure, if curable, the breach within a specified cure period.
Additionally, Kimco may terminate the merger agreement if:
o Atlantic Realty's Board of Trustees fails to recommend the merger to
Atlantic Realty's shareholders or has withdrawn, modified or changed
in a manner adverse to Kimco its recommendation of the merger or
refuses to reaffirm its recommendation of the merger within five days
after a request by Kimco that it do so;
o there is damage or destruction to the Hylan Plaza Shopping Center,
Atlantic Realty's principal asset, or a governmental required
alteration or addition in excess of $1,000,000 or there is any
condemnation or eminent domain proceedings affecting the Hylan Plaza
Shopping Center; or
o an updated title commitment reveals certain title defects, property
restrictions or other encumbrances relating to the Hylan Plaza
Shopping Center that are not cured within a specified cure period.
TERMINATION FEE (SEE PAGE 61)
Atlantic Realty has agreed to pay to Kimco a termination fee of $2,475,000
and reimburse Kimco's expenses up to $412,500 if the merger agreement is
terminated under the circumstances specified in "The Merger Agreement --
Termination of the Merger Agreement -- Termination Fee."
SPECIAL MEETING OF ATLANTIC REALTY SHAREHOLDERS (SEE PAGE 15)
Atlantic Realty will hold a special meeting of its shareholders at [ ], on
[ ], 2006 at [ ], local time. At the special meeting, Atlantic Realty
shareholders will be asked:
o to vote to approve the merger; and
o to vote to approve an adjournment of the special meeting, if
necessary, to solicit additional proxies if there are insufficient
votes at the time of the special meeting to approve the merger.
Atlantic Realty's shareholders may vote at the special meeting if they
owned shares of Atlantic Realty common stock at the close of business on the
record date, [ ], 2006. On that date, there are expected to be [ ] shares of
Atlantic Realty common stock outstanding and entitled to vote at the special
meeting, approximately [ ]% of which were owned and entitled to be voted by
Atlantic Realty and its affiliates. On that date, Kimco and its affiliates will
own 992,113 shares of Atlantic Realty common stock, or approximately 37.9% of
the outstanding shares of Atlantic Realty common stock entitled to vote at the
Atlantic Realty special meeting. Pursuant to a Standstill Agreement between
Kimco and Atlantic Realty, Kimco and certain of its affiliates have agreed to
vote the shares that they own in excess of 9.8% of the outstanding shares of
Atlantic Realty in accordance with the recommendation of Atlantic Realty's Board
of Trustees.
Atlantic Realty's shareholders can cast one vote for each share of
Atlantic Realty common stock they owned on the record date. Approval of the
merger requires the affirmative vote of (i) the holders of 80 percent of the
outstanding shares of Atlantic Realty common stock and (ii) the holders of
two-thirds of the outstanding shares of Atlantic Realty common stock not held by
Kimco or its affiliates.
APPRAISAL RIGHTS (SEE PAGE 44)
Under Maryland law, holders of Atlantic Realty common stock may have the
right to receive an appraisal of the fair value of their shares of Atlantic
Realty common stock in connection with the merger. To exercise these appraisal
rights, an Atlantic Realty shareholder must submit a written notice of objection
to the merger at or before the shareholder meeting, must not vote for approval
of the merger and
7
must strictly comply with all of the procedures required by Maryland law. These
procedures are described more fully beginning on page 44.
A COPY OF MARYLAND GENERAL CORPORATION LAW -- SECTIONS 3-201 ET. SEQ. --
APPRAISAL RIGHTS IS INCLUDED AS ANNEX D TO THIS PROXY STATEMENT/PROSPECTUS.
ACCOUNTING TREATMENT OF THE MERGER (SEE PAGE 43)
Kimco will account for the merger as a purchase for financial reporting
purposes.
COMPARATIVE PER SHARE DATA AND COMPARATIVE MARKET PRICES (SEE PAGE 63)
Kimco common stock is listed on the New York Stock Exchange under the
symbol "KIM." Atlantic Realty common stock is listed on The NASDAQ Capital
Market under the symbol "ATLRS." The following table sets forth the closing sale
prices of Kimco common stock and Atlantic Realty common stock as reported on the
New York Stock Exchange and NASDAQ Capital Market, respectively, on December 1,
2005, the last trading day prior to the date of the merger agreement, and on
[ ], 2006, the last trading day prior to the printing of this proxy
statement/prospectus for which it was practicable to obtain this information.
Using these historical market prices, this table also shows the equivalent per
share price of Atlantic Realty common stock, assuming that Atlantic Realty has
cash on hand and approved lease expenses of $8,064,000 (representing cash on
hand and approved lease expenses of $9,667,000 as of the date of the signing of
the merger agreement minus $1,603,000 attributable to a dividend paid by
Atlantic Realty to its shareholders on December 29, 2005) and merger expenses
and other liabilities for which it is responsible of $10,434,000. Because these
numbers do not account for future dividends, property cash flow or additional
liabilities or changes in the market price of Kimco's common stock and make
assumptions as to Atlantic expenses, the value of the Kimco shares that you will
receive will likely be different from the numbers used in the table below.
ATLANTIC
KIMCO REALTY EQUIVALENT
COMMON COMMON PER SHARE
DATE STOCK STOCK PRICE
-------- ------ -------- ----------
December $31.61 $22.25 $22.50
1, 2005
[ ], 2006 $__.__ $__.__ $22.50
8
SELECTED HISTORICAL FINANCIAL DATA OF KIMCO
Kimco is providing the following information to aid you in your analysis
of the financial aspects of the merger. Kimco derived the financial information
as of and for the years ended December 31, 2000 through December 31, 2004 from
its historical audited financial statements for these years. Kimco derived the
financial information as of and for the nine months ended September 30, 2004 and
2005 from its unaudited financial statements, which financial statements
include, in the opinion of Kimco's management, all adjustments, consisting of
normal and recurring adjustments, necessary for a fair statement of those
results. The results for the nine months ended September 30, 2005 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2005. This information is only a summary, and you should read it in
conjunction with Kimco's consolidated financial statements and the related notes
contained in Kimco's periodic reports filed with the Securities and Exchange
Commission that have been incorporated by reference in this proxy
statement/prospectus. See "Where You Can Find More Information" beginning on
page 74.
For the nine For the nine
months ended months ended Year ended December 31,(2)
------------ ------------ ---------------------------------------------------------------------------
(All amounts in September September
thousands, except per 30, 30,
share information) 2005 2004 2004 2003 2002 2001 2000
------------ ------------ ------------- ------------- ------------- ------------- -------------
Operating Data:
Revenues from rental
property(1) $ 388,177 $ 386,366 $ 508,993 $ 467,321 $ 419,961 $ 416,393 $ 409,440
Interest expense(3) $ 93,027 $ 81,134 $ 107,311 $ 102,491 $ 84,985 $ 86,188 $ 90,506
Depreciation and
amortization(3) $ 79,364 $ 75,301 $ 99,904 $ 83,492 $ 68,359 $ 66,008 $ 63,911
Gain on sale of develop-
ment properties $ 28,410 $ 12,339 $ 16,835 $ 17,495 $ 15,880 $ 13,418 $ --
Gain on sale of operat-
ing properties(3) $ -- $ -- $ -- $ 3,177 $ -- $ 3,040 $ 3,962
Provision for income
taxes $ 13,648 $ 10,330 $ 8,320 $ 8,514 $ 12,904 $ 19,376 $ --
Income from continuing
operations $ 236,188 $ 207,661 $ 281,231 $ 243,453 $ 235,399 $ 211,120 $ 182,340
Income per common share,
from continuing
operations(4):
Basic $ 1.02 $ 0.89 $ 1.21 $ 1.03 $ 1.04 $ 0.97 $ 0.84
Diluted $ 1.00 $ 0.88 $ 1.19 $ 1.02 $ 1.03 $ 0.95 $ 0.84
Weighted average number
of shares of common
stock(4):
Basic 226,310 222,302 222,860 214,184 208,916 192,634 185,376
Diluted 230,585 226,518 227,144 217,540 210,922 202,326 187,306
Cash dividends declared
per common share(4) $ 0.94 $ 0.86 $ 1.16 $ 1.10 $ 1.05 $ 0.98 $ 0.91
December 31,
------------------------------------------------------------------
September September
30, 2005 30, 2004 2004 2003 2002 2001 2000
-------- -------- ---- ---- ---- ---- ----
Balance Sheet Data:
Real estate, before
accumulated depreciation $ 4,276,461 $ 3,821,049 $ 4,092,222 $ 4,174,664 $ 3,398,971 $ 3,201,364 $ 3,114,503
Total assets $ 5,168,476 $ 4,377,118 $ 4,749,597 $ 4,641,092 $ 3,758,350 $ 3,387,342 $ 3,175,294
Total debt $ 2,357,129 $ 1,819,237 $ 2,118,622 $ 2,154,948 $ 1,576,982 $ 1,328,079 $ 1,325,663
Total stockholders'
equity $ 2,344,774 $ 2,211,255 $ 2,236,400 $ 2,135,846 $ 1,908,800 $ 1,892,647 $ 1,708,285
Cash flow provided by
operations $ 320,332 $ 294,073 $ 365,176 $ 308,632 $ 278,931 $ 287,444 $ 250,546
Cash flow used for
investing activities $(392,657) $ 69,762 $(303,378) $(642,365) $(396,655) $(157,193) $(191,626)
Cash flow provided by
(used for) financing
activities $ 104,045 $(278,092) $(71,866) $ 346,059 $ 59,839 $(55,501) $(67,899)
-----------------------------
(1) Does not include (i) revenues from rental property relating to
unconsolidated joint ventures, (ii) revenues relating to the
investment in retail stores leases and (iii) revenues from properties
included in discontinued operations.
(2) All years have been adjusted to reflect the impact of operating
properties sold during the nine months ended September 30, 2005 and
the years ended December 31, 2004, 2003 and 2002 and properties
classified as held for sale as of September 30, 2005 and December 31,
2004, which were reflected in Discontinued operations in the
Consolidated Statements of Income.
(3) Does not include amounts reflected in Discontinued operations.
(4) On July 21, 2005, Kimco's Board of Directors declared a two-for-one
split (the "Stock Split") of Kimco's common stock which was effected
in the form of a stock dividend paid on August 23, 2005 to
stockholders of record on August 8, 2005. All share and per share data
has been adjusted to reflect this Stock Split.
9
SELECTED HISTORICAL FINANCIAL DATA OF ATLANTIC REALTY
Atlantic Realty is providing the following information to aid you in your
analysis of the financial aspects of the merger. Atlantic Realty derived the
financial information as of and for the years ended December 31, 2000 through
December 31, 2004 from its historical audited financial statements for these
years. Atlantic Realty derived the financial information as of and for the nine
months ended September 30, 2004 and 2005 from its unaudited financial
statements, which financial statements include, in the opinion of Atlantic
Realty's management, all adjustments, consisting of normal and recurring
adjustments, necessary for a fair statement of those results. The results for
the nine months ended September 30, 2005 are not necessarily indicative of the
net change in Net Assets in Liquidation that may be expected for the year ending
December 31, 2005. This information is only a summary, and you should read it in
conjunction with Atlantic Realty's consolidated financial statements and the
related notes contained in Atlantic Realty's periodic reports filed with the
Securities and Exchange Commission that have been incorporated by reference in
this proxy statement/prospectus. See "Where You Can Find More Information"
beginning on page 74.
For the nine For the nine
months ended months ended Year ended December 31,
------------ ------------ --------------------------------------------------------------
September 30, September 30,
2005 2004 2004 2003 2002 2001 2000
---- ---- ---- ---- ---- ---- ----
Statement of Net Assets
In Liquidation:
Total Assets $ 89,808,691 $ 66,489,423 $ 89,273,922 $ 67,607,443 $ 66,876,929 $ 63,286,177 $ 62,691,522
Total Liabilities $ 7,557,709 $ 8,525,882 $ 8,600,164 $ 12,547,752 $ 4,971,363 $ 5,430,048 $ 4,545,181
Net Assets in $ 82,250,982 $ 67,963,541 $ 80,673,758 $ 55,059,691 $ 61,905,566 $ 57,856,129 $ 58,146,371
Liquidation
Statement of Changes in
Net Assets in
Liquidation:
Increase (Decrease)
Distributions Paid -- $(11,575,006) $(13,035,333) $(1,638,314) $(2,208,163) $(2,706,780) $ (3,062,936)
Adjustments to Reflect
Liquidation
Basis of Accounting $ 1,577,224 $ 14,478,946 $ 38,649,400 $(5,207,561) $ 6,257,600 $ 2,416,538 $ 3,777,618
Net Change in Net $ 1,577,224 $ 2,903,850 $ 25,614,067 $(6,845,875) $ 4,049,437 $(290,242) $ 714,682
Assets in Liquidation
10
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS PROXY STATEMENT/PROSPECTUS, INCLUDING THE MATTERS ADDRESSED
UNDER THE CAPTION "INFORMATION REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 13,
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN DECIDING WHETHER TO
VOTE FOR APPROVAL OF THE MERGER.
SHAREHOLDERS WILL NOT KNOW UNTIL THE CLOSING OF THE MERGER THE NUMBER OF SHARES
OF KIMCO COMMON STOCK THAT WILL BE ISSUED IN THE MERGER.
Upon the completion of the merger, each share of Atlantic Realty common
stock outstanding immediately prior to the merger will be converted into the
right to receive shares of Kimco common stock. The merger consideration will be
determined based on a number of factors, including the amount of Atlantic
Realty's cash on hand (which is itself dependent on future dividends, property
cash flow and other factors), the amount of approved lease expenses, the
expenses associated with the merger and Atlantic Realty's liabilities and unpaid
dividends. None of these factors can be determined with certainty prior to the
closing of the merger. In addition, the merger consideration will be paid in
shares of Kimco common stock with a market price valued as of the last trading
day before the date of the closing. This market price may vary from the closing
price of Kimco common stock on the date the merger was announced, on the date
that this proxy statement/prospectus was mailed to Atlantic Realty shareholders
and on the date of the Atlantic Realty special meeting. Accordingly, the exact
number of shares of Kimco common stock that you will be entitled to receive for
each of your Atlantic Realty shares will not be known until immediately prior to
the date of the closing of the merger.
Neither Kimco nor Atlantic Realty is permitted to terminate the merger
agreement or resolicit the vote of Atlantic Realty shareholders solely because
of changes in the market prices of either company's stock. Stock price changes
may result from a variety of factors, including general market and economic
conditions, changes in the respective businesses, operations and prospects of
Atlantic Realty and Kimco. Many of these factors are beyond the control of
Atlantic Realty or Kimco.
THE MARKET PRICE OF KIMCO COMMON STOCK AFTER THE MERGER MAY BE AFFECTED BY
FACTORS DIFFERENT FROM THOSE AFFECTING THE SHARES OF ATLANTIC REALTY CURRENTLY.
The businesses of Kimco and Atlantic Realty are significantly different
and, accordingly, the results of operations of Kimco and the market price of
Kimco's common stock may be affected by factors different from those currently
affecting the results of operations and market prices of Atlantic Realty's
common stock. For a discussion of the businesses of Kimco and Atlantic Realty
and of certain factors to consider in connection with those businesses, see the
documents incorporated by reference in this proxy statement/prospectus and
referred to under "Where You Can Find More Information" beginning on page 74.
KIMCO MAY NOT QUALIFY OR CONTINUE TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST
FOR FEDERAL INCOME TAX PURPOSES.
Kimco has been organized as, and believes that its past and present
operations qualify it as, a real estate investment trust, which we refer to as a
"REIT" under the Internal Revenue Code of 1986, as amended, which we refer to as
the "Code." In addition, following the Merger, Kimco intends to operate in a
manner that will allow it to continue to qualify as a REIT. However, the
Internal Revenue Service, or the IRS, could successfully assert that Kimco was
not or will not continue to be qualified as a REIT. That is because
qualification as a REIT involves the application of highly technical and complex
Code provisions for which there are only limited judicial or administrative
interpretations and involves the determination of various factual matters and
circumstances not entirely within Kimco's control. If Kimco
11
fails to qualify as a REIT, it will not be allowed a deduction for dividends
paid to stockholders in computing taxable income and would become subject to
federal income tax at regular corporate tax rates. In such an event, it could be
subject to potentially significant tax liabilities. Unless entitled to relief
under certain statutory provisions, Kimco would also be disqualified from
treatment as a REIT for the four taxable years following the year in which it
lost its qualification.
ISSUES ARISING OUT OF THE PENDING AUDIT OF RAMCO-GERSHENSON PROPERTIES TRUST OR
ANY CHALLENGE TO THE STATUS OF ATLANTIC REALTY OR RAMCO-GERSHENSON PROPERTIES
TRUST AS A REIT COULD PREVENT OR DELAY THE CLOSING OF THE MERGER.
Atlantic Realty has been organized as, and believes that its past and
present operations qualify it as, a REIT. In addition, the public filings of
Ramco-Gershenson Properties Trust, from which Atlantic Realty was spun off in
1996, state that it has qualified as a REIT. However, the IRS could assert that
Atlantic Realty or Ramco-Gershenson Properties Trust is not qualified as such
and, in the case of Ramco-Gershenson Properties Trust, the IRS has made such an
assertion. The IRS is currently conducting an examination of Ramco-Gershenson
Properties Trust for its taxable years ended December 31, 1996 and 1997. The
examination reports seek to disallow certain deductions and losses it took in
1996 and to disqualify it as a REIT for the years 1996 and 1997. In statements
made in its public filings, Ramco-Gershenson Properties Trust, has stated that
it vigorously disputes the positions of the IRS. Adverse developments with
respect to the qualification as a REIT of Ramco-Gershenson Properties Trust or
Atlantic Realty could prevent or delay the closing of the merger.
It is a condition to the obligation of Kimco to effect the merger under
the merger agreement that it will have received at closing those opinions and
reliance letters, if any, requested by it of Proskauer Rose LLP, counsel to
Atlantic Realty, and/or Wolf, Block, Schorr and Solis-Cohen LLP, counsel to
Ramco-Gershenson Properties Trust, in the forms agreed to by the parties prior
to the date of the signing of the merger agreement, unless otherwise agreed to
by the parties. Such opinions and reliance letters, if any, to be delivered at
closing relate to issues of Atlantic Realty's and Ramco's qualification as a
REIT.
ANY LIABILITY OF ATLANTIC REALTY TO RAMCO-GERSHENSON PROPERTIES TRUST ABOVE AN
AGREED AMOUNT WOULD REDUCE THE MERGER CONSIDERATION.
Ramco-Gershenson Properties Trust has stated that it believes that certain
tax deficiencies, interest and penalties that may be assessed against it in
connection with the IRS examination, would constitute items covered under a tax
agreement with Atlantic Realty. Atlantic Realty believes that it does not have
any obligation to make any payment or to indemnify Ramco-Gershenson Properties
Trust in any manner for any tax, interest or penalty set forth in the IRS's
examination report relating to the taxable years 1996 and 1997 of
Ramco-Gershenson Properties Trust. Furthermore, Atlantic Realty does not believe
the audit of Ramco-Gershenson Properties Trust will have a material impact on
Atlantic Realty or its status as a REIT. However, it is possible that the IRS or
a court will disagree. In addition, if Ramco-Gershenson Properties Trust is
disqualified as a REIT or incurs additional tax liabilities for its taxable
years 1996 and 1997, it could seek reimbursement for any resulting tax liability
from Kimco, as successor to Atlantic Realty, under the tax agreement between
Atlantic Realty and Ramco-Gershenson Properties Trust. Kimco and Atlantic Realty
have agreed to fix the liability under the tax agreement with Ramco-Gershenson
Properties Trust (which liability would reduce the merger consideration) in an
amount equal to $4,700,000 less amounts paid by Atlantic Realty to
Ramco-Gershenson Properties Trust between the date of the merger agreement and
the closing (of which amount $ has been paid as of the mailing of this
proxy statement/prospectus). However, in the event that, prior to the
consummation of the merger, Atlantic Realty is obligated to pay (or does pay)
Ramco-Gershenson Properties Trust an amount in excess of $4,700,000 pursuant to
the tax agreement such amount would reduce the merger consideration by that same
amount.
12
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus, including information included or
incorporated by reference in this proxy statement/prospectus, may contain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include, but are
not limited to, statements about the benefits of the merger, including future
financial and operating results and performance; statements about Kimco's and
Atlantic Realty's plans, objectives, expectations and intentions with respect to
future operations, products and services; and other statements identified by
words such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," "should," "may" or words of similar meaning. These forward-looking
statements are based upon the current beliefs and expectations of Kimco's and
Atlantic Realty's management and are inherently subject to significant business,
economic and competitive uncertainties and contingencies, many of which are
difficult to predict and generally beyond the control of Kimco and Atlantic
Realty. In addition, these forward-looking statements are subject to assumptions
with respect to future business strategies and decisions that are subject to
change. Actual results may differ materially from the anticipated results
discussed in these forward-looking statements.
The following factors, among others, could cause actual results to differ
materially from the anticipated results or other expectations expressed in the
forward-looking statements:
o those discussed and identified in public filings with the Securities
and Exchange Commission made by Kimco and Atlantic Realty;
o the cash flow produced by Atlantic Realty between the signing of the
merger agreement and the closing of the merger;
o the amount of expenses and other liabilities incurred or accrued
between the date of the signing of the merger agreement and date of
the closing of the merger;
o adverse developments in Atlantic Realty's ongoing dispute with Ramco-
Gershenson Properties Trust concerning potential tax liabilities; and
o Atlantic Realty being able to successfully maintain its qualification
as a REIT.
You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this proxy statement/prospectus
or the date of any document incorporated by reference in this proxy
statement/prospectus. All subsequent written and oral forward-looking statements
concerning the merger or other matters addressed in this proxy
statement/prospectus and attributable to Atlantic Realty or Kimco or any person
acting on their behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. Except to the
extent required by applicable law or regulation, Atlantic Realty and Kimco
undertake no obligation to update these forward-looking statements to reflect
events or circumstances after the date of this proxy statement/prospectus or to
reflect the occurrence of unanticipated events.
13
INFORMATION ABOUT THE COMPANIES
KIMCO REALTY CORPORATION
Kimco began operations through a predecessor in 1966, and today is one of
the nation's largest publicly-traded owners and operators of neighborhood and
community shopping centers (measured by gross leasable area, which we refer to
as "GLA"). Kimco owns interests in 1,019 properties. These properties have a
total of approximately 129 million square feet of GLA and are located in 44
states, Canada and Mexico.
Kimco's ownership interests in real estate consist of its consolidated
portfolio and in portfolios in which it owns an economic interest, such as;
Kimco Income REIT, the RioCan Venture, Kimco Retail Opportunity Portfolio and
other properties or portfolios where it also retains management.
Kimco believes that it has operated, and it intends to continue to
operate, in such a manner to qualify as a REIT under the Code. Kimco is
self-administered and self-managed through present management, which has owned
and managed neighborhood and community shopping centers for more than 35 years.
Kimco has not engaged, nor does it expect to retain, any external advisors in
connection with the operation of its properties. Kimco's executive officers are
engaged in the day-to-day management and operation of its real estate
exclusively, and Kimco administers nearly all operating functions for its
properties, including leasing, legal, construction, data processing,
maintenance, finance and accounting. Kimco's executive offices are located at
3333 New Hyde Park Road, New Hyde Park, New York 11042-0020 and its telephone
number is (516) 869-9000. For additional information on Kimco, see "Where You
Can Find More Information" beginning on page 74.
SI 1339, INC.
SI 1339, Inc., or Merger Sub, is a Maryland corporation, recently
organized as a wholly owned subsidiary of Kimco solely for the purpose of
effecting the merger. It has no material assets and has not engaged in any
activities except in connection with the merger. Merger Sub's executive offices
are located at 3333 New Hyde Park Road, New Hyde Park, New York 11042-0020 and
its telephone number is (516) 869-9000.
ATLANTIC REALTY TRUST
Atlantic Realty is a Maryland real estate investment trust that was
organized in 1995. The principal office of Atlantic is located at 747 Third
Avenue, New York, New York 10017, and its telephone number is (212) 702-8561.
Atlantic Realty commenced operations on May 10, 1996 as a result of a spin-off
from RPS Realty Trust. The spin-off transaction was consummated in order to
permit RPS to complete an acquisition of assets from Ramco Gershenson Properties
Trust and its affiliates, which permitted RPS to become an equity shopping
center REIT. RPS undertook the spin-off transaction, because Ramco was unwilling
to consummate the acquisition of Ramco's assets if the assets that were
contributed by RPS to Atlantic Realty remained in RPS.
Atlantic Realty holds an equity investment in one property, the Hylan
Plaza Shopping Center, a one-story community shopping center located in Staten
Island, New York. The Hylan Plaza Shopping Center contains approximately 359,000
square feet of leasable space, all of which was leased and occupied as of
September 30, 2005. Major tenants (I.E., tenants that accounted for 10% or more
of the leasable space as of September 30, 2005) include K-Mart Corp., Pathmark
Stores, Inc. and Toys "R" Us - NY L.L.C.
14
THE SPECIAL MEETING OF ATLANTIC REALTY SHAREHOLDERS
GENERAL
This proxy statement/prospectus is being furnished to holders of Atlantic
Realty common stock for use at a special meeting of Atlantic Realty shareholders
and any adjournments or postponements of the meeting.
WHEN AND WHERE THE ATLANTIC REALTY SPECIAL MEETING WILL BE HELD
The Atlantic Realty special meeting will be held on
[ ], at [ ], local time, at
[ ], subject to any adjournments or
postponements.
PURPOSE
The purpose of the Atlantic Realty special meeting is to consider and vote
on a proposal to approve the transactions contemplated by the Agreement and Plan
of Merger, dated as of December 1, 2005, by and between Kimco, Merger Sub, a
wholly-owned subsidiary of Kimco, and Atlantic Realty, including the merger
pursuant to which Atlantic Realty will be merged with and into Merger Sub.
At the Atlantic Realty special meeting, Atlantic Realty shareholders will
also be asked to approve the adjournment of the special meeting, if necessary,
to solicit additional proxies if there are insufficient votes at the time of the
special meeting to approve the merger, and to vote upon such other business as
may properly come before the special meeting or any adjournment or postponement
of the special meeting.
RECORD DATE AND QUORUM
Atlantic Realty shareholders who hold their shares of record as of the
close of business on [ ] are entitled to notice of and to vote at the Atlantic
Realty special meeting. On the record date, there were 3,561,553 shares of
Atlantic Realty common stock outstanding and entitled to vote at the Atlantic
Realty special meeting, held by approximately [ ] holders of record.
The holders of a majority of the outstanding shares of Atlantic Realty
common stock on the record date represented in person or by proxy will
constitute a quorum for purposes of the special meeting. A quorum is necessary
to hold the special meeting. Once a share is represented at the special meeting,
it will be counted for the purpose of determining a quorum at the special
meeting and any postponement or adjournment of the special meeting. However, if
a new record date is set for the adjourned special meeting, then a new quorum
will have to be established.
REQUIRED VOTE
The affirmative vote of (i) holders of at least 80 percent of the
outstanding shares on the record date of Atlantic Realty common stock and (ii)
holders of two-thirds of the outstanding shares on the record date of Atlantic
Realty common stock not held by Kimco or its affiliates is required to approve
the merger. If Atlantic Realty shareholders fail to approve this proposal, the
merger will not occur. Each share of Atlantic Realty common stock is entitled to
cast one vote on all matters properly submitted to the Atlantic Realty
shareholders.
As of the record date, trustees and executive officers of Atlantic Realty
and their affiliates beneficially owned and were entitled to vote [ ] shares of
Atlantic Realty common stock, or approximately [ ]% of the outstanding shares of
Atlantic Realty common stock entitled to vote at the
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Atlantic Realty special meeting. At that date, Kimco, and its trustees and
executive officers and their affiliates beneficially owned 992,113 shares of
Atlantic Realty common stock, or approximately 37.9% of the outstanding shares
of Atlantic Realty common stock entitled to vote at the Atlantic Realty special
meeting. Pursuant to a Standstill Agreement between Kimco and Atlantic Realty,
Kimco and certain of its affiliates have agreed to vote the shares that they own
in excess of 9.8% of the outstanding shares of Atlantic Realty in accordance
with the recommendation of the Atlantic Realty Board of Trustees. Kimco and
Atlantic Realty currently expect that their respective trustees and executive
officers and their affiliates will vote their shares of Atlantic Realty common
stock FOR approval of the merger, although other than as described above, none
of them has entered into an agreement requiring them to do so.
When considering the Atlantic Realty Board of Trustees' and Special
Committee's recommendation that you vote in favor of the approval of the merger,
you should be aware that some executive officers and trustees of Atlantic Realty
may have financial interests in the merger that may be different from, or in
addition to, the interests of shareholders of Atlantic Realty. See "The
Merger--Interests of Atlantic Realty's Trustees and Executive Officers in the
Merger" beginning on page 38.
PROXIES; REVOCATION
If you are a shareholder of record, you should complete and return the
proxy card accompanying this proxy statement/prospectus, or vote by telephone or
the internet as described below under "--Voting Electronically or by Telephone,"
in order to ensure that your vote is counted at the Atlantic Realty special
meeting, or at any adjournment or postponement of the Atlantic Realty special
meeting, regardless of whether you plan to attend the Atlantic Realty special
meeting. All shares of Atlantic Realty common stock represented by properly
executed proxies received before or at the Atlantic Realty special meeting, and
not revoked, will be voted in accordance with the instructions indicated in the
proxies. If no instructions are indicated on your proxy card, your shares of
Atlantic Realty common stock will be voted FOR the approval of the merger and
FOR any adjournment of the special meeting, if necessary, to solicit additional
proxies.
If your shares are held in "street name" by your broker, you should
instruct your broker how to vote your shares using the instructions provided by
your broker. If you have not received such voting instructions or require
further information regarding such voting instructions, contact your broker and
they can give you instructions on how to vote your shares. Under the rules of
the NASDAQ, brokers who hold shares in "street name" for customers may not
exercise their voting discretion with respect to the approval of non-routine
matters such as the merger proposal and thus, absent specific instructions from
the beneficial owner of such shares, brokers are not empowered to vote such
shares with respect to the approval of the merger (i.e., "broker non-votes").
Shares of Atlantic Realty common stock held by persons attending the special
meeting but not voting, or shares for which Atlantic Realty has received proxies
with respect to which holders have abstained from voting, will be considered
abstentions. Abstentions and properly executed broker non-votes, if any, will be
treated as shares that are present and entitled to vote at the special meeting
for purposes of determining whether a quorum exists but will have the same
effect as a vote AGAINST approval of the merger. ACCORDINGLY, IF YOU ARE AN
ATLANTIC REALTY SHAREHOLDER, THE ATLANTIC REALTY BOARD OF TRUSTEES URGES YOU TO
COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE, OR TO SUBMIT YOUR PROXY BY TELEPHONE OR THE
INTERNET OR TO VOTE BY FOLLOWING THE INSTRUCTIONS OF YOUR BANK OR BROKER WITH
RESPECT TO SHARES YOU HOLD IN STREET NAME.
You may revoke your proxy at any time before the vote is taken at the
Atlantic Realty special meeting. If you have not voted through your bank or
broker, you may revoke your proxy by:
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o submitting written notice of revocation to the Corporate Secretary of
Atlantic Realty prior to the voting of that proxy;
o submitting a properly executed proxy of a later date; or
o voting in person at the Atlantic Realty special meeting; however,
simply attending the Atlantic Realty special meeting without voting
will not revoke an earlier proxy.
Written notices of revocation and other communications regarding the
revocation of your proxy should be addressed to:
Atlantic Realty Trust
747 Third Avenue
New York, New York 10017
Attention: Edwin R. Frankel, Secretary
IF YOUR SHARES ARE HELD IN STREET NAME, YOU SHOULD FOLLOW THE INSTRUCTIONS
OF YOUR BANK OR BROKER REGARDING THE REVOCATION OF PROXIES.
ATTENDING THE MEETING
If you hold your shares of Atlantic Realty common stock in street name and
you want to vote these shares in person at the meeting, you will have to get a
written proxy in your name from the broker, bank or other nominee who holds your
shares.
VOTING ELECTRONICALLY OR BY TELEPHONE
Shareholders of record and many shareholders who hold their shares through
a broker or bank will have the option to submit their proxies or voting
instructions electronically through the internet or by telephone. Please note
that there are separate arrangements for using the internet and telephone
depending on whether your shares are registered in Atlantic Realty's stock
records in your name or in the name of a broker, bank or other nominee who holds
your shares. If you hold your shares through a broker, bank or other nominee,
you should check your proxy card or voting instruction card forwarded by your
broker, bank or other nominee who holds your shares to see which options are
available.
In addition to submitting the enclosed proxy by mail, Atlantic Realty
shareholders of record may submit their proxies:
o by telephone by calling the toll-free number 1-800-322-2885 on a
touch-tone phone and following the recorded instructions; or
o by email at proxy@mckenziepartners.com.
SOLICITATION OF PROXIES
Atlantic Realty will pay the cost of the Atlantic Realty special meeting
and the cost of soliciting proxies for the Atlantic Realty special meeting. In
addition to soliciting proxies by mail, Atlantic Realty may solicit proxies by
person, telephone and other solicitations by trustees, directors, officers or
employees of Kimco and Atlantic Realty. No director, officer or employee of
Kimco or Atlantic Realty will be specifically compensated for these activities.
Atlantic Realty also intends to request that brokers, banks and other nominees
solicit proxies from their principals, and Atlantic Realty will pay the brokers,
banks and other nominees certain expenses they incur for those activities.
Atlantic Realty has retained
17
MacKenzie Partners, Inc., a proxy soliciting firm, to assist Atlantic Realty in
the solicitation of proxies. MacKenzie's solicitation fee is $7,500, plus
reasonable expenses.
ATLANTIC REALTY SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES
WITH THE PROXY CARDS. YOU WILL RECEIVE SEPARATE WRITTEN INSTRUCTIONS ON HOW TO
EXCHANGE YOUR ATLANTIC REALTY STOCK CERTIFICATES FOR THE MERGER CONSIDERATION IF
THE MERGER IS COMPLETED.
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THE MERGER
BACKGROUND OF THE MERGER
Atlantic Realty commenced operations on May 10, 1996, as a result of a
spinoff from RPS Realty Trust. The spin-off transaction was consummated in order
to permit RPS to complete an acquisition of assets from Ramco Gershenson, Inc.
and its affiliates. RPS undertook the spin-off transaction because Ramco
Gershenson, Inc. and its affiliates were unwilling to consummate the acquisition
if the assets that were contributed by RPS to Atlantic Realty remained in RPS.
In the spin-off, the Board of Trustees of RPS approved a distribution of one
share of Atlantic Realty common stock for every eight shares of beneficial
interest of RPS held by stockholders of RPS.
Under the provisions of its Declaration of Trust, Atlantic Realty was to
continue for a period of 18 months from May 10, 1996, during which time Atlantic
Realty was to reduce its assets to cash or cash equivalents and either (i) make
a liquidating distribution to its shareholders or (ii) agree to merge or combine
operations with another real estate entity, in either case, as soon as
practicable and within the 18-month period. The 18-month period was subject to
extension if (i) Atlantic Realty had not achieved this objective and the holders
of at least two-thirds of its outstanding shares approved the extension of such
date or (ii) a contingent tax liability relating to RPS that had been assumed by
Atlantic Realty had not been satisfactorily resolved. Because various tax issues
were not satisfactorily resolved (as described below), Atlantic Realty continued
its business past this 18-month period.
Consistent with Atlantic Realty's Declaration of Trust, its principal
investment objective has been to maximize shareholder value from the reduction
of its assets to cash or cash equivalents. As part of its plan to liquidate its
assets to cash or cash equivalents, subject to certain tax claims filed by the
Internal Revenue Service, Atlantic Realty has operated with a general intent to
(i) contact strategic buyers of its remaining asset (the Hylan Plaza Shopping
Center, located in Staten Island, New York) regarding possible sales
transactions and (ii) list the Hylan Plaza Shopping Center for sale with
qualified real estate brokers. In addition, Atlantic Realty has generally
explored, from time to time, the possibility of merging or entering into a
business combination with another real estate entity.
On the date of the spin-off transaction, Atlantic Realty held seven
mortgages and owned three properties, including the Hylan Plaza Shopping Center.
By the end of 1998, Atlantic Realty had sold or otherwise disposed of all of its
property and mortgage holdings, other than the Hylan Plaza Shopping Center.
Atlantic Realty's Board of Trustees decided that Atlantic Realty should not
attempt to sell the Hylan Plaza Shopping Center until tax issues relating to its
assumption of liabilities in connection with the spinoff transaction from RPS
were substantially resolved. In December 2003, many of the tax issues related to
the spinoff transaction from RPS were resolved.
On January 12, 2004, First Union Real Estate Equity and Mortgage
Investments, an Ohio business trust, and Michael L. Ashner, the Chief Executive
Officer of First Union, filed a Statement of Beneficial Ownership on Schedule
13D pursuant to which they reported, among other things, that they had made a
formal proposal to Atlantic Realty to merge Atlantic Realty with and into First
Union or one of its subsidiaries.
First Union's proposal contemplated that each share of Atlantic Realty
common stock would receive consideration of $16.25. This amount would be
payable, at the election of each of Atlantic Realty's shareholders, in cash or
in exchange for First Union's series A cumulative convertible redeemable
preferred shares of beneficial interest at a rate of 0.65 First Union series A
preferred shares per share of Atlantic Realty common stock. If Atlantic Realty
shareholders holding more than 1,901,760 shares in the aggregate elected to
receive First Union series A preferred shares, those shareholders would receive
(i) a number of First Union series A preferred shares equal to (a) 0.65
multiplied by (b) a fraction,
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the numerator of which is 1,901,760 and the denominator of which is the total
number of shares of Atlantic Realty common stock to be exchanged for First Union
series A preferred shares and (ii) cash equal to (x) $16.25 multiplied by (y) a
fraction, the numerator of which is the number of shares of Atlantic Realty
common stock to be exchanged for First Union series A preferred shares less
1,901,760 and the denominator of which is the number of shares of Atlantic
Realty common stock to be exchanged for First Union series A preferred shares.
First Union's proposal further contemplated that the consideration payable would
be subject to upward or downward adjustment based on Atlantic Realty's projected
post-closing net cash balance, information obtained through First Union's due
diligence process and any stock splits, issuances, repurchases,
reclassifications and other transactions affecting the value of Atlantic Realty
common stock.
On January 13, 2004, Atlantic Realty's Board of Trustees held a meeting to
discuss the First Union proposal and the process that Atlantic Realty would
undertake to evaluate it. Atlantic Realty's Board of Trustees formed a Special
Disposition Committee of disinterested directors consisting of Messrs. Blank,
Glickman and Pashcow to consider any bona fide offer or acquisition proposal
made for Atlantic Realty and to ensure that all reasonable steps were taken to
maximize shareholder value while having regard to its existing contractual
obligations. Among other things, Atlantic Realty's Board of Trustees instructed
the Special Disposition Committee to (i) review, negotiate and make
recommendations to the Board of Trustees with respect to First Union's proposal,
(ii) conduct such other investigation of First Union's proposal, First Union and
Atlantic Realty as may be necessary to determine whether First Union's proposal
is in the best interests of its shareholders and (iii) investigate other
strategic alternatives available to Atlantic Realty.
Shortly after the presentation of the First Union proposal, First Union
approached Atlantic Realty's Board of Trustees and requested that the Board of
Trustees waive the 9.8% ownership limitation in the Declaration of Trust to
allow First Union to acquire more than 9.8% of its outstanding shares of common
stock. At the meeting of the Board of Trustees on January 13, 2004, its Board of
Trustees unanimously agreed to grant the waiver to First Union if First Union
agreed to enter into a standstill agreement with Atlantic Realty, pursuant to
which First Union and its affiliates would agree not to directly or indirectly
(or cause their affiliates to) (i) acquire any shares of Atlantic Realty's
common stock in excess of an amount to be agreed upon between First Union and
Atlantic Realty, (ii) acquire any of its subsidiaries, assets or properties
(including by way of a fundamental transaction with Atlantic Realty, such as a
tender offer, business combination, merger or other consolidation), (iii) make
any solicitation of proxies to vote any of Atlantic Realty's voting securities,
(iv) form or join a group (other than a group comprised of affiliates) in
connection with the foregoing or (v) disclose any intention, plan or arrangement
inconsistent with the foregoing. The proposed standstill agreement would also
provide that First Union and its affiliates would agree to vote any shares in
excess of 9.8% of the outstanding shares of Atlantic Realty common stock then
owned by it in accordance with the recommendation of Atlantic Realty's Board of
Trustees. The terms of the proposed standstill agreement were identical to the
terms of other standstill agreements that Atlantic Realty had entered into with
other parties (including Kimco) that had requested a waiver of the 9.8%
ownership limitation in Atlantic Realty's Declaration of Trust. After
negotiation between Atlantic Realty and First Union regarding the proposed
standstill agreement, First Union decided not to enter into the standstill
agreement.
On January 26, 2004, the Special Disposition Committee held an
organizational meeting and commenced its evaluation of First Union's proposal as
directed by Atlantic Realty's Board. In addition, the Special Disposition
Committee retained Rockwood Realty Associates, L.L.C., or Rockwood, an
independent real estate brokerage firm, to provide an estimate of market value,
and assist Atlantic Realty with the marketing and sale of Atlantic Realty's
principal asset, the Hylan Plaza Shopping Center.
After reviewing the First Union proposal, the Special Disposition
Committee determined that, based on the market price of Atlantic Realty's common
stock and the Special Disposition Committee's
20
knowledge of the business, prospects, and value of the Hylan Plaza Shopping
Center, the First Union proposal was not acceptable and voted unanimously on
March 29, 2004 to reject the proposal.
On April 19, 2004, First Union and its affiliates submitted to Atlantic
Realty's Board of Trustees an amended proposal to acquire Atlantic Realty. The
amended First Union proposal contemplated that each share of Atlantic Realty
common stock would receive consideration of $19.25 per share. This amount would
be payable, at the election of each of Atlantic Realty's shareholders, in cash
or in exchange for First Union's series A cumulative convertible redeemable
preferred shares of beneficial interest at a rate of 0.8 First Union series A
preferred shares per share of Atlantic Realty common stock. If Atlantic Realty's
shareholders holding more than 1,315,000 shares in the aggregate elected to
receive First Union series A preferred shares, these shareholders would receive
(i) a number of First Union series A preferred shares equal to (a) 0.8
multiplied by (b) a fraction, the numerator of which is 1,315,000 and the
denominator of which is the total number of shares of Atlantic Realty common
stock to be exchanged for First Union series A preferred shares and (ii) cash
equal to (x) $19.25 multiplied by (y) a fraction, the numerator of which is the
number of shares of Atlantic Realty common stock to be exchanged for First Union
series A preferred shares less 1,315,000 and the denominator of which is the
number of shares of Atlantic Realty common stock to be exchanged for First Union
series A preferred shares. First Union's amended proposal further contemplated
that the consideration payable would be subject to upward or downward adjustment
based on Atlantic Realty's projected post-closing net cash balance, information
obtained through First Union's due diligence process and any stock splits,
issuances, repurchases, reclassifications and other transactions affecting the
value of Atlantic Realty common stock.
On April 26, 2004, the Special Disposition Committee held a meeting to
discuss First Union's amended proposal and the progress of the independent
valuation of the Hylan Plaza Shopping Center. The Special Disposition Committee
noted that it expected to receive the final report from Rockwood on or about May
7, 2004 and that it was uncertain whether the Special Disposition Committee
would have sufficient time to evaluate this report and make its recommendation
with respect to First Union's amended proposal prior to the expiration of the
offer period for the proposal on May 7, 2004. On April 26, 2004, following the
meeting of the Special Disposition Committee, Atlantic Realty's Board held a
special meeting at which the status of the estimate of market value of the Hylan
Plaza Shopping Center prepared by Rockwood was discussed. Rockwood's preliminary
assessment valued the Hylan Plaza Shopping Center on an "as-is" basis from
$57,500,000 to $62,200,000 (after making a negative adjustment of $2,100,000
with respect to deferred maintenance that Rockwood estimated a buyer would
require be credited against the purchase price). Rockwood's report also
explained that if (i) two tenants at the Hylan Plaza Shopping Center (Modell's
and Regal Cinemas) expanded their respective spaces as was proposed at that time
and (ii) Atlantic Realty was successful in buying out K-Mart from its lease, the
estimated value of the Hylan Plaza Shopping Center would be between $75,100,000
and $80,700,000 (without regard to the cost of buying out the tenant and after
making a negative adjustment of $2,100,000 for deferred maintenance). The
proposed expansion of Modell's and Regal Cinemas required the consent of K-Mart
which Atlantic Realty was unable to obtain. Further, Atlantic Realty was
unsuccessful in negotiating a buyout of the K-Mart lease. Rockwood delivered its
estimate in writing on June 1, 2004 based upon the market at that time.
At that meeting, the Special Disposition Committee members proposed that
the Board authorize the engagement of an investment banker, Robert A. Stanger &
Co., Inc. or Stanger, to assist Atlantic Realty with the evaluation of any
proposals received for any proposed business combination that would involve all
or substantially all of Atlantic Realty's stock or assets. The Special
Disposition Committee informed the Board that it had requested proposals from
other investment banks and that it believed that the proposal received from
Stanger represented the best proposal.
21
The Board then authorized the engagement of Stanger to assist Atlantic
Realty in its evaluation of any offer or proposal received by Atlantic Realty to
enter into a business combination with Atlantic Realty or to acquire all or
substantially all of Atlantic Realty's assets.
Also at the April 26, 2004 meeting, the Board determined that the cash
balance maintained by Atlantic Realty was in excess of the amount of cash
necessary to pay the costs of liquidation of the balance of Atlantic Realty's
assets. Atlantic Realty had maintained a substantial cash balance in order to be
able to make any indemnification payments required under Atlantic Realty's tax
agreement with RPS and to pay any liquidation costs. After the December 2003
resolution of the tax issue arising from Atlantic Realty's spinoff from RPS,
Atlantic Realty determined that its cash balance was in excess of what was
necessary for liquidation and, as a result, the Board voted to issue a return of
capital of $3.25 per share of Atlantic Realty common stock.
On April 27, 2004, Atlantic Realty issued a press release announcing that
its Board of Trustees had declared a one-time return of capital of $3.25 per
share of Atlantic Realty common stock payable on May 19, 2004.
On May 5, 2004, the Special Disposition Committee held a meeting at which
it unanimously decided to reject the amended First Union proposal, based on the
advice of Stanger. On May 5, 2004, the Special Disposition Committee issued a
press release announcing that it had unanimously rejected First Union's amended
proposal.
Commencing in July 2004, at the request of Atlantic Realty's Board of
Trustees and the Special Disposition Committee, Rockwood contacted approximately
300 domestic and international investors regarding the potential purchase of the
Hylan Plaza Shopping Center. As a result of these efforts, approximately 100
potential purchasers executed a confidentiality agreement and were provided with
a copy of an offering memorandum prepared by Rockwood describing the Hylan Plaza
Shopping Center. An offering letter from Atlantic Realty was also circulated to
the potential purchasers indicating that Atlantic Realty was offering the Hylan
Plaza Shopping Center for sale on an "as-is," all cash basis. The letter further
indicated that Atlantic Realty would consider acquisition proposals that
included an exchange of an acquirer's securities for (1) Atlantic Realty's
outstanding common stock or (2) the Hylan Plaza Shopping Center, in each case in
a tax free transaction and that to the extent securities were provided, Atlantic
Realty had a preference for securities that were readily susceptible to
valuation such as securities with a fixed income stream (with a demonstrated
ability to satisfy the proposed dividend), with a liquidation preference, or in
the case of common equities securities which enjoy the benefits of a wide collar
or other value assurance mechanism and significant liquidity in the market. In
late August 2004, the marketing effort was suspended to allow Atlantic Realty to
explore potential leasing alternatives with respect to the space occupied by one
of the principal tenants of the Hylan Plaza Shopping Center.
On July 15, 2004, Atlantic Realty issued a press release reporting that it
had entered in a letter of intent with a major retailer for the lease of
approximately 104,000 square feet of building space in the Hylan Plaza Shopping
Center. The proposed new lease could be entered into only if Atlantic Realty
could agree to terms with K-Mart with respect to a buyout of its lease and
Atlantic Realty was unable to come to terms for such a buyout.
During July 2004, First Union approached both Atlantic Realty and Kimco
about the possibility of Kimco purchasing all of First Union's shares of
Atlantic Realty common stock. On or about August 1, 2004, Kimco approached
Atlantic Realty's Board of Trustees to request an amendment to the Second
Amended and Restated Standstill Agreement between Kimco and Atlantic Realty to
permit Kimco to purchase the shares of Atlantic Realty common stock owned by
First Union. On August 3, 2004, Kimco, certain of Kimco's affiliates and
Atlantic Realty entered into a Third Amended and Restated Standstill Agreement
in order to permit Kimco to purchase in a private transaction up to 235,150
shares of Atlantic
22
Realty common stock owned by First Union and its affiliates. As a result of the
Amended Standstill Agreement and, giving effect to that purchase from First
Union and its affiliates, Kimco was permitted to own up to 39.61% of the
outstanding shares of Atlantic Realty common stock. Consistent with the prior
standstill agreements, Kimco also agreed in the Amended Standstill Agreement to
vote any shares that it holds in excess of 9.8% of Atlantic Realty's outstanding
shares in accordance with the recommendation of Atlantic Realty's Board of
Trustees.
From August 3, 2004 through January 2005, Atlantic Realty negotiated with
one of the principal tenants of the Hylan Plaza Shopping Center and the
potential lessee for such principal tenant's space in an effort to agree on
terms acceptable to all parties. Ultimately, no agreement was reached and the
new lease was not entered into.
In early January 2005, after the lease negotiations had been terminated,
Rockwood, at the request of one of the members of Atlantic Realty's Special
Disposition Committee, prepared an investment pricing matrix for the Hylan Plaza
Shopping Center using a 13 year period instead of the ten year period used in
the previous estimate that estimated the value of the property between
approximately $77,700,000 and $84,000,000 by discounting projected net operating
income over a thirteen year period (from 2006 through 2018) and then discounting
such amount at rates ranging from 8.5% to 9.0%. These updated net operating
income projections and investment pricing matrix were sent to the entire Special
Disposition Committee on or about January 10, 2005 and was sent to the balance
of Atlantic Realty's trustees on or around January 15, 2005.
Also, in January 2005, Rockwood, at the request of Atlantic Realty's Board
of Trustees and the Special Disposition Committee, contacted each of the
approximately 100 potential purchasers of the Hylan Plaza Shopping Center who
had previously executed confidentiality agreements and expressed an interest in
purchasing the Hylan Plaza Shopping Center. All such potential buyers were
invited by Atlantic Realty to submit written, non-binding indications of
interest by February 8, 2005 for the potential acquisition of Atlantic Realty or
Atlantic Realty's assets.
By February 9, 2005, Atlantic Realty had received 12 preliminary
indications of interest. The initial purchase prices offered in these
preliminary indications of interest ranged from $53 million to $77.5 million,
and all such indications of interest were non-binding and were subject to
further due diligence. Rockwood prepared and submitted to the Special
Disposition Committee a report summarizing the indications of interest.
On February 15, 2005, the Special Disposition Committee reviewed
Rockwood's report. The Special Disposition Committee discussed these preliminary
bids and thereafter invited the seven highest bidders that had expressed
interest in acquiring Atlantic Realty to participate in the next phase of the
potential sale process. A letter was sent to those bidders, inviting them to
continue their due diligence review, including discussions with members of
Atlantic Realty's management. All seven bidders accepted the opportunity, and
through February 21, 2005, their representatives had a number of discussions
with Atlantic Realty's management and were provided with access to information
regarding Atlantic Realty's property, business, operations, financial condition
and other related matters.
On or prior to February 22, 2005, seven second-round written bids were
received, with proposed purchase prices ranging from $76.5 million to $85.0
million and Rockwood submitted to the Special Disposition Committee a report
summarizing these bids.
On February 22, 2005, the Special Disposition Committee reviewed
Rockwood's report and the seven written proposals. The Special Disposition
Committee thereafter directed Rockwood to continue discussions with the two
bidders that had submitted the highest bids. Discussions between management and
Rockwood and these bidders continued for the next few weeks.
23
The two bidders were Kimco and another publicly traded REIT. The Kimco
proposal was structured as a tax-free transaction, while the other bid was
structured as an all cash transaction that would be taxable to Atlantic Realty's
shareholders. The Board of Trustees had initially expressed a preference in a
tax-free transaction.
At the Special Committee's direction, Rockwood discussed with the other
bidder the possibility of structuring a tax-free transaction. The other bidder
responded that in order to structure the transaction as a tax-free transaction,
it would have to reconsider and lower its bid to account for the tax
consequences it would suffer as a result of structuring the transaction to be
tax-free. After further discussions with the other bidder, the Special
Disposition Committee concluded that the Kimco bid was at a higher value than
that offered by the other bidder and that the other bidder was not likely to
increase its bid. On March 28, 2005, in connection with Kimco's bid, Atlantic
Realty entered into an Indemnification Agreement with Kimco in which Atlantic
Realty agreed that, commencing on March 28, 2005 and for a period of 45 days
thereafter, neither Atlantic Realty nor any of its representatives or agents
would engage in negotiations or discussions with any party other than Kimco for
the sale of Atlantic Realty's capital stock or assets, including the sale of the
Hylan Plaza Shopping Center. The Indemnification Agreement was amended on four
occasions in order to extend the exclusivity period, the last of which expired
August 26, 2005. The indemnification also permitted Kimco to conduct due
diligence on the Hylan Plaza Shopping Center.
During the exclusivity period, Kimco conducted diligence on Atlantic
Realty and at the same time, Atlantic Realty negotiated with Kimco with respect
to Atlantic Realty's possible acquisition by Kimco.
In the spring and early summer of 2005, Atlantic Realty's Special
Disposition Committee and Board held a number of meetings to discuss Atlantic
Realty's ongoing negotiations with Kimco. As these negotiations progressed, it
became apparent that it would not be feasible to structure an asset purchase as
a non-taxable transaction to Atlantic Realty's shareholders and the parties
focused on structuring the transaction in the form of a statutory merger. Under
the proposed asset purchase, Kimco would not have assumed any liabilities of
Atlantic Realty and the shareholders of Atlantic Realty would have retained all
of Atlantic Realty's past and future liabilities. In switching to a statutory
merger, Kimco agreed to assume all of the past and future liabilities of
Atlantic Realty in exchange for a price reduction from $84 million to $82.5
million.
At a meeting of Atlantic Realty's Board on August 1, 2005, Messrs.
Glickman and Pashcow informed the Board that they would prefer not to continue
to serve on the Special Disposition Committee. At the request of the Board,
Messrs. Rosoff and Goldberg agreed to take the place of Messrs. Glickman and
Pashcow and the Special Disposition Committee was reconstituted as a committee
of Messrs. Blank, Goldberg and Rosoff. We refer to this reconstituted committee
as the Special Committee. Between August and November 2005, the Special
Committee and its counsel negotiated an agreement and plan of merger with Kimco
and its counsel.
On November 18, 2005, the Special Committee and the Board of Trustees held
separate special meetings to deliberate on whether Atlantic Realty should enter
into the merger agreement with Kimco. At each of the meetings, a representative
of Stanger, Atlantic Realty's financial advisor, made an extensive financial
presentation. Among other matters reviewed in detail, such representative (i)
summarized the pertinent transaction provisions, (ii) gave an overview of
Atlantic Realty's business, (iii) described the assumptions used and basis for
the financial analysis of Atlantic Realty's prospects, (iv) discussed a
valuation analysis of Atlantic Realty and Atlantic Realty's property using a
variety of valuation methods, (v) reviewed the proposed termination fee, and
(vi) presented an analysis of and comparison with other comparable transactions
selected in a variety of manners. Stanger's representative presented an analysis
prepared by Stanger in connection with determining whether it could render a
24
fairness opinion with respect to the proposed transaction with Kimco and
reviewed in detail Stranger's analysis and the different methods Stranger had
used to gauge the fairness of the proposed consideration.
At each meeting, Stanger's representative noted that Stanger was prepared
to deliver to the Special Committee and the Board of Trustees a fairness opinion
in the form presented to each of the Special Committee and Atlantic Realty's
Board of Trustees, as applicable, if such opinion was requested.
Also at the meetings, representatives of Proskauer Rose LLP, Atlantic
Realty's outside counsel, discussed the terms and provisions of the merger
agreement, the structure of the merger and the timing of the transaction. In
particular, they highlighted details regarding the merger consideration,
expenses that were deductible from the merger consideration, the conduct of
Atlantic Realty's business prior to consummation of the merger and the
termination provisions of the merger agreement.
After the presentations to, and discussion among, the members of the
Special Committee, the Special Committee unanimously agreed that the merger
agreement was fair, in the best interests of Atlantic Realty and its
shareholders and should be presented to Atlantic Realty's Board of Trustees for
approval.
Shortly after the Special Committee meeting adjourned, the meeting of the
Board of Trustees commenced at which time the Board heard the presentations and
the report of the Special Committee in which the Special Committee recommended
that the Board of Trustees approve the merger agreement and submit the merger
agreement to the Atlantic Realty shareholders for consideration. After these
presentations and further discussions by the Board and its advisers, the merger
agreement was unanimously approved and the Board unanimously recommended that it
was advisable and in the best interest of Atlantic Realty and its shareholders
that Atlantic Realty merge with and into the Merger Sub, on substantially the
terms and conditions set forth in the merger agreement and that the shareholders
approve the merger and the merger agreement.
On December 1, 2005, Atlantic Realty entered into the merger agreement
with Kimco and SI 1339, Inc. and issued a press release with respect thereto.
ATLANTIC REALTY'S REASONS FOR THE MERGER; RECOMMENDATION OF ATLANTIC REALTY'S
BOARD OF TRUSTEES AND SPECIAL COMMITTEE
At meetings held on November 18, 2005 (i) the Special Committee
unanimously recommended to Atlantic Realty's Board that the merger be approved
and (ii) Atlantic Realty's Board, upon the recommendation of the Special
Committee, unanimously approved the merger and authorized management to execute
the merger agreement on Atlantic Realty's behalf. Atlantic Realty's Board
declared the merger and the other transactions contemplated by the merger
agreement advisable and in the best interests of Atlantic Realty's shareholders
and directed that it be submitted for consideration at a special meeting of
Atlantic Realty's shareholders entitled to vote thereon. Accordingly, Atlantic
Realty's Board recommends that you vote FOR approval of the merger at the
special meeting and FOR the authorization of the proxies to vote on such other
matters as may properly come before the special meeting or any adjournment or
postponement thereof, including any procedural matters incident to the conduct
of the special meeting, such as adjournment of the special meeting.
In reaching its decision to approve the merger and to recommend that
Atlantic Realty's shareholders vote to approve the merger, Atlantic Realty's
Special Committee and Board of Trustees considered a number of factors,
including the following material factors:
25
o the proposed merger effectuates Atlantic Realty's principal business
objective; as set forth in Atlantic Realty's Declaration of Trust, to
maximize shareholder value and to merge or combine operations with
another real estate entity;
o the Special Committee's and Board's familiarity with, and
presentations by Atlantic Realty's management and financial advisors,
and the estimate of market value prepared by Rockwood that estimated
the value of Atlantic Realty's sole asset, the Hylan Plaza Shopping
Center, as of June 1, 2004 on an "as-is" basis from $57,500,000 to
$62,200,000 (after making a negative adjustment of $2,100,000 for
deferred maintenance) and the updated estimate of value, as of January
10, 2005 from $77,700,000 to $84,000,000;
o the fact that in the Atlantic Realty auction bidders were invited to
bid on either the Hylan Plaza Shopping Center;
o the number of prospective acquirors contacted by Atlantic Realty or
Rockwood since July 2004, and the failure of those persons so
contacted (in some instances, after prolonged negotiations) to propose
an acquisition of Atlantic Realty or the Hylan Plaza Shopping Center
for consideration which is more favorable to the shareholders from a
financial point of view, than the consideration offered by Kimco;
o the fact that Kimco agreed to assume all of Atlantic Realty's
liabilities in the merger, including certain liabilities relating to
Atlantic Realty's tax agreement with respect to Ramco-Gershenson
Properties Trust;
o the fact that the merger agreement allows Atlantic Realty from and
after December 1, 2005, through the date of the special meeting, to
respond to unsolicited proposals under certain circumstances and to
terminate the merger agreement to accept a superior proposal with the
payment of a $2,475,000 termination fee, in addition to reimbursement
of Kimco's expenses up to $412,500;
o the fact that Atlantic Realty shareholders will receive fully
registered common stock of Kimco which, subject to limited exceptions
applicable only to affiliates, can be immediately sold on the New York
Stock Exchange and the fact that Kimco's shares maintain significant
liquidity in the market based on its average daily trading volume of
734,721 shares for the three month-period ended November 18, 2005;
o the current and historical market prices of Atlantic Realty common
stock relative to those of other industry participants and general
market indices, and the fact that the estimated $22.50 per share
merger consideration (making the assumptions contained under "The
Merger Agreement-Consideration to be Received in the Merger") plus the
$0.45 dividend paid December 29, 2005 (aggregating $22.95) represents
a 2.6% premium over the closing price of Atlantic Realty common stock
on November 18, 2005 of $22.37, shortly before Atlantic Realty's
public announcement of the merger agreement;
o the presentations of Stanger and its opinion that, as of November 18,
2005, the consideration to be paid to the holders of Atlantic Realty's
common stock in the merger was fair to such holders (other than Kimco
and its affiliates) from a financial point of view;
o the fact that Atlantic Realty's shareholders would not be assuming
market risk with respect to the Kimco shares prior to the closing
since the number of shares Atlantic
26
Realty's shareholders will receive in the merger will be based on the
closing price of the Kimco shares on the day immediately preceding
the closing date; and
o the fact that the merger consideration consists of Kimco common stock,
and therefore, the merger will not generally be a taxable transaction
for Atlantic Realty's shareholders.
Atlantic Realty's Special Committee and its Board of Trustees also
considered the following factors relating to the specific terms of the merger
agreement:
o the merger agreement is subject to a limited number of conditions and
Atlantic Realty's Board believes, after review with its legal
advisors, that the conditions to the merger will be satisfied;
o Kimco's obligation to consummate the merger is not subject to a
financing condition;
o the fact that the merger must be approved by a vote of the holders of
80% of Atlantic Realty common stock not owned by Kimco and by holders
of two-thirds of the shares of Atlantic Realty common stock
outstanding on the record date for the special meeting and that,
accordingly, the merger will not be consummated unless the transaction
is supported by a substantial majority of Atlantic Realty's
shareholders not affiliated with Kimco;
o the other terms of the merger agreement, as reviewed by Atlantic
Realty's Board with its legal advisors; and
o The procedural fairness of the transaction based on the fact that
negotiations with Kimco regarding the terms of the merger and the
determination of any compensation payable to any trustees and officers
were reviewed by and approved by the Special Committee (which is
comprised entirely of independent trustees whose interest in the
merger with Kimco are the same as Atlantic Realty's shareholders
(other than Kimco)).
Atlantic Realty's Board of Trustees and the Special Committee also
considered potential drawbacks or risks relating to the merger, including the
following material risks and factors:
o certain of Atlantic Realty's trustees and officers may have conflicts
of interest in connection with the merger, as they may receive
benefits that are different from, and in addition to, those of
Atlantic Realty's other shareholders, as described below under the
caption "Interests of Atlantic Realty's Trustees and Executive
Officers in the Merger;"
o the risks and costs to Atlantic Realty if the merger does not close,
including the diversion of management attention, potential employee
attrition and the effect on Atlantic Realty's business relationships;
and
o the possibility that the $2,475,000 termination fee and up to $412,500
in expenses payable under specified circumstances may discourage a
competing proposal to acquire Atlantic Realty.
The foregoing discussion addresses the material information and factors
considered by Atlantic Realty's Special Committee and its Board of Trustees in
their consideration of the merger. In view of the variety of factors and the
amount of information considered, neither the Special Committee nor Atlantic
Realty's Board of Trustees found it practicable to make specific assessments of,
quantify or otherwise assign relative weights to, the specific factors
considered in reaching their determinations. Each of the
27
Special Committee's and the Atlantic Realty's Board of Trustees' recommendation
was made after consideration of all the factors as a whole. In addition,
individual members of the Special Committee and Atlantic Realty's Board of
Trustees may have given different weights to different factors.
OPINION OF ATLANTIC REALTY'S FINANCIAL ADVISOR
Robert A. Stanger & Co., Inc., which is referred to as Stanger, an
independent investment banking firm with substantial real estate transaction
experience, was engaged by the Special Committee of the Board of Trustees of
Atlantic Realty to render an opinion, which is referred to as the fairness
opinion, as to the fairness from a financial point of view of the Merger
Consideration to be received by Atlantic Realty's shareholders, other than Kimco
and its affiliates. The fairness opinion is addressed to the Special Committee
of the Board of Trustees of Atlantic Realty and to the Board of Trustees of
Atlantic Realty.
THE FULL TEXT OF THE FAIRNESS OPINION, WHICH CONTAINS A DESCRIPTION OF THE
ASSUMPTIONS, QUALIFICATIONS AND LIMITATIONS APPLICABLE TO THE REVIEW AND
ANALYSIS BY STANGER, IS SET FORTH IN ANNEX B TO THIS INFORMATION STATEMENT AND
SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY. THE MATERIAL ASSUMPTIONS AND
QUALIFICATIONS TO THE FAIRNESS OPINION ARE SUMMARIZED BELOW. THIS SUMMARY DOES
NOT PURPORT TO BE A COMPLETE DESCRIPTION OF THE VARIOUS INQUIRIES AND ANALYSES
UNDERTAKEN BY STANGER IN RENDERING THE FAIRNESS OPINION. ARRIVING AT A FAIRNESS
OPINION IS A COMPLEX ANALYTICAL PROCESS NOT NECESSARILY SUSCEPTIBLE TO PARTIAL
ANALYSIS OR AMENABLE TO SUMMARY DESCRIPTION.
Although Atlantic Realty and the Special Committee advised Stanger that
certain assumptions were appropriate in their view, Atlantic Realty and the
Special Committee imposed no conditions or limitations on the scope of the
investigation by Stanger or the methods and procedures to be followed by Stanger
in rendering the fairness opinion. The fees and expenses of Stanger will be
treated as a transaction expense and will be borne by Atlantic Realty. In
addition, Atlantic Realty has agreed to indemnify Stanger against certain
liabilities, which indemnity will be assumed by the Parent upon closing of the
transaction.
LIMITATIONS AND QUALIFICATIONS TO FAIRNESS OPINION
In connection with rendering the fairness opinion, Stanger was not engaged
to and therefore did not: (i) appraise Hylan Plaza; (ii) solicit interest in or
otherwise attempt to market Hylan Plaza or interests in Atlantic Realty; (iii)
select the method of determining the type or amount of Merger Consideration in
the transaction or the method for determining the number of Kimco Shares to be
received by any shareholder of Atlantic Realty; (iv) make any recommendation to
the Special Committee or the Board of Trustees or any shareholder of Atlantic
Realty with respect to whether to accept or reject the Transaction or the
impact, tax or otherwise, on Atlantic Realty or its shareholders of the
acceptance or rejection of the Transaction; (v) express any opinion as to
alternatives to the Transaction; (vi) express any opinion as to the amounts or
allocation of expenses relating to the Transaction, including but not limited to
Atlantic Realty Merger Expense estimates or any terms of the Transaction other
than the Merger Consideration; (vii) express any opinion as to the past or
continuing qualification of Atlantic Realty as a REIT for federal income tax
purposes, the qualification of the Merger as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code or any other tax-related matters;
or (viii) express any opinion as to the price at which Parent Common Stock may
trade following the completion of the Transaction. Stanger's fairness opinion is
based on business, economic, real estate and securities markets, and other
conditions as they existed and could be evaluated on the date of its analysis
and addresses the consideration in the context of information available as of
the date of its analysis. Events occurring after that date may materially affect
the assumptions used in preparing the fairness opinion.
28
In connection with preparing the fairness opinion, Stanger was not engaged
to, and consequently did not prepare any written report or compendium of its
analysis for internal or external use beyond the opinion set forth in Annex B
and a status review provided to the Special Committee and the Board of Trustees.
THE FAIRNESS OPINION WAS DELIVERED TO THE BOARD OF TRUSTEES OF ATLANTIC
REALTY AND THE SPECIAL COMMITTEE ON NOVEMBER 18, 2005. THROUGHOUT THIS DOCUMENT,
THE MERGER CONSIDERATION HAS BEEN OR MAY BE DISCUSSED AFTER GIVING EFFECT TO THE
DIVIDEND PAID BY ATLANTIC REALTY TO ITS SHAREHOLDERS ON DECEMBER 29, 2005 BUT
THE SUMMARY OF THE FAIRNESS OPINION SPEAKS AS OF NOVEMBER 18, 2005 AND
THEREFORE, THE MERGER CONSIDERATION ANALYSIS PRESENTED DOES NOT REFLECT THE
PAYMENT OF THE DIVIDEND AS DESCRIBED IN THE OTHER PORTIONS OF THIS PROXY
STATEMENT/PROSPECTUS.
EXPERIENCE OF STANGER
Since its founding in 1978, Robert A. Stanger & Co., Inc. has provided
information, research, appraisal, investment banking and consulting services to
clients located throughout the United States, including major New York Stock
Exchange member firms and insurance companies and over seventy companies engaged
in the management and operation of partnerships and REIT. The investment banking
activities of Stanger include mergers and acquisitions advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger was selected based on the strength of its proposal to the Atlantic
Realty Special Disposition Committee and because of its experience in the
valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes,
including the valuation of real estate securities and the assets typically held
through such securities, including real estate assets.
STANGER'S ANALYSIS
In connection with rendering its opinion, Stanger conducted the following
analyses and reviews: (1) review of the marketing process and bids received; (2)
reviews of the historical and budgeted operation of the property and local
market conditions; (3) reviews of the valuation parameters for similar
properties among current investors; (4) review of the cash flow projections for
the property prepared by management and Rockwood; (5) analysis of the estimated
value of the property based on the income approach; (6) analysis of the
estimated value of the property based on the sales comparison approach; and (7)
review of the trading prices for the Atlantic Realty shares; and (8) review of
the Merger Consideration. The following paragraphs describe these reviews and
analyses.
REVIEW OF PROPERTY MARKETING AND BIDS
Stanger interviewed key personnel of Rockwood, the firm which marketed the
Hylan Plaza property, concerning the process followed in marketing the property.
Stanger reviewed the confidential memorandum prepared by Rockwood for the
purpose of marketing the property and noted that it included descriptions of the
property and local market and an in-depth analysis of the physical and economic
attributes of Hylan Plaza.
Rockwood advised Stanger that it initiated contact with more than 310
prospective purchasers, delivered confidential memorandums to approximately 100
interested parties, and received first round bids for the property from 12
prospective buyers ranging from approximately $53 million to $77.5
29
million. Rockwood solicited second round bids and received bids from 7
prospective buyers ranging from approximately $76.5 million to $85 million,
prior to any property due diligence being performed by the prospective buyers.
Upon completion of the bidding process, Kimco's bid was $84 million for a
purchase of Hylan Plaza without assuming any Atlantic Realty liabilities and
subsequently revised to $82.5 million and the assumption of all of Atlantic
Realty's historic and future liabilities. Only one bidder (the "Nominally Higher
Bidder") exceeded Kimco's bid and such bidder indicated that if the form of
consideration to be paid in the transaction was not all cash, a downward
adjustment would be warranted. Atlantic Realty noted that an all-cash
transaction would require immediate recognition by the Atlantic Realty's
shareholders of any taxable gain. The Nominally Higher Bidder also did not
include any estimate of deferred maintenance or capital expenditures in its bid
estimate.
Stanger was advised by Atlantic Realty that the Kimco bid was deemed
superior to the other bids based upon the value ascribed to Hylan Plaza, the
initial capital expenditure estimate, the tax-deferred nature of the proposed
transaction and the financial condition and credit quality of Kimco. Stanger
also noted that an unsolicited offer received by Atlantic Realty in May 2004 had
an implicit valuation of the Hylan Plaza property at approximately $55 million,
which offer was, after consideration by the Board of Trustees, rejected by
Atlantic Realty.
Stanger concluded that the confidential memorandum was professionally
prepared, an extensive marketing effort was undertaken by Rockwood, and
substantial interest in a transaction involving Hylan Plaza and Atlantic Realty
was developed by Rockwood.
REVIEW OF PROPERTY OPERATIONS AND LOCAL MARKET CONDITIONS
Representatives of Stanger conducted a site inspection of the property
during September 2005. In the course of this site visit, the physical facilities
of the property were observed, information on the local market and the subject
property was gathered, competing properties were identified, and data on local
market rental rates and occupancies was obtained. Stanger gathered available
data concerning actual sale transactions involving retail properties. Stanger
also discussed with Atlantic Realty and property management personnel conditions
in retail property markets, conditions in the local market of the property, and
the current and expected operations of the property. Stanger also reviewed the
property's current rent roll, historical operating statements for 2003, 2004,
year-to-date 2005, and budgeted 2005 operating statements.
These reviews were utilized by Stanger in connection with its analysis of
the estimated value of the property as described below.
REVIEW OF VALUATION PARAMETERS
Stanger also reviewed real estate valuation parameters derived from
surveys of real estate investors and advisors prepared by Real Estate Research
Corporation (as of the Summer of 2005) and PricewaterhouseCoopers/ Korpacz (Real
Estate Investor Survey(R) Third Quarter 2005, Volume 18, Number 3). Each of the
surveys provides data collected on valuation parameters for retail shopping
center properties on a national basis. Stanger observed that Real Estate
Research Corporation also provides more specific data on valuation parameters in
the New York and the Northeast region. The valuation parameters reviewed by
Stanger included the direct capitalization rate (a rate utilized to capitalize
expected net operating income from a property in order to estimate value), the
terminal capitalization rate, and the discount rate. Stanger observed that the
terminal capitalization rate is the rate utilized to capitalize the net
operating income at the end of a projection period (usually ten years or longer)
to derive the residual value of a property at the end of such period. Stanger
further noted that the discount rate is the rate used to discount the cash flows
and residual value developed in a multi-year cash
30
flow projection to determine the present value of a property. A summary of the
valuation parameters derived from the surveys reviewed by Stanger is as follows:
DIRECT TERMINAL
CAPITALIZATION CAPITALIZATION DISCOUNT
RATE RATE RATE
-----------------------------------------------------------
LOW HIGH AVERAGE LOW HIGH AVERAGE LOW HIGH AVERAGE
--- ---- ------- --- ---- ------- --- ---- -------
Real Estate
Research Corp.
National 6.5% 9.5% 7.4% 7.0% 10.0% 8.1% 7.5% 11.0% 9.0%
First Tier - 6.5% 8.5% 7.8% 7.0% 9.5% 8.4% 8.0% 10.5% 9.6%
North East
Second Tier - 7.5% 9.5% 8.6% 8.0% 10.3% 9.1% 9.0% 11.3% 10.3%
North East
New York N/A N/A 7.6% N/A N/A 8.5% N/A N/A 10.1%
PricewaterhouseCoopers/
Korpacz
National 6.0% 9.0% 7.45% 7.0% 10.0% 8.3% 7.0% 10.5% 8.83%
Such surveys provide a range of direct capitalization rates from 6.0% to
9.5% for retail shopping center assets. The terminal capitalization rate ranges
provided by the surveys are 7.0% to 10.3% for retail shopping center assets.
Discount rates derived from the surveys range from 7.0% to 11.3%. Based upon
such data, Stanger utilized the following range of valuation parameters to
estimate the value of Hylan Plaza in its income approach analysis:
Terminal Capitalization Rate 8.0% to 8.5%
Discount Rate 9.0% to 9.5%
REVIEW OF CASH FLOW PROJECTIONS PROVIDED BY ROCKWOOD
Rockwood's estimate of market value included a multi-year cash flow
projection for Hylan Plaza which is included in Annex C. Stanger reviewed this
projection and, based on its review of property operations and local market
conditions, adjusted such projection as described below. Stanger noted that the
adjusted first-year net operating income from the property was $4,068,000 and
such amount represents Stanger's estimate of expected revenues in excess of
expected expenses from the property. Stanger noted that the implied
capitalization rate of the Kimco bid was 4.93%. Stanger also noted that such
capitalization rate reflected the existence of a long-term, below-market rate
lease at the property.
Stanger then estimated the market value of Hylan Plaza utilizing the sales
comparison approach and the income approach to valuation, as described below.
Stanger considered the income approach and sales comparison approach the primary
valuation methodologies.
31
ANALYSIS OF ESTIMATED PROPERTY VALUE USING INCOME APPROACH
The income approach involves an economic analysis of the subject property
based on its potential to provide future net annual income. This approach is
based on the assumption that the value of a property is dependent upon the
property's ability to produce income. In the income approach, a discounted cash
flow, or DCF, analysis was used to determine the value of the leased fee
interest in Hylan Plaza. A direct capitalization analysis was not utilized as
Hylan Plaza is encumbered by a long-term lease to Kmart which is well below
market. As such, a discounted cash flow analysis which extended beyond the
expiration of the Kmart lease was deemed a better value indicator by Stanger.
The DCF analysis utilizes projections of net operating cash flow from the
Property and estimated residual proceeds from sale of the property at the end of
a multi-year holding period and discounts such cash flows to present value at a
rate deemed appropriate to estimate the present value of the property. The
indicated value by the income approach represents the amount an investor may pay
for the expectation of receiving the net cash flow from the property.
In the course of preparing the Income Approach analysis, Stanger developed
an estimate of effective gross income for Hylan Plaza. At the time of the site
inspections, competing properties were identified and data on local market
rental rates and occupancy was obtained. Such data was compared to the available
quoted rental rates and occupancy report for the Property. The property's recent
historical and budgeted effective gross income was also reviewed. After
assessing the above factors, an effective gross income estimate was prepared
based upon the existing leases, square footage configuration, market rental
rates, occupancy rate and other income estimates (including expense
reimbursements).
Historical data provided to Stanger on expenses was reviewed and property
tax assessments were confirmed with local municipalities. Expenses were
estimated based upon this review and expense data derived from the review of
published surveys of expenses at similar properties. Stanger then estimated the
net operating income for Hylan Plaza by deducting estimated expenses from
estimated effective gross income. Stanger then employed the DCF analysis to
estimate the value of the properties.
DISCOUNTED CASH FLOW ANALYSIS -- In applying the DCF analysis, Stanger
reviewed the pro forma statements of operations for Hylan Plaza prepared by
Rockwood, including revenues and expenses, and a multi-year projection of cash
flows was prepared, at the end of which the property was assumed to be sold.
Such projection was adjusted by Stanger using ARGUS software and considered the
following factors: (i) the terms of the existing leases, including any rent
escalations during the terms of the lease; (ii) the releasing of vacant space;
(iii) estimated market rental rates per square foot for similar properties in
the local market; (iv) tenant improvement allowances and leasing commissions
upon releasing of space at the expiration of existing leases; (v) property
operating expenses and tenant expense reimbursements to the owner; and (vi)
reserves for capital expenditures.
The reversion value of the property which might be realized upon sale at
the end of the holding period was estimated based on the capitalization of the
estimated net operating income of the property in the following year, utilizing
a capitalization rate range of 8.0% to 8.5% deemed appropriate in light of the
age, anticipated functional and economic obsolescence and competitive position
of the property at the time of sale. Net proceeds to owners were determined by
deducting estimated costs of sale equal to 2% of the estimated sale price, as
determined by Stanger after considering survey data prepared by
PricewaterhouseCoopers/Korpacz (Real Estate Investor Survey(R) Third Quarter
2005, Volume 18, Number 3), which indicated a range of selling expenses from 1%
to 4% and averaging 2%. The estimated net cash flows from Hylan Plaza for the
multi-year period (including the reversion value net of selling expenses) were
discounted to present value at a discount rate range of 9.0% to 9.5%, as deemed
appropriate by Stanger, for the property based upon national surveys of target
rates of return for buyers of similar properties, as described above.
32
Based upon the discounted cash flow analysis described above, Stanger
estimated a range of value for Hylan Plaza at $76,060,000 to $82,310,000.
ANALYSIS OF ESTIMATED PROPERTY VALUE USING SALES COMPARISON APPROACH
The sales comparison approach involves a comparative analysis of the
subject property with other similar properties that have sold recently or that
are currently offered for sale in the market. Based upon available data gathered
by Stanger for actual sales transactions for retail properties, an index of
value based on a range of observed sale prices per rentable square foot was
derived considering age, location and other factors. The range of price per
square foot, as estimated by reference to comparable sales transactions, was
multiplied by the rentable square footage of the property to derive an estimate
of the range of value of Hylan Plaza.
Based upon the Sales Comparison Approach described above, Stanger
estimated a range of value for Hylan Plaza of $74,640,000 to $78,240,000.
COMPARISON OF ESTIMATED PROPERTY VALUES TO PROPERTY VALUE ASCRIBED IN
THE MERGER
Stanger compared its range of estimated value based on the income approach
and sales comparison approach to the value ascribed to Hylan Plaza in the
transaction as follows:
VALUE ASCRIBED TO HYLAN PLAZA
Per Merger Agreement $82,500,000
Discounted Cash Flow Analysis
Low 76,060,000
High 82,310,000
Mean 79,185,000
Sales Comparable Analysis
Low 74,640,000
High 78,240,000
Mean 76,440,000
Stanger observed that the value ascribed to Hylan Plaza in the Merger
Agreement exceeds the mean valuation indicated in the income approach analysis
by approximately 4.2% and the mean value indicated in the sales comparison
approach analysis by approximately 7.9%. Stanger also observed that the value
ascribed to Hylan Plaza in the Merger Agreement exceeds the high end of the
range in both the discounted cash flow analyses and sales comparable analyses
prepared by Stanger.
REVIEW OF TRADING PRICE RANGE OF THE ATLANTIC REALTY SHARES
Stanger reviewed the range of trading prices of Atlantic Realty's common
stock and compared recent trading prices to the Merger Value Per Atlantic Realty
Share. The following summarizes data on the trading price range of Atlantic
Realty's common stock:
33
52 Week Data (as of 11/17/05)
High $24.99
Low $16.70
Current (as of 11/17/05) $23.00
20 Trading Days (as of 11/17/05)
High $23.45
Low $21.86
Average $22.52
Stanger noted that the Merger Value Per Atlantic Realty Share, as of the
date of Stanger's opinion (November 18, 2005) and before the $1,603,000 dividend
paid December 29, 2005, of $22.95 exceeded the average trading price of Atlantic
Realty's shares during the twenty trading days preceding November 18, 2005.
REVIEW OF PER SHARE MERGER CONSIDERATION
Stanger noted that the per share Merger Consideration is based upon a
value of $82,500,000 ascribed to the Hylan Plaza property adjusted for the
following: (i) cash and cash equivalents as of the close of business on the day
immediately preceding the closing date; (ii) lease expenses (including leasing
commissions, tenant improvement costs, legal fees and related expenses) with
respect to the Telco store lease and leases entered into after the execution of
the Merger Agreement; (iii) Atlantic Realty Merger Expenses as defined in the
Merger Agreement (which include balance sheet liabilities); and (iv) the REIT
Dividend Amount and 2005 Dividend Amount. Stanger noted that the resulting total
of these amounts will then be divided by the closing price of Kimco common stock
on the New York Stock Exchange on the final full day of trading immediately
preceding the closing to determine the Total Stock Consideration. Stanger
observed that the Total Stock Consideration will be divided by the number of
shares of Atlantic Realty common stock to derive the Per Share Stock
Consideration.
Stanger noted that the Per Share Stock Consideration will be calculated on
the closing date based upon balances as of the day immediately preceding the
closing date. Stanger further noted that the Per Share Merger Consideration will
be paid in common stock of Kimco based upon the closing price for Kimco shares
on the New York Stock Exchange for the day immediately preceding the closing
date. Stanger noted that the closing price for Kimco common stock on the New
York Stock Exchange on November 17, 2005 and for the twenty trading days ended
November 17, 2005 is summarized as follows:
CLOSING PRICE FOR
KIMCO COMMON STOCK
As of November 17, 2005 $30.95
20-Day Average as of November 17, 2005 $29.63
ASSUMPTIONS
In rendering its opinion, Stanger has relied upon and assumed, without
independent verification, the accuracy and completeness in all material respects
of all financial, tax and other information furnished or otherwise communicated
to Stanger by Atlantic Realty, its management and representatives, and Rockwood.
Stanger has not performed an independent appraisal of the property and has
relied upon representations of Atlantic Realty concerning the Telco lease, the
physical condition and capital
34
expenditure requirements of the property and Atlantic Realty's estimate of
Merger Expenses. Stanger has also relied on the assurance of Atlantic Realty
that any pro forma financial statements, projections, budgets, value estimates,
tax estimates or adjustments provided or communicated to Stanger were reasonably
prepared on bases consistent with actual historical experience and reflect the
best currently available estimates and good faith judgments; that no material
change has occurred in the value of Hylan Plaza or the information reviewed
between the date such information was provided and the date of the fairness
opinion and that Atlantic Realty and its management are not aware of any
information or facts that would cause the information supplied to Stanger to be
incomplete or misleading in any material respect.
CONCLUSIONS
Stanger concluded that, based upon and subject to its analysis and
assumptions and limiting conditions, and as of the date of the fairness opinion,
the Merger Consideration to be received by the shareholders of Atlantic Realty,
other than Kimco and its affiliates, is fair to the shareholders of Atlantic
Realty from a financial point of view.
COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been paid a fee of $150,000 for its services as described
herein and preparing to deliver the fairness opinion. In addition, Stanger will
be reimbursed for all reasonable out-of-pocket expenses, including legal fees,
and will be indemnified against certain liabilities, including certain
liabilities under the securities laws. The fee was negotiated between Atlantic
Realty and Stanger. Payment of the fee to Stanger is not dependent upon
completion of the transaction and was not conditioned upon any specific findings
of Stanger with respect to the fairness opinion. During the past two years,
Stanger was retained by Atlantic Realty to render an opinion in connection with
the evaluation of a previous unsolicited bid for the property. Stanger was paid
a total of $150,000 in connection with such assignment.
ROCKWOOD ESTIMATE OF MARKET VALUE
As part of Atlantic Realty's consideration of the unsolicited offer it
received from First Union and as a prelude to the solicitation of offers for
Atlantic Realty or the Hylan Plaza Shopping Center, Atlantic Realty asked
Rockwood to provide it with an estimate of the market value of the Hylan Plaza
Shopping Center. Rockwood advised the Atlantic Realty Board of Trustees that
investors typically formulate their offers to purchase shopping centers based on
a five to ten-year investment horizon. Accordingly, Rockwood based its estimate
of market value on a ten-year holding period. A copy of Rockwood's estimate of
market value as of June 1, 2004 is attached to this proxy statement/prospectus
as Annex C.
THE FULL TEXT OF THE ESTIMATE OF MARKET VALUE AS OF JUNE 1, 2004, WHICH
CONTAINS A DESCRIPTION OF THE ASSUMPTIONS, QUALIFICATIONS AND LIMITATIONS
APPLICABLE TO THE REVIEW AND ANALYSIS BY ROCKWOOD, IS SET FORTH IN ANNEX C TO
THIS INFORMATION STATEMENT AND SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY. THE
MATERIAL ASSUMPTIONS AND QUALIFICATIONS TO THE VALUATION ARE SUMMARIZED BELOW.
THIS SUMMARY DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF THE VARIOUS
INQUIRIES AND ANALYSES UNDERTAKEN BY ROCKWOOD IN PREPARING THE VALUATION.
ARRIVING AT A VALUATION IS A COMPLEX ANALYTICAL PROCESS NOT NECESSARILY
SUSCEPTIBLE TO PARTIAL ANALYSIS OR AMENABLE TO SUMMARY DESCRIPTION.
Rockwood provided Atlantic's Board of Trustees with two valuation
scenarios with respect to the Hylan Plaza Shopping Center. In one scenario,
Rockwood valued the Hylan Plaza Shopping Center on an "as is" basis. In the
other scenario, Rockwood valued the Hylan Plaza Shopping Center on an "as
35
expanded" basis. In the "as expanded" scenario Rockwood provided an estimate of
market value after giving effect to the potential expansion of property and the
space occupied by two tenants, Modell's and Regal Cinemas, and the buyout of the
K-Mart lease and the re-tenanting of that space at a market rent. Further,
Rockwood assigned a low, middle and high estimate of market value to each
valuation scenario based on a 10-year hold period.
The Rockwood valuation was based upon a discounted cash flow analysis.
Under the analysis, the projected net operating income (net of tenant
improvement costs, leasing commissions and capital reserves) for the ten year
period 2005 through 2014 was discounted at a rate of 10% with respect to the low
valuation, 9.5% with respect to mid valuation and 9.0% with respect to the high
valuation. A terminal value was derived by capitalizing the eleventh year net
operating income at a rate of 6.75% with respect to the "as is" valuation and
8.00% with respect to the "as expanded" valuation.
Rockwood concluded that because the leases of two tenants at the Hylan
Plaza Shopping Center, Toys "R" Us and K-Mart, are significantly below market
and because those leases expire (assuming the exercise of all option terms)
after the valuation period (October 31, 2015 with respect to the Toys "R" Us
lease and January 31, 2017 with respect to the K-Mart lease), a termination
capitalization rate that was 125 basis points lower (6.75% as compared to 8.0%)
was appropriate in capturing the significant revenue increase that should be
realized when the K-Mart and Toys "R" Us leases expire and the space is relet at
market rents.
Rockwood's "as expanded" valuation scenario made the following assumptions
regarding potential revenue enhancing events at the Hylan Plaza Shopping Center
that were under discussion by Atlantic Realty at the time the valuation report
was prepared:
o Modell's would expand its existing 6,000 square foot store by
approximately 5,300 square feet, effective September 30, 2005, which lease would
provide for a $106,000 increase in base rental revenue in the first full lease
year.
o Atlantic Realty would buy out the K-Mart lease effective
September 30, 2004 and after a twelve month re-financing period (during which
period the space occupied by K-Mart would be vacant), Atlantic Realty would
relet the space (approximately 103,920 square feet) at initial base rent of
$18.54 square foot (as compared with a current base rent of $2.26 per square
foot) for a total annual base rent of approximately $1,927,000. Rockwood also
assumed that Atlantic Realty would incur tenant improvement costs of
approximately $2,138,000 and leasing commissions of approximately $1,056,000 as
part of obtaining this new lease. However, Rockwood did not take into account
any cost to Atlantic Realty relating to the buyout of the K-Mart lease.
The expansion of the Modell's and Regal Cinema's spaces required the
approval of K-Mart in accordance with the terms of the K-Mart lease. Atlantic
Realty was unsuccessful in obtaining K-Mart's consent to the expansion of the
Modell's and Regal Cinemas spaces. Further, Atlantic Realty was unsuccessful in
negotiating a buyout of the K-Mart lease.
The chart set forth below illustrates the estimates of market value of the
Hylan Plaza Shopping Center established by Rockwood on an "as is" and "as
expanded" basis as described above. The estimates of market value based on the
discounted cash flow analysis described above were reduced by Rockwood to
reflect approximately $2,100,000 of deferred maintenance which Rockwood
estimated a purchaser would require be deducted from the purchase price. The
valuation set forth in the chart set forth below reflects this $2,100,000
deduction.
36
HYLAN PLAZA SHOPPING CENTER
ESTIMATE OF MARKET VALUE - 10 YEAR HOLD
Low Mid High
As-Is 57,500,000 $59,700,000 62,200,000
As-Expanded 75,100,000 $77,800,000 80,700,000
On January 10, 2005, Rockwood, at the request of one of the members of the
Special Committee prepared an investment pricing matrix that valued the Hylan
Plaza Shopping Center between $77,700,000 and $84,000,000. This estimate which
was not accompanied by a narrative report, discounted projected net operating
income from the property over a thirteen year period (from 2006 through 2018)
instead of the ten year period used in the initial estimate, and then discounted
these amounts at rates ranging from 8.5% to 9.0%. Rockwood was not requested,
nor did it prepare, an estimate of market value after January 10, 2005.
The projections utilized by Rockwood in connection with its estimate of
market value as updated to include the terms of leases in place at the time
Stanger rendered its opinion, were utilized by Stanger as part of its analysis
underlying its opinion that the consideration to be received by Atlantic
Realty's shareholders (other than Kimco and its affiliates) in connection with
the merger, is fair from a financial point of view. Further the Rockwood
valuation was considered by Atlantic Realty's Board of Trustees and Special
Committee as part of their respective determination to approve the merger with
Kimco.
CERTAIN INFORMATION PROVIDED TO ROCKWOOD
Neither the Kimco nor Atlantic Realty as a matter of course publicly
discloses detailed forecasts or internal projections as to future revenues,
earnings or financial condition. However, in the course of Atlantic Realty's
engagement of Rockwood in connection with the marketing and sale of the Hylan
Plaza Shopping Center, as discussed under "Background of the Merger," Atlantic
Realty provided Rockwood with certain business and financial data that Atlantic
Realty believes was not publicly available. This business and financial data was
used by Rockwood in determining a valuation of the Hylan Plaza Shopping Center
and has been included in Annex C -- Estimate of Market Value of the Hylan Plaza
Shopping Center prepared by Rockwood Realty Associates, L.L.C.
While the projections provided to Rockwood and included in Annex C were
prepared in good faith by Atlantic Realty management, no assurance can be made
regarding future events. The estimates and assumptions underlying the
projections involve judgments with respect to, among other things, future
economic, competitive, regulatory and financial market conditions and future
business decisions that may not be realized and are inherently subject to
significant business, economic, competitive and regulatory uncertainties, all of
which are difficult to predict and many of which are beyond the control of
Atlantic Realty and will be beyond the control of Kimco. Accordingly, there can
be no assurance that the projected results would be realized or that actual
results would not differ materially from those presented in the financial data.
Such projections cannot, therefore, be considered a reliable predictor of future
operating results, and this information should not be relied on as such. The
information in Annex C was not prepared with a view toward public disclosure or
with a view toward complying with the guidelines established by the American
Institute of Certified Public Accountants with respect to prospective financial
data, published guidelines of the SEC regarding forward-looking statements, or
U.S. generally accepted accounting principles. In the view of Atlantic Realty
management, the information was prepared on a reasonable basis. However, this
information is not fact and should not be relied upon as being
37
necessarily indicative of future results, and readers of this document are
cautioned not to place undue reliance on this information.
SEE CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION UNDER
"FORWARD-LOOKING STATEMENTS."
The prospective financial data included in this document has been prepared
by, and is the responsibility of Atlantic Realty management. Neither
PricewaterhouseCoopers LLP nor Deloitte & Touche LLP has examined or compiled
the accompanying prospective financial data and, accordingly, neither
PricewaterhouseCoopers LLP nor Deloitte & Touche LLP has examined compiled the
accompanying prospective financial information and, accordingly, both
PricewaterhouseCoopers LLP and Deloitte & Touche LLP express no opinion or any
other form of assurance with respect thereto. The PricewaterhouseCoopers LLP
report and the Deloitte & Touche LLP report included in this document relate to
Kimco's historical financial information and Atlantic Realty's historical
financial data, respectively. They do not extend to the prospective financial
information and data and should not be read to do so.
The projections included in Annex C were prepared more than one year
before the date of this proxy statement/prospectus and are no longer current.
Neither the Kimco nor Atlantic Realty intends to update or otherwise revise the
prospective financial data to reflect circumstances existing since its
preparation or to reflect the occurrence of unanticipated events, even in the
event that any or all of the underlying assumptions are shown to be in error.
Furthermore, neither Kimco nor Atlantic Realty intends to update or revise the
prospective financial data to reflect changes in general economic or industry
conditions.
These projections are not included in this document in order to induce any
member or stockholder to vote in favor of the approval and adoption of the
merger agreement or to acquire securities of Kimco or to elect not to seek
appraisal for his or her Atlantic Realty common stock.
COMPENSATION AND MATERIAL RELATIONSHIPS
Pursuant to the terms of Rockwood's engagement, Atlantic Realty has agreed
to pay Rockwood a fee of 1.00% of the total aggregate consideration paid in
connection with the sale of the Hylan Plaza Shopping Center (or approximately
$825,000), subject to and conditioned upon consummation of the merger. Atlantic
Realty has also agreed to indemnify and hold harmless Rockwood, each person or
entity deemed to be controlled by Rockwood and its and their respective
shareholders, partners, directors, officers and employees from and against any
claim, damage, liability cost or expense relating to or as a result of a claim
by any other party that it is entitled to a brokerage fee or other commission or
fee in connection with the sale of the Hylan Plaza Shopping Center. In addition,
during the past two years, Rockwood has provided real estate investment banking
services to Kimco and received a total of $408,000 in fees for its services
during that period. Rockwood may seek real estate investment banking business
from Kimco in the future.
INTERESTS OF ATLANTIC REALTY'S TRUSTEES AND EXECUTIVE OFFICERS IN THE MERGER
In considering the recommendation of the Atlantic Realty Board of Trustees
with respect to the merger agreement, Atlantic Realty shareholders should be
aware that some of Atlantic Realty's executive officers and trustees have
interests in the merger and have arrangements that are different from, or in
addition to, those of Atlantic Realty shareholders generally. The Atlantic
Realty Board of Trustees and the Special Committee were aware of these interests
and considered them, among other matters, in
38
reaching its decisions to approve the merger agreement and to recommend that
Atlantic Realty shareholders vote in favor of adopting the merger agreement.
RETENTION PAYMENTS. Atlantic Realty has agreed to make the payments to
each of the executive officers and trustees listed in the table below, if the
listed executive officers and trustees remain continuously employed by Atlantic
Realty through the date of the completion of the merger and sign a release of
claims against Atlantic Realty.
------------------------------
EMPLOYEE AMOUNT
------------------------------
Joel Pashcow $150,000
------------------------------
Edwin Frankel $553,725
------------------------------
OTHER PAYMENTS. Two of Atlantic Realty trustees, neither of whom is a
member of the Special Committee, will receive payments in respect of services in
2005 of $60,000 each and may receive additional payments in an aggregate amount
not to exceed $100,000 for services rendered in 2006. Atlantic Realty has also
agreed on consummation of the merger to forgive a loan to Edwin Frankel in the
amount of $37,500 and Kimco has agreed to cause the company surviving the merger
to honor Atlantic Realty's obligation to Edwin Frankel under the merger
agreement.
INDEMNIFICATION AND INSURANCE. Kimco has agreed to indemnify and hold
harmless all past and present officers and trustees of Atlantic Realty and its
subsidiaries in their capacities as such against all losses, claims, damages,
liabilities, costs, expenses, judgments, fines and amounts paid in settlement to
the fullest extent such persons would be entitled to such indemnification under
applicable law and the by-laws of Atlantic Realty as in effect on the date of
the merger agreement.
The merger agreement also provides that prior to the effective time,
Atlantic Realty will purchase an insurance "tail policy" which provides for
coverage substantially similar to the current policies of the directors' and
officers' liability insurance currently maintained by Atlantic Realty for a six
year period, subject to specified cost limitations.
KIMCO'S REASONS FOR THE MERGER
The factors that the Kimco Board of Directors considered in reaching its
determination to approve the Merger Agreement are that:
(i) Kimco is currently Atlantic Realty's largest shareholder, although it
has no management rights or other ability to exercise control over
Atlantic Realty or its assets and that the Merger, if successful,
will provide Kimco with ownership and control of Atlantic Realty and
its assets;
(ii) the Merger will result in the addition of the Hylan Plaza Shopping
Center to the Kimco portfolio of properties and that Kimco expects
that economies of scale and efficiencies in the operations of the
Hylan Plaza Shopping Center should result from the Merger;
(iii) the Merger is intended to qualify as a tax-free reorganization for
federal income tax purposes;
(iii) Kimco will effectuate the Merger through the issuance of equity
securities; and
(iv) the belief of the Board of Directors of Kimco that the overall terms
of the Merger Agreement are fair to Kimco.
39
The Kimco Board of Directors also considered certain potentially negative
factors that could arise from the proposed Merger. The material potentially
negative factors considered were as follows:
(i) that the merger consideration is fixed, regardless of the value of
the Kimco common stock and accordingly any decrease in the value of
the Kimco common stock will increase the number of shares that Kimco
is required to issue; and
(ii) the risk that the anticipated benefits of the Merger might not be
fully realized.
The foregoing discussion addresses the material information and factors
considered by Kimco's Board of Directors in its consideration of the merger. In
view of the variety of factors and the amount of information considered, Kimco's
Board did not find it practicable to, and did not, make specific assessments of,
quantify or otherwise assign relative weights to, the specific factors
considered in reaching its determination. Kimco's Board's recommendation was
made after consideration of all the factors as a whole. In addition, individual
members of Kimco's Board may have given different weights to different factors.
KIMCO'S BOARD OF DIRECTORS AND MANAGEMENT AFTER THE MERGER
The directors and officers of Kimco are not expected to change in
connection with the merger. The directors and officers of Kimco immediately
prior to the merger will continue to be the directors and officers of Kimco
after completion of the merger.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of the material anticipated United States
federal income tax consequences generally applicable to a U.S. holder of
Atlantic Realty common stock with respect to the exchange of Atlantic Realty
common stock for Kimco common stock pursuant to the merger. This discussion
assumes that U.S. holders of Atlantic Realty common stock hold their Atlantic
Realty common stock as capital assets within the meaning of Section 1221 of the
Code. This summary is based on the Code, administrative pronouncements, judicial
decisions and Treasury Regulations, each as in effect as of the date of this
proxy statement/prospectus. All of the foregoing are subject to change at any
time, possibly with retroactive effect, and all are subject to differing
interpretation. No advance ruling has been sought or obtained from the IRS,
regarding the United States federal income tax consequences of the merger. As a
result, no assurance can be given that the IRS would not assert, or that a court
would not sustain, a position contrary to any of the tax consequences set forth
below.
This summary does not address any tax consequences arising under United
States federal tax laws other than United States federal income tax laws, nor
does it address the laws of any state, local, foreign or other taxing
jurisdiction. In addition, this summary does not address all aspects of United
States federal income taxation that may apply to holders of Atlantic Realty
common stock in light of their particular circumstances or holders that are
subject to special rules under the Code, including, without limitation, holders
of Atlantic Realty common stock that are not U.S. holders, partnerships or other
pass-through entities (and persons holding their Atlantic Realty common stock
through a partnership or other pass-through entity), persons who acquired shares
of Atlantic Realty common stock as a result of the exercise of employee stock
options or otherwise as compensation or through a tax-qualified retirement plan,
persons subject to the alternative minimum tax, tax-exempt organizations,
financial institutions, broker-dealers, insurance companies, persons having a
"functional currency" other than the U.S. dollar, persons holding their Atlantic
Realty common stock as part of a straddle, hedging, constructive sale or
conversion transaction and persons who have ceased to be U.S. citizens or
resident aliens.
40
For purposes of this summary, a "U.S. Holder" is a beneficial owner of
Atlantic Realty common stock that is for United States federal income tax
purposes:
o a United States citizen or resident alien;
o a corporation, or other entity taxable as a corporation for United
States federal income tax purposes, created or organized under the
laws of the United States or any state therein or the District of
Columbia;
o an estate, the income of which is subject to United States federal
income taxation regardless of its source; and
o a trust if (1) it is subject to the primary supervision of a court
within the United States and one or more United States persons have
the authority to control all of substantial decisions of the trust, or
(2) it was in existence on August 20, 1996 and has a valid election in
effect under applicable Treasury Regulations to be treated as a United
States person.
If a partnership (including any other entity treated as a partnership for
United States federal income tax purposes) holds Atlantic Realty common stock,
the tax treatment of a partner will generally depend on the status of the
partner and the activities of the partnership. Such a partner should consult its
tax advisor.
THIS DISCUSSION IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSTRUED AS, TAX
ADVICE TO ANY HOLDER OF ATLANTIC REALTY COMMON STOCK. HOLDERS ARE URGED TO
CONSULT AND RELY ON THEIR OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE
MERGER TO THEM, INCLUDING THE EFFECTS OF UNITED STATES FEDERAL, STATE AND LOCAL,
FOREIGN AND OTHER TAX LAWS AND OF CHANGES IN THOSE LAWS.
The merger is intended to qualify as a reorganization under Section 368(a)
of the Code. Proskauer Rose LLP, as counsel to Atlantic Realty, and Wachtell,
Lipton, Rosen & Katz, as counsel to Kimco and Merger Sub, will each provide an
opinion that the merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code. These opinions
will be based on representation letters provided by Atlantic Realty and Kimco
and on customary factual assumptions. If any of the factual representations or
assumptions upon which the opinions are based are inconsistent with the actual
facts, the tax consequences of the merger could be adversely affected, the
opinions and this summary may not accurately describe the United States federal
income tax treatment of the merger, and the tax consequences of the merger to
holders of Atlantic Realty common stock may be materially different from those
described in this summary. The determination by tax counsel as to whether the
proposed merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code will depend upon
the facts and law existing at the effective time of the proposed merger. The
statements in this proxy statement/prospectus, and the opinion of counsel, are
not binding on the IRS or a court and do not preclude the IRS from asserting, or
a court from sustaining, a contrary result.
Assuming the merger qualifies as a reorganization within the meaning of
Section 368(a) of the Code, Atlantic Realty and Kimco will not recognize any
gain or loss for United States federal income tax purposes as a result of the
merger. Assuming the merger qualifies as a reorganization within the meaning of
Section 368(a) of the Code, the United States federal income tax consequences of
the merger to U.S. holders of Atlantic Realty common stock are, in general, as
follows:
EXCHANGE OF ATLANTIC REALTY COMMON STOCK FOR KIMCO COMMON STOCK (PLUS
ANY CASH IN LIEU OF A FRACTIONAL SHARE)
41
An Atlantic Realty shareholder that receives Kimco common stock in
exchange for its shares of Atlantic Realty common stock in the merger will not
recognize gain or loss on the exchange, except to the extent that the
shareholder receives cash in lieu of a fractional share interest in Kimco
common stock. An Atlantic Realty shareholder that receives cash in lieu of a
fractional share should be treated as if such shareholder had received a
fractional share of Kimco common stock and then exchanged such fractional
share for cash in a redemption by Kimco. Assuming that the deemed redemption of
a fractional share of Kimco common stock is treated as a sale or exchange, and
not as a dividend, an Atlantic Realty shareholder will generally recognize
capital gain or loss on such deemed redemption of the fractional share in an
amount equal to the difference between the amount of cash received in lieu of
the fractional share and the shareholder's tax basis in the fractional share of
Kimco common stock. Such capital gain or loss will be long term capital gain or
loss if the Atlantic Realty common stock exchanged was held for more than one
year.
The aggregate tax basis of the shares of Kimco common stock received in
the merger (including any fractional shares deemed received and redeemed for
cash as described above) will be equal to the aggregate tax basis in the shares
of Atlantic Realty common stock surrendered in exchange for the Kimco common
stock, and an exchanging Kimco stockholder's holding period in the Kimco common
stock received in the merger (including any fractional shares deemed received
and redeemed for cash as described above) will include the holding period of the
shares of Atlantic Realty common stock surrendered in exchange for shares of
Kimco common stock. If an Atlantic Realty shareholder acquired any of its shares
of Atlantic Realty common stock at different prices, recently finalized Treasury
Regulations provide guidance on how taxpayers may allocate their basis in these
circumstances. Atlantic Realty shareholders that hold multiple blocks of
Atlantic Realty common stock should consult their tax advisors regarding the
proper allocation of their basis among shares of Kimco common stock received,
and the potential impact of the final Treasury Regulations on their tax
consequences from the merger.
DISCLOSURE OF REPORTABLE TRANSACTIONS
A taxpayer that participates in a "reportable transaction" is required to
attach a disclosure statement to their federal income tax return disclosing such
taxpayer's participation in the transaction. Subject to various exceptions, a
reportable transaction can include a transaction that results in a loss
exceeding certain thresholds. Under recently enacted legislation, failure to
comply with these and other reporting requirements could result in the
imposition of significant penalties. Atlantic Realty shareholders are urged to
consult their tax advisors regarding the applicability of any disclosure
requirements to them.
INFORMATION REPORTING AND BACKUP WITHHOLDING
A non-corporate U.S. Holder of Atlantic Realty common stock may be subject
to information reporting and backup withholding on any cash payments it receives
instead of fractional share interests in Kimco common stock. Backup withholding
will not apply, however, if such holder:
o furnishes a correct taxpayer identification number and certifies that
it is not subject to backup withholding (generally on a substitute
Form W-9); or
o otherwise establishes an exemption from backup withholding.
Any amounts withheld under the backup withholding rules may be allowed as
a refund or credit against the Atlantic Realty shareholder's United States
federal income tax liability, provided such shareholder timely furnishes the
required information to the IRS. Atlantic Realty shareholders should consult
their tax advisors as to their qualifications for exemption from backup
withholding and the procedure for establishing an exemption.
42
REPORTING REQUIREMENTS
An Atlantic Realty shareholder that receives Kimco common stock as a
result of the merger will be required to retain records pertaining to the merger
and will be required to file with its United States federal income tax return
for the year in which the merger takes place a statement setting forth certain
facts relating to the merger.
ACCOUNTING TREATMENT OF THE MERGER
The merger will be accounted for using the purchase method of accounting,
with Kimco treated as the acquiror. Under this method of accounting, Atlantic
Realty's assets and liabilities will be recorded by Kimco at their respective
fair values as of the closing date of the merger and added to those of Kimco.
Financial statements of Kimco issued after the merger will reflect these values,
but will not be restated retroactively to reflect the historical financial
position or results of operations of Atlantic Realty prior to the merger. The
results of operations of Atlantic Realty will be included in the results of
operations of Kimco beginning on the effective date of the merger.
REGULATORY APPROVALS REQUIRED FOR THE MERGER
Kimco and Atlantic Realty are not aware of any significant governmental
approvals that are required for consummation of the merger. If any approval or
action is required, it is presently contemplated that Kimco and Atlantic Realty
would seek to obtain such approval. There can be no assurance that any other
approvals, if required, will be obtained.
CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES; DIVIDENDS; WITHHOLDING
CONVERSION AND EXCHANGE OF SHARES. The conversion of shares of Atlantic
Realty common stock into the right to receive the merger consideration will
occur automatically at the effective time of the merger. The exchange agent
will, promptly after the effective time of the merger, exchange Atlantic Realty
shares for the merger consideration to be received in the merger pursuant to the
terms of the merger agreement.
LETTER OF TRANSMITTAL. As soon as reasonably practicable after the
effective time of the merger, the exchange agent will send a letter of
transmittal to those persons who were record holders of shares of Atlantic
Realty common stock at the effective time of the merger. This mailing will
contain instructions on how to surrender Atlantic Realty shares in exchange for
the merger consideration the holder is entitled to receive under the merger
agreement. When you deliver to the exchange agent your properly completed letter
of transmittal and any other required documents (including your Atlantic Realty
stock certificate(s) if you hold your shares in certificated form), your shares
will be cancelled.
IF YOU HOLD YOUR SHARES IN CERTIFICATED FORM, DO NOT SUBMIT YOUR ATLANTIC
REALTY STOCK CERTIFICATES FOR EXCHANGE UNTIL YOU RECEIVE THE TRANSMITTAL
INSTRUCTIONS AND LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.
If a certificate for Atlantic Realty common stock has been lost, stolen or
destroyed, the exchange agent will issue the applicable merger consideration
properly payable under the merger agreement upon compliance by the applicable
shareholder with the replacement requirements established by Kimco.
FRACTIONAL SHARES. You will not receive fractional shares of Kimco common
stock in connection with the merger. Instead, each holder of Atlantic Realty
shares exchanged in the merger who would otherwise have received a fraction of a
share of Kimco common stock will receive cash in an amount
43
determined by multiplying the fractional interest to which such holder would
otherwise be entitled (after taking into account all shares of Atlantic Realty
common stock owned by such holder at the effective time of the merger) by the
average of the closing price of one share of Kimco common stock on the last
trading day immediately preceding the closing date of the merger on the New York
Stock Exchange as reported by THE WALL STREET JOURNAL.
DIVIDENDS AND DISTRIBUTIONS. Until shares of Atlantic Realty common stock
are surrendered for exchange, any dividends or other distributions declared
after the effective time of the merger with respect to shares of Kimco common
stock into which Atlantic Realty shares may have been converted will accrue but
will not be paid. Kimco will pay to former Atlantic Realty shareholders any
unpaid dividends or other distributions, without interest, only after they have
duly surrendered their shares. After the effective time of the merger, there
will be no transfers on the stock transfer books of Atlantic Realty of any
Atlantic Realty shares. If shares of Atlantic Realty common stock are presented
for transfer after the completion of the merger, they will be cancelled and
exchanged for the applicable merger consideration into which such shares have
been converted pursuant to the merger agreement.
WITHHOLDING. Kimco or the exchange agent will be entitled to deduct and
withhold from the merger consideration otherwise payable to any Atlantic Realty
shareholder the amounts it is required to deduct and withhold under the Code or
any provision of any federal, state, local or foreign tax law. To the extent
that Kimco or the exchange agent withholds any amounts and pays over such
amounts to the appropriate taxing authority, these amounts will be treated for
all purposes of the merger as having been paid to the shareholders in respect of
whom such deduction and withholding were made.
APPRAISAL RIGHTS
If the merger is completed, Atlantic Realty shareholders who do not vote
for the approval of the merger and who otherwise comply with the provisions of
Sections 3-201 et seq. of the Maryland General Corporation Law summarized below
will be entitled to petition the Circuit Court for Baltimore City, Maryland for
an appraisal of the "fair value" of their shares of Atlantic Realty common
stock.
To perfect their appraisal rights Atlantic Realty shareholders must
strictly comply with the procedures in Sections 3-201 et seq. Failure to
strictly comply with these procedures will result in the loss of appraisal
rights.
Under the Maryland General Corporation Law, each holder of shares of
Atlantic Realty common stock will be entitled to demand and receive payment of
the fair value of the holder's shares in cash, if the holder:
o before or at the special meeting, files with Atlantic Realty a written
objection to the merger,
o does not vote in favor of the merger, and
o within 20 days after articles of merger have been accepted for record
by the State Department of Assessments and Taxation of the State of
Maryland, makes written demand on Kimco for payment of his or her
shares, stating the number of shares for which payment is demanded.
Any written objection should be sent to Atlantic Realty. Any shareholder
who fails to comply with all of the requirements described above will be bound
by the terms of the merger. A demand for payment may be withdrawn only with the
consent of Kimco. Fair value will be determined as of the close of business on
the date of the shareholders vote on the merger.
44
Kimco will promptly deliver or mail to each objecting shareholder written
notice of the date of acceptance of the articles of merger for record by the
State Department of Assessments and Taxation of the State of Maryland. Kimco may
also deliver or mail to each objecting shareholder a written offer to pay for
his or her stock at a price deemed by Kimco to be the stock's fair value. Within
50 days after acceptance of the articles of merger for record by the State
Department of Assessments and Taxation of the State of Maryland, either Kimco or
any objecting shareholder who has not received payment for his or her shares may
petition the Circuit Court for Baltimore City, Maryland, for an appraisal to
determine the fair value of the shares. If the court finds that an objecting
shareholder is entitled to appraisal of his or her stock, the court will appoint
three disinterested appraisers to determine the fair value of the shares on
terms and conditions the court determines proper, and appraisers will, within 60
days after appointment (or a longer period as the court may direct) file with
the court and mail to each party to the proceeding their report stating their
conclusion as to the fair value of the shares. Within 15 days after the filing
of the report, any party may object to the report and request a hearing on the
matter. The court will, upon motion of any party, enter an order either
confirming, modifying or rejecting the report and, if confirmed or modified,
enter judgment directing the time within which payment must be made. If the
appraisers' report is rejected, the court may determine the fair value of the
shares of the objecting shareholders or may remit the proceeding to the same or
other appraisers. Any judgment entered pursuant to a court proceeding will
include interest from the date of the shareholders' vote on the action to which
objection was made, unless the court finds that the shareholder's refusal to
accept a written offer to purchase the stock made by Kimco as described above
was arbitrary and vexatious or not in good faith. Costs of the proceeding (not
including attorneys' fees) will be determined by the court and will be assessed
against Kimco or, under certain circumstances, the objecting shareholder, or
both.
At any time after the filing of a petition for appraisal, the court may
require any objecting shareholder to submit his or her certificates representing
shares to the clerk of the court for notation of the pendency of the appraisal
proceedings. To receive payment, whether by agreement with Kimco or pursuant to
a judgment, the shareholder must surrender the stock certificates indorsed in
blank and in proper form for transfer. A shareholder demanding payment for
shares will not have the right to receive any dividends or distribution payable
to holders of record after the close of business on the date of the
shareholders' vote and will cease to have any rights as a shareholder with
respect to the shares except the right to receive payment of the fair value of
the shares. The shareholder's rights may be restored only upon the withdrawal,
with the consent of Kimco, of the demand for payment, the failure of either
party to file a petition for appraisal within the time required, a determination
of the court that the shareholder is not entitled to an appraisal, or the
abandonment or rescission of the merger.
This summary of the rights of dissenting shareholders does not purport to
be a complete statement of the procedures to be followed by shareholders
desiring to exercise their dissenters' rights. The preservation and exercise of
dissenters' rights are conditioned on strict adherence to the applicable
provisions of the Maryland General Corporation Law. Each shareholder desiring to
exercise dissenters' rights should refer to Sections 3-201 et seq., entitled
"Rights of Objecting Stockholders," of the Maryland General Corporation Law, a
copy of which is attached as Annex D to this proxy statement/prospectus, for a
complete statement of the shareholder's rights and the steps which must be
followed in connection with the exercise of those rights.
ALL WRITTEN DEMANDS FOR APPRAISAL MUST BE MAILED OR DELIVERED TO:
ATLANTIC REALTY TRUST
747 THIRD AVENUE
NEW YORK, NEW YORK 10017
ATTENTION: CORPORATE SECRETARY
45
OR SHOULD BE DELIVERED TO THE SECRETARY AT THE ATLANTIC REALTY SPECIAL
MEETING BEFORE THE VOTE ON THE MERGER.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF ATLANTIC REALTY
The shares of Kimco common stock to be issued in connection with the
merger will be registered under the Securities Act of 1933, as amended, and will
be freely transferable under the Securities Act, except for shares of Kimco
common stock issued to any person who is deemed to be an "affiliate" of Atlantic
Realty at the time of the special meeting. Persons who may be deemed to be
affiliates include individuals or entities that control, are controlled by, or
are under the common control of Atlantic Realty and may include Atlantic
Realty's executive officers, trustees and significant shareholders. Affiliates
may not sell their shares of Kimco common stock acquired in connection with the
mergers except pursuant to:
o an effective registration statement under the Securities Act covering
the resale of those shares;
o an exemption under paragraph (d) of Rule 145 under the Securities Act;
or
o any other applicable exemption under the Securities Act.
Atlantic Realty has agreed to use it reasonable best efforts to deliver to
Kimco a letter agreement executed by each of its affiliates not later than 10
days prior to the effective time of the merger, pursuant to which these
affiliates will agree, among other things, not to transfer any shares of Kimco
common stock received in the merger except in compliance with the Securities
Act. This proxy statement/prospectus does not cover resales of Kimco common
stock received in the merger by affiliates of Atlantic Realty.
STOCK EXCHANGE LISTINGS
Kimco has agreed to use its reasonable best efforts to cause the shares of
Kimco common stock to be issued in the merger to be approved for listing on the
New York Stock Exchange. It is a condition to the consummation of the merger
that such shares be approved for listing on the New York Stock Exchange, subject
to official notice of issuance. Following the merger, the shares of Kimco common
stock will continue to trade on the New York Stock Exchange under the symbol
"KIM."
DELISTING AND DEREGISTRATION OF ATLANTIC REALTY STOCK AFTER THE MERGER
When the merger is completed, the Atlantic Realty common stock will be
delisted from The NASDAQ Capital Market and will be deregistered under the
Securities Exchange Act of 1934, as amended.
TRANSACTIONS WITH INTERESTED SHAREHOLDERS
Sections 3-602(a) of the Maryland General Corporation Law prohibits for a
period of five years (we refer to this period as the five year moratorium
period) any second-step "business combination" between a Maryland corporation
and any "interested stockholder." "Interested stockholder" is defined in Section
3-601 as the beneficial owner of at least 10% of the voting power of the
corporation. Kimco is an interested stockholder with respect to Atlantic Realty.
The five year moratorium period is no longer applicable to Kimco.
46
According to Section 3-601 the following transactions between Atlantic
Realty, as a corporation subject to Section 3-601, or any of Atlantic Realty's
subsidiaries and Kimco, as an interested stockholder, or persons related to
Kimco are "business combinations," and, as a result, were prohibited during the
five-year moratorium period:
o Mergers, consolidations, or share exchanges (unless the merger,
consolidation, or share exchange does not alter the contract rights of
the stock as expressly set forth in the charter or change or convert
in whole or in part the outstanding shares of stock of Atlantic
Realty);
o The sale, lease, transfer, or other disposition of certain significant
amounts of Atlantic Realty's assets;
o The issuance or transfer by Atlantic Realty or any subsidiary of
equity securities of Atlantic Realty or any subsidiary which have an
aggregate market value of 5 % or more of the total market value of the
outstanding stock of Atlantic Realty, except pursuant to the exercise
of warrants or rights to purchase securities offered pro rata to all
holders of Atlantic Realty's voting stock or any other method
affording substantially proportionate treatment to the holders of
voting stock;
o The adoption of any plan or proposal for the liquidation or
dissolution of Atlantic Realty in which anything other than cash will
be received by Kimco or any affiliate of Kimco;
o Certain reclassifications of Atlantic Realty's securities (including
any reverse stock split), or recapitalizations of Atlantic Realty with
any of its subsidiaries with the effect of increasing by 5% or more
the shares of Atlantic Realty owned by Kimco or any affiliate of
Kimco; or
o The receipt by Kimco or any affiliate of Kimco of any loan, advance,
guarantee, pledge, or other financial assistance or any tax credit or
other tax advantage from Atlantic Realty or any subsidiary, that is
not shared proportionately by all shareholders.
After the five-year moratorium period, any of the transactions listed
above between Atlantic Realty and Kimco generally require:
o Approval by the affirmative vote of at least (a) 80% of all the votes
entitled to be cast by outstanding shares voting stock, voting
together as a single group, and (b) two-thirds of the votes entitled
to be cast by holders of voting stock other than voting stock held by
an "interested stockholder" or a related party; or
o Satisfaction of the statutory "fair price" (found in Section 3-603(b)
of the Maryland General Corporation Law) requirements that apply to
shares held by persons other than the interested stockholder.
47
THE MERGER AGREEMENT
THIS SECTION OF THE DOCUMENT DESCRIBES THE MATERIAL TERMS OF THE MERGER
AGREEMENT. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE COMPLETE TEXT OF THE MERGER AGREEMENT, WHICH IS INCORPORATED BY REFERENCE
AND ATTACHED AS ANNEX A TO THIS PROXY STATEMENT/PROSPECTUS. YOU ARE URGED TO
READ THE FULL TEXT OF THE MERGER AGREEMENT.
The merger agreement has been included to provide you with information
regarding its terms. The merger agreement contains representations and
warranties made by and to the parties to the agreement as of specific dates. The
statements embodied in those representations and warranties were made for
purposes of that contract between the parties and are subject to qualifications
and limitations agreed to by the parties in connection with negotiating its
terms. In addition, certain representations and warranties were made as of a
specified date, may be subject to contractual standards of materiality different
from those generally applicable to shareholders, or may have been used for the
purpose of allocating risk between the parties rather than establishing matters
as facts.
STRUCTURE
Subject to the terms and conditions of the merger agreement, and in
accordance with Maryland law, at the completion of the merger, Atlantic Realty
will merge with and into SI 1339, a wholly-owned subsidiary of Kimco ("Merger
Sub"). Merger Sub will continue as the surviving corporation in the merger and
will continue its corporate existence under the laws of the State of Maryland.
Each share of Atlantic Realty common stock issued and outstanding at the
effective time of the merger (other than shares for which appraisal rights have
been perfected) will be converted into the right to receive Kimco common stock,
as described below. See "--Consideration To Be Received in the Merger."
The articles of incorporation of Merger Sub will be the articles of
incorporation of the combined company, and the bylaws of Merger Sub will be the
bylaws of the combined company.
EFFECTIVE TIME AND TIMING OF CLOSING
The merger will be completed and become effective when the articles of
merger are filed with the State Department of Assessments and Taxation of the
State of Maryland. The closing of the merger will take place as promptly as
practicable (and in any event within three business days) after the conditions
to the merger have been satisfied or waived, or on such other date as Kimco and
Atlantic Realty may agree.
Kimco and Atlantic Realty anticipate that the merger will be completed
during the first or second quarter of 2006. However, completion of the merger
could be delayed if there is a delay in satisfying any of the conditions to the
merger. There can be no assurances as to whether, or when, Kimco and Atlantic
Realty will complete the merger.
CONSIDERATION TO BE RECEIVED IN THE MERGER
Upon completion of the merger, each outstanding share of Atlantic Realty
common stock (other than shares for which appraisal rights have been perfected)
will be converted into the right to receive merger consideration with an
aggregate value equal to $82,500,000 plus the amount of Atlantic Realty's cash
on hand at closing plus certain approved lease expenses less expenses associated
with the merger and unpaid dividends. On the last business day prior to closing
Atlantic Realty will declare a dividend in an amount necessary for Atlantic
Realty to qualify as a REIT. The merger consideration will be paid in
48
shares of Kimco common stock valued as of the day before the closing. Because
the value of the consideration is dependent on amounts that will not be known
until immediately prior to closing, the exact number of shares of Kimco common
stock into which each Atlantic Realty share will be converted will not be known
until that time.
No fractional shares of Kimco common stock will be issued in the merger.
Instead of fractional shares, Atlantic Realty shareholders will receive cash in
an amount determined by multiplying the fractional interest to which such holder
would otherwise be entitled by the closing prices of one share of Kimco common
stock on the last trading day before the merger.
The following table illustrates the number of Kimco shares to be received
for each share of Atlantic Realty common stock, based upon a hypothetical range
of per share closing prices for Kimco common stock on the final full trading day
before closing. The table assumes that Atlantic Realty had an approved lease
expense of $8,064,000 and merger expenses and other liabilities (including
certain agreed upon liabilities) for which it was responsible of $10,434,000, or
that or total merger consideration would be approximately $80,130,000 (which
gives effect to the $1,603,000 dividend paid by Atlantic Realty to its
shareholders on December 29, 2005). These numbers do not reflect the impact of
future dividends, property cash flow or additional liabilities that may be
incurred between now and the closing of the merger, none of which can be
predicted with any certainty.
IMPLIED PER SHARE MERGER CONSIDERATION
-------------------------------------------------------------
NUMBER OF SHARES OF
KIMCO STOCK TO BE VALUE OF PER SHARE
KIMCO STOCK PRICE RECEIVED STOCK CONSIDERATION
-------------------------------------------------------------
$28.00 0.8035 $22.50
-------------------------------------------------------------
28.50 0.7894 22.50
-------------------------------------------------------------
29.00 0.7758 22.50
-------------------------------------------------------------
29.50 0.7627 22.50
-------------------------------------------------------------
30.00 0.7500 22.50
-------------------------------------------------------------
30.50 0.7377 22.50
-------------------------------------------------------------
31.00 0.7258 22.50
-------------------------------------------------------------
31.50 0.7142 22.50
-------------------------------------------------------------
32.00 0.7031 22.50
-------------------------------------------------------------
32.50 0.6923 22.50
-------------------------------------------------------------
33.00 0.6818 22.50
-------------------------------------------------------------
33.50 0.6716 22.50
-------------------------------------------------------------
34.00 0.6617 22.50
-------------------------------------------------------------
34.50 0.6521 22.50
-------------------------------------------------------------
35.00 0.6428 22.50
-------------------------------------------------------------
For the purpose of calculating the merger consideration, lease expenses
include $100,735 of lease expenses incurred by Atlantic Realty prior to the
signing will be included, as well as any expenses incurred with respect to
leases entered into by Atlantic Realty after the signing of the merger agreement
which have been approved by Kimco. Merger expenses deducted from the merger
consideration include all brokerage fees, legal and accounting fees, advisory,
consulting and severance fees, printing and SEC filing expenses, transfer taxes,
any other liabilities that Atlantic Realty would have to include on its
consolidated balance sheet, and other unpaid fees and expenses. In respect of
any liabilities Atlantic Realty may have under its tax agreement with
Ramco-Gershenson Properties Trust, Atlantic Realty and Kimco have agreed to fix
the amount of the liability at an amount equal to $4,700,000 less amounts paid
by Atlantic Realty to Ramco-Gershenson Properties Trust between the date of the
merger agreement and
49
the closing (of which amount $_________ has been paid as of the date of this
proxy statement/prospectus). However in the event that, prior to the
consummation of the merger, Atlantic Realty is legally obligated to pay (or does
pay) Ramco-Gershenson Properties Trust an amount in excess of $4,700,000
pursuant to the tax agreement such amount would reduce the merger consideration
by that same amount. Although Ramco-Gershenson Properties Trust has made
additional claims under the tax agreement that when added to amounts previously
paid by Atlantic Realty since the date of the merger agreement, would exceed the
$4,700,000 threshold, Atlantic Realty does not believe that it has any legal
obligation to make additional payments to Ramco-Gershenson Properties Trust
under such agreement which could result in a further reduction of the merger
consideration.
STOCK OPTIONS AND OTHER STOCK-BASED AWARDS
There are no outstanding options to purchase shares of Atlantic Realty
common stock.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains generally customary representations and
warranties of Kimco and Atlantic Realty relating to their respective businesses.
For purposes of determining the satisfaction of the closing conditions relating
to each party's representations and warranties as described under "--Conditions
to Complete the Merger" below, subject to limited exceptions relating to
representations about Atlantic Realty's title to the Hylan Plaza Property, each
representation and warranty will be deemed to be true and correct in all
respects unless the failure or failures of such representations and warranties
to be true and correct, individually or in the aggregate, results or would
reasonably be expected to result in a "material adverse effect" with respect to
the party making the representations and warranties. For purposes of the merger
agreement, assets, liabilities, properties "material adverse effect" means with
respect to Atlantic Realty, (i) a material adverse effect on the business,
assets, liabilities, properties, results of operations or financial condition of
Atlantic Realty and its subsidiary taken as a whole, or (ii) a material adverse
effect on Atlantic Realty's ability to consummate the merger and the other
transactions contemplated by the merger agreement. However, in determining
whether a material adverse effect has occurred, there will be excluded any
effect on Atlantic Reality arising out of or in connection with the execution or
announcement of the merger agreement or the transactions contemplated by the
merger agreement. With respect to Kimco and Merger Sub, "material adverse
effect" means a material adverse effect on such party's ability to consummate
the merger and the other transactions contemplated by the merger agreement.
Each of Kimco, Merger Sub and Atlantic Realty has made representations and
warranties to the other regarding, among other things:
o corporate matters, including due organization and qualification;
o capitalization;
o authority relative to execution and delivery of the merger agreement;
o absence of conflicts with, or violations of, organizational documents
or other obligations as a result of the merger and governmental
filings, and consents necessary to complete the merger;
o the timely filing and accuracy of SEC reports and financial
statements;
o the absence of undisclosed liabilities;
50
o legal proceedings;
o compliance with applicable law;
o tax matters;
o the accuracy of information supplied for inclusion in this proxy
statement/prospectus and other similar documents; and
o broker's fees payable in connection with the merger.
In addition, Atlantic Realty has made other representations and warranties
about itself to Kimco and Merger Sub as to:
o certain employee matters and benefit plans;
o real property;
o environmental matters;
o the inapplicability of state takeover laws;
o matters relating to certain contracts;
o insurance matters;
o the receipt of fairness opinions from Stanger; and
o the issuance of a favorable recommendation by the board.
In addition, Kimco and Merger Sub have made other representations and
warranties about itself to Atlantic Realty as to:
o authorization to issue common stock.
CONDUCT OF BUSINESS PENDING THE MERGER
CONDUCT OF BUSINESS OF ATLANTIC REALTY PENDING THE MERGER
Atlantic Realty has agreed in the merger agreement that, prior to the
completion of the merger, except as expressly contemplated or permitted by the
merger agreement or otherwise agreed to in writing by Merger Sub, and with
certain other exceptions, it will, and will cause its subsidiary to, (i) conduct
their respective businesses in a professional manner and to carry on their
respective businesses in the usual, regular and ordinary course in accordance in
all material respects with past practice and all applicable laws, and (ii) use
reasonable best efforts to preserve Atlantic Realty's status as a REIT within
the meaning of the code, to preserve intact their present business organizations
and properties, and keep available the services of their employees and preserve
their business relationships.
Atlantic Realty further has agreed that, except as expressly contemplated
or permitted by the merger agreement or otherwise agreed to in writing by Merger
Sub, and with certain other exceptions,
51
Atlantic Realty will not, and will not permit its subsidiary to, among other
things, undertake the following actions:
o make, declare or pay dividends or other distributions on any shares of
its capital stock, other than dividends to Atlantic Realty by its
subsidiaries, dividends, after consultation with Kimco, that Atlantic
Realty deems reasonably necessary to qualify as a REIT in 2006, and,
if closing occurs after December 23, 2005, the dividend that Atlantic
Realty deems necessary to qualify as a REIT for 2005;
o split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock,
o purchase, redeem or otherwise acquire, any shares of its capital
stock;
o create any subsidiaries;
o issue shares of its capital stock, any other voting securities, or any
securities convertible into, or any rights, warrants or options to
acquire, any such shares or voting securities;
o amend its declaration of trust or by-laws;
o acquire or agree to acquire any business organization or division
thereof, or any assets, other than in the ordinary course of business,
consistent with past practice and in accordance with the budget
provided to Kimco;
o sell, contribute, assign or create any right, title or interest
whatsoever in or to the Hylan Plaza Shopping Center; cause any lien,
assessment, obligation, interest, encroachment or liability to be
placed or remain of record against the Hylan Plaza Shopping Center; or
knowingly impair or modify in any material respect the status of title
of the Hylan Plaza Shopping Center;
o enter into any new (or extend, renew or replace any existing) lease,
agreement, service contract, employment contract, permit or obligation
affecting Hylan Plaza Shopping Center, unless such contract is entered
into in the ordinary course of business, is terminable without penalty
on not more than 30 days' notice and is disclosed promptly in writing
to Merger Sub; however, Atlantic Realty can enter new leases which
have been approved by Kimco and Merger Sub;
o change, alter, file for, pursue, accept or obtain any zoning, land use
permit or other development approval or entitlement; or consent to the
inclusion of any portion of the Hylan Plaza Shopping Center into any
special district;
o terminate any space lease or service contract;
o make or rescind any material election relating to taxes, unless
Atlantic Realty reasonably determines that such action is required by
law or necessary to preserve its status as a REIT;
o change in any material respect (except as required by law) its tax or
financial accounting methods; or settle any action, audit or
controversy relating to taxes, or change any of its methods of
reporting income or deductions for federal income tax purposes, except
as may be required by the SEC, changes in applicable law or GAAP;
52
o incur or guarantee any indebtedness, issue or sell any debt
securities, guarantee any debt securities of another person, or enter
into any "keep well" or other agreement to maintain any financial
condition of another person; or make any loans, advances or capital
contributions to, or investments in, any other person, other than to
Atlantic Realty and any direct or indirect subsidiary;
o enter into or modify in any material respect any employment,
severance, termination or similar agreements with, grant any bonuses,
salary increases, severance or termination pay to, or otherwise
increase the compensation or benefits provided to any officer,
director, consultant or employee;
o accelerate the vesting or payment of the compensation payable or the
benefits provided to any of Atlantic Realty's, or any of its
subsidiaries', current or former trustees, officers, employees or
consultants, or otherwise pay any amounts not due such individual
under an existing benefit plan;
o settle any legal actions
o modify, amend or terminate, or waive, release or assign any material
rights or claims with respect to any service contract, space lease or
other contract;
o make any payments in respect of policies of directors' and officers'
liability insurance other than premiums paid in respect of its current
policies or a renewal therefor;
o take any action to exempt or make not subject to any state takeover
statutes;
o on the closing date, make any payment, issue any checks or initiate
any transfers;
o accelerate the receipt of amounts due with respect to trade accounts
receivable or any other accounts receivable, or lengthen the period
for payment of accounts payable;
o take any action that could likely result in a violation or breach of
any agreement, covenant, representation or warranty contained in the
merger agreement;
o allow any pending applications for approval or permit in connection
with the Hylan Plaza Shopping Center to be withdrawn or permitted to
lapse without Merger Sub's consent;
o knowingly take any action, or knowingly fail to take any action, that
would jeopardize qualification of the merger as a reorganization
within the meaning of Section 368(a) of the Code; or
o authorize any of, or commit or agree to take any of, the foregoing
actions.
SHAREHOLDERS MEETING AND DUTY TO RECOMMEND
Atlantic Realty has agreed to hold a meeting of its shareholders as
promptly as practicable for the purpose of obtaining Atlantic Realty shareholder
approval of the merger agreement and has agreed to take all lawful action to
solicit such approval.
Atlantic Realty's Board of Trustees has agreed not to withdraw, modify or
qualify its recommendation in any manner adverse to Kimco or Merger Sub, or take
any action or make any statement in connection with the Atlantic Realty
shareholder meeting inconsistent with its
53
recommendation; however, if Atlantic Realty complies with its non-solicitation
obligations described under "--No Solicitation of Alternative Transactions," it
may do so. The merger agreement requires Atlantic Realty to submit the merger
agreement to a shareholder vote even if its Board of Trustees no longer
recommends approval of the merger.
NO SOLICITATION OF ALTERNATIVE TRANSACTIONS
Atlantic Realty has agreed that it, its subsidiary and their officers,
trustees, directors and agents, including investment bankers, financial
advisors, attorneys, accountants or other representatives acting on their behalf
will not, directly or indirectly:
o initiate, solicit, encourage (including by way of furnishing
non-public information) or take any other action to facilitate any
inquiries or proposals that constitute or can reasonably be expected
to lead to a competing proposal or the withdrawal of the board's
recommendation of the transaction;
o enter into, participate or maintain or continue discussions or
negotiate with any person or entity to obtain a competing transaction
or in furtherance of inquiries about one; or
o agree to or endorse any competing transaction.
However, if prior to the date of the shareholders meeting, Atlantic
Realty's Board of Trustees or the Special Committee (and the officers, trustees,
agents and financial advisors of the company acting at the direction of the
company's Board of Trustees or the Special Committee) may furnish information
to, or enter into discussions or negotiations with any person that previously
has made an unsolicited BONA FIDE written competing proposal if and only to the
extent that:
o Atlantic Realty's Board of Trustees after consulting with and having
considered the advice of independent outside legal counsel determines
in good faith that the competing proposal constitutes a superior
proposal and that failure to take such actions would result in a
violation of its duties under the declaration of trust or applicable
law;
o prior to taking any such actions, Atlantic Realty provides Kimco with
reasonable notice (but in no event later than 48 hours) that it is
taking such action and receives from the person making the acquisition
proposal an executed confidentiality agreement in reasonably customary
form;
o Atlantic Realty notifies Kimco and Merger Sub as promptly as
practicable of all of the relevant details relating to all inquiries
and proposals relating to such matters, and, if such inquiry or
proposal is in writing, delivering of a copy of such inquiry or
proposal.
Atlantic Realty has also agreed to:
o provide Kimco with a copy of any competing proposal or amendments or
supplements thereto;
o promptly inform Kimco of the status of any discussions or negotiations
with such a third party, and any material changes to the terms and
conditions of such competing proposal;
o promptly give Kimco a copy of any information delivered to such person
that has not previously been reviewed by Kimco; and cease and
terminate any existing activities, discussions or negotiations with
any parties with respect to any possible competing proposal, and cause
its subsidiaries and affiliates to do the same.
54
Atlantic Realty's Board of Trustees has agreed not to approve or recommend
or permit the Company to enter into any agreement with respect to a competing
proposal, or withdraw, modify or qualify its recommendation in any manner
adverse to Kimco or Merger Sub, or take any action or make any statement in
connection with the Atlantic Realty shareholder meeting inconsistent with its
recommendation, unless:
o Atlantic Realty's Board of Trustees, after having considered the
advice of independent outside legal counsel, determines in good faith
that failing to take such action would constitute a breach of its
obligations under the company's declaration of trust or applicable
law;
o such action is taken before the date of the Atlantic shareholder
meeting at which this merger will be voted on;
o Atlantic Realty provides written notice Kimco, advising Kimco in
writing that Atlantic Realty's board has received a competing proposal
which it believes constitutes a superior proposal and which it intends
to accept and, with respect to which, enter into a definitive
agreement, which must be received by Kimco at least five business days
prior to the time it intends to cause the Company to enter into such
agreement with respect to a competing proposal;
o the written notice provides a copy of any written offer or proposal
describing the superior proposal, specifying the material terms and
conditions of such superior proposal and identifying the person making
such superior proposal;
o at the end of the five day notice period, Kimco does not notify the
Company in writing that it has determined to revise the terms of the
merger to provide that the merger consideration will be equal to or
greater than the consideration to be paid to Atlantic Realty
shareholders pursuant to the superior proposal; and
o Atlantic terminates the merger agreement with Kimco and Merger Sub
within 48 hours after the lapse of the five day notice period and
immediately thereafter enters into an agreement with respect to the
superior proposal.
For purposes of the merger agreement, the term "competing proposal" means
any proposal that constitutes or may reasonably be expected to lead to:
o any acquisition in any manner, directly or indirectly, of 10% or more
of any class of equity securities of Atlantic Realty, or assets
representing a material portion of the assets of Atlantic Realty or of
the Hylan Plaza Shopping Center;
o any merger, consolidation, sale of assets, share exchange,
recapitalization, other business combination, liquidation, or other
action out of the ordinary course of business of Atlantic Realty; or
o any public announcement of a proposal, plan or intent to do any of the
foregoing or any agent to engage in any of the foregoing.
For purposes of the merger agreement, the term "superior proposal" means
any BONA FIDE competing proposal not directly or indirectly initiated,
solicited, encouraged or facilitated by Atlantic Realty in contravention of the
agreement which Atlantic Realty's Board of Trustees or the Special Committee
determines in good faith, based on the advice of an investment banker of
nationally recognized reputation and taking into account all legal, financial,
regulatory and other aspects of the
55
proposal, including tax consequences to Atlantic Realty and its shareholders and
the identity of the person making the proposal:
o would, if consummated, result in a transaction that is more favorable
to Atlantic Realty's shareholders from a financial point of view than
the merger agreement with Kimco and Merger sub; and
o is reasonably capable of being completed.
However, for purposes of the definition of superior proposal, the
references to 10% in the definition of competing proposal will be deemed to be
references to 100%.
EMPLOYEE MATTERS
Kimco has agreed that it will cause the surviving corporation in the
merger to honor:
o certain employment and consulting agreements to which Atlantic Realty or
its subsidiary are parties; and
o obligations to Atlantic Realty's employees and former employees under the
continuation coverage requirements of Section 4980B of the Code ("COBRA"),
provided that Kimco and Merger Sub are not obligated to pay or reimburse
such employees or former employees for any COBRA related costs they are
responsible for paying under applicable law.
INDEMNIFICATION AND INSURANCE
Kimco agrees that all rights to indemnification existing as of the closing
date in favor of any trustee, officer, employee, or agent of Atlantic Realty or
its subsidiary as provided in their respective declaration of trust, by-laws or
comparable organizational documents or in indemnification or reimbursement
agreements will survive the merger and shall continue in full force and effect
for a period of not less than six years and 90 days after the completion of the
merger. Kimco also agrees to indemnify all indemnified parties to the fullest
extent permitted by applicable law with respect to all acts and omissions
arising out of such individuals' fulfillment of their respective positions.
In the event any indemnified party is or becomes involved in any in
connection with any matter, Kimco will pay such party's reasonable legal fees
and expenses of counsel selected by the party, which counsel shall be reasonably
satisfactory to Kimco, and otherwise advance to such party upon request
reimbursement of documented incurred expenses, including the cost of any
investigation and preparation, to the extent permitted by Maryland law.
The merger agreement also provides that prior to the effective time,
Atlantic Realty will purchase an insurance "tail policy" which provides for
coverage substantially similar to the current policies of the directors' and
officers' liability insurance currently maintained by Atlantic Realty for a six
year period, subject to specified cost limitations.
ESTOPPELS
Atlantic Realty agrees to deliver executed estoppel certificates from
certain tenants specified in the merger agreement and other tenants that in the
aggregate lease at least 50% of the gross leaseable area of the Hylan Plaza
Shopping Center to Merger Sub five days before closing that will be dated
effective as of no earlier than the 30th day prior to closing.
56
CASUALTY AND CONDEMNATION
In the event of any damage to or destruction of all or part of the Hylan
Plaza Shopping Center, Atlantic Realty agrees to give notice to Merger Sub as
soon as practicable and promptly repair or replace such damage or destruction.
If the cost of the repair or replacement exceeds $1,000,000, or the damage would
take more than 60 days to repair or rebuild, then Kimco will have the right to
terminate the merger agreement by giving Atlantic Realty written notice of its
intention to do so within seven days of Merger Sub's receipt of notice from
Atlantic Realty.
In the event that any governmental authority having jurisdiction of all or
part of the Hylan Plaza Shopping Center notifies Atlantic Realty or its
subsidiary before the closing that some alteration of or addition to the Hylan
Plaza Shopping Center is required to be made by law, rule or regulation (notice
of which will be given to Merger Sub by Atlantic Realty as soon as practicable)
or otherwise requires a cure of a violation, Atlantic Realty agrees to promptly
undertake the alteration or addition or cure and complete it by the closing. If
the cost of the alteration or addition or cure will exceed $1,000,000, then
Kimco will have the right to terminate the merger agreement by giving Atlantic
Realty written notice of its intention to do so within 15 days of Merger Sub's
receipt of notice from Atlantic Realty.
In the event that any condemnation or eminent domain proceedings affecting
the Hylan Plaza Shopping Center is threatened, contemplated, commenced or
consummated prior to the closing, Atlantic Realty agrees to notify Merger Sub as
soon as practicable, and Kimco will have the right to terminate the merger
agreement by giving Atlantic Realty written notice of its intention to do so
within 15 days of Merger Sub's receipt of notice from Atlantic Realty.
TITLE INSURANCE
Kimco agrees to notify Atlantic Realty in writing of any encumbrances,
property restrictions or other defects of title (other than encumbrances which
are permitted by the merger agreement) which are disclosed in any update or
continuation of the title commitment for the Hylan Plaza Shopping Center within
ten business days of Kimco receiving notice of those encumbrances.
If Kimco notifies Atlantic Realty of any encumbrances, property
restrictions or other defects of title (other than encumbrances which are
permitted by the merger agreement), Atlantic Realty may cure the defect or
within ten days provide Kimco notice that it has elected not to cure the defect,
or is unable to cure the defect. If Atlantic Realty has not cured the defect
within 45 business days of receiving Kimco's notice or if Atlantic Realty has
failed to provide Kimco notice within ten days that it will not cure the defect,
then Kimco may at its option accept the title to the Hylan Plaza Shopping Center
subject to the title defect without reducing the merger consideration or
terminate the merger agreement. In this instance, Kimco must notify Atlantic
Realty within ten business days whether it will accept the property or terminate
the merger agreement and if it does not do so, Kimco will be deemed to have
elected to accept the property.
Atlantic Realty is not obligated to pay for title insurance policy or
survey relating to the Hylan Plaza Shopping Center. Unpaid liens for taxes,
water charges and assessments are not encumbrances for the purposes of this
provision of the merger agreement nor are financing statements which were filed
more than five years prior to the closing and which were not continued if a
title insurer will afford Atlantic Realty's subsidiary insurance coverage. In
addition unpaid state franchise taxes and/or municipal corporate business taxes
are not an encumbrance for the purposes of this section; however, the unpaid
taxes will reduce the merger consideration unless a title insurer will insure
against losses as a result of those unpaid taxes.
57
ADDITIONAL AGREEMENTS
Further, Kimco and Atlantic Realty have agreed to cooperate with each
other and use reasonable best efforts to:
o take all actions and to do all things necessary under the merger
agreement and applicable law to consummate the merger as soon as
practicable; and
o promptly prepare and file all necessary documentation to obtain the
consent, approval and authorization of all third parties and
governmental entities which are necessary or advisable to consummate
the merger.
The merger agreement also contains covenants relating to cooperation in
the preparation of this proxy statement/prospectus and additional agreements
relating to, among other things, public announcement and confidentiality and
access to information.
CONDITIONS TO COMPLETE THE MERGER
CONDITIONS TO BOTH PARTIES' OBLIGATIONS. The obligations of Kimco and
Atlantic Realty to complete the merger are subject to the satisfaction or waiver
of the following conditions:
o the approval of the merger agreement by the Atlantic Realty
shareholders;
o expiration or termination of any waiting period applicable under the
Hart-Scott-Rodino Act, if applicable, or mutual determination that no
filing under the HSR Act is required. Kimco and Atlantic Realty have
agreed that no such filing is required;
o the consummation of the merger shall not be restrained, enjoined or
prohibited by any order, judgment, decree, injunction or ruling of a
court of competent jurisdiction or provision of applicable law;
o this registration statement shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order, and any material "blue sky" and
other state securities laws applicable to the registration and
qualification of the shares of Kimco following the merger shall have
been complied with;
o the shares of Kimco common stock to be issued in connection with the
merger shall have been validly registered under the Securities Act and
listed for trading on the NYSE; and
o Atlantic Realty shall have received the opinion dated the closing date
of a nationally recognized law firm selected by Atlantic Realty
concluding that the merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of
the Code.
ADDITIONAL CONDITIONS TO ATLANTIC REALTY'S OBLIGATIONS. Atlantic Realty's
obligation to complete the merger is further subject to following conditions,
unless otherwise waived by the company:
o Kimco and Merger Sub shall have performed in all material respects
their agreements contained in the merger agreement required to be
performed at or prior to the consummation of the merger and their
representations and warranties shall be true and correct in all
respects (but without regard to any material qualification references
to a material adverse effect contained in any specific representation
or warranty) when made and (except for representations and warranties
58
made as of a specified date, which not only be true and correct as of
such date) as of the consummation of the merger except for
inaccuracies that in the aggregate would not reasonably be expected
to, individually or in the aggregate, constitute have a material
adverse effect on Kimco.
ADDITIONAL CONDITIONS TO KIMCO'S OBLIGATIONS. Kimco's obligation to
complete the merger is further subject to following conditions, unless otherwise
waived by the Merger Sub:
o Atlantic Realty shall have performed in all material respects its
agreements contained in the merger agreement required to be performed
at or prior to the consummation of the merger and its representations
and warranties (other than the representations and warranties
regarding the quality of Atlantic Realty's subsidiary's title to the
Hylan Plaza Shopping Center), shall be true and correct in all
respects (but without regard to any materiality qualifications or
references to a material adverse effect contained in any specific
representation or warranty) when made and (except for representations
and warranties made as of a specified date, which need only be true
and correct as of such date) as of the consummation of the merger,
except for inaccuracies that in the aggregate would not reasonably be
expected to, individually or in the aggregate, constitute a material
adverse effect on Atlantic Realty;
o since December 31, 2004, there shall not have been any events which,
individually or in the aggregate, has had or would reasonably be
expected to have a material adverse effect;
o Merger Sub shall have received the opinion of Wachtell, Lipton, Rosen
& Katz that the merger will be treated for federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code;
o Kimco and Merger Sub shall have received those opinions and reliance
letters, if any, requested by Kimco of Proskauer Rose LLP and/or Wolf,
Block, Schorr and Solis-Cohen LLP relating to among other things, that
both Ramco-Gershenson Properties Trust and Atlantic Realty are and
were qualified as REIT under the tax code;
o Kimco and Merger Sub shall have received from Atlantic Realty the
executed tenant estoppels contemplated by the merger agreement; and
o Atlantic Realty's representations and warranties regarding the quality
of Atlantic Realty's subsidiary's title to the Hylan Plaza Shopping
Center shall be true and correct in all respects.
TERMINATION OF THE MERGER AGREEMENT
GENERAL
The merger agreement may be terminated at any time prior to the
consummation of the merger by:
o mutual written consent of Kimco, Merger Sub and Atlantic Realty;
o Atlantic Realty, upon a material breach of the merger agreement by
Merger Sub or Kimco which is not curable or has not been cured within
20 business days after the giving of notice, or which would cause any
of the applicable conditions of closing to be incapable of being
satisfied by June 30, 2006;
59
o Kimco, upon a material breach of the merger agreement by Atlantic
Realty which is not curable, has not been cured within 20 business
days after the giving of notice (60 business days in the case of a
breach of a representation or warranty regarding the quality of
Atlantic Realty's subsidiary's title to the Hylan Plaza Shopping
Center), or which would cause any of the applicable conditions of
closing to be incapable of being satisfied by June 30, 2006;
o Kimco or Atlantic Realty if any court of competent jurisdiction shall
have issued, enacted, entered, promulgated or enforced any final and
nonappealable order, judgment, decree, injunction or ruling which
restrains, enjoins or otherwise prohibits the merger;
o Kimco or Atlantic Realty if the merger shall not have been consummated
on or before June 30, 2006, provided that this termination right will
not be available to any party that is in material breach of its
representations, warranties or obligations under the merger agreement;
o Kimco or Atlantic Realty if the meeting of the Atlantic Realty
shareholders to approve the merger shall have concluded without
Atlantic Realty having obtained shareholder approval;
o Kimco if, prior to the Atlantic Realty shareholder meeting, Atlantic
Realty's board has changed its recommendation or Atlantic Realty's
Board of Trustees shall have refused to affirm its recommendation in
favor of the merger within five days of any written request from
Kimco;
o Atlantic Realty, if its Board of Trustees shall have determined that a
competing proposal constitutes a superior proposal, followed the
procedure required in the consideration of superior proposals (as
described in "--Shareholders Meeting and Duty to Recommend"),
delivered to Kimco a written notice of the determination by its Board
of Trustees to terminate the merger agreement, immediately prior to
such termination the Company shall have paid the termination fee, and
immediately after such termination Atlantic Realty shall have entered
into a definitive acquisition, merger or similar agreement to effect
the competing proposal;
o Kimco, in the event that any condemnation or eminent domain
proceedings affecting the Hylan Plaza Shopping Center shall be
threatened, contemplated or commenced prior to closing (as described
in "--Casualty and Condemnation"); and
o Kimco, in the event that Atlantic Realty fails to cure within a
specified cure period any encumbrances, property restrictions or other
defects in the title commitment for the Hylan Plaza Shopping Center
(other than permitted encumbrances) of which it has been notified (as
described in "--Title Insurance").
EFFECT OF TERMINATION
In the event the merger agreement is terminated as described above, the
merger agreement will become void and neither Kimco nor Atlantic Realty will
have any liability under the merger agreement, except that:
o both Kimco and Atlantic Realty will remain liable for any breach of
the merger agreement; and
o designated provisions of the merger agreement, including the payment
of fees and expenses, public announcements and the confidential
treatment of information, governing law, and notices will survive the
termination.
60
TERMINATION FEE
The merger agreement provides that Atlantic Realty will be required to
promptly pay a termination fee of $2,475,000 to Kimco if:
o Kimco has terminated the merger agreement on the grounds that Atlantic
Realty's board has changed its recommendation or Atlantic Realty's
Board of Trustees shall have refused to affirm its recommendation in
favor of the merger within five days of any written request from
Kimco; or
o Atlantic Realty has terminated the merger agreement to enter into a
definitive acquisition, merger or similar agreement to effect the
competing proposal;
Atlantic Realty must also pay a termination fee in the same sum if either:
o Kimco, upon a material breach of the merger agreement by Atlantic
Realty which is not curable, has not been cured within 20 business
days after the giving of notice (60 business days in the case of a
breach of a representation or warranty regarding the quality of
Atlantic Realty's subsidiary's title to the Hylan Plaza Shopping
Center), or which would cause any of the applicable conditions of
closing to be incapable of being satisfied by June 30, 2006;
o Kimco or Atlantic Realty if the merger shall not have been consummated
on or before June 30, 2006, provided that this termination right will
not be available to any party that is in material breach of its
representations, warranties or obligations under the merger agreement;
or
o the meeting of the Atlantic Realty shareholders to approve the merger
concludes without Atlantic Realty having obtained shareholder
approval;
and if one of the following has also occurred:
o a competing proposal shall have been previously publicly proposed or
publicly announced or any person has previously publicly announced an
intention to make a competing proposal; or
o within 12 months after termination, Atlantic Realty or any of its
subsidiaries enters into any definitive agreement with respect to, or
consummates, any competing proposal.
In any of these cases, the termination fee will be payable upon the
earlier of Atlantic Realty entering into any definitive agreement or the
consummation of a competing proposal.
In the event that Atlantic Realty must pay a termination fee, it must also
reimburse Kimco and Merger Sub for up to $412,500 in aggregate expenses incurred
in connection with the merger agreement and the merger.
AMENDMENT, WAIVER AND EXTENSION OF THE MERGER AGREEMENT
AMENDMENT
Kimco and Atlantic Realty may amend the merger agreement by action taken
or authorized by their Board of Directors and Board of Trustees, respectively.
However, after the approval of the merger by the Atlantic Realty shareholders,
there may not be any further amendment except as allowed under applicable law.
61
WAIVER
Kimco and Atlantic Realty may waive a breach of any term or provision of
the merger agreement. Such waiver shall not be construed as a waiver of any
subsequent breach.
FEES AND EXPENSES
In general, except in the event of that a termination fee is incurred (in
which case Atlantic Realty will bear all expenses up to $412,500) or to the
extent that the agreement specifies certain expenses as payable by Atlantic
Realty, all costs and expenses incurred in connection with the merger agreement
will be paid by the party incurring such expense, whether or not the merger is
consummated.
62
COMPARATIVE MARKET PRICE AND DIVIDEND DATA
KIMCO
Kimco common stock is listed on the New York Stock Exchange under the
symbol "KIM." The following table sets forth the high and low sale prices per
share of Kimco common stock for the calendar quarters indicated, as reported on
the New York Stock Exchange Composite Tape, and the quarterly cash dividends
paid per share in the periods indicated. All stock prices and dividend amounts
have been adjusted for Kimco's two-for-one stock split on August 23, 2005.
DIVIDEND
CALENDAR QUARTER HIGH LOW DECLARED
-------------------------------- ------- ------- --------
2006
First Quarter (through
[ ], 2006)
2005
Fourth Quarter............. $33.210 $27.810 $0.330(b)
Third Quarter............... 33.350 30.040 0.330
Second Quarter.............. 29.995 26.170 0.305
First Quarter............... 29.909 25.900 0.305
2004
Fourth Quarter.............. $29.640 $25.265 $0.305(a)
Third Quarter............... 25.900 22.415 0.285
Second Quarter.............. 25.595 19.765 0.285
First Quarter............... 25.660 21.875 0.285
(a) Paid on January 18, 2005 to stockholders of record on January 3, 2005.
(b) Paid on January 17, 2006 to stockholders of record on January 3, 2006.
On November 30, 2005, the last full trading day before the public
announcement of the merger agreement, the high and low sale prices of Kimco
common stock on the New York Stock Exchange were $31.67 and $31.28,
respectively. On [ ], 2006, the last full trading day before the date of
this proxy statement/prospectus for which it was practicable to obtain this
information, the high and low sale prices of Kimco common stock, on the New York
Stock Exchange, were $[ ] and $[ ], respectively.
As of [ ], 2006, the last date prior to the printing of this proxy
statement/prospectus for which it was practicable to obtain this information,
there were approximately [ ] registered holders of Kimco common stock.
63
ATLANTIC REALTY
Atlantic Realty common stock is listed on The NASDAQ Capital Market under
the symbol "ATLRS." The following table sets forth the high and low sale prices
per share of Atlantic Realty common stock for the calendar quarters indicated,
on The NASDAQ Capital Market.
CALENDAR QUARTER HIGH LOW
-------------------------------- ------- -------
2006
First Quarter (through
[ ], 2006)........
2005
Fourth Quarter.............. $24.00 $20.02
Third Quarter............... 24.20 18.82
Second Quarter.............. 24.99 19.22
First Quarter............... 24.00 16.70
2004
Fourth Quarter.............. $18.11 $16.55
Third Quarter............... 17.30 16.22
Second Quarter.............. 21.00 15.54
First Quarter............... 18.30 15.00
Atlantic Realty paid distributions of $.45, $.41, $.46 and $.62 per share
for the years ended December 31, 2005, 2004, 2003 and 2002, respectively, which
distributions represented ordinary income for income tax purposes. In addition,
in May 2004 Atlantic Realty paid a return of capital of $3.25 per share.
On November 30, 2005, the last full trading day before the public
announcement of the merger agreement, the high and low sale prices of Atlantic
Realty common stock on The NASDAQ Capital Market were $22.82 and $22.00,
respectively. On [ ], 2006, the last full trading day before the date of this
proxy statement/prospectus for which it was practicable to obtain this
information, the high and low sale prices of Atlantic Realty common stock on The
NASDAQ Capital Market were $[ ] and $[ ], respectively.
As of [ ], 2006, the last date prior to the printing of this proxy
statement/prospectus for which it was practicable to obtain this information,
there were approximately [ ] registered holders of Atlantic Realty common stock.
The merger agreement provides that, on the last business day prior to
closing, Atlantic Realty will declare a dividend payable to its shareholders in
an amount necessary for Atlantic Realty to qualify as a REIT.
64
INFORMATION ABOUT ATLANTIC REALTY
Atlantic Realty is a Maryland real estate investment trust that was
organized in 1995. The principal office of Atlantic is located at 747 Third
Avenue, New York, New York 10017, and its telephone number is (212) 702-8561.
Atlantic Realty commenced operations on May 10, 1996 as a result of a spin-off
from RPS Realty Trust. The spin-off transaction was consummated in order to
permit RPS to complete an acquisition of assets from Ramco-Gershenson Properties
Trust and its affiliates, which permitted RPS to become an equity shopping
center REIT. RPS undertook the spin-off transaction, because Ramco was unwilling
to consummate the acquisition of Ramco's assets if the assets that were
contributed by RPS to Atlantic Realty remained in RPS.
Atlantic Realty holds an equity investment in one property, the Hylan
Plaza Shopping Center, a one-story community shopping center located in Staten
Island, New York. The Hylan Plaza Shopping Center contains approximately 359,000
square feet of leasable space, all of which was leased and occupied as of
September 30, 2005. Major tenants (I.E., tenants who accounted for 10% or more
of the leasable space as of September 30, 2005) include K-Mart Corp., Pathmark
Stores, Inc. and Toys "R" Us - NY L.L.C.
Certain information relating to the executive compensation, various
benefit plans, voting securities, including the principal holders of those
securities, certain relationships and related transactions and other matters as
to Atlantic Realty is set forth in Atlantic Realty's Annual Report on Form 10-K
for the year ended December 31, 2004 or in Atlantic Realty's Quarterly Reports
on Form 10-Q for the quarters ended March 31, 2005, June 30, 2005 and September
30, 2005, which are included in Annex E to this proxy statement/prospectus.
Shareholders desiring copies of this proxy statement/prospectus and other
documents may contact Atlantic Realty at its address or telephone number
indicated under "Where You Can Find More Information."
65
DESCRIPTION OF KIMCO CAPITAL STOCK
The following summary is a description of the material terms of Kimco's
capital stock and is not complete. This summary is qualified in its entirety by
reference to applicable Maryland law, Kimco's amended and restated articles of
incorporation and Kimco's restated bylaws, as described below. See "Where You
Can Find More Information" beginning on page 74.
DESCRIPTION OF COMMON STOCK
Kimco has the authority to issue 300,000,000 shares of common stock, par
value $.01 per share, and 153,000,000 shares of excess stock, par value $.01 per
share. At September 30, 2005, Kimco had outstanding 227,252,825 shares of common
stock and no shares of excess stock. Prior to August 4, 1994, Kimco was
incorporated as a Delaware corporation. On August 4, 1994, Kimco reincorporated
as a Maryland corporation pursuant to an Agreement and Plan of Merger approved
by Kimco's stockholders. The statements below describing the common stock are in
all respects subject to and qualified in their entirety by reference to the
applicable provisions of Kimco's charter and bylaws.
Holders of Kimco common stock will be entitled to receive dividends when,
as and if authorized by the Kimco Board of Directors and declared by Kimco, out
of assets legally available therefor. Payment and declaration of dividends on
the common stock and purchases of shares thereof by Kimco will be subject to
certain restrictions if Kimco fails to pay dividends on its preferred stock.
Upon Kimco's liquidation, dissolution or winding up, holders of common stock are
entitled to share equally and ratably in any assets available for distribution
to them, after payment or provision for payment of Kimco's debts and other
liabilities and the preferential amounts owing with respect to any of Kimco's
outstanding preferred stock. The common stock possesses ordinary voting rights
for the election of directors and in respect of other corporate matters, with
each share entitling the holder thereof to one vote. Holders of common stock do
not have cumulative voting rights in the election of directors, which means that
holders of more than 50% of all of the shares of Kimco's common stock voting for
the election of directors are able to elect all of the directors if they choose
to do so and, accordingly, the holders of the remaining shares will be unable to
elect any directors. Holders of shares of common stock do not have preemptive
rights, which means they have no right to acquire any additional shares of
common stock that may be issued by Kimco at a subsequent date.
Under Maryland law and Kimco's charter, a distribution (whether by
dividend, redemption or other acquisition of shares) to holders of shares of
common stock may be made only if, after giving effect to the distribution, Kimco
is able to pay its indebtedness as it becomes due in the usual course of
business and its total assets are greater than its total liabilities plus the
amount necessary to satisfy the preferential rights upon dissolution of
stockholders whose preferential rights on dissolution are superior to the
holders of common stock and Kimco can pay its debts as they become due. Kimco
has complied with these requirements in all of its prior distributions to
holders of common stock.
RESTRICTIONS ON OWNERSHIP
For Kimco to qualify as a REIT under the Code, not more than 50% in value
of its outstanding stock may be owned, actually or constructively, by five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year. Kimco's stock also must be beneficially owned
by 100 or more persons during at least 335 days of a taxable year of 12 months
or during a proportionate part of a shorter taxable year. In addition, rent from
related party tenants (generally, a tenant of a REIT owned, actually or
constructively, 10% or more by the REIT, or a 10% owner of the REIT) is not
qualifying income for purposes of the income tests under the Code.
66
Subject to the exceptions specified in Kimco's charter, no holder may own,
or be deemed to own by virtue of the constructive ownership provisions of the
Code, more than 9.8% in value of the outstanding shares of Kimco's common stock.
The constructive ownership rules are complex and may cause common stock owned
actually or constructively by a group of related individuals or entities or both
to be deemed constructively owned by one individual or entity. As a result, the
acquisition of less than 9.8% in value of the common stock (or the acquisition
of an interest in an entity which owns common stock) by an individual or entity
could cause that individual or entity (or another individual or entity) to own
constructively in excess of 9.8% in value of the common stock, and thus subject
such common stock to the ownership limit.
Existing stockholders who exceeded the ownership limit immediately after
the completion of Kimco's initial public offering of its common stock in
November 1991 may continue to do so and may acquire additional shares through
the stock option plan, or from other existing stockholders who exceed the
ownership limit, but may not acquire additional shares from such sources such
that the five largest beneficial owners of common stock could own, actually or
constructively, more than 49.6% of the outstanding common stock, and in any
event may not acquire additional shares from any other sources. In addition,
because rent from related party tenants is not qualifying rent for purposes of
the gross income tests under the Code, Kimco's charter provides that no
individual or entity may own, or be deemed to own by virtue of the attribution
provisions of the Code (which differ from the attribution provisions applied to
the ownership limit), in excess of 9.8% in value of Kimco's outstanding common
stock. This ownership limitation is referred to as the related party limit.
Kimco's Board of Directors may waive the ownership limit and the related party
limit with respect to a particular stockholder (such related party limit has
been waived with respect to the existing stockholders who exceeded the related
party limit immediately after the initial public offering of Kimco's common
stock) if evidence satisfactory to Kimco's Board of Directors and Kimco's tax
counsel is presented that such ownership will not then or in the future
jeopardize Kimco's status as a REIT. As a condition of that waiver, Kimco's
Board of Directors may require opinions of counsel satisfactory to it or an
undertaking or both from the applicant with respect to preserving Kimco's REIT
status. The foregoing restrictions on transferability and ownership will not
apply if Kimco's Board of Directors determines that it is no longer in Kimco's
best interests to attempt to qualify, or to continue to qualify, as a REIT. If
shares of common stock in excess of the ownership limit or the related party
limit, or shares which would otherwise cause the REIT to be beneficially owned
by less than 100 persons or which would otherwise cause Kimco to be "closely
held" within the meaning of the Code or would otherwise result in Kimco's
failure to qualify as a REIT, are issued or transferred to any person, that
issuance or transfer shall be null and void to the intended transferee, and the
intended transferee would acquire no rights to the stock. Shares transferred in
excess of the ownership limit or the related party limit, or shares which would
otherwise cause Kimco to be "closely held" within the meaning of the Code or
would otherwise result in Kimco's failure to qualify as a REIT, will
automatically be exchanged for shares of a separate class of stock, which is
referred to as excess stock, that will be transferred by operation of law to
Kimco as trustee for the exclusive benefit of the person or persons to whom the
shares are ultimately transferred, until that time as the intended transferee
retransfers the shares. While these shares are held in trust, they will not be
entitled to vote or to share in any dividends or other distributions (except
upon liquidation). The shares may be retransferred by the intended transferee to
any person who may hold those shares at a price not to exceed either:
o the price paid by the intended transferee, or
o if the intended transferee did not give value for such shares, a price
per share equal to the market value of the shares on the date of the
purported transfer to the intended transferee,
67
at which point the shares will automatically be exchanged for ordinary common
stock. In addition, such shares of excess stock held in trust are purchasable by
Kimco for a 90-day period at a price equal to the lesser of the price paid for
the stock by the intended transferee and the market price for the stock on the
date Kimco determines to purchase the stock. This period commences on the date
of the violative transfer if the intended transferee gives Kimco notice of the
transfer, or the date Kimco's Board of Directors determines that a violative
transfer has occurred if no notice is provided.
All certificates representing shares of common stock will bear a legend
referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions
of the Code, more than a specified percentage of the outstanding shares of
common stock must file an affidavit with Kimco containing the information
specified in Kimco's charter within 30 days after January 1 of each year. In
addition, each common stockholder shall upon demand be required to disclose to
Kimco in writing such information with respect to the actual and constructive
ownership of shares as Kimco's Board of Directors deems necessary to comply with
the provisions of the Code applicable to a REIT or to comply with the
requirements of any taxing authority or governmental agency.
The registrar and transfer agent for Kimco's common stock is The Bank of
New York.
PREFERRED STOCK
Kimco is authorized to issue 3,600,000 shares of preferred stock, par
value $1.00 per share, 345,000 shares of 7 3/4 % Class A Cumulative Redeemable
Preferred Stock, $1.00 par value per share, 230,000 shares of 8 1/2% Class B
Cumulative Redeemable Preferred Stock, $1.00 par value per share, 460,000 shares
of 3/8% Class C Cumulative Redeemable Preferred Stock, $1.00 par value per
share, 700,000 shares of 7 1/2% Class D Cumulative Convertible Preferred Stock,
$1.00 par value per share, 65,000 shares of Class E Floating Rate Cumulative
Redeemable Preferred Stock, $1.00 par value per share, and 700,000 shares of
6.65% Class F Cumulative Redeemable Preferred Stock, $1.00 par value per share.
Kimco is also authorized to issue 345,000 shares of Class A Excess Preferred
Stock, $1.00 par value per share, 230,000 shares of Class B Excess Preferred
Stock, $1.00 par value per share, 460,000 shares of Class C Excess Preferred
Stock, $1.00 par value per share, 700,000 shares of Class D Excess Preferred
Stock, $1.00 par value per share, 65,000 shares of Class E Excess Preferred
Stock, $1.00 par value per share, and 700,000 shares of Class F Excess Preferred
Stock, $1.00 par value per share, which are reserved for issuance upon
conversion of certain outstanding Class A preferred stock, Class B preferred
stock, Class C preferred stock, Class D preferred stock, Class E preferred stock
or Class F preferred stock, as the case may be, as necessary to preserve Kimco's
status as a REIT. At October 31, 2005, 700,000 shares of Class F preferred
stock, represented by 7,000,000 depositary shares, were outstanding.
Under Kimco's charter, Kimco's Board of Directors may from time to time
establish and issue one or more classes or series of preferred stock and fix the
designations, powers, preferences and rights of the shares of such classes or
series and the qualifications, limitations or restrictions thereon, including,
but not limited to, the fixing of the dividend rights, dividend rate or rates,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions) and the liquidation preferences.
Kimco's charter authorizes the Kimco Board of Directors to classify and
reclassify any unissued shares of Kimco's preferred stock into other classes or
series of stock. Prior to the issuance of shares of each class or series,
Kimco's board is required by Maryland law and by Kimco's charter to set, subject
to its charter restrictions on transfer of its stock, the terms, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption for each class or series. Thus, Kimco's board could authorize the
issuance of
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shares of preferred stock with terms and conditions which could have the effect
of delaying, deferring or preventing a transaction or a change in control that
might involve a premium price for holders of Kimco's common stock or otherwise
be in their best interest.
Kimco believes that the power to issue additional shares of common stock
or preferred stock and to classify or reclassify unissued shares of preferred
stock and thereafter to issue the classified or reclassified shares provides it
with increased flexibility in structuring possible future financings and
acquisitions and in meeting other needs that might arise. These actions can be
taken without stockholder approval, unless stockholder approval is required by
applicable law or the rules of any stock exchange or automated quotation system
on which Kimco's securities may be listed or traded. Although Kimco has no
present intention of doing so, it could issue a class or series of stock that
could delay, defer or prevent a transaction or a change in control of the
Company that might involve a premium price for holders of common stock or
otherwise be in their best interest.
ANTI-TAKEOVER CONSIDERATIONS
Maryland law and Kimco's articles of incorporation and bylaws contain a
number of provisions which may have the effect of discouraging transactions that
involve an actual or threatened change of control of Kimco. These provisions of
Kimco's articles of incorporation and bylaws include, among others, the
restrictions on ownership described above. See "Comparison of Shareholder
Rights" beginning on page 70.
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COMPARISON OF SHAREHOLDER RIGHTS
Kimco and Atlantic Realty are each incorporated under the laws of the
State of Maryland. Upon completion of the merger, each outstanding share of
Atlantic Realty common stock will be converted into a number of shares of Kimco
common stock determined in accordance with the terms of the merger agreement.
Consequently, the rights of Atlantic Realty shareholders who receive shares of
Kimco common stock as a result of the merger will be governed by the Maryland
General Corporation Law, Kimco's amended and restated articles of incorporation
and Kimco's restated bylaws. The following discussion summarizes certain
material differences between the rights of holders of Atlantic Realty common
stock and Kimco common stock resulting from the differences in their governing
documents.
This discussion does not purport to be a complete statement of the rights
of holders of Kimco common stock under applicable Maryland law, Kimco's amended
and restated articles of incorporation and Kimco's restated bylaws or the rights
of holders of Atlantic Realty common stock under applicable Maryland law,
Atlantic Realty's amended and restated declaration of trust and Atlantic
Realty's amended and restated bylaws and is qualified in its entirety by
reference to the governing corporate documents of Kimco and Atlantic Realty and
applicable law. See "Where You Can Find More Information" beginning on page 74.
CAPITAL STOCK
KIMCO. Kimco's articles of incorporation authorize an aggregate of
461,600,000 shares of stock, consisting of 300,000,000 shares of common stock,
par value $0.01 per share, 153,000,000 shares of excess stock, par value $0.01
per share, and 8,600,000 shares of preferred stock, par value $1.00 per share.
As of October 31, 2005, there were 277,283,664 shares of Kimco common stock and
no shares of Kimco excess stock issued and outstanding, and as of October 31,
2005, there were 700,000 shares of Class F preferred stock issued and
outstanding.
ATLANTIC REALTY. Atlantic Realty's amended and restated declaration of
trust currently authorizes the issuance of 10,000,000 shares of common stock,
par value $0.01 per share, and 10,000,000 shares of excess stock, par value
$0.01 per share. As of November 7, 2005, there were 3,561,553 shares of Atlantic
Realty common stock and, to Atlantic Realty's knowledge, no shares of excess
stock issued and outstanding.
BOARD OF DIRECTORS / TRUSTEES
KIMCO. Kimco's bylaws provide that the number of directors shall not be
less than three nor more than 15 and that the number of directors may be changed
by a majority vote of the Kimco Board of Directors. Kimco's Board of Directors
currently consists of nine directors. All the directors serve a one-year term of
office. There is no cumulative voting on the election of directors.
ATLANTIC REALTY. Atlantic Realty's amended and restated declaration of
trust provides that the number of trustees on the Atlantic Realty Board of
Trustees may be increased or decreased pursuant to Atlantic Realty's bylaws.
Atlantic Realty's bylaws provide that a majority of the company's entire Board
of Trustees may increase or decrease the number of trustees at a regular or
special meeting. Atlantic Realty currently has six trustees. Atlantic Realty's
bylaws provide that trustees serve one-year terms. There is no cumulative voting
on the election of directors.
LIMITATION ON PERSONAL LIABILITY OF DIRECTORS AND TRUSTEES
KIMCO. Kimco's articles of incorporation provide for the elimination of
monetary liability of directors to Kimco or its stockholders to the maximum
extent permissible under the laws of Maryland.
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ATLANTIC REALTY. Atlantic Realty's amended and restated declaration of
trust provides for the limitation of personal monetary liability of trustees to
Atlantic Realty and its shareholders for breach of fiduciary duties as trustees
to the maximum extent permissible under the laws of Maryland.
EXCESS SHARE PROVISION
KIMCO. Kimco's articles of incorporation have provisions which restrict
the ownership of its stock. "See Description of Common Stock--Restrictions
on Ownership."
ATLANTIC REALTY. Atlantic Realty's amended and restated declaration of
trust forbids any holder from beneficially or constructively owning more than
9.8% of its common stock, in number or in value, whichever is more restrictive,
or 9.8% of its aggregate capital stock in value as determined by the Board of
Trustees in good faith. Atlantic Realty's Board of Trustees may waive these
limitations if satisfactory evidence, including certain specified evidence
regarding interests in Atlantic Realty tenants, is presented that such ownership
will not adversely affect Atlantic Realty's ability to qualify as an REIT.
Shares transferred in excess of the ownership limit or the related party
limit, or shares which would otherwise cause Atlantic Realty to be "closely
held" within the meaning of the Code or would otherwise result in Atlantic
Realty's failure to qualify as a REIT, are automatically transferred into trust
for the sole benefit of a charitable beneficiary. While shares are held in
trust, the prohibited owner will not benefit economically from their ownership
and is not entitled to share in any dividends and will not possess any rights
attributable to shares, including voting.
The trustee of the shares is required to sell the excess shares within 20
days of their transfer to the trust to a person designated by the trustee whose
ownership of shares will not violate Atlantic Realty's ownership limitations.
The prohibited owner will receive the lesser of the price paid by the prohibited
owner (or, if prohibited owner did not give value for the shares, the market
price on the day the shares were transferred to the trust) or the price received
by the trustee in the sale. Any proceeds above the amount payable to the
prohibited holder go to the charitable beneficiary.
All persons who beneficially own more than five percent of the outstanding
shares of Atlantic Realty common stock must provide written notice to Atlantic
Realty containing the information specified in Atlantic Realty's declaration of
trust within 30 days after the end of each taxable year. In addition, each
shareholder of Atlantic Realty shall upon demand be required to disclose in
writing such information with respect to the actual and constructive ownership
of shares as Atlantic Realty's Board of Trustees deems necessary to comply with
the provisions of the Code applicable to a REIT or to comply with the excess
share provision.
REMOVAL OF DIRECTORS / TRUSTEES
KIMCO. Kimco's bylaws provide that directors may be removed, with or
without cause, at any meeting of stockholders by the vote of the holders of a
majority of the stock represented and entitled to vote.
ATLANTIC REALTY. Atlantic Realty's amended and restated declaration of
trust provides that trustees may be removed, with or without cause, at a meeting
of Atlantic Realty shareholders, by the affirmative vote of the holders of not
less than two-thirds of the shares then outstanding and entitled to vote
generally in the election of trustees.
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FILLING VACANCIES ON THE BOARD OF DIRECTORS / TRUSTEES
KIMCO. Kimco's bylaws provide that a vacancy on Kimco's board by reason of
death, resignation, retirement, disqualification, removal from office or
otherwise, or by reason of an authorized increase in the number of directors,
may be filled by a majority of the directors then in office, whether or not less
than a quorum, or by a sole remaining director. A director elected to fill a
vacancy shall serve only until the next annual election of directors by
stockholders.
ATLANTIC REALTY. Atlantic Realty's amended and restated bylaws provide
that any vacancy, including a vacancy created by an increase in the number of
trustees, may be filled by a majority vote of the remaining trustees. Any newly
elected trustee shall hold office for the unexpired term of the trustee he is
replacing.
AMENDMENT OF ARTICLES OF INCORPORATION / DECLARATION OF TRUST
KIMCO. Under Maryland law, most amendments to Kimco's articles of
incorporation must be approved by the Board of Directors and by the vote of at
least two-thirds of the votes entitled to be cast at a meeting of stockholders.
ATLANTIC REALTY. Under Maryland law and Atlantic Realty's amended and
restated declaration of trust, most amendments to the declaration of trust must
be approved by the Board of Trustees and by the vote of at least a majority of
the votes entitled to be cast by shareholders. Atlantic Realty's amended and
restated declaration of trust provides that any amendment to provisions
governing amendment or the duration of Atlantic Realty shall be valid only if
approved by the affirmative vote of two-thirds of all votes entitled to be cast
on such amendment, and that all amendments must be signed by a majority of the
trustees. Atlantic Reality's declaration of trust also allows the trustees to
make amendments without any action by the shareholders for the purposes of
qualifying as a real estate investment trust under the Code or Maryland law.
AMENDMENT OF BYLAWS
KIMCO. Kimco's bylaws provide that stockholders have the power to adopt,
alter or repeal any bylaws or to make new bylaws, and that the Board of
Directors shall have the power to do the same, except that the Board of
Directors shall not alter or repeal the section of the bylaws governing
amendment or any bylaws made by the stockholders.
ATLANTIC REALTY. Atlantic Realty's amended and restated bylaws provide
that the trustees have the exclusive power to amend the bylaws to make new
bylaws.
RIGHT TO CALL SPECIAL MEETING OF SHAREHOLDERS
KIMCO. Kimco's bylaws provide that a special meeting of stockholders may
be called by the president or at the request in writing of a majority of the
Board of Directors or of stockholders owning not less than 25% of Kimco's issued
and outstanding shares. A special meeting need not be called to consider any
matter which is substantially the same as a matter voted on at any special
meeting held during the preceding 12 months
ATLANTIC REALTY. Atlantic Realty's amended and restated bylaws permit the
chairman of the Board of Trustees, the president, one-third of the trustees, or
holders of shares entitled to cast not less than 10% of all the votes entitled
to be cast at such a meeting to call a special meeting of shareholders.
72
MERGERS, SALES OF ASSETS AND OTHER TRANSACTIONS
KIMCO. Under the Maryland General Corporations Law, a proposed
consolidation, merger, share exchange or transfer generally must be approved by
two-thirds of all the votes of stockholders entitled to be cast on the matter,
unless otherwise provided for in the charter.
ATLANTIC REALTY. Atlantic Realty's amended and restated declaration of
trust permits the company to merge, consolidate, or sell, lease, exchange or
otherwise transfer all or substantially all of its property with the approval of
the Board of Trustees and a majority of all shareholder votes entitled to be
cast on the matter.
DURATION
KIMCO. The Kimco articles of incorporation do not provide for any
mandatory discontinuation of Kimco.
ATLANTIC. Under the provisions of its amended and restated declaration of
trust, Atlantic Realty was to continue for a period of 18 months from May 10,
1996, during which time Atlantic Realty was to reduce its assets to cash or cash
equivalents and either (i) make a liquidating distribution to its shareholders
or (ii) agree to merge or combine operations with another real estate entity, in
either case, as soon as practicable and within the 18-month period. The 18-month
period was subject to extension if (i) Atlantic Realty had not achieved this
objective and the holders of at least two-thirds of its outstanding shares
approved the extension of such date or (ii) a contingent tax liability relating
to RPS that had been assumed by Atlantic Realty had not been satisfactorily
resolved. Because various tax issues were not satisfactorily resolved, Atlantic
Realty continued its business past this 18-month period.
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LEGAL MATTERS
The validity of the shares of Kimco common stock to be issued in the
merger will be passed upon for Kimco by Bruce M. Kauderer, General Counsel,
Secretary and an employee of Kimco. As of January 18, 2006, Mr. Kauderer was the
beneficial owner (including options exercisable within 60 days) of approximately
32,781 shares of Kimco common stock and 2,111 shares of Kimco Class F preferred
stock and is the trustee of certain family trusts which beneficially own
approximately 3,000 shares of Kimco Class F preferred stock.
EXPERTS
The financial statements incorporated in this Proxy Statement/Prospectus
by reference to Kimco Realty Corporation and Subsidiaries' Current Report on
Form 8-K dated February 3, 2006 and the financial statement schedules and
management's assessment of the effectiveness of internal control over financial
reporting (which is included in Management's Report on Internal Control over
Financial Reporting) incorporated in this Proxy Statement/Prospectus by
reference to the Annual Report on Form 10-K of Kimco Realty Corporation and
Subsidiaries for the year ended December 31, 2004 have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, an independent registered
public accounting firm, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements included in this proxy statement/
prospectus from Atlantic Realty Trust's Annual Report on Form 10-K for the year
ended December 31, 2004, have been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their reports, which
are included herein and have been so included upon the reports of such firm
given upon their authority as experts in accounting and auditing.
SHAREHOLDER PROPOSALS
Atlantic Realty will hold an annual meeting of its shareholders in 2006
only if the merger is not completed. If Atlantic Realty's 2006 annual meeting is
held, in order to be considered for inclusion in Atlantic Realty's proxy
statement for the meeting, shareholder proposals must be in writing and must be
received by Atlantic Realty at its executive offices on or before December 15,
2005. Any such proposal should be mailed to: Atlantic Realty Trust, 747 Third
Avenue, New York, New York, 10017, Attention: Edwin R. Frankel, Secretary.
Shareholder proposals must meet applicable regulations of the Securities and
Exchange Commission regarding shareholder proposals and the By-Laws, a copy of
which is available upon written request from the Secretary of Atlantic Realty.
WHERE YOU CAN FIND MORE INFORMATION
Kimco and Atlantic Realty file annual, quarterly and current reports,
proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any reports, statements or other information
on file with the Securities and Exchange Commission at the SEC's public
reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please
call the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the public reference room. Securities and Exchange Commission
filings are also available to the public at the SEC's website at
http://www.sec.gov. Kimco has filed a registration statement on Form S-4 to
register with the Securities and Exchange Commission the shares of Kimco common
stock that Atlantic Realty's shareholders will receive in the merger. This
document is part of the registration statement of Kimco on Form S-4 and is a
prospectus of Kimco and a proxy statement of Atlantic Realty for the Atlantic
Realty special meeting.
The Securities and Exchange Commission permits Kimco to "incorporate by
reference" information into this proxy statement/prospectus. This means that
Kimco can disclose important
74
information to you by referring to another document filed separately with the
SEC. The information incorporated by reference is considered a part of this
proxy statement/prospectus, except for any information superseded by information
contained directly in this proxy statement/prospectus or by information
contained in documents filed with or furnished to the Securities and Exchange
Commission after the date of this proxy statement/prospectus that is
incorporated by reference in this proxy statement/prospectus.
This proxy statement/prospectus incorporates by reference the documents
set forth below that have been previously filed with the SEC. These documents
contain important information about Kimco and its financial conditions.
KIMCO SECURITIES AND EXCHANGE
COMMISSION FILINGS (SEC FILE NUMBER
001-10899): PERIOD OR DATE FILED
------------------------------------ ---------------------------------------
Annual Report on Form 10-K.......... Year ended December 31, 2004
Quarterly Reports on Form 10-Q...... Quarters ended March 31,
2005, June 30, 2005, and
September 30, 2005
Current Reports on Form 8-K
and 8-K/A........................... Filed on February 3, 2005, February 8,
2005, April 7, 2005, April 25, 2005,
June 2, 2005, July 18, 2005, July 26,
2005, July 29, 2005, October 25, 2005,
November 14, 2005, December 1, 2005 and
February 3, 2006 (other than the portions
of those documents not deemed to be
filed)
Proxy Statement Filed on May 17, 2005
In addition, Kimco also incorporates by reference additional documents
that either company may file with the Securities and Exchange Commission under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, between the date of this proxy statement/prospectus and the date of the
Atlantic Realty special meeting. These documents include Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K as well as
proxy statements.
Attached to this proxy statement/prospectus as Annex E, are each of the
documents set forth below. These documents contain important information about
Atlantic Realty and its financial conditions.
ATLANTIC REALTY SECURITIES AND
EXCHANGE COMMISSION FILINGS: PERIOD OR DATE FILED
------------------------------------ ---------------------------------------
Annual Report on Form 10-K.......... Year ended December 31, 2004
Quarterly Reports on Form 10-Q...... Quarters ended March 31,
2005, June 30, 2005, and
September 30, 2005
Documents included or incorporated by reference are available from Kimco
and Atlantic Realty, without charge, excluding all exhibits unless an exhibit
has been specifically incorporated by reference into this proxy statement/
prospectus. You can obtain documents incorporated by reference in this proxy
75
statement/prospectus by requesting them in writing or by telephone from the
appropriate company at the following addresses:
By Mail: Atlantic Realty Trust By Mail: Kimco Realty Corporation
747 Third Avenue 3333 New Hyde Park Road
New York, New York 10017 New Hyde Park, New York
Attention: Edwin R. Frankel, 11042-0020
Secretary Attention: Investor
Relations
By Telephone: (212) 702-8561 By Telephone: (516) 869-9000
This proxy statement/prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this proxy
statement/prospectus, or the solicitation of a proxy, in any jurisdiction to or
from any person to whom or from whom it is unlawful to make such offer,
solicitation of an offer or proxy solicitation in such jurisdiction. Neither the
delivery of this proxy statement/prospectus nor any distribution of securities
pursuant to this proxy statement/prospectus shall, under any circumstances,
create any implication that there has been no change in the information set
forth or incorporated into this proxy statement/prospectus by reference or in
the affairs of Kimco or Atlantic Realty since the date of this proxy statement/
prospectus. The information contained in this proxy statement/prospectus with
respect to Kimco and Merger Sub was provided by Kimco, and the information
contained in this proxy statement/prospectus with respect to Atlantic Realty was
provided by Atlantic Realty.
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ANNEX A
================================================================================
AGREEMENT AND PLAN OF MERGER
by and between
KIMCO REALTY CORPORATION,
SI 1339, INC.
and
ATLANTIC REALTY TRUST
dated as of
December 1, 2005
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TABLE OF CONTENTS
PAGE
ARTICLE 1 The Merger.....................................................A-1
Section 1.1 The Merger.....................................................A-1
Section 1.2 Closing........................................................A-2
Section 1.3 Effective Time of the Merger...................................A-2
Section 1.4 Effect of the Merger...........................................A-2
ARTICLE 2 The Surviving Corporation and Conversion of Shares.............A-2
Section 2.1 Charter........................................................A-2
Section 2.2 By-laws........................................................A-3
Section 2.3 Board of Directors; Officers...................................A-3
Section 2.4 Merger Consideration...........................................A-3
Section 2.5 Company Special Dividend.......................................A-4
Section 2.6 Payment........................................................A-4
Section 2.7 Withholding Rights.............................................A-6
Section 2.8 No Further Rights..............................................A-6
Section 2.9 Closing of the Company's Transfer Books........................A-6
Section 2.10 Dissenting Shares..............................................A-6
ARTICLE 3 Representations and Warranties of the Company..................A-6
Section 3.1 Organization...................................................A-6
Section 3.2 Capitalization.................................................A-7
Section 3.3 Authority......................................................A-7
Section 3.4 No Violations; Consents and Approvals..........................A-7
Section 3.5 SEC Documents; Financial Statements............................A-8
Section 3.6 Absence of Certain Changes; No Undisclosed Liabilities.........A-9
Section 3.7 Litigation.....................................................A-9
Section 3.8 Compliance with Applicable Law................................A-10
Section 3.9 Taxes.........................................................A-10
Section 3.10 Certain Employee Plans........................................A-13
Section 3.11 Properties....................................................A-15
Section 3.12 Environmental Matters.........................................A-17
Section 3.13 Information...................................................A-18
Section 3.14 Maryland Takeover Law.........................................A-18
Section 3.15 Broker's Fees.................................................A-19
Section 3.16 Contracts.....................................................A-19
Section 3.17 Insurance.....................................................A-20
Section 3.18 Opinion of Financial Advisor..................................A-20
Section 3.19 Board Recommendation..........................................A-20
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ARTICLE 4 Representations and Warranties of Parent and Merger Sub.......A-20
Section 4.1 Organization..................................................A-20
Section 4.2 Capitalization................................................A-21
Section 4.3 Authority.....................................................A-22
Section 4.4 No Violations; Consents and Approvals.........................A-22
Section 4.5 SEC Documents; Financial Statements...........................A-23
Section 4.6 Litigation....................................................A-23
Section 4.7 Taxes.........................................................A-24
Section 4.8 Proxy Statement; Form S-4 Registration Statement; Other
Information...................................................A-24
Section 4.9 Broker's Fees.................................................A-24
Section 4.10 Authorization for Parent Common Stock.........................A-24
ARTICLE 5 Covenants of the Parties......................................A-25
Section 5.1 Taking of Necessary Action....................................A-25
Section 5.2 Public Announcements; Confidentiality.........................A-27
Section 5.3 Conduct of the Business of the Company........................A-28
Section 5.4 No Solicitation of Transactions...............................A-30
Section 5.5 Information and Access........................................A-32
Section 5.6 Employee and Other Arrangements...............................A-33
Section 5.7 Indemnification...............................................A-33
Section 5.8 Reorganization................................................A-34
Section 5.9 Listing Application...........................................A-34
Section 5.10 Transfer Taxes................................................A-34
Section 5.11 Tax Returns...................................................A-35
Section 5.12 Guaranty......................................................A-35
Section 5.13 Affiliates....................................................A-35
Section 5.14 Estoppels.....................................................A-35
Section 5.15 Casualty; Condemnation........................................A-36
Section 5.16 Title Insurance Policy........................................A-36
ARTICLE 6 Conditions to Closings........................................A-37
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger....A-37
Section 6.2 Conditions to Obligation of the Company to Effect the Merger..A-38
Section 6.3 Conditions to Obligations of the Acquiring Entities to
Effect the Merger.............................................A-38
ARTICLE 7 Termination, Amendment and Waiver.............................A-39
Section 7.1 Termination...................................................A-39
Section 7.2 Procedure and Effect of Termination...........................A-41
Section 7.3 Expenses......................................................A-42
ARTICLE 8 Miscellaneous.................................................A-42
Section 8.1 Counterparts..................................................A-42
Section 8.2 Governing Law.................................................A-43
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Section 8.3 Entire Agreement..............................................A-43
Section 8.4 Notices.......................................................A-43
Section 8.5 Successors and Assigns........................................A-44
Section 8.6 Headings......................................................A-44
Section 8.7 Amendments and Waivers........................................A-44
Section 8.8 Certain Definitions; Interpretation; Absence of Presumption...A-44
Section 8.9 Severability..................................................A-46
Section 8.10 Indemnification Agreement.....................................A-46
Section 8.11 Further Assurances............................................A-46
Section 8.12 Specific Performance..........................................A-47
Section 8.13 Third Party Beneficiaries.....................................A-47
Section 8.14 Survival of Representations and Warranties....................A-47
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INDEX OF DEFINED TERMS
DEFINED TERM SECTION
Acquiring Entities...................................... Section 5.1(b)
Action.................................................. Section 3.7
Affiliate Agreement..................................... Section 5.12
Agreement............................................... Introduction
Paragraph
Business Day............................................ Section 8.8(ii)
Cash Payments........................................... Section 2.6(b)
Certificates............................................ Section 2.6(b)
Change in the Company Board Recommendation.............. Section 5.1(c)
Class A Excess Preferred Stock.......................... Section 4.2
Class A Preferred Stock................................. Section 4.2
Class B Excess Preferred Stock.......................... Section 4.2
Class B Preferred Stock................................. Section 4.2
Class C Excess Preferred Stock.......................... Section 4.2
Class C Preferred Stock................................. Section 4.2
Class D Excess Preferred Stock.......................... Section 4.2
Class D Preferred Stock................................. Section 4.2
Class E Excess Preferred Stock.......................... Section 4.2
Class E Preferred Stock................................. Section 4.2
Class F Excess Preferred Stock.......................... Section 4.2
Class F Preferred Stock................................. Section 4.2
Closing Date............................................ Section 1.2
COBRA................................................... Section 5.6
Code.................................................... Preamble
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DEFINED TERM SECTION
Company................................................. Introduction
Paragraph
Company Board Recommendation............................ Section 3.19
Company Common Stock.................................... Section 2.4
Company Material Adverse Effect......................... Section 8.8(iii)
Company Merger Expenses................................. Section 2.4(c)
Company Permits......................................... Section 3.8
Company Permitted Encumbrances.......................... Section 3.11(a)
Company Plans........................................... Section 3.10(a)
Company SEC Documents................................... Section 3.5
Company Stockholder Meeting............................. Section 5.1(c)
Competing Transaction................................... Section 5.4
Contract................................................ Section 3.16
Department.............................................. Section 1.3
Dissenting Shares....................................... Section 2.10
Effective Time.......................................... Section 1.3
Encumbrances............................................ Section 3.11(a)
Environmental Law....................................... Section 3.12
ERISA................................................... Section 3.10(a)
ERISA Affiliate......................................... Section 3.10(a)
Exchange Act............................................ Section 3.4(b)
Exchange Agent.......................................... Section 2.6(a)
Fairness Opinion........................................ Preamble
Financial Advisor....................................... Preamble
Form S-4 Registration Statement......................... Section 5.1(e)
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DEFINED TERM SECTION
GAAP.................................................... Section 3.5(c)
GAAP Liabilities........................................ Section 8.8(Iv)
Hazardous Materials..................................... Section 3.12
HSR Act................................................. Section 3.4(b)
Indemnification Agreement............................... Section 5.5
Indemnified Parties..................................... Section 5.7
Kimco Standstill Agreement.............................. Section 3.9(f)
Liabilities............................................. Section 8.8(v)
Lien.................................................... Section 3.9(d)
Market Price............................................ Section 2.4(a)
Merger.................................................. Preamble
Merger Consideration.................................... Section 2.4
Merger Sub.............................................. Introduction
Paragraph
MGCL.................................................... Section 1.1
Non-Cure Notice......................................... Section 5.16(a)
Notice of Superior Proposal............................. Section 5.4(b)
NYSE.................................................... Section 2.4(a)
Office Lease............................................ Section 3.11(a)
Parent.................................................. Introduction
Paragraph
Parent Common Stock..................................... Section 2.4
Parent Equity Participation Plan........................ Section 4.2
Parent Material Adverse Effect.......................... Section 8.8(vi)
Parent Option Plan...................................... Section 4.2
Parent SEC Documents.................................... Section 4.5
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DEFINED TERM SECTION
Per Share Stock Consideration........................... Section 2.4(a)
Per Share REIT Dividend Amount.......................... Section 2.5
Person.................................................. Section 8.8(vii)
Property................................................ Section 3.11(a)
Property Restrictions................................... Section 3.11(a)
Proxy Statement......................................... Section 5.1(b)
Ramco................................................... Section 6.3(f)
REIT.................................................... Section 3.9(f)
REIT Dividend Amount.................................... Section 2.5
Required Approvals...................................... Section 5.1
Rockwood................................................ Section 3.15
SEC..................................................... Section 2.4(c)
Securities Act.......................................... Section 3.5
Service Contracts....................................... Section 3.11(d)
Space Leases............................................ Section 3.11(c)
Special Committee....................................... Recitals
Special Dividend........................................ Section 2.5
Subsidiaries............................................ Section 8.8(viii)
Superior Proposal....................................... Section 5.4(b)
Surviving Corporation................................... Section 1.1
Takeover Statutes....................................... Section 3.14
Tax Returns............................................. Section 3.9(p)
Taxes................................................... Section 3.9(p)
Telco Lease............................................. Section 8.8(ix)
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DEFINED TERM SECTION
Tenant Estoppel......................................... Section 5.13
Title Commitment........................................ Section 5.16(a)
Title Insurer........................................... Section 5.16(a)
Total Company Shares.................................... Section 2.4(a)
Total Stock Consideration............................... Section 2.4(a)
Transfer Taxes.......................................... Section 5.10
2005 Dividend........................................... Section 8.8(i)
Voting Agreement........................................ Preamble
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of
December 1, 2005, by and among KIMCO REALTY CORPORATION, a Maryland corporation
("PARENT"), SI 1339, Inc., a Maryland corporation ("MERGER SUB"), and ATLANTIC
REALTY TRUST, a Maryland real estate investment trust (the "COMPANY").
WHEREAS, the respective Board of Directors or Board of Trustees, as
applicable, of Parent, Merger Sub and the Company have approved the merger of
Company with and into Merger Sub (the "MERGER"), upon the terms and subject to
the conditions set forth herein;
WHEREAS, a Special Committee of the Board of Trustees (the "SPECIAL
COMMITTEE") and the Board of Trustees of the Company has received the written
opinion of Robert A. Stanger & Co., Inc. the ("FINANCIAL ADVISOR") to the effect
that, based on, and subject to, the various assumptions and qualifications set
forth in such opinion, as of the date of such opinion, the Merger Consideration
to be received by the holders of the shares of Company Common Stock (other than
Parent, Merger Sub or any of their respective affiliates) pursuant to the Merger
is fair to such holders from a financial point of view (the "FAIRNESS OPINION");
WHEREAS, the Special Committee has determined that this Agreement,
the Merger and the other transactions contemplated hereby are fair to, advisable
and in the best interests of the Company and its stockholders, and has
unanimously voted to approve this Agreement, and recommend acceptance and
approval by the Board of Trustees of, this Agreement, the Merger, and the other
transactions contemplated hereby; and
WHEREAS, the Board of Trustees has determined that this Agreement,
the Merger and the other transactions contemplated hereby are fair to, advisable
and in the best interests of the Company and its stockholders, and has
unanimously voted to approve this Agreement, and recommend acceptance and
approval by the Company's stockholders of, this Agreement, the Merger, and the
other transactions contemplated hereby; and
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"); and
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein the parties hereto
agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions
hereof, at the Effective Time (as defined in Section 1.3) and in accordance with
the provisions of the Maryland General Corporation Law (the "MGCL"), the Company
shall be merged with and into Merger Sub and the separate existence of the
Company shall thereupon cease, and Merger Sub shall continue as the surviving
corporation in the Merger (the "SURVIVING CORPORATION").
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SECTION 1.2 CLOSING. Unless this Merger Agreement shall have been
terminated pursuant to Section 7.1, and subject to the satisfaction or waiver of
the conditions set forth in Article 6, the closing of the Merger will take place
as promptly as practicable (and in any event within three Business Days) after
satisfaction or waiver of the conditions set forth in Section 6.1, Section 6.2
and Section 6.3 (other than conditions that are to be satisfied on the Closing
Date, but subject to the fulfillment or waiver of such conditions), at the
offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New
York 10019, unless another date or place is agreed to in writing by the parties
hereto (the "CLOSING DATE").
SECTION 1.3 EFFECTIVE TIME OF THE MERGER. The Merger shall become
effective upon the acceptance of the filing of the articles of merger with the
State Department of Assessments and Taxation of the State of Maryland (the
"DEPARTMENT") in accordance with the MGCL, and by making all other filings
required under the MGCL to be made prior to or concurrent with the effectiveness
of the Merger, which filings shall be made as soon as practicable on the Closing
Date. When used in this Merger Agreement, the term "EFFECTIVE TIME" shall mean
the time at which such articles are accepted for record by the Department.
SECTION 1.4 EFFECT OF THE MERGER. The Merger shall, from and after
the Effective Time, have all the effects provided by the MGCL. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time, all
the properties, rights, privileges, powers and franchises of the Company and
Merger Sub shall vest in the Surviving Corporation, and other than as provided
herein, all debts, liabilities and duties of the Company and Merger Sub shall
become the debts, liabilities and duties of the Surviving Corporation. If at any
time after the Effective Time the Surviving Corporation shall consider or be
advised that any further deeds, conveyances, assignments or assurances in law or
any other acts are necessary, desirable or proper to vest, perfect or confirm,
of record or otherwise, in the Surviving Corporation, the title to any property
or rights of the Company to be vested in the Surviving Corporation, by reason
of, or as a result of, the Merger, or otherwise to carry out the purposes of
this Agreement, the Company agrees that the Surviving Corporation and its proper
officers and directors may execute and deliver all such deeds, conveyances,
assignments and assurances in law and do all things necessary, desirable or
proper to vest, perfect or confirm title to such property or rights in the
Surviving Corporation and otherwise to carry out the purposes of this Agreement,
and that the proper officers and directors of the Surviving Corporation are
fully authorized in the name of the Company or otherwise to take any and all
such action.
ARTICLE 2
THE SURVIVING CORPORATION AND CONVERSION OF SHARES
SECTION 2.1 CHARTER. The charter of Merger Sub as in effect
immediately prior to the Effective Time shall be the Charter of the Surviving
Corporation after the Effective Time, except that the change of name described
in the articles of merger shall be effective as an amendment thereto, until
thereafter changed or amended as provided therein or by applicable law.
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SECTION 2.2 BY-LAWS. The by-laws of Merger Sub as in effect
immediately prior to the Effective Time shall be the bylaws of the Surviving
Corporation, until, subject to Section 5.7, thereafter changed or amended as
provided therein or by applicable law.
SECTION 2.3 BOARD OF DIRECTORS; OFFICERS. The directors of Merger
Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation and the officers of Merger Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, in each case,
until the earlier of their respective resignations or the time that their
respective successors are duly elected or appointed and qualified.
SECTION 2.4 MERGER CONSIDERATION. As of the Effective Time, by
virtue of the Merger and without any action on the part of any shareholder of
the Company, each outstanding share of beneficial interest, par value $0.01 per
share, of the Company ("Company Common Stock") shall be converted into and
represent the right to receive a number of shares (subject to clause (b) below)
of common stock, par value $0.01 per share, of the Parent (the "PARENT COMMON
STOCK") equal to the Per Share Stock Consideration (as such term is defined in
clause (a) below) (the "MERGER CONSIDERATION"); provided, however, if between
the date hereof and the Effective Time the outstanding shares of Company Common
Stock shall have been changed into a different number of shares or a different
class, by reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, the amounts of cash
per share and Parent Common Stock per share shall be correspondingly adjusted to
reflect such stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares.
(a) The "PER SHARE STOCK CONSIDERATION" shall be a number of shares
of Parent Common Stock equal to the quotient obtained by dividing (I) Total
Stock Consideration by (II) Total Company Shares. "TOTAL STOCK CONSIDERATION"
shall equal the quotient obtained by dividing (i) the amount by which (x) the
sum of (A) Eighty Two Million Five Hundred Thousand Dollars ($82,500,000), (B)
the aggregate amount of the Company's and its Subsidiary's cash and cash
equivalents on hand or in bank accounts as of the close of business on the
Business Day immediately prior to the Closing Date (net of amounts of
outstanding checks or transfers) and (C) all Lease Expenses exceeds (y) the sum
of (aa) the amount of the Company Merger Expenses and (bb) the REIT Dividend
Amount (to the extent not previously paid to the Exchange Agent pursuant to
Section 2.6) and (cc) the 2005 Dividend (to the extent not previously paid) by
(ii) the Market Price. "TOTAL COMPANY SHARES" means the number of outstanding
shares of Company Common Stock immediately prior to the Effective Time. The
"MARKET PRICE" shall equal the closing price on the New York Stock Exchange,
Inc. (the "NYSE") (or, if not listed on such date on the NYSE, such other
exchange on which such shares are then listed) of shares of Parent Common Stock
on the final full trading day immediately preceding the Closing Date. The term
"Lease Expenses" means all leasing commissions, tenant improvement costs, legal
fees and related expenses with respect to (i) the Telco Stores Lease and (ii)
leases entered into following the date hereof and in accordance with Section
5.3(vi).
(b) FRACTIONAL SHARES. Notwithstanding the provisions of clause (a)
of this Section 2.4, no fraction of a share of Parent Common Stock shall be
issued in the Merger. In lieu of any such fractional shares, each holder of
Company Common Stock receiving fractional shares of Parent Common Stock in the
Merger, upon surrender of a Certificate for exchange pursuant to
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Section 2.6, shall be paid an amount in cash (without interest), rounded to the
nearest cent, determined by multiplying (x) the Market Price by (y) the
fractional interest in Parent Common Stock to which such holder would otherwise
be entitled (after taking into account all shares of Company Common Stock then
held of record by such holder). On the Business Day immediately preceding the
Closing Date, the chief financial officer of the Company shall deliver to the
Merger Sub a certificate, in form and substance reasonably satisfactory to the
Parent and signed on behalf of the Company setting forth in reasonable detail
(i) the nature and amount of each of the Company Merger Expenses (whether
previously paid or not), (ii) the REIT Dividend Amount, (iii) the 2005 Dividend,
if any, (iv) the aggregate amount of the Company's and its Subsidiary's cash and
cash equivalents on hand or in bank accounts as of the Business Day immediately
prior to the Closing Date (net of amounts of outstanding checks or transfers)
and (iv) the Lease Expenses.
(c) For purposes of this Agreement, "COMPANY MERGER EXPENSES" means
all (i) brokerage or similar fees, (ii) legal and accounting fees and
disbursements, (iii) advisory, consulting and severance fees and expenses, (iv)
printing and Securities and Exchange Commission ("SEC") filing fees and
expenses, (v) Transfer Taxes (as such term is defined in Section 5.10)
regardless of whether such Transfer Taxes are the obligation of the Company and
its Subsidiary or the obligation of Parent and its Subsidiaries but excluding
any such Transfer Taxes that are the obligation of any shareholder (other than
the Parent and its affiliates) solely in their capacity as a shareholder, (vi)
all GAAP Liabilities (including all accounts payable and accrued expenses, and
any roll-back property taxes actually assessed and, to the extent applicable,
excluding the 2005 Dividend and the Special Dividend), and (vii) other unpaid
fees and expenses incurred or accrued by the Company and its Subsidiary, which
in each case have not been paid on or prior to the Business Day immediately
prior to the Closing Date.
SECTION 2.5 COMPANY SPECIAL DIVIDEND. The Company shall declare and
pay, in accordance with Section 2.6, a dividend (the "SPECIAL DIVIDEND") to its
shareholders, the record date for which shall be the close of business on the
last Business Day prior to the Closing Date. The Special Dividend shall be in an
amount equal to the dividend the Company, in consultation with Parent,
reasonably determines is necessary for the Company to declare and pay in order
to qualify as a REIT (as such term is defined in Section 3.9) for its taxable
year commencing on January 1, 2006 and ended on the Closing Date (the "REIT
DIVIDEND AMOUNT") and the per share amount of the REIT Dividend Amount shall be
an amount equal to the REIT Dividend Amount divided by the number of shares of
Company Common Stock outstanding as of the last Business Day prior to the
Closing Date (the "PER SHARE REIT DIVIDEND AMOUNT").
SECTION 2.6 PAYMENT.
(a) Prior to the Effective Time, Parent shall appoint a commercial
bank or trust company to act as an exchange agent hereunder for purposes of
exchanging shares of Company Common Stock for the Merger Consideration (the
"EXCHANGE AGENT"). At or prior to the Effective Time, Parent shall deposit with
the Exchange Agent, in trust for the benefit of holders of shares of Company
Common Stock, certificates representing the Parent Common Stock issuable
pursuant to Section 2.4. Parent and Merger Sub agree to make available directly
or indirectly to the Exchange Agent, from time to time as needed, cash
sufficient to pay cash in lieu of any fractional shares pursuant to Section
2.4(b). Prior to the Effective Time, the Company
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will deposit with the Exchange Agent cash sufficient to pay any dividends and
other distributions, if any, including the REIT Dividend Amount and, to the
extent not previously paid, the 2005 Dividend.
(b) Promptly after the Effective Time, the Exchange Agent shall pay
the Per Share REIT Dividend Amount and to the extent not previously paid, the
2005 Dividend Amount to holders of record on the last Business Day prior to the
Closing Date, in accordance with customary procedures for the payment of
dividends, and to mail to each record holder of shares of Company Common Stock
as of the Closing Date (i) a letter of transmittal, including if applicable a
form of election, which shall specify that delivery shall be effected, and risk
of loss and title to the Company Common Stock shall pass, only upon proper
delivery of certificates which immediately prior to the Effective Time
represented the Company Common Stock held by such shareholder ("CERTIFICATES")
to the Exchange Agent, and which letter shall be in customary form and have such
other provisions as Parent or Merger Sub may reasonably specify (such letter to
be reasonably acceptable to the Company prior to the Effective Time) and (ii)
instructions for effecting the surrender of such Certificates in exchange for
Merger Consideration. Upon surrender of the Certificates to the Exchange Agent
together with such letter of transmittal, duly executed and completed in
accordance with the instructions thereto, and such other documents as may
reasonably be required by the Exchange Agent, the holder of such Certificates
shall be entitled to receive in exchange therefor (A) one or more shares of
Parent Common Stock (which shall be in uncertificated book-entry form unless a
physical certificate is requested by such holder) representing, in the
aggregate, the whole number of shares of Per Share Stock Consideration that such
shareholder has the right to receive pursuant to Section 2.4 (after taking into
account all shares of Company Common Stock then held by such shareholder) and
(B) a check in the amount equal to the cash that such shareholder has the right
to receive pursuant to the provisions of Section 2.4(a) and Section 2.5, cash in
lieu of any fractional shares of Parent Common Stock pursuant to Section 2.4(b)
and any unpaid dividends and other distributions, if any, ("CASH PAYMENTS"). No
interest will be paid or will accrue on any Cash Payments. In the event of a
transfer of ownership of Company Common Stock which is not registered in the
transfer records of the Company, the Merger Consideration and any Cash Payments
to which such holder is entitled, may be issued with respect to the Company
Common Stock to such transferee if such shareholder's Company Common Stock are
presented to the Exchange Agent accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
(c) Unless otherwise required by applicable law, any portion of the
aggregate Merger Consideration which remains undistributed to holders of shares
of Company Common Stock one year after the Effective Time shall be delivered to
the Parent and any holders of shares of Company Common Stock who have not
theretofore complied with the provisions of this ARTICLE 2 shall thereafter look
only to Surviving Corporation for payment of any Merger Consideration to which
they are entitled pursuant to this ARTICLE 2. None of Parent, Surviving
Corporation or the Exchange Agent shall be liable to any holder of shares of
Company Common Stock for any cash and securities held by Parent, Surviving
Corporation or the Exchange Agent for payment pursuant to this ARTICLE 2
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
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SECTION 2.7 WITHHOLDING RIGHTS. Each of the Surviving Corporation
and Parent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of Company Common
Stock such amounts as it determines is required to deduct and withhold with
respect to the making of such payment under the Code, or any provision of state,
local or foreign tax law. To the extent that amounts are so withheld by the
Surviving Corporation or Parent, as the case may be, such withheld amounts shall
be treated for all purposes of this Agreement as having been paid to holders of
Company Common Stock in respect of which such deduction and withholding was made
by the Surviving Corporation or Parent, as the case may be.
SECTION 2.8 NO FURTHER RIGHTS. From and after the Effective Time,
holders of Certificates shall cease to have any rights as shareholders of the
Company, except as provided herein (including the right to receive (i) the
Merger Consideration, (ii) the Per Share REIT Dividend Amount, (iii) any unpaid
2005 Dividend amount and (iv) any cash to be paid in lieu of fractional shares
of the Parent Common Stock as set forth in Section 2.4 (b)) or by law.
SECTION 2.9 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the
Effective Time, the stock transfer books of the Company shall be closed and no
transfer of shares of Company Common Stock shall be made thereafter. In the
event that, after the Effective Time, Certificates are presented to Merger Sub
or the Surviving Corporation, they shall be cancelled and exchanged for Merger
Consideration for each share of Company Common Stock represented as provided in
Section 2.4.
SECTION 2.10 DISSENTING SHARES. Notwithstanding Section 2.8 hereof,
shares of Company Common Stock issued and outstanding immediately prior to the
Effective Time and held by a holder who has properly exercised and perfected
appraisal rights under Title 3. Subtitle 2. of the MGCL (the "DISSENTING
SHARES") shall not be converted into the right to receive the Merger
Consideration, but the holders of Dissenting Shares shall be entitled to receive
such consideration as shall be determined pursuant to Title 3. Subtitle 2. of
the MGCL and pursuant to the Maryland Business Combination Act; PROVIDED,
HOWEVER, that if any such holder shall have failed to perfect or shall
effectively withdraw or lose his or her right to appraisal and payment under the
MGCL, such holder's shares of Company Common Stock shall thereupon be deemed to
have been converted as of the Effective Time into the right to receive Merger
Consideration as set forth in Section 2.4 hereof, and such shares of Company
Common Stock shall no longer be Dissenting Shares.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub
as follows:
SECTION 3.1 ORGANIZATION. The Company is a real estate investment
trust and its Subsidiary is a corporation, each duly organized, validly existing
and in good standing under the laws of their respective jurisdictions of
incorporation or organization, as applicable, and each of the Company and its
Subsidiary has all requisite real estate investment trust or corporate power
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and authority to own, lease and operate their respective properties and to carry
on their respective businesses as now being conducted. Each of the Company and
its Subsidiary is duly qualified or licensed and in good standing to do business
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification necessary,
except in such jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect. The Company
owns directly all of the outstanding capital stock or other equity interests of
its Subsidiary free and clear of any liens and encumbrances. The Company does
not directly or indirectly own any capital stock or other proprietary interest
in any person other than its Subsidiary.
SECTION 3.2 CAPITALIZATION. The authorized capital stock of the
Company consists of 10,000,000 shares of Company Common Stock and 10,000,000
shares of excess common stock, par value $0.01. As of August 31, 2005, there
were 3,561,553 shares of Company Common Stock and no shares of excess common
stock issued and outstanding. The Company's Subsidiary does not own any shares
of Company Common Stock. There are no outstanding options to purchase shares of
Company Common Stock. There were not as of the date hereof, and at all times
thereafter through the Effective Time there will not be, any existing options,
warrants, calls, subscriptions, or other rights or other agreements or
commitments obligating the Company or its Subsidiary to issue, transfer or sell
any shares of capital stock or other equity interests of the Company or its
Subsidiary or any other securities convertible into or evidencing the right to
subscribe for any such shares or other equity interests. All issued and
outstanding shares of Company Common Stock are duly authorized and validly
issued, fully paid, non-assessable and have not been issued in violation of any
preemptive rights with respect thereto. There are no outstanding obligations of
the Company or its Subsidiary to repurchase, redeem, or otherwise acquire any
shares of Company Common Stock or to grant preemptive or anti-dilutive rights
with respect to any Company Common Stock.
SECTION 3.3 AUTHORITY. The Company has full real estate investment
trust power and authority to execute and deliver this Agreement and, subject to
the approval of its shareholders, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized and
approved by the Board of Trustees of the Company, and other than the approval by
its shareholders, no other real estate investment trust proceedings are
necessary to authorize this Agreement or the consummation of the transactions
contemplated hereby. The Board of Trustees of the Company has directed that this
Agreement be submitted to the stockholders of the Company for their approval.
This Agreement has been duly and validly executed and delivered by the Company
and, assuming this Agreement constitutes a legal, valid and binding agreement of
Parent and Merger Sub, it constitutes a legal, valid and binding agreement of
the Company, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights or general principles of equity.
SECTION 3.4 NO VIOLATIONS; CONSENTS AND APPROVALS. (a) None of the
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby or compliance by the Company with any of the provisions
hereof will (i) conflict with or violate any provision of its declaration of
trust or bylaws, (ii) conflict with, result in a violation or
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breach of, or constitute (with or without due notice or lapse of time or both) a
default, or give rise to any right of modification, termination, cancellation or
acceleration, or result in the loss of any benefit to which the Company or its
Subsidiary is entitled or any increase in any of the Company's or its
Subsidiary's payment or performance obligations under any of the terms,
conditions or provisions of the Office Lease, any Contract, Space Lease,
easement, arrangement, understanding, order, arbitration award, license,
franchise, permit judgment, decree, note, bond, mortgage, indenture or other
instrument to which the Company or its Subsidiary is a party, or by which the
Company or its Subsidiary or any of their respective properties is bound or
result in the creation or imposition of any Lien on assets of the Company or its
Subsidiary, or (iii) violate any statute, rule, regulation, order or decree of
any public body or authority by which the Company or its Subsidiary or any of
their respective properties is bound, excluding from the foregoing clauses (ii)
or (iii) violations, breaches, defaults or rights which, either individually or
in the aggregate, would not reasonably be expected to have a Company Material
Adverse Effect or for which the Company has received or, prior to the Closing
Date, shall have received effective consents or waivers.
(b) No filing or registration with, notification to, or
authorization, consent or approval of, any governmental entity is required in
connection with the execution and delivery of this Agreement by the Company, or
the consummation by the Company of the transactions contemplated hereby, except
(i) expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT"), if a filing under the HSR
Act is required, (ii) in connection, or in compliance, with the provisions of
the Securities Exchange Act of 1934, as amended and the rules promulgated
thereunder (the "EXCHANGE ACT"), (iii) the filing of articles of merger with the
Department, (iv) such filings and consents as may be required under any
environmental law pertaining to any notification, disclosure or required
approval triggered by the Merger or the transactions contemplated hereby, (v)
filing with, and approval of NASDAQ and the SEC with respect to the Merger and
the delisting and deregistration of the shares of Company Common Stock, (vi)
such consents, approvals, orders, authorizations, notifications, registrations,
declarations and filings as may be required under the corporation, takeover or
blue sky laws of various states and (vii) such other consents, approvals,
orders, authorizations, notifications, registrations, declarations and filings
the failure of which to be obtained or made would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
SECTION 3.5 SEC DOCUMENTS; FINANCIAL STATEMENTS. (a) The Company has
timely filed with the SEC and has made available to Merger Sub copies of each
registration statement, form, statement, report, proxy statement, information
statement, schedule or other document required to be filed with the SEC by the
Company or its Subsidiary since December 31, 1999 under the Securities Act or
the Exchange Act (such documents, as supplemented and amended since the time of
filing, the "COMPANY SEC DOCUMENTS"). As of the dates filed (and, in the case of
registration statements and proxy statements, on the dates of effectiveness and
the dates of mailing, respectively, and in the case of any Company SEC Document
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such amending or superseding filing), the Company SEC Documents,
including any financial statements or schedules included therein, complied in
all material respects with the applicable requirements of the Securities Act of
1933, as amended and the rules promulgated thereunder (collectively, the
"SECURITIES ACT"), and the Exchange Act, as the case may be, and
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none of such Company SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(b) None of the Company, its Subsidiary, or any of their respective
assets, businesses, or operations, is as of the date of this Agreement a party
to, or is bound or affected by, or receives benefits under any Contract or
agreement or amendment thereto, that in each case would be required to be filed
as an exhibit to a Form 10-K as of the date of this Agreement that has not been
filed as an exhibit to a Company SEC Document filed prior to the date of this
Agreement.
(c) As of the dates filed (and, in the case of registration
statements and proxy statements, on the dates of effectiveness and the dates of
mailing, respectively, and, in the case of any Company SEC Document amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such amending or superseding filing), the consolidated financial statements
included in the Company SEC Documents complied as to form in all material
respects with then applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, were prepared in accordance
with United States generally accepted accounting principles ("GAAP") applied on
a consistent basis during the periods involved (except as may be indicated
therein or in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q of the Commission) and fairly presented the Company's
consolidated financial position of the Company and its Subsidiary for the
periods then ended.
SECTION 3.6 ABSENCE OF CERTAIN CHANGES; NO UNDISCLOSED LIABILITIES.
(a) Except as set forth on Schedule 3.6, since December 31, 2004
through the date of this agreement, the Company has not (i) incurred any
Liability or suffered any event or occurrence which, individually or in the
aggregate, would reasonably be expected to have a Company Material Adverse
Effect, (ii) made any changes in accounting methods, principles or practices
(iii) declared, set aside or paid any dividend or other distribution with
respect to its capital stock, or (iv) taken any action that if, taken after the
execution of this Agreement, would violate Section 5.3. Since December 31, 2004
to the date of this Agreement, each of the Company and its Subsidiary has
conducted its operations according to its ordinary course of business consistent
with past practice.
(b) Except (i) to the extent disclosed or reserved against on the
balance sheet of the Company dated as of December 31, 2004 included in the
Company SEC Documents, (ii) as incurred after the date thereof in the ordinary
course of business consistent with past practice and, if incurred after the date
of this Agreement, not prohibited by this Agreement, (iii) for Company Merger
Expenses, or (iv) as set forth on SCHEDULE 3.6(B), neither the Company nor its
Subsidiary has any Liabilities.
SECTION 3.7 LITIGATION. Except as set forth on SCHEDULE 3.7, there
is no suit, claim, action, proceeding, hearing, notice of violation, demand
letter or investigation (each an "ACTION") pending or, to the knowledge of the
Company, threatened against the Company or its Subsidiary or any of their
respective properties or assets, officers or directors, before any governmental
entity which, individually or in the aggregate, would reasonably be expected to
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have a Company Material Adverse Effect. Except as set forth on SCHEDULE 3.7,
neither the Company nor its Subsidiary is, nor since December 31, 1999 has been,
subject to any outstanding order, writ, injunction or decree which, individually
or in the aggregate, would reasonably be expected to have a Company Material
Adverse Effect.
SECTION 3.8 COMPLIANCE WITH APPLICABLE LAW. Except as set forth in
SCHEDULE 3.8, the Company and its Subsidiary hold, and since December 31, 1999
have held, all permits, licenses, variances, exemptions, orders and approvals of
all governmental entities necessary for the lawful ownership and operation of
the Property (as defined in Section 3.11) or the lawful conduct of their
respective businesses (the "Company Permits"), except for failures to hold such
permits, licenses, variances, exemptions, orders and approvals which would not,
individually or in the aggregate, reasonably be expected to have, individually
or in the aggregate, a Company Material Adverse Effect. Except as set forth in
SCHEDULE 3.8, the Company and its Subsidiaries and the Property (as hereinafter
defined) are in compliance with the terms of the Company Permits, except where
the failure so to comply would not, individually or in the aggregate, reasonably
be expected to have a Company Material Adverse Effect. Except as set forth in
SCHEDULE 3.8, the businesses of the Company and its Subsidiaries and the
operation of the Company Properties are not being conducted in violation of any
law, ordinance or regulation of any governmental entity except for violations or
possible violations which, individually or in the aggregate, would not
reasonably be expected to have a Company Material Adverse Effect. Except as set
forth in SCHEDULE 3.8, no investigation or review by any governmental entity
with respect to the Company or its Subsidiary or any Property is pending or, to
the knowledge of the Company, threatened nor, to the knowledge of the Company,
has any governmental entity indicated an intention to conduct the same, other
than, in each case, those which would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect.
SECTION 3.9 TAXES.
(a) Except as set forth on SCHEDULE 3.9(A), each of the Company and
its Subsidiary has duly and timely filed, or caused to be filed, all federal,
state, local and foreign income and other material Tax Returns (as defined in
Section 3.9(p) of this Agreement) required to be filed by it. Each such Tax
Return is accurate and complete in all material respects. Except as may be
required pursuant to Section 5.11, there are no outstanding requests for any
extension of time within which to file any Tax Return or within which to pay any
Taxes (as defined in Section 3.9(p) of this Agreement) shown to be due on any
Tax Return.
(b) Except as set forth on Schedule 3.9(b) each of the Company and
its Subsidiary has duly and timely paid or caused to be duly and timely paid,
all Taxes that are shown on all Tax Returns required to be filed by it as due
and payable, and has paid, or caused to be paid, all Taxes otherwise required to
be paid, other than such Taxes as are being contested in good faith and for
which adequate reserves have been established and other than where the failure
to so file, pay or withhold would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. Each of
Company and its Subsidiary has withheld proper and accurate amounts from their
employees, customers, depositors, stockholders, and others from whom they are or
were required to withhold taxes in compliance with all applicable federal,
state, local, provincial and foreign laws and have timely paid all such withheld
amounts to the
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appropriate taxing authorities. There are no waivers or extensions of any
applicable statute of limitations to assess any Taxes.
(c) Except as set forth on SCHEDULE 3.9(C), the Company has incurred
no liability for any material Taxes under Sections 857(b), 860(c), or 4981 of
the Code, IRS Notice 88-19, Treasury Regulation Section 1.337(d)-5, or Treasury
Regulation Section 1.337(d)-6 including any material Tax arising from a
prohibited transaction described in Section 857(b)(6) of the Code, and neither
the Company nor its Subsidiary has incurred any material liability for Taxes
other than in the ordinary course of business other than transfer or similar
Taxes arising in connection with the sales of property. No event has occurred,
and no condition or circumstance exists, which presents a risk that any material
Tax described in the preceding sentence will be imposed on the Company or its
Subsidiary.
(d) Except as set forth on SCHEDULE 3.9(D), there are no material
claims or assessments pending against the Company or its Subsidiary for any
alleged deficiency in any Tax, and neither the Company nor its Subsidiary knows
of any threatened Tax claims or assessments against the Company or its
Subsidiary which if upheld would reasonably be expected to result, individually
or in the aggregate, in a material cost or liability for the Company or its
Subsidiary. There are no pledges, claims, liens, charges, encumbrances or
security interests of any kind or nature whatsoever (the foregoing, and
mortgages, deeds of trust, options, covenants, conditions, restrictions,
easements and rights of first refusal or first offer, each a "LIEN") for any
Taxes upon the assets of the Company or its Subsidiary except for statutory
Liens for Taxes not yet due.
(e) There is no material deferred inter-company gain within the
meaning of the Treasury Regulations promulgated under Section 1502 of the Code.
(f) Except as set forth on SCHEDULE 3.9(F), assuming the accuracy of
the representations and warranties made by Parent and its affiliates in the
Third Amended and Restated Standstill Agreement dated as of August 3, 2004 (the
"KIMCO STANDSTILL AGREEMENT") by and among the Company on the one hand and
Parent, Kimco Realty Services, Inc. and Milton Cooper on the other hand, and the
accuracy of the representations and warranties made by the parties (other than
the Company) to the Standstill Agreement, dated as of January 27, 2004, by and
among the Company, on the one hand, and High Rise Capital Management, L.P., High
Rise Capital Advisors, L.L.C., Bridge Realty Advisors, L.L.C., Zankel Management
GP, L.L.C., Cedar Bridge Realty Fund, L.P., Cedar Bridge Institutional Fund,
L.P., a Delaware limited partnership Arthur Zankel and David O'Connor on the
other hand, which representations the Company has no reason to believe are not
true and accurate, (i) the Company was eligible to and did validly elect to be
taxed as a real estate investment trust (a "REIT") within the meaning of the
Code for calendar year 1996 and all subsequent taxable periods, (ii) the Company
has qualified as REIT, and complied with all applicable laws, rules and
regulations, including the Code, relating to REITs, for each taxable year
commencing with its taxable year ending December 31, 1996, (ii) has operated,
and intends to continue to operate, in such a manner as to qualify as a REIT
through the Effective Time, and (iii) the Company has not taken or omitted to
take any action which could result in a challenge to its status as a REIT.
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(g) No challenge to the Company's status as a REIT is pending, or to
the Company's knowledge, is or has been threatened. Neither the Company nor its
Subsidiary holds any asset the disposition of which would be subject to rules
similar to Section 1374 of the Code as announced in IRS Notice 88-19 or Treasury
Regulation Section 1.337(d)-5 or Treasury Regulation Section 1.337(d)-6. The
Subsidiary, since its acquisition by the Company, has been and continues to be
classified for Federal income tax purposes as a "qualified REIT subsidiary"
within the meaning of Section 856(i)(2) of the Code and, other than the
Subsidiary, the Company does not own (directly or indirectly) any other equity
interest in an entity (including a corporation, partnership or limited liability
company).
(h) The Company does not have any earnings and profits attributable
to the Company or any other corporation in any non-REIT year within the meaning
of Section 857 of the Code. Neither the Company nor its Subsidiary has made any
election, and is not required, to treat any of its assets as owned by another
person for tax purposes (other than by reason of a Subsidiary being a "qualified
REIT subsidiary").
(i) Neither the Company nor its Subsidiary has made any payments, is
obligated to make any payments, or is a party to an agreement that could
obligate it to make any payments that will not be deductible under Section 280G
of the Code. The Company and its Subsidiary have disclosed to the IRS all
positions taken on their federal income Tax Returns which could give rise to a
substantial understatement of Tax under Section 6662 of the Code. The
disallowance of a deduction under Section 162(m) of the Code for employee
remuneration will not apply to any amount paid or payable by the Company or the
Subsidiaries under any plan or other agreement, program, arrangement or
understanding currently in effect.
(j) Except as set forth in SCHEDULE 3.9(J), and except as set forth
in the following sentence, neither the Company nor its Subsidiary has received
or is subject to any written ruling of a taxing authority related to Taxes or
has entered into any written and legally binding agreement with a taxing
authority relating to Taxes. The Company has entered into a written closing
agreement with the Internal Revenue Service with respect to all claims raised by
the Internal Revenue Service with respect to the Company's taxable years 1996
and 1997. No issues have been raised in any examination by any taxing authority
with respect to the Company or the Subsidiary which, by application of similar
principles, reasonably could be expected to result in a proposed deficiency or
increase in Tax for any other period not so examined.
(k) Other than the Tax Agreement between the Company and RPS Realty
Trust dated May 10, 1996 and listed on SCHEDULE 3.9(K), neither the Company nor
its Subsidiary (a) is a party to or is otherwise subject to any Tax allocation
or sharing agreement, or (b) has any liability for Taxes of another person under
law, by contract or otherwise except for withholding Taxes incurred in the
ordinary course of business that have been properly withheld but are not yet
required to be deposited with a Tax authority. Except as set forth on SCHEDULE
3.9(K), the Company has no liability (contingent or otherwise) or unsatisfied
obligation to RPS Realty Trust under or arising out of the Tax Agreement between
the Company and RPS Realty Trust dated May 10, 1996.
(l) Neither the Company nor its Subsidiary has distributed stock of
another person, or has had its stock distributed by another person, in a
transaction that occurred on or
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after January 1, 2000 that was purported or intended to be governed in whole or
in part by Code Section 355.
(m) Neither the Company nor its Subsidiary has taken any action or
knows of any fact, agreement, plan or other circumstance that is reasonably
likely to prevent the Merger from qualifying as a "reorganization" within the
meaning of Section 368(a) of the Code.
(n) To the knowledge of the Company as of the Closing Date, neither
the Company nor its Subsidiary is or has been a party to any "reportable
transaction" within the meaning of Treasury Regulations Section 1.6011-4(b).
(o) Except for the Special Dividend, and the 2005 Dividend, if any,
it is not necessary for the Company to declare and pay a dividend in order to
maintain its qualification as a REIT.
(p) For purposes of this Agreement, "TAXES" means all taxes (whether
United States federal, state or local or foreign) of any kind whatsoever,
including income, alternative or add-on minimum, estimated, gross receipts,
profits, sales, use, occupation, value added, ad valorem, transfer, franchise,
withholding, payroll, employment, unemployment, net worth, social security,
worker's compensation, excise, or property taxes, together with any interest,
penalties, additions to tax and additional amounts imposed with respect thereto
whether disputed or not, and shall include any amounts payable pursuant to any
tax sharing agreement or with respect to which any relevant entity is liable as
a successor, pursuant to contract or otherwise. For purposes of this Agreement,
"TAX RETURNS" means returns, reports, forms or other documentation (including
any additional or supporting material and any amendments or supplements)
required to be filed with any taxing authority of the United States or any other
relevant jurisdiction responsible for the imposition or collection of Taxes,
including any information returns, claims for refunds, amended returns, or
declarations of estimated Taxes.
SECTION 3.10 CERTAIN EMPLOYEE PLANS.
(a) The Company and its Subsidiary have complied, and are now in
compliance, in all material respects with all provisions of ERISA, the Code and
all laws and regulations applicable to each "employee benefit plans," as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and each other employee benefit plan, program, policy,
practice or other arrangement providing benefits to any current or former
employee, officer or director of the Company or its Subsidiary or any
beneficiary or dependent thereof that is sponsored or maintained by the Company
or its Subsidiary or to which the Company or its Subsidiary is obligated to
contribute, including without limitation any bonus, incentive, deferred
compensation, vacation, stock purchase, stock option, severance, employment,
change of control or fringe benefit plan, program or policy (the "COMPANY
PLANS"). SCHEDULE 3.10(A) sets forth a complete and accurate list of all Company
Plans. No Company Plan is intended to be a "qualified plan" within the meaning
of Section 401(a) of the Code, nor is any Company Plan subject to Title IV or
Section 302 of ERISA or Section 412 or 4971 of the Code. None of the Company,
its Subsidiary and their respective "ERISA Affiliates" (as defined in the next
sentence) contributes to or is obligated to contribute to, or has, at any time
within the last six years, contributed to or been obligated to contribute to,
any "multiemployer plan" within
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the meaning of Section 4001(a)(3) of ERISA or any plan with two or more
contributing sponsors at least two of whom are not under common control, within
the meaning of Section 4063 of ERISA. The term "ERISA AFFILIATE" means, with
respect to any entity, trade or business, any other entity, trade or business
that is a member of a group described in Section 414(b) or (c), (m) or (o) of
the Code or Section 4001(b)(1) of ERISA that includes the first entity, trade or
business, or that is a member of the same "controlled group" as the first
entity, trade or business pursuant to Section 4001(a)(14) of ERISA. There does
not now exist, nor do any circumstances exist that could result in, any
Liability on the part of the Company or its Subsidiary under (i) Title IV of
ERISA, (ii) section 302 of ERISA, or (iii) sections 412 and 4971 of the Code.
There does not now exist, nor do any circumstances exist that could result in,
any Liability on the part of the Company its Subsidiary under the continuation
coverage requirements of section 601 et seq. of ERISA and section 4980B of the
Code, other than such Liabilities that arise solely out of, or relate solely to,
the Company Plans. Neither the Company, its Subsidiary, nor any of their
respective directors, officers, employees or agents has, with respect to any
Company Plan, engaged in any "prohibited transaction" (as such term is defined
in Section 4975 of the Code or Section 406 of ERISA)) nor has any Company Plan
engaged in any such prohibited transaction which could result in any taxes or
penalties or prohibited transactions under Section 4975 of the Code or under
Section 502(i) of ERISA, which, in the aggregate, would reasonably be expected
to result in material Liability on the part of the Company or its Subsidiary.
Copies of all of the Company Plans and any related trusts and summary plan
descriptions have been made available to Merger Sub.
(b) The Company and its Subsidiary are each in material compliance
with all applicable federal, state and local laws respecting employment,
employment practices, terms and conditions of employment and wages and hours of
employment. Without limiting the foregoing, each individual who renders services
to the Company or its Subsidiary who is classified as having the status of an
independent contractor or other non-employee status for any purpose is properly
so characterized. Neither the Company nor its Subsidiary is a party to or
subject to any labor union or collective bargaining agreement with respect to
any of its employees. No labor organization or group of employees of the Company
or its Subsidiary has made a pending demand for recognition or certification,
and there are no representation or certification proceedings or petitions
seeking a representation proceeding presently pending or threatened to be
brought or filed, with the National Labor Relations Board or any other labor
relations tribunal or authority.
(c) Except as set forth on SCHEDULE 3.10(C), none of the execution
and delivery of this Agreement, receipt of the Company Stockholder Approval and
the consummation of the transactions contemplated hereby will result in, cause
the accelerated vesting or delivery of, or require, any payment or benefit to
any employee or former employee of the Company, or its Subsidiary, either alone
or in conjunction with any other event (including, without limitation,
termination of employment). SCHEDULE 3.10(C) lists the maximum amount of the
"excess parachute payments" within the meaning of Section 280G of the Code that
could become payable by the Company and its Subsidiary and ERISA Affiliates in
connection with the execution and delivery of this Agreement, receipt of the
Company Stockholder Approval or the consummation of the transactions
contemplated hereby.
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SECTION 3.11 PROPERTIES.
(a) The Company's Subsidiary owns marketable fee simple title to the
real property, whose legal description is listed on SCHEDULE 3.11 attached
hereto (the "PROPERTY"). The Property is not subject to any rights of way,
written agreements, laws, ordinances and regulations affecting building use or
occupancy, or reservations of an interest in title (collectively, "Property
Restrictions") or Liens (including Liens for Taxes), mortgages or deeds of
trust, claims against title, charges which are Liens, security interests or
other encumbrances on title (the "Encumbrances"), except for (i) Property
Restrictions and Encumbrances set forth in SCHEDULE 3.11(A), (ii) Property
Restrictions imposed or promulgated by law or any governmental body or authority
with respect to real property, including zoning regulations, which, individually
or in the aggregate, would not have a Company Material Adverse Effect, (iii)
Property Restrictions and Encumbrances disclosed on existing title reports or
existing surveys provided to Parent or Parent's representatives prior to the
date hereof, and (iv) mechanics', carriers', workmen's, repairmen's Liens and
other Encumbrances and Property Restrictions, if any, which, individually or in
the aggregate, would not (x) materially and adversely affect the value of the
Property or (y) materially and adversely impair the use and operations of the
Property (the Property Restrictions and Encumbrances set forth in clauses (i)
through (iv) above, in each case subject to expansion as set forth in Section
5.16, being hereinafter referred to collectively as the "COMPANY PERMITTED
ENCUMBRANCES"). Valid policies of title insurance have been issued insuring the
Company's or its Subsidiary' title to the Property in amounts at least equal to
the purchase price thereof, subject only to the Company Permitted Encumbrances
and such policies are, at the date hereof, in full force and effect and no claim
has been made against any such policy. The Company's lease for its headquarters
at 747 Third Avenue, New York, New York 10017 (the "OFFICE LEASE") is valid,
binding and in full force and effect and is not subject to any pledge, lien,
mortgage, sublease, assignment, license or other agreement granting to any third
party any interest in such Lease or any right to the use or occupancy the
property leased thereunder. A true and complete copy of the Lease has previously
been delivered to Parent, including without limitation all amendments or
modifications thereof and all side letters or other instruments affecting the
obligations of any party thereunder. The Company is now in possession of the
property leased thereunder. There are no outstanding defaults or circumstances
which, upon the giving of notice or passage of time or both, would constitute a
default or breach by either party under the Lease and the consummation of the
transactions contemplated hereby does not require the consent of the lessor
under the Lease and will not constitute a breach or default under the Lease. The
Company and its Subsidiary have no interests in any real property other than the
Property and the Lease.
(b) Neither the Company nor its Subsidiary has received any notice
from any governmental authority, mortgagee, tenant, insurer or other party (i)
that any portion of the Property or the use or operation of any portion of the
Property is currently in violation of any zoning, environmental or other land
use regulations, and to the Company and its Subsidiary's knowledge no such
notice has been issued; (ii) that the Company or its Subsidiary is currently in
violation or with the passage of time will be in violation of the requirements
of any ordinance, law or regulation or order of any government or any agency,
body or subdivision thereof (including, without limitation, the local building
department) or the recommendations of any insurance carrier or Board of Fire
Underwriters affecting the Property, or that any investigation has been
commenced, or is contemplated, regarding any such possible violation; or (iii)
asserting
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that the Company or its Subsidiary is required to perform work at the Property
and to the Company's knowledge no such notice has been issued.
(c) Each lease by the Company or its Subsidiary of a portion of the
Property to third parties (the "SPACE LEASES") is described (including the name
of the tenant, the number of square feet demised, the base monthly rent, and the
scheduled expiration date) on SCHEDULE 3.11(C). Each Space Lease is validly
existing, in full force and effect and enforceable against the other parties
thereto; no Space Lease has been modified or supplemented except (if at all) as
set forth on SCHEDULE 3.11(C); no rent has been paid more than one month in
advance by any tenant, and no tenant is entitled to any "free rent" period,
defense, credit, allowance or offset against rental; the information set forth
in SCHEDULE 3.11(C) is true, correct and complete. To the Company's knowledge,
there is no default of either landlord or tenant under any of the Space Leases,
and no state of facts which with notice and/or the passage of time would ripen
into a default, except as set forth on SCHEDULE 3.11(C). There are no persons or
entities entitled to possession of the Property other than those listed on
SCHEDULE 3.11(C). No work or installations are required of the Company or its
Subsidiary except as specified (if at all) in the Space Leases, and in any case
the Company or its Subsidiary has fully completed all tenant improvements
specified in any Space Lease to be the responsibility of the landlord and has
paid all tenant construction allowances. There are no leasing commissions due
nor will any become due in connection with any Space Lease or the renewal
thereof, and no understanding or agreement exists in regard to payment of any
leasing commissions or fees for future Space Leases. The Company and its
Subsidiary has no obligations with respect to contributing for or paying dues or
charges to any merchant's association or marketing fund.
(d) SCHEDULE 3.11(D) contains a complete list and description of
each service contract in respect of the Property (the "SERVICE CONTRACTS"). To
the Company's knowledge, there is no material default, or event that with notice
or lapse of time or both would constitute a material default, by any party to
any Service Contract. The Company and its Subsidiary has received no notice that
any party to any Service Contract intends to cancel or terminate such agreement.
(e) There are no agreements or understandings relating to the
Property, except for the Company Permitted Encumbrances, Space Leases and
Service Contracts;
(f) True and complete copies of the most recent real property tax
bill(s) for the Property (which include bill[s] for all real estate taxes from
all municipal authorities assessing same) are annexed as SCHEDULE 3.11(F). No
tax reduction proceedings are pending or outstanding. The foregoing are all the
taxes on the Property or the income therefrom other than federal and state
income taxes on net taxable income. There are no special assessments or
betterment assessments (whether payable in installments or otherwise) applicable
to the Property and no tenant is entitled to any refund of any tax or other
payment by reason of tax reduction proceedings affecting current or prior years.
(g) No property other than the Property is included in the tax
assessment of the Property, and there are no unpaid assessments for utility
installations.
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(h) The zoning classification of the Property is not violated by the
use(s) and/or improvements at the Property on the date hereof. SCHEDULE 3.11(H)
constitutes a list of all of the permits and authorizations in the Company and
or its Subsidiary's possession or control in effect as of this date with respect
to the Property (including but not limited to certificates of occupancy).
(i) The Company has no knowledge of any threatened or pending
condemnation or eminent domain proceeding or other constraint on present or
future use, operation or development of the Property.
(j) Attached as SCHEDULE 3.11(J) is a list of all on-site employees
or hired persons in connection with the management, operation or maintenance of
the Property.
(k) The Company has no knowledge of any structural defects or
deferred maintenance in the improvements situated upon the Property. The
heating, ventilating and air conditioning, plumbing, electrical and drainage
systems at or serving the Property and all facilities and equipment relating
thereto are in good condition and working order, and roofs are free of leaks.
(l) Neither the execution and delivery of this Agreement nor the
consummation of the transactions herein contemplated will conflict with, result
in a breach of or constitute (with or without the giving of notice or the
passing of time, or both) a default under, or otherwise adversely affect any
Space Lease, or any other Contract, instrument, license or undertaking to which
the Company or its Subsidiary is a party or by which any of them or any of their
respective properties or assets is or may be bound or that relates to the
Property in any respect.
(m) No tenant under a Space Lease or other person has any option,
right of first refusal or other right to purchase the Property or any part
thereof or interest therein.
(n) All construction and/or maintenance work required by the terms
of any Space Lease or other Company Permitted Encumbrances, or by any building,
zoning or other law, ordinance or regulation affecting the Property, including
without limitation any roadway and utility line construction on the Property
and/or adjacent property has been satisfactorily completed and there are and
will be at Closing no charges, Liens or assessments against the Property for any
of same.
SECTION 3.12 ENVIRONMENTAL MATTERS. None of the Company, its
Subsidiary or, to the knowledge of the Company, any other person has caused or
permitted (a) the unlawful presence of any hazardous substances, hazardous
materials, toxic substances or any other materials that are regulated by or form
the basis of liability under any Environmental Law materials (collectively,
"HAZARDOUS MATERIALS") on any of the Property, or (b) any unlawful spills,
releases, discharges or disposal, dumping or storage of Hazardous Materials to
have occurred or be presently occurring on or from the Property as a result of
any construction on or operation and use of such properties, which presence or
occurrence would reasonably be expected to, individually or in the aggregate,
have a Company Material Adverse Effect; and in connection with the construction
on or operation and use of the Property, the Company and its Subsidiary have not
failed to comply, in any material respect, with all Environmental Laws. The
Company
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has delivered to Merger Sub true, correct and complete copies of all
reports identified on SCHEDULE 3.12 attached hereto.
For purposes of this Agreement, the term "ENVIRONMENTAL LAW" shall
mean the Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (as the same may be amended from time to time) and any
other law, ordinance or regulation and administrative and judicial orders of any
governmental entity, including requirements under permits, licenses, consents
and approvals, relating to pollution or protection of human health or safety or
the environment, including those that relate to emissions, discharges, releases
or threatened releases, or the generation, recycling, manufacturing, processing,
distribution, use, reuse, treatment, storage, disposal, transport, or handling,
of Hazardous Materials.
SECTION 3.13 INFORMATION. None of the Proxy Statement (as defined in
Section 5.1(b)) or any other document filed or to be filed by or on behalf of
the Company with the SEC or any other governmental entity in connection with the
transactions contemplated hereby contained when filed or will, at the respective
times filed with the SEC or other governmental entity and, in addition, in the
case of the Proxy Statement, if any, at the date it or any amendment or
supplement thereto is mailed to shareholders and at the time of the meeting of
shareholders of the Company to vote on the Merger, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not misleading; provided that the
foregoing shall not apply to information supplied in writing by Merger Sub or
Parent specifically for inclusion or incorporation by reference in any such
document. The Proxy Statement will comply as to form in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder. None of the information supplied by the Company specifically for
inclusion or incorporation by reference in any document filed or to be filed by
or on behalf of Merger Sub or Parent with the SEC or any other governmental
entity in connection with the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
SECTION 3.14 MARYLAND TAKEOVER LAW. The Company has taken all action
required to be taken by it in order to exempt this Agreement and the Merger from
the requirements of any "moratorium," "control share," "fair price," or
"affiliate transaction," or other takeover laws and regulations of any State
(collectively, "TAKEOVER STATUTES") including the Maryland Control Share
Acquisition Act, and any takeover provision in any of the Company's governing
documents other than the Maryland Business Combination Act. The affirmative vote
of holders of at least: (i) eighty (80%) of the issued and outstanding shares of
the Company Common Stock and (ii) two-thirds of the issued and outstanding
shares of Company Common Stock not held by Parent or any affiliate or associate
of Parent (as such terms are defined in Section 602 of the Maryland Business
Combination Act of the MGCL) is the only vote of the Company's stockholders
required to approve this Agreement and the Merger (together, the "Company
Stockholder Vote"). The Company's Board of Trustees has taken all action
required to be taken by it in order to exempt Parent, Merger Sub and each of
their respective affiliates from the Aggregate Share Ownership Limit provisions
and transfer restrictions set forth in Article VII of the Company's Declaration
of Trust, as amended.
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SECTION 3.15 BROKER'S FEES. No broker, investment banker, financial
advisor or other person, other than Rockwood Realty Associates ("ROCKWOOD") (the
fees and expenses of which are described in the engagement letter dated April 1,
2004, between Rockwood and the Company as last amended by that certain extension
letter dated as of July 25, 2005 between Rockwood and the Company, a true and
correct copy of which has been provided to the Parent and such agreement has not
been further amended) and the Financial Advisor (the fees and expenses of which
are described in the engagement letter dated September 29, 2005, between the
Financial Advisor and the Company, a true and correct copy of which has been
provided to the Parent and such agreement has not been amended), is entitled to
any broker's, financial advisor's or similar fees or commissions in connection
with the transactions contemplated hereby based on agreements, arrangements or
understandings made by or on behalf of the Company, its Subsidiary, or their
respective officers, directors, representative or employees.
SECTION 3.16 CONTRACTS. Schedule 3.16 lists, as of the date of this
Agreement, all written or oral contracts, agreements, guarantees, leases and
executory commitments (other than Company Plans, the Office Lease or Space
Leases) (each, a "CONTRACT") to which the Company or its Subsidiary is a party
and that fall within any of the following categories: (a) Contracts not entered
into in the ordinary course of the Company's and its Subsidiary's business
consistent with past practice, (b) joint venture, partnership and similar
agreements, (c) Contracts that are Service Contracts or equipment leases
involving payments by the Company or its subsidiaries of more than $50,000 per
year, (d) Contracts containing covenants purporting by their express terms to
limit the freedom of the Company or its Subsidiary to compete in any line of
business in any geographic area or to hire any individual or group of
individuals, (e) Contracts that, after the Effective Time, would have the effect
of limiting the freedom of Parent or its Subsidiaries (other than the Company
and its Subsidiary) to compete in any line of business in any geographic area or
to hire any individual or group of individuals, (f) Contracts relating to any
outstanding commitment for capital expenditures, (g) Contracts with any with any
present or former stockholder, director, officer, employee, partner or
consultant of the Company or its Subsidiary, (h) indentures, mortgages,
promissory notes, loan agreements, guarantees of borrowed money or providing for
the creation of any charge, security interest, encumbrance or lien upon any of
the assets of the Company or its Subsidiary, (i) Contracts with or for the
benefit of any of the Company's affiliates or immediate family member thereof
(other than the Company's Subsidiary) and (n) Contracts involving payments by
the Company or its Subsidiary of more than $50,000 per year. All such Contracts
and all other Contracts that are material to the business or operations of the
Company or its Subsidiary are valid and binding obligations of the Company or
its Subsidiary, as the case may be, and, to the knowledge of the Company, the
valid and binding obligation of each other party thereto, except such Contracts
that, if not so valid and binding, would not, individually or in the aggregate,
have a Company Material Adverse Effect. Neither the Company or its Subsidiary,
nor, to the knowledge of the Company, any other party thereto, is in violation
of or in default in respect of, nor has there occurred an event or condition,
that with the passage of time or giving of notice (or both), would constitute a
default under or permit the termination of, any such Contract or of any other
Contract that is material to the business or operations of the Company or its
Subsidiary, except such violations or defaults under or terminations that,
individually or in the aggregate, would not have a Company Material Adverse
Effect.
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SECTION 3.17 INSURANCE. SCHEDULE 3.17 lists all material insurance
policies and binders and programs of self-insurance owned, held or maintained by
the Company and its Subsidiary on the date this Agreement that afford or
afforded, as the case may be, coverage to the Company or its Subsidiary, or the
respective assets or businesses of the Company or its Subsidiary. The Company's
and its Subsidiary's insurance policies are in all material respects in full
force and effect in accordance with their terms, no notice of cancellation has
been received, and there is no existing default or event that, with the giving
of notice or lapse of time or both, would constitute a default thereunder. All
premiums under the Company's and its Subsidiary's insurance policies have been
paid in full to date. The Company and its Subsidiary have not been refused any
insurance, nor has the coverage of the Company or any of its Subsidiary been
limited, by any insurance carrier to which it has applied for insurance or with
which it has carried insurance during the past three years. The Company or its
Subsidiary is a "named insured" or an "insured" under such insurance policies.
Set forth on SCHEDULE 3.17 is the amount of the annual premium currently paid by
the Company for its directors' and officers' liability insurance.
SECTION 3.18 OPINION OF FINANCIAL ADVISOR. The Board of Trustees of
the Company has received, and provided to the Parent, the Fairness Opinion, and
such opinion has not been withdrawn or revoked or otherwise modified in any
material respect.
SECTION 3.19 BOARD RECOMMENDATION. (a) The Board of Trustees of the
Company, at a meeting duly called and held, has, by unanimous vote of those
trustees present (who constituted 100% of the trustees then in office), (i)
determined, that this Agreement and the transactions contemplated by this
Agreement, including the Merger, are advisable and fair to and in the best
interests of the Company Stockholders, (ii) directed that the transaction be
submitted to the Company Stockholders for consideration and (iii) resolved, as
of the date of this Agreement, to recommend that the Company Stockholders
approve this Agreement and the Merger (the "COMPANY BOARD RECOMMENDATION").
(b) The Special Committee, at a meeting duly called and held, has, by
unanimous vote of all of the members of the Special Committee (i) determined,
that this Agreement and the transactions contemplated by this Agreement,
including the Merger, are advisable and fair to and in the best interests of the
Company Stockholders, (ii) directed that the transaction be submitted to the
Company Stockholders for consideration and (iii) resolved, as of the date of
this Agreement, to recommend that the Board of Trustees approve this Agreement
and the Merger.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Each of Parent and Merger Sub hereby represents and warrants to the
Company as follows:
SECTION 4.1 ORGANIZATION. Each of Parent and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of their respective jurisdictions of incorporation or organization, as
applicable, and each of Parent and Merger Sub has all requisite corporate power
and authority to own, lease and operate their respective properties and
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to carry on their respective businesses as now being conducted. Each of Parent
and Merger Sub is duly qualified or licensed and in good standing to do business
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification necessary,
except in such jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not, individually or in the aggregate,
reasonably be expected to have a Parent Material Adverse Effect. Parent owns all
of the outstanding capital stock or other equity interests of Merger Sub.
SECTION 4.2 CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Parent was an aggregate of 461,600,000 shares, consisting
of 300,000,000 shares of Parent Common Stock; 153,000,000 shares of Excess Stock
of the Parent, par value $0.01 per share; 3,600,000 shares of Preferred Stock;
345,000 shares of 7 3/4% Class A Cumulative Redeemable Preferred Stock, $1.00
par value per share ("CLASS A PREFERRED STOCK"); 230,000 shares of 8 1/2% Class
B Cumulative Redeemable Preferred Stock, $1.00 par value per share ("CLASS B
PREFERRED STOCK"); 460,000 shares of 8 3/8% Class C Cumulative Redeemable
Preferred Stock, $1.00 par value per share ("CLASS C PREFERRED STOCK"); 700,000
shares of 7 1/2% Class D Cumulative Convertible Preferred Stock, $1.00 par value
per share ("CLASS D PREFERRED STOCK"); 65,000 shares of Floating-Rate Class E
Cumulative Redeemable Preferred Stock; $1.00 par value per share ("CLASS E
PREFERRED STOCK"); 700,000 shares of 6.65% Class F Cumulative Redeemable
Preferred Stock, $1.00 par value per share ("CLASS F PREFERRED Stock"); 345,000
shares of Class A Excess Preferred Stock, $1.00 par value per share ("CLASS A
EXCESS PREFERRED STOCK"); 230,000 shares of Class B Excess Preferred Stock,
$1.00 par value per share ("CLASS B EXCESS PREFERRED STOCK"); 460,000 shares of
Class C Excess Preferred Stock, $1.00 par value per share ("CLASS C EXCESS
PREFERRED STOCK"); 700,000 shares of Class D Excess Preferred Stock, $1.00 par
value per share ("CLASS D EXCESS PREFERRED STOCK"); 65,000 shares of Class E
Excess Preferred Stock, $1.00 par value per share ("CLASS E EXCESS PREFERRED
STOCK"); and 700,000 shares of Class F Excess Preferred Stock, $1.00 par value
per share ("CLASS F EXCESS PREFERRED STOCK"). As of September 30, 2005, the
outstanding shares of stock of the Parent were as follows: 227,252,825 shares of
Common Stock; no shares of Excess Stock; no shares of Preferred Stock; no shares
of Class A Preferred Stock; no shares of Class A Excess Preferred Stock; no
shares of Class B Preferred Stock; no shares of Class B Excess Preferred Stock;
no shares of Class C Preferred Stock; no shares of Class C Excess Preferred
Stock; no shares of Class D Preferred Stock; no shares of Class D Excess
Preferred Stock; no shares of Class E Preferred Stock; no shares of Class E
Excess Preferred Stock; 700,000 shares of Class F Preferred Stock and no shares
of Class F Excess Preferred Stock. In addition, as of the same date,
approximately 20,944,231 shares of Common Stock have been reserved for issuance
under the Parent's 1998 Equity Participation Plan (the "PARENT EQUITY
PARTICIPATION PLAN") and the Parent's Stock Option Plan (the "PARENT OPTION
PLAN"). Except for the options to purchase shares of Parent Common Stock under
the Parent Equity Participation Plan and Parent Option Plan, which may be
redeemed for shares of Parent Common Stock, and 4,766,160 shares issuable upon
conversion of certain convertible units, there were not as of the date hereof,
any existing options, warrants, calls, subscriptions, or other rights or other
agreements or commitments obligating Parent, Merger Sub or any of their
respective Subsidiaries to issue, transfer or sell any shares of capital stock
or other equity interests of Parent, Merger Sub or any of their respective
Subsidiaries or any other securities convertible into or evidencing the right to
subscribe for any such shares or other equity interests. All issued and
outstanding shares of Parent Common Stock are duly authorized and
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validly issued, fully paid, non-assessable (other than general partnership
interests in Subsidiaries that are partnerships) and free of preemptive rights
with respect thereto.
SECTION 4.3 AUTHORITY. (a) Merger Sub has full corporate power and
authority to execute and deliver this Agreement and, subject to the approval of
its shareholders, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized and
approved by the Board of Directors of Merger Sub and no other corporate
proceedings are necessary to authorize this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Merger Sub and, assuming this Agreement constitutes a
legal, valid and binding agreement of the Company, it constitutes a legal, valid
and binding agreement of Merger Sub, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, in-solvency, moratorium or other
similar laws relating to creditors' rights or general principles of equity.
(b) Parent has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized and
approved by the Board of Directors of Parent no other corporate proceedings are
necessary to authorize this Agreement or the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Parent and, assuming this Agreement constitutes a legal, valid and
binding agreement of the Company, it constitutes a legal, valid and binding
agreement of Parent, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, in-solvency, moratorium or other similar laws
relating to creditors' rights or general principles of equity.
SECTION 4.4 NO VIOLATIONS; CONSENTS AND APPROVALS. (a) None of the
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby or compliance by Parent or Merger Sub with any of the
provisions hereof will (i) conflict with or violate any provision of such
party's charter or by-laws, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default, or
give rise to any right of modification, termination, cancellation or
acceleration, or result in the loss of any benefit to which Parent or Merger Sub
is entitled or any increase in any of Parent's or Merger Sub's payment or
performance obligations, any of the terms, conditions or provisions of any
Contract, arrangement, understanding, order, arbitration award, license,
franchise, permit judgment, decree, note, bond, mortgage, indenture or other
instrument which Parent or Merger Sub is a party, or by which Parent or Merger
Sub or any of their respective properties is bound or result in the creation or
imposition of any Lien on asset of the Company or its Subsidiary, or (iii)
violate any statute, rule, regulation, order or decree of any public body or
authority by which Parent or Merger Sub or any of their respective properties is
bound, excluding from the foregoing clauses (ii) or (iii) violations, breaches,
defaults or rights which, either individually or in the aggregate, would not
reasonably be expected to have a Parent Material Adverse Effect or for which
Parent or Merger Sub has received or, prior to the Closing Date, shall have
received appropriate consents or waivers.
(b) No filing or registration with, notification to, or
authorization, consent or approval of, any governmental entity is required in
connection with the execution and delivery of
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this Agreement by Parent or Merger Sub, or the consummation by Parent or Merger
Sub of the transactions contemplated hereby, except (i) expiration of the
waiting period under the HSR Act, if a filing under the HSR Act is required,
(ii) in connection, or in compliance, with the provisions of the Exchange Act,
(iii) the filing of articles of merger with the Department, (iv) such filings
and consents as may be required under any environmental law pertaining to any
notification, disclosure or required approval triggered by the Merger or the
transactions contemplated hereby, (v) filings with, and approval of, the NYSE
with respect to the listing of the Parent Common Stock to be issued in
connection with the Merger, (vi) such consents, approvals, orders,
authorizations, notifications, registrations, declarations and filings as may be
required under the corporation, takeover or blue sky laws of various states and
(vii) such other consents, approvals, orders, authorizations, notifications,
registrations, declarations and filings the failure of which to be obtained or
made would not, individually or in the aggregate, reasonably be expected to have
a Parent Material Adverse Effect.
SECTION 4.5 SEC DOCUMENTS; FINANCIAL STATEMENTS. (a) Parent has
timely filed with the SEC and has made available to the Company copies of each
form, statement, registration statement, report, proxy statement, information
statement, schedule or other document filed with the SEC by Parent since its
December 31, 1999 under the Securities Act or the Exchange Act (such documents,
as supplemented and amended since the time of filing, the "PARENT SEC
DOCUMENTS"). As of their date filed (and, in the case of registration statements
and proxy statements, on the dates of effectiveness and the dates of mailing,
respectively, and in the case of any Company SEC Document amended or superseded
by a filing prior to the date of this Agreement, then on the date of such
amending or superseding filing), the Parent SEC Documents, including any
financial statements or schedules included therein, complied in all material
respects with the applicable requirements of the Securities Act and the Exchange
Act, as the case may be, and none of such SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) As of the dates filed (and, in the case of registration
statements and proxy statements, on the dates of effectiveness and the dates of
mailing, respectively, and, in the case of any Company SEC Document amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such amending or superseding filing), the consolidated financial statements
included in the Parent SEC Documents complied as to form in all material
respects with then applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, were prepared in accordance
with GAAP applied on a consistent basis during the periods involved (except as
may be indicated therein or in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q of the Commission) and fairly presented
Parent's consolidated financial position and that of its consolidated
Subsidiaries as at the dates thereof and the consolidated results of their
operations and statements of cash flows for the periods then ended.
SECTION 4.6 LITIGATION. Except as disclosed in the Parent SEC
Documents, there is no Action pending or, to the knowledge of Parent or Merger
Sub, threatened against Parent, any of its Subsidiaries or any of their
respective properties or assets before any governmental entity which,
individually or in the aggregate, would reasonably be expected to have a Parent
Material Adverse Effect. Except as disclosed in the Parent SEC Documents, none
of the Parent
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or any of its Subsidiaries is subject to any outstanding order, writ, injunction
or decree which, would, individually or in the aggregate, reasonably be expected
to have a Parent Material Adverse Effect.
SECTION 4.7 TAXES. Parent (i) has elected to be taxed as a REIT
within the meaning of the Code and has qualified as, and complied with all
applicable laws, rules and regulations, including the Code, relating to, a REIT,
for all taxable years commencing with its taxable year ending December 31, 1992,
(ii) has operated, and intends to continue to operate, in such a manner as to
qualify as a REIT for each taxable year ending after the Closing Date, and (iii)
has not taken or omitted to take any action which would reasonably be expected
to result in, and Parent has no actual knowledge of, a revocation of its status
as a REIT. Parent represents that each of its Subsidiaries of which all the
outstanding capital stock is owned solely by Parent is a Qualified REIT
Subsidiary as defined in Section 856(i) of the Code or a taxable REIT subsidiary
as defined in Section 856(l)(1) of the Code.
SECTION 4.8 PROXY STATEMENT; FORM S-4 REGISTRATION STATEMENT; OTHER
INFORMATION. None of the information with respect to Parent or its Subsidiaries
supplied by Parent or Merger Sub in writing specifically for inclusion in the
Proxy Statement or any amendments thereof or supplements thereto and at the time
of the meeting of the shareholders of the Company to vote on the Merger or in
the Form S-4 Registration Statement (as defined in Section 5.1 hereof) will, in
the case of the Proxy Statement or any amendments thereof or supplements
thereto, at the time of the mailing of the Proxy Statement or any amendments or
supplements thereto, or, in the case of the Form S-4 Registration Statement, at
the time it becomes effective, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, except that no representation is made by Parent
with respect to information related to the Company or any affiliate of the
Company included in the Proxy Statement or the Form S-4 Registration Statement,
as the case may be. The Proxy Statement and the Form S-4 Registration Statement
will each comply as to form in all material respects with the provisions of the
Exchange Act and the Securities Act, respectively, and the rules and regulations
promulgated under each such statute.
SECTION 4.9 BROKER'S FEES. None of Parent, any of its Subsidiaries
or any of their respective directors or officers has incurred any liability for
any broker's fees, commissions, or financial advisory or finder's fees in
connection with any of the transactions contemplated hereby, and none of Parent,
any of its Subsidiaries or any of its directors or officers has employed any
broker, finder or financial advisor in connection with any of the transactions
contemplated hereby.
SECTION 4.10 AUTHORIZATION FOR PARENT COMMON STOCK. Parent has taken
all necessary action to permit it to issue the number of shares of Parent Common
Stock required to be issued by it pursuant to this Agreement. Shares of Parent
Common Stock issued pursuant to this Agreement will, when issued, be validly
issued, fully paid and nonassessable and no Person will have any preemptive
right of subscription or purchase in respect thereof. Shares of Parent Common
Stock will, when issued, be registered under the Securities Act and the Exchange
Act and registered or exempt from registration under any applicable state
securities laws and will, when issued, be listed on the NYSE, subject to
official notice of issuance.
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ARTICLE 5
COVENANTS OF THE PARTIES
SECTION 5.1 TAKING OF NECESSARY ACTION. (a) Each party hereto agrees
to use its reasonable best efforts promptly to take or cause to be taken all
action and promptly to do or cause to be done all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated hereby, subject to the terms and conditions
hereof, including (i) all actions and things necessary to cause all conditions
precedent to its obligations set forth in ARTICLE 6 to be satisfied, (ii)
preparing and filing as promptly as practicable all documentation to effect all
necessary applications, notices, petitions, filings, and other documents and to
obtain as promptly as practicable all consents, waivers, licenses, orders,
registrations, approvals, permits, rulings, authorizations and clearances
necessary or advisable to be obtained from any third party and/or any
governmental entity in order to consummate the Merger or any of the other
transactions contemplated by this Agreement (collectively, the "REQUIRED
APPROVALS") and (iii) taking all reasonable steps as may be necessary to obtain
all such Required Approvals. In furtherance and not in limitation of the
foregoing, each of the Company, Parent and Merger Sub agrees that if required
they shall to the extent necessary (i) make, as promptly as practicable, (A) if
required, an appropriate filing of a Notification and Report Form pursuant to
the HSR Act with respect to the transactions contemplated hereby and (B) all
other necessary filings with other governmental entities relating to the Merger
and the other transactions contemplated by this Agreement, and, to supply as
promptly as practicable any additional information or documentation that may be
requested pursuant to such laws or by such governmental entities or third
parties and to use reasonable best efforts to cause the expiration or
termination of the applicable waiting periods under the HSR Act and the receipt
of Required Approvals under such other laws or from such governmental entities
as soon as practicable and (ii) not to extend any waiting period under the HSR
Act into any agreement with the FTC or the DOJ not to consummate the
transactions contemplated by this Agreement, except with the prior written
consent of the other parties hereto (which consent shall not be unreasonably
withheld or delayed). Each of the Company, Parent and Merger Sub shall, in
connection with the efforts referenced in this Section 5.1 to obtain all
Required Approvals, use its reasonable commercial efforts to (i) cooperate in
all respects with each other in connection with any filing or submission and in
connection with any investigation or other inquiry, including any proceeding
initiated by a private party, (ii) subject to applicable law, permit the other
party to review in advance any proposed written communication between it and any
governmental entity or any third party with respect to obtaining the Required
Approvals, (iii) promptly inform each other of (and, at the other party's
reasonable request, supply to such other party) any communication (or other
correspondence or memoranda) received by such party from, or given by such party
to, the DOJ, the FTC or any other governmental entity and of any material
communication received or given in connection with any proceeding by a private
party, in each case regarding any of the transactions contemplated hereby, and
(iv) consult with each other in advance to the extent practicable of any meeting
or conference with the DOJ, the FTC or any other governmental entity or, in
connection with any proceeding by a private party, with any other person, and to
the extent permitted by the DOJ, the FTC or such other applicable governmental
entity or other person, give the other party the opportunity to attend and
participate in such meetings and conferences.
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(b) As promptly as practicable after the date hereof, the Company
shall prepare and file with the SEC a preliminary proxy statement by which the
shareholders of the Company will be asked to approve the Merger (together with
all amendments and supplements thereto, the "PROXY STATEMENT"). The Company
shall use its reasonable best efforts to respond to any comments or other
communication of the SEC, and to cause the Proxy Statement to be mailed to the
shareholders of the Company at the earliest practicable time. The Company will
notify the Merger Sub and Parent (together, the " ACQUIRING ENTITIES") promptly
of the receipt of any comments or other communication from the SEC or its staff
and of any request by the SEC or its staff or any other government officials for
amendments or supplements to the Proxy Statement or for additional information
and will supply the Acquiring Entities with copies of all written correspondence
and advise the Acquiring Entities of all oral communication between it or any of
its representatives, on the one hand, and the SEC, or its staff or any other
government officials, on the other hand, with respect to the Proxy Statement, in
the case of correspondence to or communications with the SEC, sufficiently in
advance of such correspondence or communication to provide the Acquiring
Entities with the reasonable opportunity to review and comment on such
correspondence and communication. The Proxy Statement shall comply in all
material respects with all applicable requirements of law. Whenever any event
occurs which is required to be set forth in an amendment or supplement to the
Proxy Statement, the Company or Acquiring Entities, as the case may be, shall
promptly inform the other party of such occurrence and cooperate in filing with
the SEC or its staff or any other government officials, and/or mailing to
shareholders of the Company such amendment or supplement in each case as
reasonably in advance of such filing to provide the Acquiring Entities with the
reasonable opportunity to review and comment on such filing. Subject to the
provisions of clause (c) below and Section 5.4 hereof, the Proxy Statement shall
include the Company Board Recommendation.
(c) The Company shall duly take all lawful action to call, give
notice of, convene and hold a meeting of its shareholders (the "COMPANY
STOCKHOLDER MEETING") to be held as promptly as practicable for the purpose of
obtaining the Company Stockholder Approval and, subject to Section 5.4, shall
take all lawful action to solicit the Company Stockholder Approval. The Board of
Trustees of the Company shall not (i) withdraw, modify or qualify (or propose to
withdraw, modify or qualify) in any manner adverse to the Parent or Merger Sub
the Company Board Recommendation or (ii) take any action or make any statement
in connection with the Company Stockholders Meeting inconsistent with such
recommendation (each of (i) and (ii) collectively, a "CHANGE IN THE COMPANY
BOARD RECOMMENDATION"); PROVIDED, HOWEVER, that the Board of Trustees of the
Company may make a Change in the Company Board Recommendation pursuant to
Section 5.4 hereof. Notwithstanding any Change in the Company Board
Recommendation, this Agreement shall be submitted to the stockholders of the
Company at the Company Stockholder Meeting for the purpose of considering this
Agreement and the Merger and, prior to the termination of this Agreement in
accordance with Section 7.1, nothing contained herein shall be deemed to relieve
the Company of such obligation.
(d) Parent shall vote, or cause to be voted, all of the Shares then
owned by it, Merger Sub or any of its other Subsidiaries in favor of the
approval and adoption of the Merger and this Agreement at the Company
Stockholder Meeting.
(e) The Acquiring Entities shall, as promptly as practicable
following the date of this Agreement, prepare and file with SEC a registration
statement on Form S-4 (the "FORM S-4
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REGISTRATION STATEMENT"), containing the Proxy Statement and prospectus, in
connection with the registration under the Securities Act of Parent Common Stock
issuable upon conversion of the Company Common Stock pursuant to the Merger. The
Acquiring Entities shall, and shall cause their accountants and attorneys to,
use their reasonable best efforts to have or cause the Form S-4 Registration
Statement declared effective as promptly as practicable, including, causing
their accountants to deliver necessary or required instruments such as opinions
and certificates, and will take any other action reasonably required or
necessary to be taken under federal or state securities laws or otherwise in
connection with the registration process. The Company shall promptly furnish the
Acquiring Entities with all information concerning it as may be required for
inclusion in the Form S-4 Registration Statement. The Company shall cooperate
with the Acquiring Entities in the preparation of the Registration Statement in
a timely fashion and shall use reasonable best efforts to assist the Acquiring
Entities in having the Registration Statement declared effective by the SEC as
promptly as practicable. If, at any time prior to the Effective Time, the
Company shall obtain knowledge of any information pertaining to the Company that
would require any amendment or supplement to the Form S-4 Registration
Statement, the Company shall so advise the Acquiring Entities and shall promptly
furnish the Acquiring Entities with all information as shall be required for
such amendment or supplement, and shall promptly amend or supplement the Form
S-4 Registration Statement.
(f) The Acquiring Entities shall use their reasonable best efforts
to obtain, prior to the effective date of the Form S-4 Registration Statement,
all necessary state securities laws or "blue sky" permits and approvals required
to carry out the transactions contemplated by this Agreement and the Merger, and
will pay all expenses incident thereto.
(g) In furtherance and not in limitation of the foregoing, the
Acquiring Entities shall use their reasonable best efforts to resolve such
objections, if any, as may be asserted with respect to the transactions
contemplated by this Agreement under any anti-trust, competition or trade
regulatory laws, rules or regulations of any governmental entity; provided,
however, that nothing contained herein shall require the Acquiring Entities to
sell, hold separate or otherwise dispose of or agree to conduct their business
in a specified manner or agree to permit the sale, holding separate or other
disposition of, any assets of the Acquiring Entities, the Company or their
respective Subsidiaries.
SECTION 5.2 PUBLIC ANNOUNCEMENTS; CONFIDENTIALITY.
(a) The Company and the Acquiring Entities will cooperate with each
other before making any public statements or issuing any press releases with
respect to this Agreement and any of the transactions contemplated hereby and
shall not make any such public statements or issue any such press releases prior
to such consultation, subject to each party's disclosure obligations imposed by
law and any stock exchange or similar rules.
(b) Each of the Company and the Acquiring Entities agrees that all
information provided to it or any of its representatives pursuant to this
Agreement shall be kept confidential, and each of the Company and the Acquiring
Entities shall not (x) disclose such information to any persons other than the
directors, officers, employees, financial advisors, legal advisors, accountants,
consultants and affiliates of the Company or the Acquiring Entities, as
applicable, who reasonably need to have access to the confidential information
and who are advised of the
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confidential nature of such information or (y) use such information in a manner
which would be detrimental to the Company; PROVIDED, HOWEVER, the foregoing
obligation of each of the Company and the Acquiring Entities shall not (i)
relate to any information that (1) is or becomes generally available other than
as a result of unauthorized disclosure by the Company or the Acquiring Entities,
as applicable, or by persons to whom the Company or the Acquiring Entities, as
applicable, has made such information available, (2) is or becomes available to
the Company or the Acquiring Entities, as applicable, on a non-confidential
basis from a third party that is not, to the knowledge of the Company or the
Acquiring Entities, as applicable, bound by any other confidentiality agreement
with the other party hereto, or (ii) prohibit disclosure of any information if
required by law, rule, regulation, court order or other legal or governmental
process.
SECTION 5.3 CONDUCT OF THE BUSINESS OF THE COMPANY. Prior to the
Effective Time, except as contemplated by this Agreement and except for the
matters set forth in SCHEDULE 5.3 or unless Merger Sub shall otherwise have
previously agreed in writing, the Company shall, and shall cause its Subsidiary
to, cause the Property to be operated and maintained in a professional manner
and to carry on their respective businesses in the usual, regular and ordinary
course in accordance in all material respects with past practice and in
accordance with all applicable laws, and shall, and shall cause its Subsidiary
to, use reasonable best efforts to preserve intact the Company's status as a
REIT within the meaning of the Code, to preserve intact their present business
organizations and properties, and keep available the services of their employees
and preserve their relationships with customers, suppliers, tenants and others
having business dealings with them. Without limiting the generality of the
foregoing, and except as contemplated by this Agreement, including Section 2.5,
and except for the matters set forth in SCHEDULE 5.3, prior to the Effective
Time unless Parent shall otherwise have previously agreed in writing, the
Company shall not and shall not permit its Subsidiary to:
(i) (w) declare, set aside, or pay any dividends on, or make
any other distributions in respect of, any of its capital stock, other than
(1) dividends and distributions by the Company's Subsidiary to the Company,
(2) the Special Dividend and (3) if the Closing occurs after December 23,
2005, the 2005 Dividend, (x) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock,
(y) purchase, redeem or otherwise acquire, any shares of capital stock of
the Company or its Subsidiary or any other equity securities thereof or any
rights, warrants, or options to acquire any such shares or other securities
or (z) create any subsidiaries;
(ii) issue, deliver, sell, pledge or otherwise encumber any
shares of its capital stock, any other voting securities of the Company or
any securities convertible into, or any rights, warrants or options to
acquire, any such shares or voting securities;
(iii) amend its declaration of trust, by-laws or other
comparable organizational documents;
(iv) acquire or agree to acquire (x) by merging or
consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership,
joint venture, association or other business organization
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or division thereof, or (y) any assets other than in the ordinary course of
business, consistent with past practice and in accordance with the budget
provided to Parent;
(v) (i) sell, contribute, assign or create any right, title or
interest whatsoever in or to the Property, (ii) cause any Lien, assessment,
obligation, interest, encroachment or liability whatsoever (other than the
Company Permitted Encumbrances) to be placed or remain of record against
the Property, and (iii) knowingly impair or modify in any material respect
the status of title to (or the legal description of) the Property;
(vi) except for the Telco Stores Lease, (1) enter into any new
(or extend, renew or replace any existing) lease, agreement, service
contract, employment contract, permit or obligation affecting the Property,
(2) change, alter, file for, pursue, accept or obtain any zoning, land use
permit or other development approval or entitlement, (3) consent to the
inclusion of any portion of the Property into any special district or (4)
terminate any Space Lease or Service Contract (other than upon expiration
of such Tenant Lease or Service Contract pursuant to its terms); PROVIDED,
HOWEVER, that the Company may enter into any service or similar contract
without Merger Sub's approval if such contract is entered into in the
ordinary course of the Company business and is terminable without penalty
or premium on not more than 30 days' notice from the owner of the Property
and is disclosed promptly in writing to Merger Sub; PROVIDED, FURTHER, that
with the prior consent of the Parent, the Company may enter into new
leases;
(vii) make or rescind any material election relating to Taxes
(unless the Company reasonably determines that such action is required by
law or necessary to preserve the Company's status as a REIT);
(viii) (A) change in any material respect (except as may be
required by law) any of its methods, principles, or practices of accounting
in effect or (B) settle or compromise any Action, audit or controversy
relating to Taxes, or change any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of its federal income Tax Return for the taxable year ending
December 31, 2002, except as may be required by the SEC, changes in
applicable law or GAAP;
(ix) (x) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, issue or sell any debt
securities of the Company or any of its subsidiaries, guarantee any debt
securities of another person (other than indebtedness to, guarantees of, or
issuances or sales to the Company or a wholly-owned Subsidiary of the
Company), or enter into any "keep well" or other agreement to maintain any
financial condition of another person, or (y) make any loans, advances or
capital contributions to, or investments in, any other person, other than
to the Company or any direct or indirect subsidiary of the Company;
(x) enter into or modify in any material respect any employment,
severance, termination or similar agreements or arrangements with, or grant
any bonuses, salary increases, severance or termination pay to, any
officer, director, consultant or
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employee or otherwise increase the compensation or benefits provided to any
officer, director, consultant or employee;
(xi) accelerate the vesting or payment of the compensation
payable or the benefits provided or to become payable or provided to any of
its, or any of its subsidiaries', current or former directors, officers,
employees or consultants, or otherwise pay any amounts not due such
individual under an existing Company Benefit Plan;
(xii) enter into, adopt or amend in any material respect any
employee benefit plans, programs and other arrangements providing benefits
to any employee or former employee or to any beneficiary or dependent
thereof, and whether covering one individual or more than one individual,
except as shall be required by Applicable Laws;
(xiii) settle any Actions, whether now pending or made or
brought after the date of this Agreement;
(xiv) modify, amend or terminate, or waive, release or assign
any material rights or claims with respect to, any Contract, Service
Contract or Space Lease;
(xv) make any payments in respect of policies of directors'
and officers' liability insurance (premiums or otherwise) other than
premiums paid in respect of its current policies or a renewal thereof to
the extent set forth in SCHEDULE 5.7(B);
(xvi) take any action to exempt or make not subject to any
Takeover Statutes;
(xvii) on the Closing Date, make any payment, issue any
checks, or initiate any transfers;
(xviii) accelerate the receipt of amounts due with respect to
trade accounts receivable or any other accounts receivable, or lengthen the
period for payment of accounts payable;
(xix) take any action that could likely result in a violation
or breach of any agreement, covenant, representation or warranty contained
in this Agreement;
(xx) allow any pending applications for approval or permit in
connection with the Property to be withdrawn or permitted to lapse without
Merger Sub's consent, (and the Company shall promptly notify Merger Sub of
all pending applications); or
(xxi) authorize any of, or commit or agree to take any of, the
foregoing actions.
SECTION 5.4 NO SOLICITATION OF TRANSACTIONS.
(a) Unless and until this Agreement is terminated in accordance with
its terms, neither the Company nor its Subsidiary shall, directly or indirectly,
through any officer, trustee
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director, agent or otherwise, nor will it authorize or permit any investment
banker, financial advisor, attorney, accountant or other representative acting
on its behalf to (A) initiate, solicit or encourage (including by way of
furnishing non-public information or assistance), or take any other action to
facilitate, any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, (i) any acquisition in any manner, directly
or indirectly (including through any option, right to acquire or other
beneficial ownership), of 10% or more of any class of equity securities of the
Company, or assets representing a material portion of the assets of the Company
or the Property, other than by Parent or its Subsidiaries, (ii) any merger,
consolidation, sale of assets, share exchange, recapitalization, other business
combination, liquidation, or other action out of the ordinary course of business
of the Company, other than with the Parent or its Subsidiaries, (iii) any public
announcement of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing (any of the foregoing, a "COMPETING
PROPOSAL"), (iv) the withdrawal by the Company's Board of Trustees of its
Company Board Recommendation or (B) enter into, participate or maintain or
continue discussions or negotiate with any person or entity in furtherance of
such inquiries or to obtain a Competing Transaction, or (C) agree to or endorse
any Competing Transaction; PROVIDED, THAT, prior to the date of the Company
Stockholders Meeting, the Company's Board of Trustees or the Special Committee
(and the officers, trustees, agents, and financial advisors of the Company
acting at the direction of the Company's Board of Trustees or the Special
Committee) may furnish information to, or enter into discussions or negotiations
with, any person that previously has made an unsolicited bona fide written
Competing Proposal if, and only to the extent that (I) the Company's Board of
Trustees, after consultation with and having considered the advise of
independent outside legal counsel, determines in good faith, that (i) such
Competing Proposal would, if consummated, constitute a Superior Proposal (as
hereinafter defined), and (ii) the failure to engage in such negotiations or
discussions or provide such information would constitute a breach of the duties
of the Board of Trustees of the Company under the Company's declaration of trust
or applicable law, (II) prior to taking such action, the Company (i) provides
reasonable notice to Parent (but in any event no later than 48 hours prior to
taking such action) to the effect that it is taking such action and (ii)
receives from such person an executed confidentiality agreement in reasonably
customary form, and (III) the Company notifies the Acquiring Entities as
promptly as practicable of all of the relevant details relating to all inquiries
and proposals which the Company or its Subsidiary or any such officer, director,
employee, investment banker, financial advisor, attorney, accountant or other
representative may receive relating to any of such matters, and, if such inquiry
or proposal is in writing, the Company shall deliver to the Acquiring Entities a
copy of such inquiry or proposal. In furtherance of and not in limitation of the
preceding, the Company shall provide the Parent with a copy of any Competing
Proposal or amendments or supplements thereto, and promptly inform Parent of the
status of any discussions or negotiations with such a third party, and any
material changes to the terms and conditions of such Competing Proposal, and
shall promptly give Parent a copy of any information delivered to such person
that has not previously been reviewed by Parent. Immediately after the execution
and delivery of this Agreement, the Company will, and will cause its
subsidiaries and affiliates, and their respective officers, directors,
employees, investment bankers, attorneys, accountants and other agents to, cease
and terminate any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any possible Competing Proposal.
Nothing contained in this Section shall prohibit the Company's
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Board of Trustees from complying with Rule 14e-2 promulgated under the Exchange
Act with regard to a tender or exchange offer.
(b) Except as set forth in this Section 5.4(b), the Company Board of
Trustees will not approve or recommend or permit the Company to enter into any
agreement with respect to any Competing Proposal (other than a confidentiality
agreement as described in Section 5.4(a)) made by any person other than Parent
or Merger Sub or, except as set forth in this Section 5.4(b) or in Section
5.1(c), make a Change in the Company Board Recommendation. Notwithstanding the
foregoing and subject thereto, if the Company Board of Trustees, after having
considered the advice of independent outside legal counsel, determines in good
faith that failing to take such action would constitute a breach of the
obligations of the Company Board of Trustees under the Company's declaration of
trust or applicable law, the Company Board of Trustees may, prior to the date of
the Company Stockholders Meeting, approve or recommend a Competing Proposal (or
amendment or supplement thereto) or cause the Company to enter into an agreement
with respect thereto or make a Change in the Company Board Recommendation, but
in each case only if (i) the Company provides written notice to Parent (a
"NOTICE OF SUPERIOR PROPOSAL"), which notice must be received by Parent at least
five Business Days (exclusive of the day of receipt by Parent of the Notice of
Superior Proposal) prior to the time it intends to cause the Company to enter
into such an agreement, advising Parent in writing that the Company Board of
Trustees has received a Competing Proposal (or amendment or supplement thereto)
which it believes constitutes a Superior Proposal and which it intends to accept
and, with respect to which, enter into a definitive agreement, subject to the
provisions of this Section 5.4(b), providing a copy of any written offer or
proposal describing the Superior Proposal, specifying the material terms and
conditions of such Superior Proposal and identifying the person making such
Superior Proposal, (ii) as of the end of such five Business Day period
referenced above, Parent shall have failed to notify the Company in writing that
it has determined to revise the terms of the Merger to provide that the Merger
Consideration will be equal to or greater than the consideration to be paid to
the Company stockholders pursuant to the Superior Proposal, and (iii) the
Company terminates this Agreement in accordance with the requirements of Section
7.1(h) within 48 hours after the lapse of the five-day period referenced above
and immediately thereafter enters into an agreement with respect to such
Superior Proposal. For purposes of this Agreement, a "SUPERIOR PROPOSAL" means
any bona fide Competing Proposal not directly or indirectly initiated,
solicited, encouraged or facilitated by the Company after the date of this
Agreement in contravention of the provisions hereof which the Company Board of
Trustees or the Special Committee determines in good faith judgment (based on
the advice of the Financial Advisor or another investment banker of nationally
recognized reputation), taking into account all legal, financial, regulatory and
other aspects of the proposal, including the tax consequences of such Competing
Proposal to the Company and its shareholders, and the person making the
proposal, (i) would, if consummated, result in a transaction that is more
favorable to the Company's shareholders (in their capacity as shareholders),
from a financial point of view, than the Merger and (ii) is reasonably capable
of being completed; PROVIDED, HOWEVER, that for purposes of this definition, the
term Competing Proposal shall have the meaning assigned to such term in Section
5.4(a) except that the reference to 10 percent in the definition of "Competing
Proposal" shall be deemed to be a reference to 100 percent.
SECTION 5.5 INFORMATION AND ACCESS. Subject to and without limiting
the Indemnification Agreement, dated as of March 28, 2005 by and between the
Company and
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Parent (as amended, the "INDEMNIFICATION AGREEMENT"), from the date hereof until
the Closing Date, (i) each party hereto and its respective Subsidiaries shall
afford to the other party and such other party's accountants, counsel and other
representatives full and reasonable access during normal business hours (and at
such other times as the parties may mutually agree) to its properties, books,
contracts, commitments, records and personnel and, during such period, shall
furnish promptly to such other party (1) a copy of each report, schedule and
other document filed or received by it pursuant to the requirements of
applicable laws, and (2) all other information concerning their businesses,
personnel and (with respect to the Company) the Property as such other party may
reasonably request. Such other party and its accountants, counsel and other
representatives shall, in the exercise of the rights described in this Section,
not unduly interfere with the operation of the businesses of the party providing
the access and information.
SECTION 5.6 EMPLOYEE AND OTHER ARRANGEMENTS. From and after
the Effective Time, Parent will cause the Surviving Corporation to honor, in
accordance with their terms, (i) all employment and consulting agreements and
other contracts to which the Company or its Subsidiary are parties set forth on
SCHEDULE 5.6 hereto and (ii) obligations to the Company's employees and former
employees under the continuation coverage requirements of Section 4980B of the
Code ("COBRA"); provided, however, nothing herein shall require the Acquiring
Entities to pay or reimburse the Company's employees or former employees for any
COBRA related costs they are responsible for paying under applicable law.
SECTION 5.7 INDEMNIFICATION. (a) Parent agrees that (i) all
rights to indemnification existing in favor of any trustee, officer, employee,
or agent of the Company and its Subsidiary (the "INDEMNIFIED PARTIES") as
provided in their respective declaration of trust, by-laws or comparable
organizational documents or in indemnification or reimbursement agreements with
the Company or its Subsidiary, or otherwise in effect as of the date hereof, in
each case to the extent provided to Parent prior to the date hereof, shall
survive the Merger and shall continue in full force and effect for a period of
not less than six years and ninety days from the Effective Time; provided that,
in the event any claim or claims are asserted or made within such six-year and
ninety day period, all rights to indemnification in respect of any such claim or
claims shall continue until final disposition of any and all such claims. Parent
also agrees to, from and after the Closing, indemnify all Indemnified Parties to
the fullest extent permitted by applicable law with respect to all acts and
omissions arising out of such individuals' services as officers, trustees,
employees or agents of the Company or its Subsidiary, or as trustees or
fiduciaries of any plan for the benefit of employees or trustees of, or
otherwise on behalf of, the Company or its Subsidiary, including the
transactions contemplated by this Agreement; PROVIDED, HOWEVER, that Parent
shall not be liable for any settlement effected without its written consent
(which consent shall not be unreasonably withheld, conditioned or delayed).
Without limiting the generality of the foregoing, in the event any such
Indemnified Party is or becomes involved in any capacity in any Action in
connection with any matter, including the transactions contemplated by this
Agreement, Parent will pay as incurred such Indemnified Party's reasonable legal
fees and expenses (including the fees and expenses of enforcing this indemnity)
of counsel selected by the Indemnified Parties, which counsel shall be
reasonably satisfactory to Parent, promptly after statements therefor are
received and otherwise advance to such Indemnified Party upon request
reimbursement of documented expenses (including the cost of any investigation
and preparation) incurred in connection therewith, to the extent not prohibited
by the MGCL and upon receipt of any affirmation and undertaking required by the
MGCL;
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PROVIDED, HOWEVER, that Parent shall not be liable for any settlement effected
without its written consent and the Indemnified Parties as a group may retain
only one law firm with respect to each related matter except to the extent there
is, in the opinion of counsel to an Indemnified Party, under applicable
standards of professional conduct, a conflict on any issue between positions of
any two or more Indemnified Parties.
(b) Notwithstanding anything to the contrary in Section 5.3, prior
to the Effective Time, the Company will purchase a "tail policy" providing
coverage substantially similar to the current policies of the directors' and
officers' liability insurance maintained by the Company for a six year period
from and after the Effective Time; provided, that the Company shall not pay more
than 300% of the last annual premium paid by the Company prior to the date
hereof for such insurance policy and if the Surviving Corporation is unable to
obtain the insurance required by this Section 5.7, it shall obtain as much
comparable insurance as possible for a premium equal to such maximum amount;
provided, further, to the extent any premiums for such insurance policy have not
been paid prior to the last Business Day before the Closing Date such premiums
shall be considered Company Merger Expenses.
(c) Notwithstanding any other provisions hereof, the obligations of
the Company, the Surviving Corporation and Parent contained in this Section 5.7
shall be binding upon the successors and assigns of Parent and the Surviving
Corporation.
(d) The obligations of the Company, the Surviving Corporation and
Parent under this Section 5.7 shall not be terminated or modified in such a
manner as to adversely affect any Indemnified Party to whom this Section 5.7
applies without the consent of such affected Indemnified Party (it being
expressly agreed that the Indemnified Parties to whom this Section 5.7 applies
shall be third party beneficiaries of this Section 5.7).
SECTION 5.8 REORGANIZATION. From and after the date hereof and until
the Effective Time, none of the Company, Parent, Merger Sub or any of their
respective Subsidiaries or other Affiliates shall (i) knowingly take any action,
or knowingly fail to take any action, that would jeopardize qualification of the
Merger as a reorganization within the meaning of Section 368(a) of the Code; or
(ii) enter into any Contract, commitment or arrangement with respect to the
foregoing. Following the Effective Time, the Surviving Corporation shall use its
best efforts to conduct its business in a manner that would not jeopardize the
characterization of the Merger as a reorganization within the meaning of Section
368(a) of the Code.
SECTION 5.9 LISTING APPLICATION. Parent shall use its reasonable
best efforts to cause the shares of Parent Common Stock which are to be issued
in the Merger to be listed for trading on the NYSE, subject to official notice
of issuance prior to the Closing Date.
SECTION 5.10 TRANSFER TAXES. The Company and the Acquiring Entities
shall cooperate in the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding any real property
transfer, sales, use, transfer, value-added, stock transfer and stamp taxes, any
transfer, recording, registration and other fees and any similar taxes which
become payable in connection with the transactions contemplated by this
Agreement (together with any related interests, penalties or additions to tax,
"TRANSFER TAXES"). Other than to the extent included in Company Merger Expenses
and deducted from the Merger
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Consideration, all obligations with respect to Transfer Taxes from and after the
Effective Time, shall be obligations of the Surviving Corporation or Parent as
the case may be, and shall not be deducted or withheld from any amounts payable
to the holders of Company Common Stock.
SECTION 5.11 TAX RETURNS. The Company shall timely prepare and file
or shall cause to be timely prepared and filed all Tax Returns of the Company
and the Subsidiary for any taxable period that ends on or before the Closing
Date; PROVIDED, HOWEVER, that the Company, prior to filing such Tax Returns,
shall provide Parent copies of such proposed Tax Returns at least 30 days prior
to the due date thereof (other than payroll tax returns, which shall be provided
as soon as possible after the filing thereof), such Tax Returns shall be
prepared consistently with this Agreement and past practice and, in the event
that the Parent reasonably objects to any item in such Tax Returns, the Company
shall make (or cause to be made) such revisions to such proposed tax returns as
are reasonably requested by the Parent. In the event that the Company and its
Subsidiary, on the one hand, and Parent, on the other hand, cannot reach an
agreement with respect to such Tax Return prior to the Closing Date and it is
possible to extend the time to file until a date after the Closing Date (taking
multiple extensions into account), the Company shall, and shall cause its
Subsidiary to, not file such Tax Return and instead request an extension of time
within which to file such Tax Return until after the Closing Date, in which
event Parent shall prepare and file, or cause to be prepared and filed, such Tax
Return after the Closing Date.
SECTION 5.12 GUARANTY. Parent hereby agrees to take all actions
within its power to cause Merger Sub to perform its obligations under this
Agreement.
SECTION 5.13 AFFILIATES. Not less than 45 days prior to the date of
the Company Stockholder Meeting, the Company shall deliver to the Acquiring
Entities a list identifying all persons who are, at the time this Agreement is
submitted for approval to the shareholders of the Company, "affiliates" of the
Company for purposes of Rule 145 under the Securities Act and applicable SEC
rules and regulations, and such list shall be updated from time to time as may
be reasonably necessary to reflect changes from the date thereof. The Company
shall use reasonable best efforts to cause each Person identified on such list
to deliver to Parent not later than ten days prior to the Effective Time, a
written agreement substantially in the form attached as EXHIBIT A hereto (an
"AFFILIATE AGREEMENT").
SECTION 5.14 ESTOPPELS. On or before the 5th day prior to the
Closing Date, the Company shall deliver to Merger Sub copies of (a) an executed
estoppel certificate from each of the tenants listed on SCHEDULE 5.14 in
substantially the form attached hereto as EXHIBIT B, and (b) executed estoppel
certificates from tenants under other Space Leases (i.e., tenants other than
those named in SCHEDULE 5.14) and that, in the aggregate, lease at least 50% of
the gross leaseable area of the Property that is occupied by tenants other than
those named in SCHEDULE 5.14, each in the form attached hereto as EXHIBIT B
(unless a tenant's Space Lease requires a different form, in which case such
form shall be used for such Space Lease instead) (each, a "TENANT ESTOPPEL").
Each of the Tenant Estoppels shall be dated effective as of no earlier than the
30th day prior to the Closing Date. At the Closing, the Company shall deliver to
Merger Sub each executed original Tenant Estoppel.
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SECTION 5.15 CASUALTY; CONDEMNATION.
(a) Prior to Closing, in the event of any damage to or destruction
of all or part of the Property (notice of which shall be given to Merger Sub by
the Company as soon as practicable following its occurrence), then the Company
shall promptly repair or replace such damage or destruction, except that if the
cost of such repair or replacement exceeds $1,000,000, or the damage would take
more than sixty (60) days to repair or rebuild, then in any such case Parent
shall have the right to terminate this Agreement by giving the Company written
notice of its intention to do so, such notice by Merger Sub to the Company to be
given not later than seven (7) days after Merger Sub shall have received the
notice from the Company of such aforesaid occurrence.
(b) In the event that any governmental authority having jurisdiction
of all or part of the Property notifies the Company or its Subsidiary before the
Closing that some alteration of or addition to the Property is required to be
made by law, rule or regulation (notice of which shall be given to Merger Sub by
the Company as soon as practicable after its receipt) or otherwise requires a
cure of a violation, then the Company shall promptly undertake such alteration
or addition or cure and shall accomplish the same before the date of Closing;
provided, however, that if the cost of such alteration or addition or cure shall
exceed $1,000,000, then in such event Parent shall have the right to terminate
this Agreement, by written notice given to the Company within fifteen (15) days
after the Company has given Merger Sub the aforesaid notice..
(c) In the event that any condemnation or eminent domain proceedings
affecting the Property shall be threatened, contemplated, commenced or
consummated prior to the Closing (notice of which shall be given to Merger Sub
by the Company as soon as practicable after receipt by the Company or its
Subsidiary), Parent shall have the right to terminate this Agreement, by written
notice given to the Company within fifteen (15) days after the Company has given
Merger Sub the aforesaid notice.
SECTION 5.16 TITLE INSURANCE POLICY.
(a) Parent has obtained an Owners Title Insurance Commitment (the
"Title Commitment") with respect to the Property prior to the date of this
Agreement from First American Title Insurance Company of New York (the "Title
Insurer"), pursuant to which the Title Insurer has committed to insure
Subsidiary's fee simple title to the Property. Parent has previously delivered a
true and complete copy of the Title Commitment to the Company. The Parent hereby
acknowledges that the Title Commitment does not reveal any Encumbrances,
Property Restrictions or other defects of title that are not Company Permitted
Encumbrances. Parent shall notify the Company in writing of any Encumbrances,
Property Restrictions or other defects of title, which are not Company Permitted
Encumbrances, disclosed in any update or continuation of the Title Commitment
within ten Business Days of Parent's receipt thereof (and provide the Company
within such ten-Business Day period with true and complete copies of any such
Encumbrances, Property Restrictions or other defects of title). After receipt of
Parent's notice of title objections, the Company shall have the right,
exercisable by providing Parent notice within 10 Business Days of Company's
receipt of Parent's notice of title objections, to give notice to Parent of its
election not to cure same (or its inability to do so) (a "Non-Cure Notice") and
in the event that (a) a Non-Cure Notice is delivered, (b) the Company fails to
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deliver a Non-Cure Notice within the applicable 10-Business Day period or (c)
within 45 Business Days of Parent's delivery of a notice of title objections the
Company has not removed or cured the noticed title objections, Parent shall have
the right, exercisable within 10 Business Day from such event, either (i) to
elect to accept the title to the Property subject to the title objections
specified by Parent (in which event such title objections shall be deemed for
all purposes herein, "Company Permitted Encumbrances") without any reduction or
abatement of the Merger Consideration or (ii) to elect to terminate this
Agreement. Failure of Parent to notify the Company of its election within the
applicable 10-Business Day period shall be deemed to constitute Parent's
election to accept such title objections, which title objections will then be
deemed for all purposes herein as "Company Permitted Encumbrances."
(b) Notwithstanding anything to the contrary set forth in clause (a)
above,
(i) The Company shall not be obligated to pay the cost of any
policy of title insurance and of any survey relating to the Property;
(ii) Unpaid Liens for taxes, water charges and assessments
which Subsidiary is obligated to pay and discharge shall not be deemed an
Encumbrance, Property Restriction or other defect of title which is not a
Permitted Company Encumbrance;
(iii) If, on the Closing Date, there shall be financing
statements which were filed more than five years prior to the Closing Date and
which were not continued, such financing statements shall not be deemed an
Encumbrance, Property Restriction or other defect of title which is not a
Permitted Company Encumbrance, provided that (i) the Title Insurer shall afford
Subsidiary affirmative coverage against any loss or damage (including reasonable
attorneys' fees and expenses of litigation) resulting from the enforcement or
attempted enforcement of the security interest evidenced by such financing
statement(s) or (ii) each such financing statement is omitted as an exception
from the title insurance coverage afforded to Subsidiary by the Title Insurer;
(iv) In the event there are unpaid state franchise Taxes
and/or municipal corporate business Taxes due from any Persons in the chain of
title, which franchise taxes and/or municipal business Taxes are or may be a
Lien upon the Property, such Taxes shall not be deemed an Encumbrance, Property
Restriction or other defect of title which is not a Permitted Company
Encumbrance, provided that either (x) such Taxes reduce the Merger Consideration
pursuant to the terms of this Agreement or (y) the Title Insurer (i) shall
afford Subsidiary affirmative coverage against any loss or damage (including
reasonable attorneys' fees and expenses of litigation) resulting from the
enforcement or attempted enforcement of any such execution or Lien or (ii) shall
otherwise insure Subsidiary against collection of such taxes out of the
Property.
ARTICLE 6
CONDITIONS TO CLOSINGS
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment (or to
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the extent legally permissible, waiver) at or prior to the Effective Time of the
following conditions:
(a) The Company Stockholder Approval shall have been obtained in the
manner required by applicable laws;
(b) Any waiting period applicable to the consummation of the Merger
under the HSR Act, if applicable, shall have expired or been terminated or
the Company and Acquiring Entities shall have mutually concluded that no
filing under the HSR Act is required with respect to the transactions
contemplated hereby;
(c) The consummation of the Merger shall not be restrained, enjoined
or prohibited by any order, judgment, decree, injunction or ruling of a
court of competent jurisdiction or provision of applicable law;
(d) The Form S-4 Registration Statement shall have become effective
under the Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order, and any material "blue sky" and other
state securities laws applicable to the registration and qualification of
the shares of Parent Common Stock following the Merger shall have been
complied with.
(e) The shares of Parent Common Stock to be issued in connection
with the Merger (i) shall have been validly registered under the Securities
Act and (ii) shall be listed for trading on the NYSE.
(f) The Company shall have received the opinion of a nationally
recognized law firm selected by the Company, dated the Closing Date, to the
effect that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code.
SECTION 6.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the additional following
conditions, unless waived by the Company:
(a) The Acquiring Entities shall have performed in all material
respects its agreements contained in this Agreement required to be
performed at or prior to the Effective Time and the representations and
warranties of the Acquiring Entities contained in this Agreement shall be
true and correct in all respects (but without regard to any materiality
qualifications or references to Parent Material Adverse Effect contained in
any specific representation or warranty) when made and (except for
representations and warranties made as of a specified date, which need only
be true and correct as of such date) at and as of the Effective Time as if
made at and as of such time, except for inaccuracies that in the aggregate
would not reasonably be expected to, individually or in the aggregate,
constitute a Parent Material Adverse Effect; and the Company shall have
received a certificate of an officer of Parent to that effect.
SECTION 6.3 CONDITIONS TO OBLIGATIONS OF THE ACQUIRING ENTITIES TO
EFFECT THE MERGER. The obligations of the Acquiring Entities to effect the
Merger shall be subject to the
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fulfillment at or prior to the Effective Time of the additional following
conditions, unless waived by Merger Sub:
(a) The Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed at or prior
to the Effective Time and the representations and warranties of the Company
contained in this Agreement (other than the representations and warranties
set forth in the first two sentences of Section 3.11(a)), shall be true and
correct in all respects (but without regard to any materiality
qualifications or references to Company Material Adverse Effect contained
in any specific representation or warranty) when made and (except for
representations and warranties made as of a specified date, which need only
be true and correct as of such date) at and as of the Effective Time as if
made at and as of such time, except for inaccuracies that in the aggregate
would not reasonably be expected to, individually or in the aggregate,
constitute a Company Material Adverse Effect; and Merger Sub shall have
received a certificate of the Chief Executive Officer or Chief Financial
Officer of the Company to that effect.
(b) Since December 31, 2004, there shall not have been any change,
circumstance or event which, individually or in the aggregate, has had or
would reasonably be expected to have a Company Material Adverse Effect.
(c) Merger Sub shall have received the opinion of Wachtell, Lipton,
Rosen & Katz, dated the Closing Date, to the effect that the Merger will be
treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code.
(d) The Acquiring Entities shall have received those opinions and
reliance letters, if any, requested by the Acquiring Entities of Proskauer
Rose LLP and/or Wolf, Block, Schorr and Solis-Cohen LLP in the forms agreed
to by the parties prior to the date hereof and dated as of the Closing
Date, unless otherwise agreed to by the parties.
(e) The Buyer Entities shall have received from the Company executed
Tenant Estoppels contemplated pursuant to clauses (a) and (b) of the first
sentence of Section 5.14 hereof.
(f) The representations and warranties set forth in the first two
sentences of Section 3.11(a) shall be true and correct in all respects.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 TERMINATION. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after approval by the
shareholders of the Company of the Merger and by the shareholders of Merger Sub
of the Merger and the Board of Directors of the Parent of the issuance of the
Parent Common Stock contemplated by the Merger:
(a) by mutual written consent of Parent, Merger Sub and the Company;
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(b) by the Company, upon a material breach of this Agreement on the
part of Merger Sub or Parent which is not curable or has not been cured
within 20 Business Days after the giving of written notice to the Parent of
such breach and in either case which would cause any of the conditions set
forth in Section 6.1 or Section 6.2 to be incapable of being satisfied by
June 30, 2006;
(c) by the Parent, upon a material breach of this Merger Agreement
on the part of the Company which is not curable or has not been cured
within 20 Business Days (60 Business Days in the case of a breach of a
representation or warranty set forth in the first two sentences of Section
3.11(a) hereof) after the giving of written notice to the Company of such
breach and in either case which would cause any of the conditions set forth
in Section 6.1 or Section 6.3 to be incapable of being satisfied by June
30, 2006;
(d) by either Parent or the Company if any court of competent
jurisdiction shall have issued, enacted, entered, promulgated or enforced
any order, judgment, decree, injunction or ruling which restrains, enjoins
or otherwise prohibits the Merger and such order, judgment, decree,
injunction or ruling shall have become final and nonappealable;
(e) by either Parent or the Company if the Merger shall not have
been consummated on or before June 30, 2006; provided that the right to
terminate this Agreement under this Section 7.1(e) shall not be available
to any party that is in material breach of its representations, warranties
or obligations under this Agreement;
(f) by either Parent or the Company if the meeting of the
shareholders the Company to approve the Merger (as such meeting may be
adjourned from time to time) shall have concluded without the Company
having obtained Company Stockholder Approval;
(g) by Parent if, prior to the Company Stockholder Meeting, (i)
there has been a Change in the Company Board Recommendation or (ii) the
Company Board of Trustees shall have refused to affirm the Company Board
Recommendation within 5 days of any written request from Parent;
(h) by the Company, if (i) the Company Board of Trustees shall have
determined that a Competing Proposal constitutes a Superior Proposal in
accordance with the requirements of Section 5.4, (ii) the Company shall
have delivered to Parent a written notice of the determination by the
Company Board of Trustees to terminate this Agreement pursuant to this
Section 7.1(h) and followed the procedures required by Section 5.4, and
(iii) immediately prior to such termination the Company shall have made
payment of the full amounts required by Section 7.2(b) and 7.2(c) and
immediately after such termination the Company shall have entered into a
definitive acquisition, merger or similar agreement to effect such
Competing Proposal;
(i) by Parent pursuant to Section 5.15 hereunder; and
(j) by Parent pursuant to Section 5.16 hereunder.
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SECTION 7.2 PROCEDURE AND EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement by either or both
of the Company, on the one hand, and the Acquiring Entities, on the other hand,
pursuant to Section 7.1, written notice thereof shall forthwith be given by the
terminating party to the other party hereto, and this Agreement shall thereupon
terminate and become void and have no effect, and the transactions contemplated
hereby shall be abandoned without further action by the parties hereto, except
that the provisions of Section 5.2 (Public Announcements; Confidentiality),
Section 7.3 (Expenses), Section 8.2 (Governing Law), and Section 8.4 (Notices)
shall survive the termination of this Agreement; PROVIDED, HOWEVER, that such
termination shall not relieve any party hereto of any liability for any breach
of this Agreement.
(b) In the event that (i) this Agreement is (A) terminated by Parent
pursuant to Section 7.1(c), or (B) by the Company or Parent pursuant to Section
7.1(e) or Section 7.1(f), and either (C) a Competing Proposal shall have been
previously publicly proposed or publicly announced or any person has previously
publicly announced an intention (whether or not conditional and whether or not
withdrawn) to make a Competing Proposal, or (D) within 12 months after such
termination, the Company or any of its Subsidiaries enters into any definitive
agreement with respect to, or consummates, any Competing Proposal, or (ii) this
Agreement is terminated by the Company pursuant to Section 7.1(h) or the Parent
pursuant to Section 7.1(g), then the Company shall pay Parent a fee equal to
$2,475,000 (the "TERMINATION FEE") by wire transfer of same day funds to an
account designated by Parent, in the case of a payment as a result of any event
referred to in Section 7.2(b)(i)(A) or (B) and (D), upon the first to occur of
the entering into any definitive agreement or the consummation of any Competing
Proposal and in the case of a payment as a result of any event referred to in
Section 7.2(b)(ii) or Section 7.2(b)(i)(A) or (B) and (C), promptly, but in no
event later than the date of such termination.
(c) The Company shall reimburse Parent and Merger Sub for all their
expenses incurred in connection with this Agreement and the Merger in the event
this Agreement is terminated in the circumstances described in Section 7.2(b),
promptly, but in no event later than the date of such termination; PROVIDED,
HOWEVER, that the aggregate amount of such reimbursement shall not exceed
$412,500 in the aggregate. All payments made pursuant to this Section 7.2(c)
shall be made by wire transfer of the same day funds to an account designated by
Parent.
(d) Notwithstanding any other provisions in this Agreement, any
payments otherwise to be made by the Company to Parent under Sections 7.2(b) and
(c) hereof for any calendar year shall not exceed the sum of (a) the amount that
it is determined should not be gross income of Parent for purposes of the
requirements of Sections 856(c)(2) and (3) of the Code, with such determination
to be set forth in an opinion of outside tax counsel selected by Parent, which
opinion shall be reasonably satisfactory to Parent (which opinion is referred to
as a "NO GROSS INCOME OPINION") plus (b) such additional amount that it is
estimated can be paid to Parent in such taxable year without creating a risk
that the payment would cause Parent to fail to meet the requirements of Sections
856(c)(2) and (3) of the Code, determined as if the payment of such amount did
not constitute income that qualifies as gross income for purposes of Section
856(c)(2) of the Code, which determination shall be made by independent tax
accountants to Parent and (c) in the event Parent receives a letter from tax
counsel (the "ALTERNATIVE TAX
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LETTER") indicating that Parent has received a ruling from the Internal Revenue
Service holding that Parent's receipt of the additional amount otherwise to be
paid under this Agreement either would constitute income that qualifies as gross
income for purposes of Section 856(c)(2) of the Code ("QUALIFYING INCOME") or
would be excluded from gross income of Parent for purposes of Sections 856(c)(2)
and (3) of the Code (the "REIT REQUIREMENTS"), the aggregate payments otherwise
required to be made under this Agreement (determined without regard to this
Section 7.2(d)) less the amount otherwise previously paid under clauses (a) and
(b) above. The obligation of the Company to pay any unpaid portion of any
payment otherwise required under this Agreement that remains unpaid solely by
reason of this Section 7.2(d) shall terminate three years from the date such
payment otherwise would have been made but for this Section 7.2(d). In the event
that Parent is not able to receive the full payments that otherwise would be due
under this Agreement as and when such payments otherwise would be required to be
made, the Company shall place the unpaid amount in escrow and shall not release
any portion thereof to the Parent unless and until the Company receives any of
the following: (x) a letter from Parent's independent tax accountants indicating
the amount that it is estimated can be paid at that time to Parent without
creating a risk that the payment would cause Parent to fail to meet the REIT
Requirements for the taxable year in which the payment would be made, which
determination shall be made by such independent tax accountants, (y) an
Alternative Tax Letter or (z) an opinion of outside tax counsel selected by
Parent, which opinion shall be reasonably satisfactory to Parent, to the effect
that, based upon a change in law after the date on which payment was first
deferred hereunder, receipt of the additional amount otherwise to be paid under
this Agreement either would be excluded from gross income of Parent for purposes
of the REIT Requirements or would constitute Qualifying Income, in any of which
events the Company shall pay Parent the lesser of the unpaid amounts due under
this Agreement (determined without regard to this Section 7.2(d)) or the maximum
amount stated in the letter referred to in clause (x) above. At the end of the
three-year period referred to above in this Section 7.2(d) with respect to any
amount placed in such escrow, if none of the events referred to in clauses (x),
(y) or (z) of the preceding sentence shall have occurred, such amount shall be
released from such escrow to be used as determined by the Company in its sole
and absolute discretion.
SECTION 7.3 EXPENSES. Except as set forth in Sections 7.2(b) and
7.2(c) or to the extent included in Company Merger Expenses, whether or not the
Merger is consummated, all legal and other costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more counterparts have been signed by
each party hereto and delivered to the other party. Copies of executed
counterparts transmitted by telecopy, telefax or other electronic transmission
service shall be considered original executed counterparts for purposes of this
Section, provided receipt of copies of such counterparts is confirmed.
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SECTION 8.2 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE
TO THE CHOICE OF LAW PRINCIPLES THEREOF, EXCEPT TO THE EXTENT THE LAWS OF THE
STATE OF MARYLAND ARE MANDATORILY APPLICABLE.
SECTION 8.3 ENTIRE AGREEMENT. This Agreement (including agreements
incorporated herein) and the Schedules, Annexes and Exhibits hereto and the
Indemnification Agreement contain the entire agreement between the parties with
respect to the subject matter hereof and supercedes all prior discussions,
negotiations, arrangements, agreements, and understandings.
SECTION 8.4 NOTICES. All notices and other communications hereunder
shall be sufficiently given for all purposes hereunder if in writing and
delivered personally, sent by documented overnight delivery service or, to the
extent receipt is confirmed, telecopy, telefax or other electronic transmission
service to the appropriate address or number as set forth below. Notices to the
Company shall be addressed to:
Atlantic Realty Trust
747 Third Avenue
New York, New York 10017
Attention: Joel M. Pashcow
Telecopy Number: (212) 355-3080
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York
Attention: Peter M. Fass, Esq.
Steven L. Lichtenfeld, Esq.
Telecopy Number: (212) 969-2900
or at such other address and to the attention of such other person as the
Company may designate by written notice to Parent and Merger Sub. Notices to
Parent and/or Merger Sub shall be addressed to:
Kimco Realty Corporation
3333 New Hyde Park Road
New Hyde Park, New York 11042-0020
Attention: Milton Cooper
Telecopy Number: (516) 869-9000
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
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Attention: Adam O. Emmerich, Esq.
David E. Shapiro, Esq.
Telecopy Number: (212) 403-2000
SECTION 8.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors; provided, however, that this Agreement may not be assigned or
transferred by either of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other party; provided,
however that Merger Sub may assign all of its rights and obligations to any
direct or indirect wholly owned subsidiary of Parent.
SECTION 8.6 HEADINGS. The Section, Article and other headings
contained in this Agreement are inserted for convenience of reference only and
will not affect the meaning or interpretation of this Agreement. All references
to Sections or Articles contained herein mean Sections or Articles of this
Agreement unless otherwise stated.
SECTION 8.7 AMENDMENTS AND WAIVERS.
(a) Except as may otherwise be provided herein, any provision of
this Agreement may be amended, modified or waived by the parties hereto, by
action taken by or authorized by their respective Board of Directors or Board of
Trustees, as applicable, prior to the Effective Time if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company and the Acquiring Entities or, in the case of a waiver, by the party
against whom the waiver is to be effective; provided that after the adoption of
this Agreement by the shareholders of the Company, no such amendment shall be
made except as allowed under applicable law.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
(c) The waiver by any party hereto of a breach of any term or
provision hereof shall not be construed as a waiver of any subsequent breach.
SECTION 8.8 CERTAIN DEFINITIONS; INTERPRETATION; ABSENCE OF
PRESUMPTION. (a) For the purposes hereof,
(i) "2005 DIVIDEND" shall mean that certain dividend, the
record date for which shall be December 19, 2005, in an amount equal to the
dividend the Company determines is necessary for the Company to declare and
pay in order to qualify as a REIT for its taxable year ended December 31,
2005.
(ii) "BUSINESS DAY" shall mean any day on which banks are not
required or authorized to close in the City of New York, New York.
A-44
(iii) "COMPANY MATERIAL ADVERSE EFFECT" shall mean any change,
event, circumstance, development or effect, which has had or would
reasonably be expected to have, individually or in the aggregate, a
material adverse effect on the financial condition, assets, liabilities,
properties, results of operations or business of the Company and its
Subsidiary taken as a whole, or on the ability of the Company to consummate
the Merger and the other transactions contemplated hereby; PROVIDED,
HOWEVER, that no change, event, circumstance, development or effect arising
out of or in connection with the execution or announcement of this
Agreement or the transactions contemplated hereby shall be deemed in
itself, or in any combination, to constitute, and none of the following
shall be taken into account in determining whether there has been or will
be a Company Material Adverse Effect.
(iv) "GAAP LIABILITIES" means any Liabilities that would be
required by GAAP to be reflected on a consolidated balance sheet of a
person (including the notes thereto); provided however that for purposes of
this Agreement, the GAAP Liabilities arising under the Tax Agreement shall
equal the difference between (x) $4,700,000 and (y) the amounts paid under
the Tax Agreement between the date hereof and the Closing Date.
(v) "LIABILITIES" means any losses, debts, dues, royalties,
costs, charges, expenses, obligations, liabilities, settlement payments,
awards, liens, judgments, fines, penalties, damages, demands, claims,
Actions, causes of action, assessments, amounts paid in settlement, or
deficiencies (including the expenses of investigation and attorneys' fees
and expenses in connection therewith) including those arising out of any
Action of any nature, whether known or unknown, accrued or unaccrued,
liquidated or unliquidated, absolute, contingent or otherwise and whether
due or to become due, and whether or not resulting from third-party claims.
(vi) "PARENT MATERIAL ADVERSE EFFECT" shall mean any change,
event, circumstance, development or effect, which has had or would
reasonably be expected to have, individually or in the aggregate, a
material adverse effect on the ability of Parent or Merger Sub to
consummate the Merger and the other transactions contemplated hereby.
(vii) "PERSON" shall mean any individual, corporation,
partnership, limited liability company, joint venture, trust,
unincorporated organization or other form of business or legal entity or
governmental entity.
(viii) "SUBSIDIARIES" shall mean with respect to any person,
any corporation, partnership, limited liability company, joint venture,
business trust or other entity, of which such person, directly or
indirectly, owns or controls at least 50% of the securities or other
interests entitled to vote in the election of directors or others
performing similar functions with respect to such corporation or other
organization, or to otherwise control such corporation, partnership,
limited liability company, joint venture, business trust or other entity;
provided, however, with respect to the Company, "Subsidiaries" and
"Subsidiary" shall mean Atlantic Hylan Corp., a Delaware corporation.
A-45
(ix) "TAX AGREEMENT" shall mean that certain Tax Agreement
dated as of May 10, 1996 by and between the Company and Ramco-Gershenson
Properties Trust.
(x) "TELCO STORES LEASE" shall mean that Lease Agreement dated
September 26, 2005 between Atlantic Hylan Corp., as Owner, and Telco of
Hylan Plaza, LLC, as Tenant relating to stores 43 and 44 at the Property.
(b) For purposes hereof,
(i) words in the singular shall be held to include the plural
and VICE VERSA and words of one gender shall be held to include the other
gender as the context requires, the terms "hereof", "herein", and
"herewith" and words of similar import shall, unless otherwise stated, be
construed to refer to this Agreement as a whole (including all of the
Schedules, Annexes and Exhibits hereto) and not to any particular provision
of this Agreement, and Article, Section, paragraph, Exhibit, Annex and
Schedule references are to the Articles, Sections, paragraphs, Exhibits,
Annexes and Schedules to this Agreement unless otherwise specified,
(ii) the word "including" and words of similar import when
used in this Agreement shall mean "including, without limitation," unless
the context otherwise requires or unless otherwise specified,
(iii) the word "or" shall not be exclusive,
(iv) references to the "knowledge of the Company" shall mean
the actual knowledge of the officers (as such term is defined in Rule 3b-2
promulgated under the Exchange Act) of the Company or its Subsidiaries, or
such knowledge that such officers would have had but for the negligence or
bad faith of such officers,
(v) the terms "affiliate(s)" shall have the meaning set forth
in Rule 12b-2 promulgated under the Exchange Act, and
(vi) provisions shall apply, when appropriate, to successive
events and transactions.
(c) This Agreement shall be construed without regard to any
presumption or rule requiring construction or interpretation against the party
drafting or causing any instrument to be drafted.
SECTION 8.9 SEVERABILITY. Any provision hereof which is invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions hereof.
SECTION 8.10 INDEMNIFICATION AGREEMENT. The Indemnification
Agreement shall remain in full force and effect.
SECTION 8.11 FURTHER ASSURANCES. The Company, Parent and Merger Sub
agree that, from time to time, whether before, at or after any Closing Date,
each of them will execute
A-46
and deliver such further instruments of conveyance and transfer and take such
other action as may be necessary to carry out the purposes and intents hereof.
SECTION 8.12 SPECIFIC PERFORMANCE. Parent, Merger Sub and the
Company each acknowledge that, in view of the uniqueness of the parties hereto,
the parties hereto would not have an adequate remedy at law for money damages in
the event that this Agreement were not performed in accordance with its terms,
and therefore agree that the parties hereto shall be entitled to specific
enforcement of the terms hereof in addition to any other remedy to which the
parties hereto may be entitled at law or in equity.
SECTION 8.13 THIRD PARTY BENEFICIARIES. This Agreement is solely for
the benefit of the Company and its successors and permitted assigns, with
respect to the obligations of Merger Sub and/or Parent under this Agreement, and
for the benefit of the Acquiring Entities, and their respective successors and
permitted assigns, with respect to the obligations of the Company under this
Agreement, and this Agreement shall not, except to the extent necessary to
enforce the provisions of Section 5.8 hereof be deemed to confer upon or give to
any other third party any remedy, claim, liability, reimbursement, cause of
action or other right.
SECTION 8.14 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained herein and in any certificate or other
writing delivered pursuant hereto shall not survive the Effective Time. All
other representations, warranties and covenants contained herein which by their
terms are to be performed in whole or in part, or which prohibit actions,
subsequent to the Effective Time, shall survive the Merger in accordance with
their terms.
[SIGNATURE PAGE FOLLOWS.]
A-47
IN WITNESS WHEREOF, this Agreement has been signed by or on behalf
of each of the parties hereto as of the day first above written.
KIMCO REALTY CORPORATION
By: /s/ Milton Cooper
---------------------------------------
Name: Milton Cooper
Title: Chairman and Chief Executive
Officer
SI 1339, INC.
By: /s/ Milton Cooper
---------------------------------------
Name: Milton Cooper
Title: Chief Executive Officer
ATLANTIC REALTY TRUST
By: /s/ Edwin R. Frankel
--------------------------------------
Name: Edwin R. Frankel
Title: Executive Vice President and
Chief Executive Officer
Signature Page to Merger Agreement
A-48
ANNEX B
--------------------------------------------------------------------------------
1129 Broad Street
ROBERT A. STANGER & CO., INC. Shrewsbury, NJ 07702-4314
(732)389-3600
FAX: (732)389-1751
(732)544-0779
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
November 18, 2005
Special Committee and
The Board of Trustees of
Atlantic Realty Trust
747 Third Avenue
New York, NY 10017
Gentlemen:
We have been advised by the special committee (the "Special Committee")
of, and the board of trustees (the "Board of Trustees") of Atlantic Realty Trust
(the "Company") that the Company is contemplating a transaction (the
"Transaction") in which the Company will be merged into a wholly owned
subsidiary of KIMCO Realty Corporation ("KIMCO" or the "Parent") pursuant to an
agreement and plan of merger (the "Merger Agreement"). We have been advised that
the Merger Agreement provides that each outstanding share of beneficial
interest, par value $0.01 per share of the Company's common stock (the
"Company's Common Stock") shall be converted into and represent the right to
receive a number of shares of common stock of KIMCO (the "Parent Common Stock")
equal to the per share stock consideration (the "Per Share Stock Consideration")
as defined in the Merger Agreement (the "Merger Consideration"). We have been
advised that the Per Share Stock Consideration shall be the quotient obtained by
dividing Total Stock Consideration by Total Company Shares, as defined below.
Total Stock Consideration is the number of shares of Parent Common Stock
obtained by dividing: (i) the amount by which the sum of (A) $82,500,000, (B)
the aggregate amount of the Company's and its Subsidiary's cash and cash
equivalents as of the close of business on the business day immediately prior to
the closing date and (C) certain Lease Expenses as defined in the Merger
Agreement, exceeds the sum of (aa) the amount of the Company Merger Expenses as
defined in the Merger Agreement (which include balance sheet liabilities), (bb)
the amount of dividends estimated by the Company to be required to be
distributed in the year of closing to meet the distribution requirements for
qualification as a REIT which have not been paid by the Company to an exchange
agent prior to closing (the "REIT Dividend Amount"), and (cc) the 2005 Dividend
to the extent not previously paid; by (ii) the market price (the "Market Price")
of the Parent Company Stock. Total Company Shares shall equal the number of
outstanding shares of Company Common Stock immediately prior to the Effective
Time, as defined in the Merger Agreement. The Market Price shall equal the
closing price on the New York Stock Exchange for shares of Parent Common Stock
on the final full trading day immediately preceding the Closing Date.
B-1
The Company has requested that Robert A. Stanger & Co., Inc. ("Stanger")
provide its opinion to the Special Committee as to the fairness, from a
financial point of view, of the Merger Consideration to be received by the
shareholders of the Company's Common Stock, other than KIMCO and its affiliates.
Stanger, founded in 1978, has provided information, research, investment
banking and consulting services to clients located throughout the United States,
including major New York Stock Exchange member firms, insurance companies and
over seventy companies engaged in the management and operation of partnerships
and real estate investment trusts. The investment banking activities of Stanger
include mergers and acquisitions advisory and fairness opinion services, asset
and securities valuations, industry and company research and analysis,
litigation support and expert witness services, and due diligence investigations
in connection with both publicly registered and privately placed securities
transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, and reorganizations and for estate, tax, corporate and other
purposes. In particular, Stanger's valuation practice principally involves real
estate investment trusts and partnerships and the assets typically owned through
such entities including, but not limited to, real estate.
In the course of our review to render this opinion, we have, among other
things:
o Reviewed the 2002, 2003 and 2004 audited financial statements of the
Company contained in the Company's Forms 10K and the March 31, 2005,
June 30, 2005 and September 30, 2005 unaudited quarterly financial
statements contained in the Company's Forms 10Q, in each case as filed
with the Securities & Exchange Commission;
o Reviewed a property offering memorandum prepared by Rockwood Realty
Associates ("Rockwood") in connection with the marketing for sale of
the Company's sole real estate asset, Hylan Plaza, a 360,204 square
foot shopping center located in Staten Island, New York.
o Interviewed personnel of Rockwood Realty Associates concerning
marketing of the property and reviewed a summary of bids received from
prospective buyers of Hylan Plaza, including KIMCO;
o Reviewed a current rent roll, historical operating statements for 2003
and 2004 and budgeted 2005 and year-to-date operating statements for
Hylan Plaza;
o Conducted a site visit of Hylan Plaza and made local market inquiries
regarding rental rates at competing properties and the terms of sales
transactions involving similar shopping center assets in the region;
B-2
o Discussed with Company management conditions in retail property
markets, conditions in the local market of the property, current and
expected operations of the property, and the financial condition and
future prospects for the Company;
o Reviewed the acquisition parameters for similar shopping center assets
as summarized in surveys prepared by PriceWaterhouseCoopers/Korpacz
and Real Estate Research Corporation;
o Prepared independent estimates of the range of value of Hylan Plaza
based upon a discounted cash flow analysis and sales comparable
analysis;
o Reviewed the trading activity for shares of the Company and KIMCO for
the years ended December 31, 2003 and 2004 and for the year-to-date
period ended November 17, 2005;
o Reviewed the Company's calculation of Merger Consideration based on
information provided by management of anticipated cash and equivalent
balances, Company Merger Expenses, Lease Expenses, REIT Dividend
Amount and the 2005 Dividend Amount, as defined in the Merger
Agreement;
o Reviewed draft documents relating to the Transaction, including the
Merger Agreement, which drafts the Company has represented are in
substantially the form anticipated to be executed in connection with
the Transaction; and
o Conducted such other analyses and inquiries as we deemed appropriate.
In rendering this opinion, we have been advised that we may rely upon, and
therefore have relied upon and assumed, without independent verification, the
accuracy and completeness in all material respects of all financial, tax and
other information furnished or otherwise communicated to us by the Company, its
management and representatives and Rockwood. We have not performed an
independent appraisal of Hylan Plaza and have relied upon the representations of
the Company concerning the Telco lease, and the physical condition and capital
expenditure requirements of the property. We have also relied on the assurance
of the Company and Management that any pro forma financial statements,
projections, budgets, tax estimates or value estimates or adjustments provided
or communicated to us were reasonably prepared on bases consistent with actual
historical experience and reflect the best currently available estimates and
good faith judgments; that no material change has occurred in the value of Hylan
Plaza or the information reviewed between the date such information was provided
and the date of this letter; and that the Company and its management are not
aware of any information or facts that would cause the information supplied to
us to be incomplete or misleading in any material respect. Nothing has come to
our attention that would lead us to believe that any of the foregoing is
incorrect, incomplete or misleading in any material respect.
We have not been engaged to, and therefore did not: (i) appraise Hylan
Plaza; (ii) solicit interest in or otherwise attempt to market Hylan Plaza or
interests in the Company; (iii) select the method of determining the type or
amount of Merger Consideration in the Transaction or the
B-3
method for determining the number of Parent Common Shares to be received by any
stockholders of the Company; (iv) make any recommendation to the Special
Committee or the Board of Trustees or any stockholders of the Company with
respect to whether to accept or reject the Transaction or the impact, tax or
otherwise, on the Company or its shareholders of acceptance or rejection of the
Transaction; (v) express any opinion as to the business decisions made by the
Special Committee or the Board of Trustees to enter into the Transaction, or
alternatives to the Transaction; (vi) express any opinion as to the amounts or
allocation of expenses relating to the Transaction, including but not limited to
the Company Merger Expense estimates, or any terms of the Transaction other than
the Merger Consideration; (vii) express any opinion as to the past or continuing
qualification of the Company as a real estate investment trust for federal
income tax purposes, the qualification of the Merger as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code, or any other
tax-related matters; or (viii) express any opinion as to the price at which
Parent Company Shares may trade following the completion of the Transaction. Our
opinion is based on business, economic, real estate and securities markets, and
other conditions as they existed and could be evaluated on the date of our
analysis and addresses the Merger Consideration in the context of information
available as of the date of our analysis. Events occurring after that date may
materially affect the assumptions used in preparing the opinion.
Based upon and subject to the foregoing, and in reliance thereon, it is our
opinion that as of the date of this letter the Merger Consideration to be
received by shareholders of the Company's Common Stock, other than KIMCO and its
affiliates, is fair to the shareholders of the Company from a financial point of
view.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. We have
advised the Special Committee and the Board of Trustees that our entire analysis
must be considered as a whole and that selecting portions of our analysis and
the factors considered by us, without considering all analyses and factors,
could create an incomplete view of the evaluation process underlying this
opinion.
Yours truly,
/s/ Robert A. Stanger & Co., Inc.
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
November 18, 2005
B-4
ANNEX C
MEMORANDUM
TO: Atlantic Realty Trust, Board of Trustees
FROM: Rockwood Realty Associates
DATE: June 1, 2004
RE: Hylan Plaza - Estimate of Market Value
The purpose of this memorandum is to summarize an estimate of market value for
the Hylan Plaza Shopping Center. In the current capital markets environment,
investors typically formulate their offers to purchase shopping centers such as
Hylan Plaza based on a five to 10-year investment horizon. As such, Rockwood has
based its estimate of market value on a 10-year holding period.
As a result of Atlantic Realty Trust's ongoing discussions with Modell's and
Regal Cinema regarding the potential expansion of their respective stores, as
well as Kmart and their required approval of the aforementioned expansions,
Rockwood has performed two valuation scenarios with respect to the Property -
"AS-IS" AND "AS-EXPANDED" - in order to derive an estimate of market value
resulting from these potential expansions and the re-tenanting of the Kmart
space.
A number of tenants at the Property have significantly below-market base rents,
most notably Kmart (103,920 square feet @ $2.26/square foot with a current term
expiration of 1/31/07 and final option term expiration of 1/31/2017) and Toy's
"R" Us (42,000 square feet @ $2.14/square foot with a current term expiration of
10/31/05 and final option term expiration of 10/31/2015). IT IS IMPORTANT TO
NOTE THAT ALTHOUGH KMART'S LEASE PROVIDES FOR A BASE RENTAL RATE OF $2.26/SQUARE
FOOT, IT ALSO ESTABLISHES CAPS ON KMART'S CAM CONTRIBUTIONS WHICH RESULT IN AN
"EFFECTIVE RENTAL RATE" OF APPROXIMATELY $0.00/SQUARE FOOT.
Assuming both Kmart and Toys "R" Us exercise their respective renewal options,
these leases will not roll to market rents during Rockwood's projection period.
Therefore, Rockwood has assumed a lower terminal cap rate in the Base Case
valuation scenario in an effort to account for the significant increases in base
rental income that will ultimately be realized when these tenants roll to a
market rental rate.
Rockwood has assigned a Low, Mid and High estimate of market value to each
valuation scenario ("As-Is" and "As-Expanded") based on a 10-year hold period.
Following the summary of each valuation scenario is a discussion of potential
issues that may arise as a result of a prospective purchaser's physical,
environmental and financial due diligence, as well as a cash flow and valuation
matrix which supports the estimate of market value for each valuation scenario.
HYLAN PLAZA SHOPPING CENTER
ESTIMATE OF MARKET VALUE - 10 YEAR HOLD
LOW MID HIGH
"As-Is" $57,500,000 $59,700,000 $62,200,000
"As-Expanded"* $75,100,000 $77,800,000 $80,700,000
* Does not account for any cost to the Landlord relating to the buyout of
Kmart's lease.
C-1
VALUATION SCENARIOS:
1. "AS-IS" VALUATION SCENARIO
The "As-Is" valuation scenario assumes that neither of the two proposed
expansions occurs during the hold period. Additionally, this scenario
assumes that upon expiration of their respective leases (including option
terms), Toy's "R" Us and Kmart roll to a projected per square foot market
rental rate of $27.68 (2004 MARKET BASE RENT OF $20.00/SQUARE FOOT, GROWN AT
3% ANNUALLY THROUGH 2015) AND $26.43 (2004 MARKET BASE RENT OF $18.00/SQUARE
FOOT, GROWN AT 3% ANNUALLY THROUGH 2017), respectively. The "mark to market"
of the Toy's "R" Us and Kmart leases result in a new annual base rental
revenue of $1,162,757 in 2015 and $2,746,980 in 2017, respectively.
Given that the "mark to market" base rental increases for Toys "R" Us and
Kmart occur beyond the 10-year holding period, Rockwood assumed a terminal
cap rate of 6.75% or 125 basis points lower than the "As-Expanded" valuation
scenario in order to capture the value associated with the significant
revenue increase that will be realized as these tenants roll to market.
"AS-IS" VALUATION SCENARIO
ESTIMATE OF MARKET VALUE - 10 YEAR HOLD
LOW MID HIGH
GOING-IN CAP RATE 6.81% 6.56% 6.31%
VALUE $59,600,000 $61,800,000 $64,300,000
CAPITAL ADJUSTMENT* $(2,100,000) $(2,100,000) $(2,100,000)
ADJUSTED NET VALUE $57,500,000 $59,700,000 $62,200,000
* Please see page 4 for further detail.
C-2
2. "AS-EXPANDED" VALUATION SCENARIO
The "As-Expanded" valuation scenario assumes the following events occur:
A) Modell's expands its existing 6,000 square foot store by approximately
5,300 square feet effective September 30, 2005 with an October 1, 2005
commencement of the new rental structure and lease term as outlined in the
March 15, 2004 Memorandum from Atlantic Hylan Corp. to Modell's, which
provides for a $106,000 increase in base rental revenue in the first full
lease year.
B) The Cinema proceeds with the proposed 22,245 square foot expansion of its
space, with completion of the expansion by March 31, 2006 and a April 1,
2006 commencement of their new rental structure and lease term as outlined
in the Preliminary Draft of the Fifth Amendment of Lease, which provides for
a $440,000 increase in base rental revenue in the first full lease year and
assumes the Landlord contributes a tenant allowance of $2.25 million.
C) Kmart negotiates a buyout of their lease effective September 30, 2004,
which effectively clears arrangements to proceed with the Modell's and
Cinema expansions. Twelve months of downtime is assumed to provide for
re-tenanting and build out of the Kmart space. Landlord is assumed to
provide a tenant allowance of $20.58/square foot or a total of $2,138,754.
Leasing commissions are assumed to be 5% of base rental revenue, resulting
in a total leasing commission of $1,016,336. A new 10 year lease is assumed
to commence effective October 1, 2005 at an initial base rent of
$18.54/square foot NNN. THIS VALUATION SCENARIO DOES NOT ACCOUNT FOR ANY
COST TO THE LANDLORD RELATING TO THE BUYOUT OF KMART LEASE.
"AS-EXPANDED" VALUATION SCENARIO
ESTIMATE OF MARKET VALUE - 10 YEAR HOLD
LOW MID HIGH
GOING-IN CAP RATE 4.79% 4.63% 4.47%
YEAR 2 CAP RATE 8.32% 8.04% 7.76%
VALUE $77,200,000 $79,900,000 $82,800,000
CAPITAL ADJUSTMENT* $(2,100,000) $(2,100,000) $(2,100,000)
ADJUSTED NET VALUE** $75,100,000 $77,800,000 $80,700,000
* Please see page 4 for further detail.
** Does not account for any cost to the Landlord relating to the buyout of
Kmart's lease.
C-3
POTENTIAL DUE DILIGENCE ISSUES
1. PHYSICAL ELEMENTS
The Property is currently in good physical condition. However, several
deferred maintenance/capital items should be anticipated to arise as a
result of a prospective purchaser's due diligence. IN TODAY'S CAPITAL
MARKETS ENVIRONMENT, CAPITAL EXPENDITURES SUCH AS THOSE DISCUSSED BELOW ARE
TREATED AS DIRECT DEDUCTS FROM THE PURCHASE PRICE. PROSPECTIVE PURCHASERS
WILL REDUCE THEIR PURCHASE PRICE ON A DOLLAR-FOR-DOLLAR BASIS BY AN AMOUNT
EQUIVALENT TO THE REQUIRED CAPITAL EXPENDITURES.
The significant deferred maintenance/capital items are as follows:
A) ROOFS: The Property consists of approximately 360,000 square feet of
roof area. According to Rockwood's discussions with Ownership, there
are currently no significant leaking issues with the roof at the
Property and minor repairs are performed on an as-needed basis.
However, due to the age of the existing roofing system, which is
assumed to have exceeded its published useful life, a prospective
purchaser will seek a credit for all or a significant portion of the
cost to replace the roofing system.
Kmart, Pathmark, and Toy's "R" Us and some other tenants have leases
which establish the repair and maintenance of Tenant's roof as the
Tenant's responsibility. Kmart's lease clearly states that the Tenant
is responsible for the replacement of their roof and Rockwood's
interpretation of the Toy's "R" Us lease is that it provides for the
same.
Assuming that Kmart, Toys "R" Us and Pathmark are responsible for the
replacement of their respective roofs, the potential exposure relating
to the replacement of the roofing system using a cost of $2.50 per
square foot is approximately $400,000.
B) STOREFRONT SIGNAGE: The existing back-lit storefront signage at the
Property is significantly dated and in need of an upgrade to ensure
the Center's continued viability within its competitive marketplace.
The estimated potential exposure relating to the replacement/upgrade
of the Center's storefront signage is approximately $1,700,000.
Based on the items discussed above, the estimated potential exposure
relating to existing deferred maintenance/capital expenditure items is
approximately $2.1 million. THE AGGREGATE CAPITAL EXPENDITURE AMOUNT WILL BE
DIRECTLY DEDUCTED FROM THE PURCHASE PRICE ON A DOLLAR-FOR-DOLLAR BASIS.
C-4
2. ENVIRONMENTAL ELEMENTS
A) DRY CLEANERS: There is currently an on-site dry cleaning facility that
has been at the Property for more than 20 years. A Phase I
Environmental Site Assessment was performed in 1997 which identified
the dry cleaning facility as a potential environmental concern.
Subsequent to the Phase I, a Phase II Environmental Site Assessment
was performed to determine if the Property had been adversely impacted
by the on-site dry cleaning facility.
The Phase II identified the presence of some Volatile Organic
Compounds at levels that were slightly above the appropriate New York
State Guidance Values. However, the Phase II concluded that the soil
and ground water at the Property did not appear to have been adversely
impacted by the on-site dry cleaning facility and no further action
was recommended.
Due to the age of the Phase II Environmental Site Assessment (+/- 7
years) and the continued operation of the on-site dry cleaning
facility, a prospective purchaser is very likely to require that a
Phase I and Phase II Environmental Site Assessment be performed.
3. FINANCIAL ELEMENTS
A) EXPENSE REIMBURSEMENT METHODS: As part of Rockwood's due diligence,
each Tenant lease has been read and abstracted to determine the
appropriate methodology to be utilized regarding the Common Area
Maintenance, Real Estate Tax and Insurance charges that each Tenant is
responsible for. When comparing Rockwood's interpretation of the lease
language to the current billing practice at the Property, it is
evident that the Property is under-recovering CAM charges by
approximately $40,000 per annum.
Rockwood believes that due to the long tenure of many of the Tenants
at the Property, it would be difficult at best to revise the billing
methods currently employed at the Property, particularly if the
revision would result in an increase of the Tenant's CAM obligation.
As such, Rockwood's financial projections utilize the billing
methodology currently employed at the Property. However, Rockwood's
Offering Memorandum will identify the billing methodology variance and
the associated financial implications.
C-5
ROCKWOOD REALTY ASSOCIATES
HYLAN PLAZA
INVESTMENT PRICING MATRIX - "As-Is" Valuation Scenario
NET RENTABLE AREA (SF) 360,204
TERMINAL CAPITALIZATION RATE
DISCOUNT RATE
6.25% PSF 6.50% PSF 6.75% PSF 7.00% PSF 7.25% PSF
------------------------------------------------------------------------------------------------------------------------------------
9.00% $66,902,262 $186 $65,427,894 $182 $64,062,739 $178 $62,795,095 $174 $61,614,875 $171
Year 1 NOI Yield (Cap Rate) 6.06% 6.20% 6.33% 6.46% 6.58%
Year 1 NCF Yield 5.89% 6.03% 6.16% 6.28% 6.40%
Avg. NOI Yield 7.17% 7.33% 7.49% 7.64% 7.78%
Avg. NCF Yield 6.81% 6.97% 7.12% 7.26% 7.40%
Reversion Percentage 57.30% 56.34% 55.41% 54.50% 53.63%
------------------------------------------------------------------------------------------------------------------------------------
9.25% $65,704,505 $182 $64,263,530 $178 $62,929,295 $175 $61,690,362 $171 $60,536,872 $168
Year 1 NOI Yield (Cap Rate) 6.17% 6.31% 6.45% 6.58% 6.70%
Year 1 NCF Yield 6.00% 6.14% 6.27% 6.39% 6.51%
Avg. NOI Yield 7.30% 7.46% 7.62% 7.77% 7.92%
Avg. NCF Yield 6.94% 7.09% 7.25% 7.39% 7.53%
Reversion Percentage 57.02% 56.06% 55.13% 54.22% 53.35%
------------------------------------------------------------------------------------------------------------------------------------
9.50% $64,534,048 $179 $63,125,636 $175 $61,821,552 $172 $60,610,616 $168 $59,483,193 $165
Year 1 NOI Yield (Cap Rate) 6.29% 6.43% 6.56% 6.69% 6.82%
Year 1 NCF Yield 6.11% 6.25% 6.38% 6.51% 6.63%
Avg. NOI Yield 7.43% 7.60% 7.76% 7.91% 8.06%
Avg. NCF Yield 7.06% 7.22% 7.37% 7.52% 7.66%
Reversion Percentage 56.74% 55.78% 54.85% 53.94% 53.07%
------------------------------------------------------------------------------------------------------------------------------------
9.75% $63,390,184 $176 $62,013,528 $172 $60,738,847 $169 $59,555,214 $165 $58,453,211 $162
Year 1 NOI Yield (Cap Rate) 6.40% 6.54% 6.68% 6.81% 6.94%
Year 1 NCF Yield 6.22% 6.36% 6.49% 6.62% 6.75%
Avg. NOI Yield 7.57% 7.73% 7.90% 8.05% 8.20%
Avg. NCF Yield 7.19% 7.35% 7.51% 7.66% 7.80%
Reversion Percentage 56.46% 55.50% 54.56% 53.66% 52.79%
------------------------------------------------------------------------------------------------------------------------------------
10.00% $62,272,229 $173 $60,926,542 $169 $59,680,536 $166 $58,523,531 $162 $57,446,319 $159
Year 1 NOI Yield (Cap Rate) 6.51% 6.66% 6.80% 6.93% 7.06%
Year 1 NCF Yield 6.33% 6.47% 6.61% 6.74% 6.86%
Avg. NOI Yield 7.70% 7.87% 8.04% 8.19% 8.35%
Avg. NCF Yield 7.32% 7.48% 7.64% 7.79% 7.94%
Reversion Percentage 56.19% 55.22% 54.28% 53.38% 52.50%
C-6
HYLAN PLAZA "AS-IS" VALUATION SCENARIO
OPERATING PROJECTION FOR FISCAL YEARS ENDING SEPTEMBER 30
HP YR 1 YR 2 YR 3 YR 4 YR 5 YR 6 YR 7
CAGR 2005 2006 2007 2008 2009 2010 2011
-------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME
Base Rental Revenue 3.62% $4,547,258 $4,671,424 $4,846,503 $5,197,063 $5,459,042 $5,537,246 $5,647,806
Percentage Rent 4.32% $ 238,796 $ 235,737 $ 243,823 $ 258,850 $ 278,468 $ 293,369 $ 297,297
CAM Reimbursements 3.24% $ 764,324 $ 784,702 $ 810,440 $ 832,052 $ 867,086 $ 892,487 $ 917,597
RET Reimbursements 3.05% $1,727,720 $1,776,755 $1,836,371 $1,891,176 $1,968,515 $2,031,306 $2,093,398
Water and Sewer Reimbursement 3.00% $ 18,808 $ 19,168 $ 19,742 $ 20,336 $ 20,945 $ 21,574 $ 22,220
Pylon License Fee 3.00% $ 11,963 $ 12,322 $ 12,692 $ 13,073 $ 13,464 $ 13,869 $ 14,285
-------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME 3.47% $7,308,669 $7,500,108 $7,769,571 $8,212,550 $8,607,520 $8,789,851 $8,992,603
PER SQUARE FOOT $ 20.29 $ 20.82 $ 21.57 $ 22.80 $ 23.90 $ 24.40 $ 24.97
CREDIT LOSS N/A ($ 146,396) ($ 162,212) ($ 172,645) ($ 179,641) ($ 184,351) ($ 188,064) ($ 191,773)
-------------------------------------------------------------------------------------------------------------------------------
EFFECTIVE GROSS INCOME 3.46% $7,162,273 $7,337,896 $7,596,926 $8,032,909 $8,423,169 $8,601,787 $8,800,830
PER SQUARE FOOT $ 19.88 $ 20.37 $ 21.09 $ 22.30 $ 23.38 $ 23.88 $ 24.43
-------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
REIMBURSABLE OPERATING EXPENSES
Insurance 3.00% $ 454,717 $ 468,357 $ 482,407 $ 496,881 $ 511,787 $ 527,141 $ 542,954
Administration 3.00% $ 107,248 $ 110,467 $ 113,779 $ 117,193 $ 120,708 $ 124,330 $ 128,059
Repairs and Maintenance 3.00% $ 143,150 $ 147,445 $ 151,867 $ 156,423 $ 161,117 $ 165,950 $ 170,928
Parking Lot Repairs and Maintenance 3.00% $ 255,625 $ 263,294 $ 271,193 $ 279,328 $ 287,709 $ 296,339 $ 305,230
Security 3.00% $ 44,504 $ 45,838 $ 47,213 $ 48,630 $ 50,091 $ 51,591 $ 53,139
Utilities 3.00% $ 93,046 $ 95,840 $ 98,715 $ 101,675 $ 104,724 $ 107,869 $ 111,103
Real Estate Taxes 3.40% $1,758,919 $1,821,030 $1,890,799 $1,964,679 $2,036,478 $2,101,575 $2,166,229
-------------------------------------------------------------------------------------------------------------------------------
TOTAL REIMBURSABLE OPERATING EXPENSES 3.25% $2,857,209 $2,952,271 $3,055,973 $3,164,809 $3,272,614 $3,374,795 $3,477,642
NON-REIMBURSABLE EXPENSES
Permits and Fees 3.00% $ 11,758 $ 12,113 $ 12,473 $ 12,850 $ 13,234 $ 13,631 $ 14,042
Professional Fees 1.69% $ 57,376 $ 52,657 $ 54,239 $ 55,866 $ 57,540 $ 59,268 $ 61,047
Management Fees 3.46% $ 179,057 $ 183,448 $ 189,923 $ 200,822 $ 210,579 $ 215,045 $ 220,021
-------------------------------------------------------------------------------------------------------------------------------
TOTAL NON-REIMBURSABLE EXPENSES 3.05% $ 248,191 $ 248,218 $ 256,635 $ 269,538 $ 281,353 $ 287,944 $ 295,110
-------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 3.23% $3,105,400 $3,200,489 $3,312,608 $3,434,347 $3,553,967 $3,662,739 $3,772,752
PER SQUARE FOOT $ 8.62 $ 8.89 $ 9.20 $ 9.53 $ 9.87 $ 10.17 $ 10.47
-------------------------------------------------------------------------------------------------------------------------------
NET OPERATING INCOME 3.64% $4,056,873 $4,137,407 $4,284,318 $4,598,562 $4,869,202 $4,939,048 $5,028,078
PER SQUARE FOOT $ 11.26 $ 11.49 $ 11.89 $ 12.77 $ 13.52 $ 13.71 $ 13.96
-------------------------------------------------------------------------------------------------------------------------------
LEASING AND CAPITAL COSTS
Tenant Improvements N/A $ 11,613 $ 21,607 $ 18,738 $ 63,692 $ 10,144 $ 2,657 $ 3,611
Leasing Commissions N/A $ 9,866 $ 92,311 $ 91,006 $ 260,572 $ 50,978 $ 13,353 $ 18,147
Capital Reserves N/A $ 92,077 $ 94,840 $ 97,684 $ 100,615 $ 103,634 $ 106,743 $ 109,945
-------------------------------------------------------------------------------------------------------------------------------
TOTAL LEASING AND CAPITAL COSTS N/A $ 113,556 $ 208,758 $ 207,428 $ 424,879 $ 164,756 $ 122,753 $ 131,703
PER SQUARE FOOT $ 0.32 $ 0.58 $ 0.58 $ 1.18 $ 0.46 $ 0.34 $ 0.37
-------------------------------------------------------------------------------------------------------------------------------
NET CASH FLOW 3.41% $3,943,317 $3,928,649 $4,076,890 $4,173,683 $4,704,446 $4,816,295 $4,896,375
PER SQUARE FOOT $ 10.95 $ 10.91 $ 11.32 $ 11.59 $ 13.06 $ 13.37 $ 13.59
C-7
HYLAN PLAZA "AS-IS" VALUATION SCENARIO
OPERATING PROJECTION FOR FISCAL YEARS ENDING SEPTEMBER 30
YR 8 YR 9 YR 10 YR 11
2012 2013 2014 2015
--------------------------------------------------------------------------------------------
OPERATING INCOME
Base Rental Revenue $5,745,462 $6,017,855 $6,264,124 $ 6,626,069
Percentage Rent $ 314,164 $ 330,216 $ 349,435 $ 348,891
CAM Reimbursements $ 944,746 $ 969,148 $1,018,437 $ 1,086,640
RET Reimbursements $2,155,333 $2,189,119 $2,264,158 $ 2,320,584
Water and Sewer Reimbursement $ 22,888 $ 23,575 $ 24,280 $ 25,009
Pylon License Fee $ 14,713 $ 15,155 $ 15,609 $ 16,079
--------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME $9,197,306 $9,545,068 $9,936,043 $10,423,272
PER SQUARE FOOT $ 25.53 $ 26.50 $ 27.58 $ 28.94
CREDIT LOSS ($ 197,773) ($ 202,067) ($ 206,198) ($ 210,122)
--------------------------------------------------------------------------------------------
EFFECTIVE GROSS INCOME $8,999,533 $9,343,001 $9,729,845 $10,213,150
PER SQUARE FOOT $ 24.98 $ 25.94 $ 27.01 $ 28.35
--------------------------------------------------------------------------------------------
OPERATING EXPENSES
REIMBURSABLE OPERATING EXPENSES
Insurance $ 559,244 $ 576,020 $ 593,303 $ 611,100
Administration $ 131,903 $ 135,856 $ 139,937 $ 144,133
Repairs and Maintenance $ 176,057 $ 181,338 $ 186,778 $ 192,381
Parking Lot Repairs and Maintenance $ 314,386 $ 323,819 $ 333,532 $ 343,538
Security $ 54,734 $ 56,374 $ 58,067 $ 59,810
Utilities $ 114,438 $ 117,868 $ 121,406 $ 125,048
Real Estate Taxes $2,232,821 $2,301,411 $2,376,069 $ 2,458,200
--------------------------------------------------------------------------------------------
TOTAL REIMBURSABLE OPERATING EXPENSES $3,583,583 $3,692,686 $3,809,092 $ 3,934,210
NON-REIMBURSABLE EXPENSES
Permits and Fees $ 14,462 $ 14,895 $ 15,344 $ 15,803
Professional Fees $ 62,877 $ 64,766 $ 66,706 $ 68,708
Management Fees $ 224,988 $ 233,575 $ 243,247 $ 255,328
--------------------------------------------------------------------------------------------
TOTAL NON-REIMBURSABLE EXPENSES $ 302,327 $ 313,236 $ 325,297 $ 339,839
--------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES $3,885,910 $4,005,922 $4,134,389 $ 4,274,049
PER SQUARE FOOT $ 10.79 $ 11.12 $ 11.48 $ 11.87
--------------------------------------------------------------------------------------------
NET OPERATING INCOME $5,113,623 $5,337,079 $5,595,456 $ 5,939,101
PER SQUARE FOOT $ 14.20 $ 14.82 $ 15.53 $ 16.49
--------------------------------------------------------------------------------------------
LEASING AND CAPITAL COSTS
Tenant Improvements $ 14,452 $ 84,954 $ 27,992 $ 41,992
Leasing Commissions $ 75,221 $ 325,651 $ 114,789 $ 141,756
Capital Reserves $ 113,243 $ 116,641 $ 120,139 $ 123,745
--------------------------------------------------------------------------------------------
TOTAL LEASING AND CAPITAL COSTS $ 202,916 $ 527,246 $ 262,920 $ 307,493
PER SQUARE FOOT $ 0.56 $ 1.46 $ 0.73 $ 0.85
--------------------------------------------------------------------------------------------
NET CASH FLOW $4,910,707 $4,809,833 $5,332,536 $ 5,631,608
PER SQUARE FOOT $ 13.63 $ 13.35 $ 14.80 $ 15.63
C-8
ROCKWOOD REALTY ASSOCIATES
HYLAN PLAZA
INVESTMENT PRICING MATRIX - "As-Is" Valuation Scenario
NET RENTABLE AREA (SF) 387,749
TERMINAL CAPITALIZATION RATE
DISCOUNT RATE
7.50% PSF 7.75% PSF 8.00% PSF 8.25% PSF 8.50% PSF
------------------------------------------------------------------------------------------------------------------------------------
9.00% $85,880,847 $221 $84,347,444 $218 $82,909,879 $214 $81,559,439 $210 $80,288,437 $207
Year 1 NOI Yield (Cap Rate) 4.31% 4.38% 4.46% 4.53% 4.61%
Year 1 NCF Yield 4.17% 4.24% 4.32% 4.39% 4.46%
Avg. NOI Yield 8.34% 8.49% 8.64% 8.78% 8.92%
Avg. NCF Yield 7.46% 7.60% 7.73% 7.86% 7.98%
Reversion Percentage 55.35% 54.54% 53.75% 52.98% 52.24%
------------------------------------------------------------------------------------------------------------------------------------
9.25% $84,310,928 $217 $82,812,256 $214 $81,407,250 $210 $80,087,397 $207 $78,845,181 $203
Year 1 NOI Yield (Cap Rate) 4.39% 4.47% 4.54% 4.62% 4.69%
Year 1 NCF Yield 4.24% 4.32% 4.40% 4.47% 4.54%
Avg. NOI Yield 8.50% 8.65% 8.80% 8.94% 9.08%
Avg. NCF Yield 7.60% 7.74% 7.87% 8.00% 8.13%
Reversion Percentage 55.10% 54.29% 53.50% 52.74% 51.99%
------------------------------------------------------------------------------------------------------------------------------------
9.50% $82,776,594 $213 $81,311,788 $210 $79,938,533 $206 $75,648,505 $203 $77,464,361 $200
Year 1 NOI Yield (Cap Rate) 4.47% 4.55% 4.63% 4.70% 4.78%
Year 1 NCF Yield 4.32% 4.40% 4.48% 4.55% 4.62%
Avg. NOI Yield 8.65% 8.81% 8.96% 9.11% 9.25%
Avg. NCF Yield 7.74% 7.88% 8.02% 8.15% 8.28%
Reversion Percentage 54.86% 54.04% 53.25% 52.49% 51.74%
------------------------------------------------------------------------------------------------------------------------------------
9.75% $81,276,929 $210 $79,845,150 $206 $78,502,857 $202 $77,241,916 $199 $76,055,147 $196
Year 1 NOI Yield (Cap Rate) 4.55% 4.63% 4.71% 4.79% 4.86%
Year 1 NCF Yield 4.40% 4.48% 4.56% 4.63% 4.70%
Avg. NOI Yield 8.81% 8.97% 9.12% 9.27% 9.42%
Avg. NCF Yield 7.89% 8.03% 8.16% 8.30% 8.43%
Reversion Percentage 54.61% 53.80% 53.01% 52.24% 51.49%
------------------------------------------------------------------------------------------------------------------------------------
10.00% $79,811,044 $206 $78,411,475 $202 $77,099,379 $199 $75,866,804 $196 $74,706,733 $193
Year 1 NOI Yield (Cap Rate) 4.63% 4.72% 4.80% 4.88% 4.95%
Year 1 NCF Yield 4.48% 4.56% 4.64% 4.72% 4.79%
Avg. NOI Yield 8.97% 9.13% 9.29% 9.44% 9.59%
Avg. NCF Yield 8.03% 8.17% 8.31% 8.45% 8.58%
Reversion Percentage 54.36% 53.55% 52.76% 51.99% 51.24%
C-9
HYLAN PLAZA "AS-IS" VALUATION SCENARIO
OPERATING PROJECTION FOR FISCAL YEARS ENDING SEPTEMBER 30
HP YR 1 YR 2 YR 3 YR 4 YR 5 YR 6
CAGR 2005 2006 2007 2008 2009 2010
--------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME
Base Rental Revenue 7.92% $ 4,429,788 $ 6,689,158 $ 7,084,239 $ 7,440,166 $ 7,798,478 $ 7,883,464
Percentage Rent 4.32% $ 238,796 $ 235,737 $ 242,005 $ 251,898 $ 265,348 $ 280,920
CAM Reimbursements 7.46% $ 689,793 $ 1,004,765 $ 1,070,387 $ 1,094,332 $ 1,134,756 $ 1,168,614
RET Reimbursements 5.69% $ 1,561,204 $ 1,994,634 $ 2,113,273 $ 2,170,671 $ 2,251,748 $ 2,321,749
Water and Sewer Reimbursement 3.00% $ 18,608 $ 19,168 $ 19,742 $ 20,336 $ 20,945 $ 21,574
Pylon License Fee 3.00% $ 11,963 $ 12,322 $ 12,692 $ 13,073 $ 13,464 $ 13,869
--------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME 7.27% $ 6,950,152 $ 9,955,784 $10,542,338 $10,990,476 $11,484,739 $11,690,190
PER SQUARE FOOT $ 17.92 $ 25.68 $ 27.19 $ 28.34 $ 29.62 $ 30.15
CREDIT LOSS N/A ($ 155,409) ($ 272,710) ($ 322,528) ($ 333,592) ($ 342,481) ($ 349,186)
--------------------------------------------------------------------------------------------------------------------------------
EFFECTIVE GROSS INCOME 7.19% $ 6,794,743 $ 9,683,074 $10,219,810 $10,656,884 $11,142,258 $11,341,004
PER SQUARE FOOT $ 17.52 $ 24.97 $ 26.36 $ 27.48 $ 28.74 $ 29.25
--------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
REIMBURSABLE OPERATING EXPENSES
Insurance 3.00% $ 454,717 $ 468,357 $ 482,407 $ 496,881 $ 511,787 $ 527,141
Administration 2.56% $ 164,624 $ 163,124 $ 168,018 $ 173,059 $ 178,248 $ 183,598
Repairs and Maintenance 3.00% $ 398,775 $ 410,739 $ 423,060 $ 435,751 $ 448,826 $ 462,289
Security 3.00% $ 44,504 $ 45,838 $ 47,213 $ 48,630 $ 50,091 $ 51,591
Utilities 3.00% $ 66,461 $ 68,457 $ 70,511 $ 72,625 $ 74,803 $ 77,050
Water and Sewer 3.00 $ 26,585 $ 27,383 $ 28,204 $ 29,050 $ 29,921 $ 30,819
Real Estate Taxes 3.40% $ 1,758,919 $ 1,821,030 $ 1,890,799 $ 1,964,679 $ 2,036,478 $ 2,101,575
--------------------------------------------------------------------------------------------------------------------------------
TOTAL REIMBURSABLE OPERATING EXPENSES 3.22% $ 2,914,585 $ 3,004,928 $ 3,110,212 $ 3,220,675 $ 3,330,154 $ 3,434,063
NON-REIMBURSABLE EXPENSES
Permits and Fees 3.00% $ 11,758 $ 12,113 $ 12,473 $ 12,850 $ 13,234 $ 13,631
RET Refunds N/A $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Management Fees 7.19% $ 169,869 $ 242,076 $ 255,495 $ 266,423 $ 278,555 $ 283,526
--------------------------------------------------------------------------------------------------------------------------------
TOTAL NON-REIMBURSABLE EXPENSES 6.95% $ 181,627 $ 254,189 $ 267,968 $ 279,273 $ 291,789 $ 297,157
--------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 3.47% $ 3,096,212 $ 3,259,117 $ 3,378,180 $ 3,499,948 $ 3,621,943 $ 3,731,220
PER SQUARE FOOT $ 7.99 $ 8.41 $ 8.71 $ 9.03 $ 9.34 $ 9.62
--------------------------------------------------------------------------------------------------------------------------------
NET OPERATING INCOME 9.66% $ 3,698,531 $ 6,423,957 $ 6,841,630 $ 7,156,936 $ 7,520,315 $ 7,609,784
PER SQUARE FOOT $ 9.54 $ 16.57 $ 17.64 $ 18.46 $ 19.39 $ 19.63
--------------------------------------------------------------------------------------------------------------------------------
LEASING AND CAPITAL COSTS
Tenant Improvements N/A $ 11,613 $ 4,386,867 $ 18,738 $ 63,692 $ 10,144 $ 2,657
Leasing Commissions N/A $ 9,866 $ 899,203 $ 91,006 $ 260,572 $ 50,978 $ 13,353
Capital Reserves N/A $ 99,119 $ 102,091 $ 105,155 $ 108,310 $ 111,559 $ 114,906
--------------------------------------------------------------------------------------------------------------------------------
TOTAL LEASING AND CAPITAL COSTS N/A $ 120,598 $ 5,388,161 $ 214,899 $ 432,574 $ 172,681 $ 130,916
PER SQUARE FOOT $ 0.31 $ 13.90 $ 0.55 $ 1.12 $ 0.45 $ 0.34
--------------------------------------------------------------------------------------------------------------------------------
NET CASH FLOW 9.67% $ 3,577,933 $ 1,035,796 $ 6,626,731 $ 6,724,362 $ 7,347,634 $ 7,478,868
PER SQUARE FOOT $ 9.23 $ 2.67 $ 17.09 $ 17.34 $ 18.95 $ 19.29
C-10
HYLAN PLAZA "AS-IS" VALUATION SCENARIO
OPERATING PROJECTION FOR FISCAL YEARS ENDING SEPTEMBER 30
YR 7 YR 8 YR 9 YR 10 YR 11
2011 2012 2013 2014 2015
---------------------------------------------------------------------------------------------------------------
OPERATING INCOME
Base Rental Revenue $ 8,005,023 $ 8,222,027 $ 8,535,122 $ 8,798,124 $ 9,160,069
Percentage Rent $ 297,297 $ 314,164 $ 329,502 $ 349,435 $ 348,891
CAM Reimbursements $ 1,202,815 $ 1,237,266 $ 1,265,975 $ 1,317,591 $ 1,391,964
RET Reimbursements $ 2,391,498 $ 2,460,794 $ 2,496,925 $ 2,569,176 $ 2,624,434
Water and Sewer Reimbursement $ 22,220 $ 22,888 $ 23,575 $ 24,280 $ 25,009
Pylon License Fee $ 14,285 $ 14,713 $ 15,155 $ 15,609 $ 16,079
---------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME $ 11,933,138 $ 12,271,852 $ 12,666,254 $ 13,074,215 $ 13,566,446
PER SQUARE FOOT $ 30.78 $ 31.65 $ 32.67 $ 33.72 $ 34.99
CREDIT LOSS ($ 356,522) ($ 367,485) ($ 375,499) ($ 382,310) ($ 380,341)
---------------------------------------------------------------------------------------------------------------
EFFECTIVE GROSS INCOME $ 11,576,616 $ 11,904,367 $ 12,290,755 $ 12,691,905 $ 13,186,105
PER SQUARE FOOT $ 29.86 $ 30.70 $ 31.70 $ 32.73 $ 34.01
---------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
REIMBURSABLE OPERATING EXPENSES
Insurance $ 542,954 $ 559,244 $ 576,020 $ 593,303 $ 611,100
Administration $ 189,106 $ 194,780 $ 200,622 $ 206,643 $ 212,841
Repairs and Maintenance $ 476,158 $ 490,443 $ 505,157 $ 520,310 $ 535,919
Security $ 53,139 $ 54,734 $ 56,374 $ 58,067 $ 59,810
Utilities $ 79,359 $ 81,741 $ 84,192 $ 86,718 $ 89,321
Water and Sewer $ 31,744 $ 32,697 $ 33,676 $ 34,688 $ 35,727
Real Estate Taxes $ 2,166,229 $ 2,232,821 $ 2,301,411 $ 2,376,069 $ 2,458,200
---------------------------------------------------------------------------------------------------------------
TOTAL REIMBURSABLE OPERATING EXPENSES $ 3,538,689 $ 3,646,460 $ 3,757,452 $ 3,875,798 $ 4,002,918
NON-REIMBURSABLE EXPENSES
Permits and Fees $ 14,042 $ 14,462 $ 14,895 $ 15,344 $ 15,803
RET Refunds $ 0 $ 0 $ 0 $ 0 $ 0
Management Fees $ 289,415 $ 297,609 $ 307,268 $ 317,298 $ 329,653
---------------------------------------------------------------------------------------------------------------
TOTAL NON-REIMBURSABLE EXPENSES $ 303,457 $ 312,071 $ 322,163 $ 332,642 $ 345,456
---------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES $ 3,842,146 $ 3,958,531 $ 4,079,615 $ 4,208,440 $ 4,348,374
PER SQUARE FOOT $ 9.91 $ 10.21 $ 10.52 $ 10.85 $ 11.21
---------------------------------------------------------------------------------------------------------------
NET OPERATING INCOME $ 7,734,470 $ 7,945,836 $ 8,211,140 $ 8,483,465 $ 8,837,731
PER SQUARE FOOT $ 19.95 $ 20.49 $ 21.18 $ 21.88 $ 22.79
---------------------------------------------------------------------------------------------------------------
LEASING AND CAPITAL COSTS
Tenant Improvements $ 3,611 $ 14,452 $ 69,276 $ 27,992 $ 41,992
Leasing Commissions $ 18,147 $ 75,221 $ 260,647 $ 114,789 $ 141,756
Capital Reserves $ 118,351 $ 121,903 $ 125,560 $ 129,327 $ 133,208
---------------------------------------------------------------------------------------------------------------
TOTAL LEASING AND CAPITAL COSTS $ 140,109 $ 211,576 $ 455,483 $ 272,108 $ 316,956
PER SQUARE FOOT $ 0.36 $ 0.55 $ 1.17 $ 0.70 $ 0.82
---------------------------------------------------------------------------------------------------------------
NET CASH FLOW $ 7,594,361 $ 7,734,260 $ 7,755,657 $ 8,211,357 $ 8,520,775
PER SQUARE FOOT $ 19.59 $ 19.95 $ 20.00 $ 21.18 $ 21.97
C-11
ANNEX D
3-201 DEFINITION OF SUCCESSOR
(a) In this subtitle, except as provided in subsection (b) of this section,
"successor" includes a corporation which amends its charter in a way which
alters the contract rights, as expressly set forth in the charter, of any
outstanding stock, unless the right to do so is reserved by the charter of the
corporation.
(b) When used with reference to a share exchange, "successor" means the
corporation the stock of which was acquired in the share exchange.
3-202 FAIR VALUE, RIGHT TO FROM SUCCESSORS
(a) Except as provided in subsection (c) of this section, a stockholder of a
Maryland corporation has the right to demand and receive payment of the fair
value of the stockholder's stock from the successor if:
(1) The corporation consolidates or merges with another corporation;
(2) The stockholder's stock is to be acquired in a share exchange;
(3) The corporation transfers its assets in a manner requiring action under
ss.3-105(e) of this title;
(4) The corporation amends its charter in a way which alters the contract
rights, as expressly set forth in the charter, of any outstanding stock and
substantially adversely affects the stockholder's rights, unless the right to do
so is reserved by the charter of the corporation; or
(5) The transaction is governed by ss.3-602 of this title or exempted by
ss.3-603(b) of this title.
(b)(1) Fair value is determined as of the close of business:
(i) With respect to a merger under ss.3-106 of this title of a 90 percent or
more owned subsidiary with or into its parent corporation, on the day notice is
given or waived under ss.3-106; or
(ii) With respect to any other transaction, on the day the stockholders voted on
the transaction objected to.
(2) Except as provided in paragraph (3) of this subsection, fair value may not
include any appreciation or depreciation which directly or indirectly results
from the transaction objected to or from its proposal.
(3) In any transaction governed by ss.3-602 of this title or exempted by
ss.3-603(b) of this title, fair value shall be value determined in accordance
with the requirements of ss.3-603(b) of this title.
(c) Unless the transaction is governed by ss.3-602 of this title or is exempted
by ss.3-603(b) of this title, a stockholder may not demand the fair value of the
stockholder's stock and is bound by the terms of the transaction if:
(1) The stock is listed on a national securities exchange, is designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc., or is designated for trading
on the NASDAQ Small Cap Market:
(i) With respect to a merger under ss.3-106 of this title of a 90 percent or
more owned
D-1
subsidiary with or into its parent corporation, on the date notice is given or
waived under ss.3-106; or
(ii) With respect to any other transaction, on the record date for determining
stockholders entitled to vote on the transaction objected to;
(2) The stock is that of the successor in a merger; unless:
(i) The merger alters the contract rights of the stock as expressly set forth in
the charter, and the charter does not reserve the
right to do so; or
(ii) The stock is to be changed or converted in whole or in part in the merger
into something other than either stock in the successor or cash, scrip, or other
rights or interests arising out of provisions for the treatment of fractional
shares of stock in the successor;
(3) The stock is not entitled, other than solely because of ss.3-106 of this
title, to be voted on the transaction or the stockholder did not own the shares
of stock on the record date for determining stockholders entitled to vote on the
transaction;
(4) The charter provides that the holders of the stock are not entitled to
exercise the rights of an objecting stockholder under this
subtitle; or
(5) The stock is that of an open-end investment company registered with the
Securities and Exchange Commission under the Investment
Company Act of 1940 and the value placed on the stock in the transaction is its
net asset value.
D-2
3-203 DUTIES OF OBJECTING STOCKHOLDERS
(a) A stockholder of a corporation who desires to receive payment of the fair
value of the stockholder's stock under this subtitle:
(1) Shall file with the corporation a written objection to the proposed
transaction:
(i) With respect to a merger under SS.3-106 of this title of a 90 percent or
more owned subsidiary with or into its parent corporation,
within 30 days after notice is given or waived under SS.3-106; or
(ii) With respect to any other transaction, at or before the stockholders'
meeting at which the transaction will be considered OR, in the case of action
taken under SS.2-505(b) of this article, within 10 days after the corporation
gives the notice required by SS.2-505(b) of this article;
(2) May not vote in favor of the transaction; and
(3) Within 20 days after the Department accepts the articles for record, shall
make a written demand on the successor for payment for (1) the stockholder's
stock, stating the number and class of shares for which (2) the stockholder
demands payment.
(b) A stockholder who fails to comply with this section is bound by the terms of
the consolidation, merger, share exchange, transfer of assets, or charter
amendment.
3-204 EFFECT OF DEMAND
A stockholder who demands payment for his stock under this subtitle:
(1) Has no right to receive any dividends or distributions payable to holders of
record of that stock on a record date after the close of business on the day as
at which fair value is to be determined under ss.3-202 of this subtitle; and
(2)Ceases to have any rights of a stockholder with respect to that stock, except
the right to receive payment of its fair value.
3-205 CONSENT TO DEMAND WITHDRAWL
A demand for payment may be withdrawn only with the consent of the successor.
3-206 RESTORATION OF STOCKHOLDER'S RIGHTS.
(a) The rights of a stockholder who demands payment are restored in full, if:
(1) The demand for payment is withdrawn;
(2) A petition for an appraisal is not filed within the time required by this
subtitle;
(3) A court determines that the stockholder is not entitled to relief; or
(4) The transaction objected to is abandoned or rescinded.
(b) The restoration of a stockholder's rights entitles him to receive the
dividends, distributions, and other rights he would have received if he had not
demanded payment for his stock. However, the restoration does not prejudice any
corporate proceedings taken before the restoration.
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3-207 SUCCESSOR'S DUTY, NOTICE AND OFFER.
(a)(1) The successor promptly shall notify each objecting stockholder in writing
of the date the articles are accepted for record by the Department.
(2) The successor also may send a written offer to pay the objecting stockholder
what it considers to be the fair value of his stock. Each offer shall be
accompanied by the following information relating to the corporation which
issued the stock:
(i) A balance sheet as of a date not more than six months before the date of the
offer;
(ii) A profit and loss statement for the 12 months ending on the date of the
balance sheet; and
(iii) Any other information the successor considers pertinent.
(b) The successor shall deliver the notice and offer to each objecting
stockholder personally or mail them to him by certified mail, return receipt
requested, bearing a postmark from the United States Postal Service,
at the address he gives the successor in writing, or, if none, at his address as
it appears on the records of the corporation which issued the stock.
3-208 PETITION FOR APPRAISAL
(a) Within 50 days after the Department accepts the articles for record, the
successor or an objecting stockholder who has not received payment for his stock
may petition a court of equity in the county where the principal office of the
successor is located or, if it does not have a principal office in this State,
where the resident agent of the successor is located, for an appraisal to
determine the fair value of the stock.
(b)(1) If more than one appraisal proceeding is instituted, the court shall
direct the consolidation of all the proceedings on terms and conditions it
considers proper.
(2) Two or more objecting stockholders may join or be joined in an appraisal
proceeding.
3-209 SUBMISSION OF CERTIFICATE FOR NOTICE.
(a) At any time after a petition for appraisal is filed, the court may require
the objecting stockholders parties to the proceeding to submit their stock
certificates to the clerk of the court for notation on them that the appraisal
proceeding is pending. If a stockholder fails to comply with the order, the
court may dismiss the proceeding as to him or grant other appropriate relief.
(b) If any stock represented by a certificate which bears a notation is
subsequently
D-4
transferred, the new certificate issued for the stock shall bear a similar
notation and the name of the original objecting stockholder. The transferee of
this stock does not acquire rights of any character with respect to the stock
other than the rights of the original objecting stockholder.
3-210 REPORT OF APPRAISERS
(a) If the court finds that the objecting stockholder is entitled to an
appraisal of his stock, it shall appoint three disinterested appraisers to
determine the fair value of the stock on terms and conditions the court
considers proper. Each appraiser shall take an oath to discharge his duties
honestly and faithfully.
(b) Within 60 days after their appointment, unless the court sets a longer time,
the appraisers shall determine the fair value of the stock as of the appropriate
date and file a report stating the conclusion of the majority as to the fair
value of the stock.
(c) The report shall state the reasons for the conclusion and shall include a
transcript of all testimony and exhibits offered.
(d)(1) On the same day that the report is filed, the appraisers shall mail a
copy of it to each party to the proceedings.
(2) Within 15 days after the report is filed, any party may object to it and
request a hearing.
3-211 COURT ORDER UPON APPRAISERS' REPORT.
(a) The court shall consider the report and, on motion of any party to the
proceeding, enter an order which:
(1) Confirms, modifies, or rejects it; and
(2) If appropriate, sets the time for payment to the stockholder.
(b)(1) If the appraisers' report is confirmed or modified by the order, judgment
shall be entered against the successor and in favor of each objecting
stockholder party to the proceeding for the appraised fair value of his stock.
(2) If the appraisers' report is rejected, the court may:
(i) Determine the fair value of the stock and enter judgment for the
stockholder; or
(ii) Remit the proceedings to the same or other appraisers on terms and
conditions it considers proper.
(c)(1) Except as provided in paragraph (2) of this subsection, a judgment for
the stockholder shall award the value of the stock and interest from the
date as to which fair value is to be determined under ss.3-202 of this subtitle.
(2) The court may not allow interest if it finds that the failure of the
stockholder to accept an offer for the stock made under
ss.3-207 of this subtitle was arbitrary and vexatious or not in good faith. In
making this finding, the court shall consider:
(i) The price which the successor offered for the stock;
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(ii) The financial statements and other information furnished to the
stockholder; and
(iii) Any other circumstances it considers relevant.
(d)(1) The costs of the proceedings, including reasonable compensation and
expenses of the appraisers, shall be set by the court and
assessed against the successor. However, the court may direct the costs to be
apportioned and assessed against any objecting stockholder if the court finds
that the failure of the stockholder to accept an offer for the stock made under
ss.3-207 of this subtitle was arbitrary and vexatious or not in good faith. In
making this finding, the court shall consider:
(i) The price which the successor offered for the stock;
(ii) The financial statements and other information furnished to the
stockholder; and
(iii) Any other circumstances it considers relevant.
(2) Costs may not include attorney's fees or expenses. The reasonable fees and
expenses of experts may be included only if:
(i) The successor did not make an offer for the stock under ss.3-207 of this
subtitle; or
(ii) The value of the stock determined in the proceeding materially exceeds the
amount offered by the successor.
(e) The judgment is final and conclusive on all parties and has the same force
and effect as other decrees in equity. The judgment constitutes a lien on the
assets of the successor with priority over any mortgage or other lien attaching
on or after the effective date of the consolidation, merger, transfer, or
charter amendment.
3-212 SURRENDER OF STOCK TO SUCCESSOR
The successor is not required to pay for the stock of an objecting stockholder
or to pay a judgment rendered against it in a proceeding for an appraisal
unless, simultaneously with payment:
(1) The certificates representing the stock are surrendered to it, indorsed in
blank, and in proper form for transfer; or
(2) Satisfactory evidence of the loss or destruction of the certificates and
sufficient indemnity bond are furnished.
3-213 RIGHTS OF SUCCESSOR
(a) A successor which acquires the stock of an objecting stockholder is
entitled to any dividends or distributions payable to holders of record of that
stock on a record date after the close of business on the day as at which
fair value is to be determined under ss.3-202 of this subtitle.
(b) After acquiring the stock of an objecting stockholder, a successor in a
transfer of assets may exercise all the rights of an owner of the stock.
(c) Unless the articles provide otherwise stock in the successor of a
consolidation merger, or share exchange otherwisen deliverable in exchange
for the stock of an
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objecting stockholder has the status of authorized but unissued stock of the
successor. However, a proceeding for reduction of the capital of the successor
is not necessary to retire the stock or to reduce the capital of the successor
represented by the stock.
D-7
ANNEX E
--------------------------------------------------------------------------------
Atlantic Realty Trust
Form 10-K
Filed December 31, 2004
--------------------------------------------------------------------------------
UNITED STATES
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
FOR THE FISCAL YEAR ENDED December 31,2004
------------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
-------------- -----------------
COMMISSION FILE NUMBER 0-27562
--------------------------------------
ATLANTIC REALTY TRUST
--------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Maryland 13-3849655
---------------------------------- -------------------------
State or other jurisdiction of (IRS Employer
Incorporation or organization Identification No.)
747 Third Avenue, New York, NY 10017
---------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-702-8561
-------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Shares of Beneficial Interest, NASDAQ SmallCap Market
------------------------------------- ----------------------
$0.01 Par Value Per Share
-------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
None
-----------------------------------------------------------
Title of class
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[]
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 the 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. [X]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes [ ] No[X]
Aggregate market value of the Shares of Beneficial Interest held by
non-affiliates of the registrant as of June 30, 2004: approximately $56,613,876.
Approximately 3,561,553 Shares of Beneficial Interest of the Registrant
were outstanding as of March 24, 2005.
TABLE OF CONTENTS
Page
PART I.......................................................................1
Item 1. Business........................................................1
Item 2. Properties......................................................6
Item 3. Legal Proceedings...............................................6
Item 4. Submission of Matters to a Vote of Security Holders.............6
PART II......................................................................7
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................ 7
Item 6. Selected Financial Data.........................................8
Item 7. Management's Discussion and Analysis of Financial Condition
and Liquidation Activities......................................8
Item 7A. Quantitative and Qualitative Disclosures About Market Risk......9
Item 8. Financial Statements and Supplementary Data.....................9
Item 9. Changes in and Disagreements With Accountants On Accounting
and Financial Disclosure........................................9
Item 9A. Controls and Procedures.........................................9
Item 9B. Other Information...............................................9
PART III....................................................................11
Item 10. Directors and Executive Officers of the Registrant.............11
Item 11. Executive Compensation.........................................14
Item 12. Security Ownership of Certain Beneficial Owners and
Management.....................................................16
Item 13. Certain Relationships and Related Transactions.................16
Item 14. Principal Accountant Fees and Services.........................17
PART IV.....................................................................17
Item 15. Exhibits, Financial Statement Schedules, and Reports On
Form 8-K.......................................................17
CAUTIONARY STATEMENT FOR PURPOSES OF
THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS "BELIEVES,"
"ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN
THIS ANNUAL REPORT ON FORM 10-K PURSUANT TO THE "SAFE HARBOR" PROVISION OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY, INCLUDING, WITHOUT LIMITATION, THOSE STATEMENTS RELATING TO THE "RPS
TRUST ISSUES" AND THE "TRUST AUDIT" DISCUSSED IN ITEM 1 OF THIS ANNUAL REPORT ON
FORM 10-K, STATEMENTS SET FORTH IN THE SECTION CAPTIONED "RISK FACTORS" IN THE
TRUST'S REGISTRATION STATEMENT ON FORM 10 FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON MARCH 28, 1996 (FILE NO. 0-27562) AND STATEMENTS IN THE
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" OF THIS ANNUAL REPORT ON FORM 10-K. READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF
THE DATE HEREOF. THE TRUST UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE
FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES OCCURRING AFTER
THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
PART I
ITEM 1. BUSINESS.
Atlantic Realty Trust, a Maryland real estate investment trust (together
with its subsidiary, the "Trust"), was organized pursuant to a Declaration of
Trust dated July 27, 1995 (as amended, the "Declaration of Trust"). The
principal office of the Trust is located at 747 Third Avenue, New York, New York
10017.
The Trust commenced operations on May 10, 1996 as a result of a spinoff
(the "Spin-Off Transaction") from RPS Realty Trust ("RPS"). The Spin-Off
Transaction was consummated in order to permit RPS to complete an acquisition
(the "Ramco Acquisition") of assets from Ramco Gershenson, Inc. and its
affiliates ("Ramco"), which permitted RPS to become an equity shopping center
real estate investment trust (a "REIT"). RPS undertook the Spin-Off Transaction
because Ramco was unwilling to consummate the Ramco Acquisition if the assets
that were contributed by RPS to the Trust (the "Trust Assets") remained in RPS.
Pursuant to the Spin-Off Transaction, the board of trustees of RPS approved a
distribution of one common share of beneficial interest (the "Shares") of the
Trust for every eight shares of beneficial interest of RPS (the "Distribution").
Under the provisions of its Declaration of Trust, the Trust was to continue
for a period of 18 months from May 10, 1996, during which time it was to reduce
to cash or cash equivalents the Trust Assets and either (i) make a liquidating
distribution to its shareholders or (ii) agree to merge or combine operations
with another real estate entity, in either case, as soon as practicable
following the Distribution and within such 18-month period. Such 18-month period
was subject to extension if (i) the Trust had not achieved its objective and the
holders of at least two-thirds of the outstanding Shares approved the extension
of such date or (ii) a contingent tax liability relating to RPS that has been
assumed by the Trust had not been satisfactorily resolved. Because the RPS Tax
Issues and the Trust Audit (each as defined below) have not yet been
satisfactorily resolved, the Trust has continued its business past such 18-month
period. The Trust cannot currently estimate the timing of the future
satisfactory resolution of the Trust Audit. Accordingly, the Trust will continue
until there is a final determination of this issue. Upon obtaining a
satisfactory resolution to the Trust Audit and liquidating the Trust's remaining
assets, any liquidating distribution effected by the Trust would be subject to
the satisfaction of the Trust's liabilities to its creditors. In the event that
at the end of this period, the Trust is unable to achieve its business
objectives, the members (the "Trustees") of the Trust's board of trustees (the
"Board of Trustees") will appoint an independent third party to liquidate the
Trust's remaining assets.
As a result of the Spin-Off Transaction, the Trust acquired the Trust
Assets. The Trust Assets which have not been disposed of by the Trust are
described below under "-- Description of Trust Assets." The Trust's principal
investment objective is to maximize shareholder value from the reduction of the
Trust Assets to cash or cash equivalents. As part of its plan to liquidate the
Trust Assets to cash or cash equivalents, the Trust intends, among other things,
and subject to the Internal Revenue Service's ("IRS") consideration of the
appeals filed, by RPS and the Trust in connection with the examination reports
issued by the IRS in connection with their audits of RPS and the Trust (as more
fully described below under "-- Tax Contingency") to continue to: (i)
E-1
contact strategic buyers of the Trust's remaining asset (the Hylan Plaza
Shopping Center, located in Staten Island, New York (the "Hylan Center"))
regarding possible sales transactions and (ii) list the Hylan Center for sale
with qualified real estate brokers. No assurance can be given, however, that
such objective will be achieved. The Trust expects to continue to invest the net
proceeds from sales of the Trust Assets in short-term or temporary investments,
such as certificates of deposit, pass-through mortgage-backed certificates,
mortgage participation certificates and mortgaged-backed securities (or similar
investment products), all or some of which investments may be guaranteed by
Ginnie Mae, Fannie Mae or Freddie Mac. Unless otherwise approved by the
shareholders, the Trust does not expect that it will make new permanent
investments or raise additional capital. In addition, the Trust does not expect
to acquire additional mortgage loans or properties.
In addition, the Trust has and may continue to explore the possibility of
merging or entering into a business combination with another real estate entity.
The Trust expects that it will pursue such a transaction only if it represents
an attractive alternative to the distribution to shareholders of the net
proceeds from the orderly liquidation of the Trust Assets, as described above.
The merger candidates that may be available to the Trust may be limited as a
result of the amount of cash and the nature of the assets which the Trust will
hold. Accordingly, there can be no assurance that the Trust will successfully
merge or combine operations with another real estate entity. Because the Trust
has adopted a policy not to re-invest sales proceeds in additional mortgage
loans on real estate (except to the extent necessary to satisfy applicable REIT
requirements), a merger or other business combination involving the Trust and
another real estate entity may constitute a "roll-up transaction" under
applicable securities laws. In such case, the Trust would be required to comply
with the heightened disclosure rules as well as special rules relating to the
proxy solicitation process and the listing of the securities of the surviving
company on any exchange or the inclusion for quotation of such securities on the
Nasdaq Small Cap Market. Application of the roll-up rules to a company merger or
business combination could delay, defer or prevent such a transaction from
occurring. See "Sale of Hylan Plaza Shopping Center" below.
The Trust was organized for the purpose of qualifying as a REIT under
sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code").
The Trust will elect to qualify as a REIT for the year ended December 31, 2004
and intends to operate so as to continue to qualify as a REIT.
As of December 31, 2004, the Trust had six employees.
DESCRIPTION OF TRUST ASSETS
As of December 31, 2004, the Trust owned and operated one real property,
the Hylan Center and held short-term investments in the principal amount of
approximately $7,300,000, consisting primarily of a certificate of deposit at a
major New York bank.
REAL PROPERTY INVESTMENT
THE HYLAN PLAZA SHOPPING CENTER. At December 31, 2004, the Trust held an
equity investment in one property, the Hylan Center. The Hylan Center is a
one-story community
E-2
shopping center located in Staten Island, New York which was acquired by the
Trust in April, 1996. The Hylan Center contains approximately 359,000 square
feet of leasable space approximately 99% of which was leased and occupied as of
December 31, 2004. Major tenants (i.e., tenants who accounted for 10% or more of
the leasable space as of December 31, 2004) include K-Mart Corp., a department
store chain ("K-Mart"), Pathmark Stores, Inc. ("Pathmark"), and the Toys "R" Us
-- NY L.L.C., a retail toy store chain ("Toys "R" Us"). These three tenants
lease approximately 104,000, 60,000 and 42,000 square feet, respectively, which
constitutes 29%, 17% and 12%, respectively, of the total leasable space. The
K-Mart lease expires in January 2007 and provides for annual base rental
payments of approximately $235,000; the Pathmark lease expires in January 2007
and provides for annual base rental payments of approximately $579,000; and the
Toys "R" Us lease expires in October 2005 and provides for annual base rental
payments of approximately $90,000. The K-Mart lease contains two 5-year tenant
renewal options; the Pathmark lease contains six 5-year tenant renewal options;
and the Toys "R" Us lease contains one 10-year tenant renewal option. Leases for
approximately 55,000 square feet are due to expire on or prior to December 31,
2005. The approximate base rental revenue as of December 31, 2003 was
approximately $4,422,000. The average base rental revenue per leased square foot
as of December 31, 2004 was $12.78, excluding percentage rent and similar
provisions. The Trust believes the property is adequately covered by insurance.
As of December 31, 2004, the estimated net realizable value of the Hylan Center
was approximately $81,319,000, including estimated cash flows using a
disposition period of six months. Realized values may differ depending on actual
disposition results and time periods.
Under various federal, state, and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In connection with the ownership, operation and
management of the Hylan Center, the Trust may be potentially liable for removal
or remediation costs, as well as certain other related costs, including
governmental fines and injuries to persons and property. Certain environmental
laws and common law principles could also be used to impose liability for
release of an exposure to hazardous substances, including asbestos-containing
materials ("ACMs") into the air, and third parties may seek recovery from owners
or operators of real properties for personal injury or property damage
associated with exposure to released hazardous substances, including ACMs. As
the owner of the Hylan Center, the Trust may be potentially liable for any such
costs.
QUALIFICATION AS A REIT
The Trust intends to qualify as a REIT for federal income tax purposes. If
the Trust so qualifies, amounts paid by the Trust as distributions to its
shareholders will not be subject to corporate income taxes. For any year in
which the Trust does not meet the requirements for electing to be taxed as a
REIT, it will be taxed as a corporation.
The requirements for qualification as a REIT are contained in Sections
856-860 of the Code and the regulations promulgated thereunder. The following
discussion is a brief summary of some of those requirements. Such requirements
include certain provisions relating to the nature of a REIT's assets, the
sources of its income, the ownership of its stock, and the
E-3
distribution of its income. Among other things, at the end of each fiscal
quarter, at least 75% of the value of the total assets of the Company must
consist of real estate assets (including interests in mortgage loans secured by
real property and interests in other REITs, as well as cash, cash items and
government securities) (the "75% Asset Test"). There are also certain
limitations on the amount of other types of securities which can be held by a
REIT. Additionally, at least 75% of the gross income of the Company for the
taxable year must be derived from certain sources, which include "rents from
real property," and interest secured by mortgages on real property. An
additional 20% of the gross income of the Company must be derived from these
same sources or from dividends, interest from any source, or gains from the sale
or other disposition of stock or securities or any combination of the foregoing.
The Trust may invest the proceeds derived from the sale or other
disposition of the Trust Assets in pass-through, mortgage-backed certificates,
mortgage participation certificates and mortgage-backed securities, all or some
of which instruments may be guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac.
Such instruments produce qualifying income for REIT qualification purposes and
also satisfy the requirements of the 75% Asset Test. A REIT is also required to
distribute at least 90% of its REIT Taxable Income (as defined in the Code) to
its shareholders.
TAX CONTINGENCY
During the third quarter of 1994, RPS held more than 25% of the value of
its gross assets in overnight Treasury Bill reverse repurchase transactions
which the IRS may view as non-qualifying assets for the purposes of satisfying
an asset qualification test applicable to REITs, based on a Revenue Ruling
published in 1977 (the "Asset Issue"). RPS requested that the IRS enter into a
closing agreement with RPS that the Asset Issue would not impact RPS' status as
a REIT. The IRS declined such request. In February 1995, the IRS initiated an
examination of the 1991-1995 income tax returns of RPS (the "RPS Audit" and,
together with the Asset Issue, the "RPS Tax Issues"). Based on developments in
the law which occurred since 1977, RPS' tax counsel at that time, Battle Fowler
LLP, rendered an opinion that RPS' investment in Treasury Bill repurchase
obligations would not adversely affect its REIT status. However, such opinion is
not binding upon the IRS.
In connection with the Spin-Off Transaction, the Trust assumed all tax
liability arising out of the RPS Tax Issues (other than liability that relates
to events occurring or actions taken by RPS following the date of the Spin-Off
Transaction) pursuant to a tax agreement, dated May 10, 1996, by and between RPS
and the Trust (the "Tax Agreement"). Such agreement provides that RPS (now named
Ramco-Gershenson Properties Trust), under the direction of four trustees, three
of whom are also trustees of the Trust (the "Continuing Trustees") and not the
Trust, will control, conduct and effect the settlement of any tax claims against
RPS relating to the RPS Tax Issues. Accordingly, the Trust did not have any
control as to the timing of the resolution or disposition of any such claims.
In December 2003, Ramco-Gershenson Properties Trust and the Internal
Revenue Service entered into a Closing Agreement with respect to all of the
issues raised by the Internal Revenue Service in connection with RPS Audit. As a
condition of the Closing Agreement, Ramco-Gershenson Properties Trust was
obligated to pay deficiency dividends (under Code Sec. 860) with respect to its
1992 and 1993 taxable year in amounts not less than $1,386,503
E-4
with respect to the 1992 taxable year and $809,010 with respect to the 1993
taxable year. In addition, Ramco-Gershenson Properties Trust is obligated to pay
a deficiency in its income taxes with respect to the period covered by the RPS
Audit equal to $770,258, plus interest calculated at the statutory rate on the
amount of the deficiency and the amount of the deficiency dividends. The
aggregate amount of the deficiency dividends, income tax deficiency and interest
on these amounts is approximately $7,400,000, and because the Trust is required
by the Tax Agreement to reimburse Ramco-Gershenson Properties Trust for these
items, they are included in the estimated cost of liquidation as of December 31,
2003. Although the Closing Agreement provides that the election of
Ramco-Gershenson Properties Trust to be taxed as a "real estate investment
trust" was terminated with respect to its 1994 and 1995 taxable years, it also
provides that Ramco-Gershenson Properties Trust will be treated as having
reelected to be taxed as a "real estate investment trust" with respect to its
taxable year beginning January 1, 1996 and that the termination of its election
to be taxed as a "real estate investment trust" will not prohibit it or any
successor entity (which includes the Trust) from electing to be taxed as a "real
estate investment trust" on or after January 1, 1996.
The Trust remains obligated under the Tax Agreement to assume certain
liabilities relating to the RPS Tax Issues. The Trust established a special
committee (the "Special Committee regarding RPS Tax Issues") comprised of the
two Trustees who are not Continuing Trustees or otherwise affiliated with
Ramco-Gershenson Properties Trust to act on behalf of the Trust in evaluating
the position of the Trust with respect to the RPS Tax Issues and to represent
the Trust with respect to any claims asserted by Ramco-Gershenson Properties
Trust for contribution arising out of the Closing Agreement. On January 21,
2004, the Trust contributed $2,200,091 in respect of the deficiency dividend
required to be paid pursuant to the Closing Agreement. On June 10, 2004 the
Trust paid $1,803,235 in respect of the tax and interest on the tax pursuant to
the Closing Agreement. The Trust will be obligated to make additional payments
with respect to the RPS Tax Issues and the Closing Agreement as a result of its
obligations under the Tax Agreement. In the event the Trust is presented with
further requests or claims for payment or reimbursement arising in connection
with the RPS Tax Issues and the Closing Agreement, the Special Committee
regarding RPS Tax Issues will evaluate the Trust's further obligations at the
time of its receipt of any such claim or request. The Trust does not however
expect the amounts claimed or requested to exceed approximately $3,300,000.
On February 21, 2003, the IRS issued an examination report to the Trust
with respect to the 1996 and 1997 taxable years of the Trust. This examination
report proposes to disallow all of the loss deductions claimed by the Trust upon
the disposition of Trust Assets during that period. In addition, the examination
report proposes to increase the REIT taxable income of the Trust during 1996 and
1997 on account of two items reported on the Trust's tax returns for which the
Trust did not claim any taxable loss or deduction. Counsel to the Trust has
advised that the examination report contains numerous errors of fact with
respect to the operations of the Trust and that the legal conclusions in the
examination report are not consistent with the applicable provisions of the Code
and the income tax regulations. The Trust timely filed an administrative appeals
(the "Trust Protest") challenging the adjustments proposed in the examination
report.
Apart from transferring the responsibility of the Trust's appeal of the
examination report to the IRS appeals office having jurisdiction for this case,
no action has yet been taken by the
E-5
IRS with respect to the Trust's Protest to the disallowances proposed in the
examination report issued to the Trust. The outcome of the Trust Protest is
uncertain and the impact of the resolution could be material to the financial
statements; however, the Trust anticipates that the outcome will be favorable to
the Trust.
INDEMNIFICATION AGREEMENT WITH KIMCO REALTY CORPORATION
On March 28, 2005, the Trust entered into an Indemnification Agreement (the
"Indemnification Agreement") with Kimco Realty Corporation ("Kimco") pursuant to
which the Trust has agreed to allow Kimco to conduct due diligence on the Hylan
Center. The indemnification agreement is being entered into in connection with
Kimco's bid to acquire the Hylan Center from the trust and further provides that
commencing on March 28, 2005 and for a period of forty five (45) days
thereafter, neither the Trust nor any of its representatives or agents will
engage in negotiations or discussions with any party other than Kimco for the
sale of the capital stock or assets of the Trust, including the sale of the
Hylan Center. While the Trust and Kimco have entered into the Indemnification
Agreement, the Trust has not as of the date hereof accepted Kimco's offer to
purchase the Hylan Center; therefore, there is no assurance that Kimco and the
Trust will enter into a definitive agreement in respect thereto.
SEGMENT INFORMATION
The Trust considers its business to include one industry segment,
investment in real estate.
ITEM 2. PROPERTIES.
The Trust leases approximately 4,100 square feet of office space at 747
Third Avenue, New York, New York at an annual base rent of approximately
$264,000. This lease will expire on October 31, 2005. In addition, the Trust
owns and operates the Hylan Center property described under Item 1.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings other than ordinary routine
litigation incidental to the business (including without limitation, foreclosure
proceedings), against or involving the Trust or its properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Trust did not submit any matter to a vote of its shareholders during
the fourth quarter of 2004.
E-6
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) MARKET INFORMATION
The Shares of the Trust have been included for quotation on the Nasdaq
SmallCap Market under the symbol ATLRS. Set forth below is the range of high and
low bid prices for the shares for each of the quarters during the years ended
December 31, 2004 and 2003.
HIGH LOW
First Quarter 2003 $11.10 $ 9.75
Second Quarter 2003 $12.61 $9.75
Third Quarter 2003 $14.00 $10.81
Fourth Quarter 2003 $16.94 $11.99
First Quarter 2004 $18.30 $15.00
Second Quarter 2004 $21.00 $15.54
Third Quarter 2004 $17.30 $16.22
Fourth Quarter 2004 $18.11 $16.55
(b) APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
APPROXIMATE NUMBER
OF RECORD HOLDERS
TITLE OF CLASS (AS OF MARCH 7, 2005)
-------------- ---------------------
Shares of beneficial interest, $.01 par value 1,980
(c) DIVIDEND INFORMATION
Under the Code, a REIT must meet certain qualifications including a
requirement that it distribute annually to its shareholders at least 90% of its
REIT Taxable Income. The Trust has continued the cash distribution policy of the
predecessor programs by making quarterly distributions to its shareholders in
amounts such that annual distributions equal 100% of REIT Taxable Income,
thereby complying with the distribution requirements of the federal income tax
laws applicable to REITs. See "Qualification as a REIT" in Item 1 above.
The Trust paid distributions of $.41, $.46 and $.62 per share for the years
ended December 31, 2004, 2003 and 2002 respectively. Such distributions
represent ordinary income for income tax purposes. In addition in May 2004 the
Trust paid a return of capital of $3.25 per share.
E-7
ITEM 6. SELECTED FINANCIAL DATA.
The following tables set forth certain selected historical information for
the Trust. The financial information should be read in conjunction with the
financial statements and notes thereto included herein.
ATLANTIC REALTY TRUST 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00
-------- -------- -------- -------- --------
Statement of Net Assets
In Liquidation:
Total Assets $89,273,922 $67,607,443 $66,876,929 $63,286,177 $62,691,522
Total Liabilities $8,600,164 $12,547,752 $4,971,363 $5,430,048 $4,545,181
Net Assets in Liquidation $80,673,758 $55,059,691 $61,905,566 $57,856,129 $58,146,371
Statement of Changes in
Net Assets in Liquidation:
Increase (Decrease)
Distributions (13,035,333) (1,638,314) (2,208,163) (2,706,780) (3,062,936)
Paid
Adjustments to Reflect
Liquidation
Basis of Accounting 38,649,400 (5,207,561) 6,257,600 2,416,538 3,777,618
Net Change in Net Assets
in Liquidation $25,614,067 $(6,845,875) $4,049,437 $(290,242) $714,682
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND LIQUIDATION ACTIVITIES.
CAPITAL RESOURCES AND LIQUIDITY -- ATLANTIC REALTY TRUST
The Trust's primary objective has been to liquidate its assets in an
eighteen-month period from the date of the Spin-Off Transaction while realizing
the maximum values for such assets; however because the RPS Tax Issues had not
been settled within such time and the Trust Audit has not been satisfactorily
resolved, the Trust has continued its business beyond such period. Although the
Trust considers its assumptions and estimates as to the values and timing of
such liquidations to be reasonable, the period of time to liquidate the assets
and distribute the proceeds of such assets is subject to significant business,
economic and competitive uncertainties and contingencies, many of which are
beyond the Trust's control. There can be no assurance that the net values
ultimately realized and costs actually incurred for such assets will not
materially differ from the Trust's estimate. The Trust does not intend to make
new loans or actively engage in either the mortgage lending or the property
acquisition business.
The Trust believes that cash and cash equivalents on hand, proceeds
generated by the real estate property that it owns and operates (the Hylan
Center) and proceeds from the eventual sale of such property will be sufficient
to support the Trust and meet its obligations. As of December 31, 2004, the
Trust had approximately $7,852,000 in cash and short-term investments.
The Trust expects that, unless it is sold or merges with another entity, it
will liquidate upon resolution of the RPS Tax Issues, the Trust Audit and any
resolution of any liabilities relating thereto under the Tax Agreement.
RESULTS OF OPERATIONS
E-8
PERIOD FROM JANUARY 1, 2002 TO DECEMBER 31, 2002, JANUARY 1, 2003 TO DECEMBER
31, 2003 AND JANUARY 1, 2004 TO DECEMBER 31, 2004.
As a result of the spin-off transaction, the Trust has adopted the
liquidation basis of accounting. The liquidation basis of accounting is
appropriate when liquidation appears imminent and the Trust is no longer viewed
as a going concern. The Trust's income or loss is included in the adjustments to
reflect liquidation basis of accounting. Net income for the years ended December
31, 2004, 2003 and 2002 was approximately $1,580,000, $2,187,000 and $2,701,000
respectively. The increase in net assets in liquidation in 2004 is based on the
recent re-valuation of the Hylan Center. The decrease in net assets in
liquidation during 2003 is primarily due to the Trust's accrual of a liability
of approximately $7,400,000 to Ramco-Gershenson Properties Trust with regard to
the settlement of the RPS Tax Issues, including obligations arising from the
Closing Agreement.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of December 31, 2004, the Trust has approximately $7,852,000 of cash and
short term investments. The earnings from these assets are affected by changes
in market interest rates over which the Trust has no control. Although changes
in market interest rates may significantly affect the earnings on these assets
the impact in changes in rates on the Trust's net assets in liquidation is not
expected to be material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See pages F-1 through F-9, which are included herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
As of the end of the period covered by this Annual Report on Form 10-K, the
Company carried out an evaluation, under the supervision of and with the
participation of the Company's management, including the Company's President and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Exchange Act Rule
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934. Based upon
that evaluation, the President and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective (i) to ensure that
material information relating to the Trust is communicated to them on a timely
basis, and (ii) to accomplish the purposes for which they were designed. There
were no material changes made in the Company's internal controls over financial
reporting that occurred during the quarter ended December 31, 2003 that has
materially affected, or are reasonably likely to materially affect the Trust's
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
E-9
None.
E-10
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Trust has adopted a Code of Ethics that applies to the Trust's
principal executive officer, principal financial officer, principal accounting
officer or controller or persons performing similar functions. Any person
wishing to receive a copy of The Code of Ethics may request a copy by contacting
the Trust and providing a name and address where such copy may be sent.
The Board of Trustees is composed of six Trustees, each of whom will serve
until the respective successors are elected and qualified.
The Trustees and executive officers of the Trust are as follows:
NAME AGE OFFICES AND POSITIONS
Joel M. Pashcow* 62 Chairman and President of the Trust effective
as of February 29, 1996. He has been a member
of the Bar of the State of New York since 1968.
Chairman of RPS from inception (December 1988)
through May 1996. He is a graduate of Cornell
University and the Harvard Law School. Mr.
Pashcow is also a trustee of Ramco-Gershenson
Properties Trust and Chairman of its Executive
Committee (formerly named RPS Realty Trust).
Edwin J. Glickman 72 Consultant in real estate financings. Until
May, 30, 2003, Mr. Glickman had served as
Executive Vice President of Capital Lease
Funding Corp., a company engaged in commercial
real estate lending, since January 1995. Prior
to that, Mr. Glickman was President of the
Glickman Organization, Inc. ("Glickman") from
January 1992 to December 1994. Glickman
conducted real estate investment consulting
services and real estate financial services,
including mortgage brokerage, arranging joint
ventures and equity financing. Prior to that,
Mr. Glickman was Chairman of the Executive
Committee of Schoenfeld Glickman Maloy Inc.
from May 1989, which is a company that
conducted real estate financial services,
including mortgage brokerage, arranging joint
ventures and equity financing. Also served
successively as Executive Vice President,
President and Vice Chairman of Sybedon
Corporation from 1977 to 1993, which is a
company that conducted real estate financial
services, including mortgage brokerage,
arranging
E-11
NAME AGE OFFICES AND POSITIONS
joint ventures and equity financing. In all
positions, Mr. Glickman has been engaged in
real estate financial services, including
mortgage brokerage, arranging joint ventures
and equity financing.
Stephen R. Blank* 59 Senior Fellow, Finance of the Urban Land
Institute ("ULI"). Mr. Blank is also a director
of, MFA Mortgage Investments, Inc., a New York
Stock Exchange-listed REIT, West Coast
Hospitality Corporation, a New York Stock
Exchange-listed corporation and BNP Residential
Trust, Inc., an American Stock Exchange-listed
REIT and a member of the Board of Advisors of
Paloma LLC, the General Partner of Simpson
Housing Limited Partnership. Prior to joining
the ULI in December of 1998, Mr. Blank was a
Managing Director, Real Estate Investment
Banking of CIBC Oppenheimer Corp.
("Oppenheimer") since November 1, 1993. Prior
to joining Oppenheimer, Mr. Blank was a
Managing Director, Real Estate Corporate
Finance, of Cushman & Wakefield, Inc. for four
years. Prior to that, Mr. Blank was associated
for ten years with Kidder, Peabody & Co.
Incorporated as a Managing Director of the
firm's Real Estate Group. Mr. Blank graduated
from Syracuse University in 1967 and was
awarded a Masters Degree in Business
Administration (Finance Concentration) by
Adelphi University in 1971. He is a member of
the Urban Land Institute and the American
Society of Real Estate Counselors. Mr. Blank is
also a trustee of Ramco-Gershenson Properties
Trust (formerly named RPS Realty Trust).
Edward Blumenfeld 64 A principal of Blumenfeld Development Group,
Ltd., a real estate development firm
principally engaged in the development of
commercial properties since 1978.
Arthur H. Goldberg* 62 Managing Director of Corporation Solutions
Group since January 2000. President of
Manhattan Associates, LLC, a merchant and
investment banking firm from February 1994 to
December 1999. Prior to that, Mr. Goldberg was
Chairman of Reich & Company, Inc., (formerly
Vantage Services, Inc.), a securities brokerage
and investment brokerage firm, from January
1990 to December 1993. Mr. Goldberg was
employed by Integrated Resources, Inc. from its
inception in December 1968, as President and
Chief
E-12
NAME AGE OFFICES AND POSITIONS
Operating Officer from May 1973 and as Chief
Executive Officer from February 1989 until
January 1990. On February 13, 1990, Integrated
Resources, Inc. filed a voluntary petition for
reorganization under Chapter 11 of the United
States Bankruptcy Code. Mr. Goldberg has been a
member of the Bar of the State of New York
since 1967. He is a graduate of New York
University School of Commerce and its School of
Law. Trustee of RPS since 1988. Mr. Goldberg is
also a trustee of Ramco-Gershenson Properties
Trust (formerly named RPS Realty Trust).
William A. Rosoff 61 Vice-Chairman of the Board of Directors of
Advanta Corporation, a financial services
company, since January 1996 and President of
Advanta Corporation since October 1999. Prior
thereto, Mr. Rosoff was associated with the law
firm of Wolf, Block, Schorr and Solis-Cohen
since 1969, a partner since 1975. Mr. Rosoff is
a past chairman of that firm's Executive
Committee and is a past chairman of its tax
department. Mr. Rosoff served on the Legal
Activities Policy Board of Tax Analysts, the
Advisory Board for Warren, Gorham and Lamont's
Journal of Partnership Taxation, and has served
on the Tax Advisory Boards of Commerce Clearing
House and Little, Brown and Company. Mr. Rosoff
also serves on the Advisory Group for the
American Law Institute. He was a fellow of the
American College of Tax Counsel. Mr. Rosoff
earned a B.S. degree with honors from Temple
University in 1964, and earned an L.L.B. magna
cum laude from the University of Pennsylvania
Law School in 1967.
Edwin R. Frankel 59 Since the inception of the Trust in May 1996,
Mr. Frankel has served as its Executive Vice
President, Chief Financial Officer, Secretary
and Principal Financial and Accounting Officer.
From 1988 to 1992, Mr. Frankel served as Vice
President and Chief Financial Officer of RPS
and from 1992 to 1996 as Senior Vice President,
Chief Financial Officer and Treasurer of RPS.
-----------------------------
* Designates status as a Continuing Trustee.
E-13
COMMITTEES OF THE BOARD OF TRUSTEES
The Audit Committee of the Board of Trustees (the "Audit Committee"),
established on October 22, 1997, consists of three Trustees, Messrs. Blumenfeld,
Goldberg and Glickman. The Audit Committee meets with management and the Trust's
independent accountants to determine the adequacy of internal controls and other
financial reporting matters. On February 10, 2000, Mr. Glickman was appointed as
a third member of the Audit Committee in order for the Trust to be in compliance
with new regulations promulgated by the Securities and Exchange Commission and
the NASDAQ Stock Market regarding the size, duties and responsibilities of audit
committees of public companies. The Board of Trustees has determined that Mr.
Glickman qualifies as an "audit committee financial expert" for purposes of Item
401(h) of SEC Regulation S-K, by virtue of his service as Vice President of
Capital Lease Funding, the Glickman Organization, Inc. and as otherwise set
forth in the table above. In all such positions, Mr. Glickman has been engaged
in real estate financial services, including mortgage brokerage, arranging joint
ventures and equity financing.
The Disposition Committee of the Board of Trustees (the "Disposition
Committee"), established in July 1996, consists of three Trustees, Messrs.
Blumenfeld, Glickman and Blank. The Disposition Committee works with management
in connection with the orderly disposition of the Trust's assets.
A Special Committee of the Board of Trustees (the "Special Committee")
established January 13, 2004, consists of three Trustees Messrs. Messrs.
Glickman, Blank and Pashcow. The Special Committee was to consider any bona fide
offer or acquisition proposal made for the Trust and to ensure that all
reasonable steps are taken to maximize shareholder value while having regard to
the Trust's existing contractual obligations.
The Special Committee regarding RPS Tax Issues, established April 17, 2003
consists of two Trustees, Messrs. Blumenfeld and Glickman. The Special Committee
regarding RPS Tax Issues is charged with the responsibility to act on behalf of
the Trust in evaluating the position of the Trust with respect to the RPS Tax
Issues and to represent the Trust with respect to any claims asserted by RPS for
contribution arising out of the Closing Agreement.
ITEM 11. EXECUTIVE COMPENSATION.
EXECUTIVE OFFICERS
Mr. Pashcow receives no cash compensation for serving as an executive
officer of the Trust. Mr. Frankel receives compensation of approximately
$196,000 per annum pursuant to an employment contract entered into between the
Trust and Mr. Frankel on June 11, 1998, as more fully described below.
E-14
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM
COMPENSATION
NAME AND RESTRICTED SECURITIES PAYOUT
PRINCIPAL OTHER ANNUAL STOCK UNDERLYING LTIP
POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDS($) OPTIONS/SARS($) PAYOUTS($)
Edwin R. Frankel*
Executive Vice
President,Chief 2002 175,638 15,250 13,900*
Financial Officer 2003 180,907 15,250 14,400*
and
Secretary 2004 187,156 15,250 14,400*
Stanley Rappoport
2002 124,423
2003 127,885 75,000
2004 147,440 65,000
----------------
*Includes approximately $1,000 in imputed interest under the Frankel Note (as
defined below).
The Trust had no compensation committee, however all of the Trustees
participated in deliberations of the Trustees concerning executive officer
compensation.
On June 11, 1998, the Trust entered into an employment agreement with Mr.
Frankel (the "Frankel Employment Agreement"), which provided Mr. Frankel with a
base salary of $158,000 (as adjusted from time to time, the "Base Salary") per
annum. The term of the Frankel Employment Agreement is from June 11, 1998 until
the date of a "change of control" of the Trust (as defined in the Frankel
Employment Agreement) unless earlier terminated by either Mr. Frankel or the
Trust upon written notice. The Frankel Employment Agreement also provides that
Mr. Frankel will be entitled to a one-time payment upon the liquidation of the
Trust or a change in control of 150% of Mr. Frankel's Base Salary as in effect
at such time. In addition, the Frankel Employment Agreement provides for a loan
from the Trust to Mr. Frankel in the principal amount of $37,500, which loan is
evidenced by a promissory note, dated June 11, 1998, made by Mr. Frankel in
favor of the Trust (the "Frankel Note"). The Frankel Note will be canceled upon
the occurrence of certain conditions, including a Change of Control or
liquidation of the Trust. In January, 2000, the Frankel Employment Agreement was
amended to additionally provide that Mr. Frankel's estate or designated
beneficiary will be entitled to receive a one time payment of 150% of his Base
Salary as in effect at the time of his demise.
In connection with his employment with the Trust, Mr. Rappoport received a
bonus plan that provided as follows: (i) for the period 1996, and ending July
31, 2003, Mr. Rappoport will receive an aggregate total $100,000, such sum to be
earned on a monthly pro rata basis over that period and the first $75,000 of
such earned amount was paid on September 1, 2003 with the balance of such earned
amount up to an additional $25,000 shall be payable on January 1, 2004, (ii) for
the period beginning August 1, 2003 and ending December 31, 2003, Mr. Rappoport
will earn, to the extent he remains employed by the Trust, an aggregate of
$25,000 in addition to his then current salary, such sum to be earned on a
monthly pro rata basis over that period an to the extent earned, the $25,000
shall be payable the earlier of June 30, 2004 and the liquidation date
E-15
of the Trust; and (iii) for the period beginning January 1, 2004 and ending June
30, 2004, Mr. Rappoport will earn, to the extent he remains employed by the
Trust, an aggregate total of $15,000 in addition to his then current salary,
such sum to be earned on a monthly pro rata basis over that period and to the
extent earned, shall be payable the earlier of June 30, 2004 or the liquidation
date of the Trust.
TRUSTEES
The Trustees do not receive any compensation for serving as trustees and
likewise will not receive any compensation for attending meetings or for serving
on any committees of the Board of Trustees; however, Trustees will receive
reimbursement of travel and other expenses and other out-of-pocket disbursements
incurred in connection with attending any meetings.
During the years ended 2004, 2003 and 2002, respectively, Messrs. Edwin
Glickman and Edward Blumenfeld each earned fees of $25,000 in connection with
services they provided to the Trust as Members of the Disposition Committee.
On March 24, 2004, the Trust entered into a Reimbursement Agreement with
Joel M. Pashcow pursuant to which the Trust agreed to reimburse Mr. Pashcow for
all reasonable fees and expenses, including the reasonable fees and expenses of
accountants and legal counsel, incurred in connection with any personal income
tax audit to which he may become subject solely as a result of his being a
member of the Board of Trustees of the Trust and a member of the Board of
Trustees of Ramco-Gershenson Properties Trust. The maximum reimbursement
commitment of the Trust is $50,000 per fiscal year during the term of such
Reimbursement Agreement.
On March 24, 2004, the Trust also entered into a Reimbursement Agreement
with Arthur H. Goldberg pursuant to which the Trust agreed to reimburse Mr.
Goldberg for all reasonable fees and expenses, including the reasonable fees and
expenses of accountants and legal counsel, incurred in connection with any
personal income tax audit to which he may become subject solely as a result of
his being a member of the Board of Trustees of the Trust and a member of the
Board of Trustees of Ramco-Gershenson Properties Trust. The maximum
reimbursement commitment of the Trust is $50,000 per fiscal year during the term
of such Reimbursement Agreement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of March 11, 2004, each of the following persons were known by the Trust
to be the beneficial owners of more than five percent of the Shares of the
Trust.
Amount and
Nature of
Name and Address of Beneficial Percent of
Title of Class Beneficial Owner Ownership Class
-------------- ------------------- ---------- -----
Shares of beneficial Kensington Investment Group, Inc. 191,422(1) 5.37%
interest 4 Orinda Way
$.01 par value Suite 200C
Orinda, CA 94563
Shares of beneficial High Rise Capital 504,088(2) 14.2%
interest Management
$.01 par value 535 Madison Avenue
26th Floor
New York, NY 10022
Shares of beneficial Kimco Realty Corporation 1,317,787(3) 37.0%
interest 3333 New Hyde Park Rd.
$.01 par value New Hyde Park, NY 11042
------------------
(1) Based upon Schedule 13G/A filing with the Securities and Exchange
Commission, filed on January 10, 2005.
(2) Based upon Schedule 13G filing with the Securities and Exchange
Commission, filed on February 11, 2005.
(3) Based upon Schedule 13D/A filing with the Securities and Exchange
Commission filed February 18, 2005.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
E-16
Set forth below is information as to the Shares beneficially owned as of
March 18, 2005 by each of the Trustees, each of the executive officers included
in the Summary Compensation Table set forth in Item 11 and all Trustees and
executive officers as a group, based on information furnished by each Trustee
and executive officer.
Name of Trustee/ Shares Owned Percent Of Class
Executive Officer Beneficially(1) ----------------
------------------ ---------------
Joel M. Pashcow 94,154(2) 2.64%
Arthur H. Goldberg 24,487(3) *
William A. Rosoff 125 *
Stephen R. Blank 987(4) *
Edward Blumenfeld 125 *
Edwin J. Glickman 10,531 *
Edwin R. Frankel 0 *
All Trustees and Executive Officers as a group (7 persons) 130,409 3.66%
---------------------
* Less than 1% of class.
(1) All amounts are directly owned unless stated otherwise.
(2) Includes 25,890 shares held in an IRA account for the benefit of Mr.
Pashcow, a retirement savings plan, a pension and profit sharing account
and a money purchase plan, 47,662 shares owned by an irrevocable trust of
which Mr. Pashcow is a trustee, an irrevocable trust for his daughter and a
foundation of which Mr. Pashcow is trustee (for all of which trusts Mr.
Pashcow has shared voting and investment powers). Mr. Pashcow disclaims
beneficial ownership of the Shares owned by the foundation and each of the
trusts.
(3) Includes 19,563 shares owned by Mr. Goldberg's wife, 1,875 shares owned by
trusts for his daughters and 3,050 shares owned by a pension trust. Mr.
Goldberg disclaims beneficial ownership of the shares owned by his wife and
the trusts for his daughters.
(4) Includes 712 shares owned by trusts for Mr. Blank's daughters and 275
shares held in an IRA account for the benefit of Mr. Blank. Mr. Blank
disclaims beneficial ownership of the shares owned by the trusts for his
daughters.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information relating to Principal Accountant Fees and Services will be
contained in a definitive Proxy Statement under the caption "Principal
Accountant Fees and Services" which the Registrant will file with the Securities
and Exchange Commission pursuant to Regulation 14A under the Securities Exchange
Act of 1934 not later than 120 days after December 31, 2004, and such
information is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
Financial Statements, Schedules and Exhibits
E-17
(a)(1) Financial Statements
See pages F-1 through F-9, which are included herein.
(a)(2) Financial Statement Schedules
All schedules have been omitted because they are inapplicable, not
required, or the information is included in the financial statements or
notes thereto.
(a)(3) Exhibits
The exhibits listed in the Exhibit Index immediately preceding the
exhibits are filed as a part of this Annual Report on Form 10-K.
(b) No Current Reports on Form 8-K were filed by the Company during the last
quarter of the period covered by this report.
E-18
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Consolidated Financial Statements -- Atlantic Realty Trust and Subsidiary
(Liquidation Basis of Accounting)
Report of Independent Registered Accounting Firm.............................F-2
Consolidated Statements of Net Assets in Liquidation as of
December 31, 2004 and 2003..............................................F-3
Consolidated Statements of Changes in Net Assets in Liquidation for
the Years Ended December 31, 2004, 2003 and 2002........................F-4
Notes to Consolidated Financial Statements................................F-5-10
E-19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of
Atlantic Realty Trust
We have audited the accompanying consolidated statements of net assets in
liquidation of Atlantic Realty Trust and subsidiary (the "Trust") as of December
31, 2004 and 2003, and the related consolidated statements of changes in net
assets in liquidation for each of the three years in the period ended December
31, 2004. These consolidated financial statements are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Trust is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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.
As discussed in Note 1 to the consolidated financial statements, the Trust was
formed for the purpose of liquidating the mortgage loan portfolio and certain
other assets and liabilities which were transferred to the Trust from RPS Realty
Trust on May 1, 1996 and liquidating and distributing capital to the Trust's
shareholders. As a result, the Trust adopted the liquidation basis of
accounting, effective May 10, 1996.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the net assets in liquidation of Atlantic Realty Trust and
subsidiary as of December 31, 2004 and 2003 and the changes in their net assets
in liquidation for each of the three years in the period ended December 31, 2004
in conformity with accounting principles generally accepted in the United States
of America on the basis described in the preceding paragraph.
As discussed in Notes 1 and 6 to the consolidated financial statements, because
of the inherent uncertainty of valuation when an entity is in liquidation, the
amounts ultimately realized from assets disposed and costs incurred to settle
liabilities may differ materially from amounts presented in the accompanying
consolidated financial statements.
/s/ DELOITTE & TOUCHE LLP
------------------------
MARCH 24, 2005
------------------------
New York, New York
New York, New York
E-20
ATLANTIC REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
(LIQUIDATION BASIS OF ACCOUNTING)
December 31, December 31,
2004 2003
---- ----
ASSETS:
Investment in real estate........ $81,319,000 $44,144,250
Cash and short-term investments.. 7,852,922 23,198,093
Other assets 102,000 265,100
---------------- -------------
Total assets............. 89,273,922 67,607,443
---------------- -------------
LIABILITIES:
Estimated costs of liquidation... 8,600,164 12,547,752
---------------- -------------
Net assets in liquidation........ $80,673,758 $55,059,691
---------------- -------------
See notes to consolidated financial statements.
E-21
ATLANTIC REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
(LIQUIDATION BASIS OF ACCOUNTING)
FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2003 2002
-------------- -------------- -------------
Net assets in liquidation, beginning
of period........................... $55,059,691 $61,905,566 $57,856,129
Distributions paid (13,035,333) (1,638,314) (2,208,163)
Adjustments to reflect liquidation
basis of accounting................. 38,649,400 (5,207,561) 6,257,600
Net assets in liquidation,
end of period....................... $80,673,758 $55,059,691 $61,905,566
See notes to consolidated financial statements.
E-22
ATLANTIC REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(LIQUIDATION BASIS OF ACCOUNTING)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Atlantic Realty Trust, a Maryland real estate investment trust (the
"Trust"), was formed on July 27, 1995 for the purpose of liquidating its
interests in real properties, its mortgage loan portfolio and certain other
assets and liabilities which were transferred to the Trust from Ramco-Gershenson
Properties Trust (formerly named RPS Realty Trust) ("RPS") on May 10, 1996 (the
"Spin-Off Transaction"). The Trust had no operations from the date of formation
to the date of the Spin-Off Transaction. The Trust adopted the liquidation basis
of accounting as of the date of the Spin-Off Transaction based on its intention
to liquidate its assets or merge or combine operations with another real estate
entity within eighteen months from the date of the Spin-Off Transaction. The
Trust intends to conduct its operations with the intent of meeting the
requirements applicable to a real estate investment trust ("REIT") under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the
"Code"). As a result, the Trust will have no current or deferred income tax
liabilities.
Liquidation Basis of Accounting -- As a result of the Spin-Off
Transaction, the Trust has adopted the liquidation basis of accounting. The
liquidation basis of accounting is appropriate when liquidation appears imminent
and the Trust is no longer viewed as a going concern. Under this method of
accounting, assets are stated at their estimated net realizable values and
liabilities are stated at the anticipated settlement amounts.
The valuations presented in the accompanying Consolidated Statements of
Net Assets in Liquidation represent the estimates at the dates shown, based on
current facts and circumstances, of the estimated net realizable value of the
assets and estimated costs of liquidating the Trust. In determining the net
realizable values of the assets, the Trust considered each asset's ability to
generate future cash flows, offers to purchase received from third parties, if
any, and other general market information. Such information was considered in
conjunction with operating the Trust's plan for disposition of assets. The
estimated costs of liquidation represent the estimated cost of operating the
Trust through its anticipated termination. These costs primarily include
payroll, consulting and related costs, rent, shareholder relations, legal and
auditing. Changes in these costs during the periods presented are reflected in
the adjustments to reflect liquidation basis of accounting. Computations of net
realizable value necessitate the use of certain assumptions and estimates.
Future events, including economic conditions that relate to real estate markets
in general, may differ from those assumed or estimated at the time such
computations are made. Because of inherent uncertainty of valuation when an
entity is in liquidation, the amounts ultimately realized from assets disposed
and costs incurred to settle liabilities may materially differ from amounts
presented.
Pursuant to the terms of the Trust's Amended and Restated Declaration of
Trust, the Trust was to continue for a period of 18 months from the date of the
Spin-Off Transaction, subject to, among certain other things, satisfactory
resolution of the RPS Tax Issues (as such term is defined in footnote 6).
Because the RPS Tax Issues have not yet been satisfactorily resolved, the Trust
has continued its business past that date. The Trust cannot currently estimate
E-24
ATLANTIC REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(LIQUIDATION BASIS OF ACCOUNTING)
the timing of the future satisfactory resolution of the RPS Tax Issues.
Accordingly, the Trust will continue until there is a final determination of
these issues.
CONSOLIDATION -- The consolidated financial statements include the
accounts of the Trust and its wholly-owned subsidiary. All significant
intercompany accounts and transactions have been eliminated in consolidation.
2. INVESTMENT IN REAL ESTATE
ESTIMATED NET REALIZED VALUE(a)(b)
PROPERTY LOCATION DECEMBER 31, DECEMBER 31,
2004 2003
---------------- ---------------
Hylan Shopping Center Staten Island, NY $81,319,000 $44,144,250
--------------
(a) Includes estimated cash flows using a disposition period of six months and
nine months for the years ended December 31, 2004 and December 31, 2003,
respectively. Realized values may differ depending on actual disposition
results and time periods.
(b) The operations of the Trust and the Hylan Shopping Center for the years
ended December 31, 2004 and December 31, 2003 are as follows:
2004 2003
---- ----
Rental income..................... $4,669,152 $4,579,713
Expense reimbursements............ 2,529,747 2,194,211
Interest from short-term investments 125,023 267,868
Other............................. 2,376 3,004
-------------------- ---------------------
7,326,298 7,044,796
-------------------- ---------------------
Operating property expenses....... 3,118,759 2,989,906
Depreciation...................... 344,067 348,831
General and administrative........ 2,432,697 2,125,909
-------------------- ---------------------
5,895,523 5,464,646
-------------------- ---------------------
Net income........................ $1,430,775 $1,580,150
3. SHARES OUTSTANDING
The weighted average number of common shares outstanding for each of the
periods ended December 31, 2004, 2003, and 2002 was 3,561,553.
4. CASH AND SHORT-TERM INVESTMENTS
Cash and short-term investments at December 31, 2004 and 2003, consist
primarily of certificates of deposit at a major New York bank of $7,300,000 and
$22,500,000, respectively, purchased with original maturities of three months or
less, bearing interest at a fixed rate of 1.25% and 1.09%, respectively.
E-25
ATLANTIC REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(LIQUIDATION BASIS OF ACCOUNTING)
5. OTHER ASSETS
Other assets include the estimated interest income from the Trust's
short-term investments.
6. INCOME TAXES
During the third quarter of 1994, RPS held more than 25% of the value of
its gross assets in overnight Treasury Bill reverse repurchase transactions
which the IRS may view as non-qualifying assets for the purposes of satisfying
an asset qualification test applicable to REITs, based on a Revenue Ruling
published in 1977 (the "Asset Issue"). RPS requested that the IRS enter into a
closing agreement with RPS that the Asset Issue would not impact RPS' status as
a REIT. The IRS declined such request. In February 1995, the IRS initiated an
examination of the 1991-1995 income tax returns of RPS (the "RPS Audit" and,
together with the Asset Issue, the "RPS Tax Issues"). Based on developments in
the law which occurred since 1977, RPS' tax counsel at that time, Battle Fowler
LLP, rendered an opinion that RPS' investment in Treasury Bill repurchase
obligations would not adversely affect its REIT status. However, such opinion is
not binding upon the IRS.
In connection with the Spin-Off Transaction, the Trust assumed all tax
liability arising out of the RPS Tax Issues (other than liability that relates
to events occurring or actions taken by RPS following the date of the Spin-Off
Transaction) pursuant to a tax agreement, dated May 10, 1996, by and between RPS
and the Trust (the "Tax Agreement"). Such agreement provides that RPS (now named
Ramco-Gershenson Properties Trust), under the direction of four trustees, three
of whom are also trustees of the Trust (the "Continuing Trustees") and not the
Trust, will control, conduct and effect the settlement of any tax claims against
RPS relating to the RPS Tax Issues. Accordingly, the Trust did not have any
control as to the timing of the resolution or disposition of any such claims.
In December 2003, Ramco-Gershenson Properties Trust and the Internal
Revenue Service entered into a Closing Agreement with respect to all of the
issues raised by the Internal Revenue Service in connection with RPS Audit. As a
condition of the Closing Agreement, Ramco-Gershenson Properties Trust was
obligated to pay deficiency dividends (under Code Sec. 860) with respect to its
1992 and 1993 taxable year in amounts not less than $1,386,503 with respect to
the 1992 taxable year and $809,010 with respect to the 1993 taxable year. In
addition, Ramco-Gershenson Properties Trust is obligated to pay a deficiency in
its income taxes with respect to the period covered by the RPS Audit equal to
$770,258, plus interest calculated at the statutory rate on the amount of the
deficiency and the amount of the deficiency dividends. The aggregate amount of
the deficiency dividends, income tax deficiency and interest on these amounts is
approximately $7,400,000, and because the Trust is required by the Tax Agreement
to reimburse Ramco-Gershenson Properties Trust for these items, they are
included in the estimated cost of liquidation as of December 31, 2003. Although
the Closing Agreement provides that the election of Ramco-Gershenson Properties
Trust to be taxed as a "real estate investment trust" was terminated with
respect to its 1994 and 1995 taxable years, it also provides
E-26
ATLANTIC REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(LIQUIDATION BASIS OF ACCOUNTING)
that Ramco-Gershenson Properties Trust will be treated as having reelected to be
taxed as a "real estate investment trust" with respect to its taxable year
beginning January 1, 1996 and that the termination of its election to be taxed
as a "real estate investment trust" will not prohibit it or any successor entity
(which includes the Trust) from electing to be taxed as a "real estate
investment trust" on or after January 1, 1996.
The Trust remains obligated under the Tax Agreement to assume certain
liabilities relating to the RPS Tax Issues. The Trust established a special
committee (the "Special Committee regarding RPS Tax Issues") comprised of the
two Trustees who are not Continuing Trustees or otherwise affiliated with
Ramco-Gershenson Properties Trust to act on behalf of the Trust in evaluating
the position of the Trust with respect to the RPS Tax Issues and to represent
the Trust with respect to any claims asserted by Ramco-Gershenson Properties
Trust for contribution arising out of the Closing Agreement. On January 21,
2004, the Trust contributed $2,200,091 in respect of the deficiency dividend
required to be paid pursuant to the Closing Agreement. On June 10, 2004 the
Trust paid $1,803,235 in respect of the tax and interest on the tax pursuant to
the Closing Agreement. The Trust will be obligated to make additional payments
with respect to the RPS Tax Issues and the Closing Agreement as a result of its
obligations under the Tax Agreement. In the event the Trust is presented with
further requests or claims for payment or reimbursement arising in connection
with the RPS Tax Issues and the Closing Agreement, the Special Committee
regarding RPS Tax Issues will evaluate the Trust's further obligations at the
time of its receipt of any such claim or request. The Trust does not however
expect the amounts claimed or requested to exceed approximately $3,300,000.
On February 21, 2003, the IRS issued an examination report to the Trust
with respect to the 1996 and 1997 taxable years of the Trust. This examination
report proposes to disallow all of the loss deductions claimed by the Trust upon
the disposition of Trust Assets during that period. In addition, the examination
report proposes to increase the REIT taxable income of the Trust during 1996 and
1997 on account of two items reported on the Trust's tax returns for which the
Trust did not claim any taxable loss or deduction. Counsel to the Trust has
advised that the examination report contains numerous errors of fact with
respect to the operations of the Trust and that the legal conclusions in the
examination report are not consistent with the applicable provisions of the Code
and the income tax regulations. The Trust timely filed an administrative appeals
(the "Trust Protest") challenging the adjustments proposed in the examination
report.
Apart from transferring the responsibility of the Trust's appeal of the
examination report to the IRS appeals office having jurisdiction for this case,
no action has yet been taken by the IRS with respect to the Trust's Protest to
the disallowances proposed in the examination report issued to the Trust. The
outcome of the Trust Protest is uncertain and the impact of the resolution could
be material to the financial statements; however, the Trust anticipates that the
outcome will be favorable to the Trust.
E-27
ATLANTIC REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(LIQUIDATION BASIS OF ACCOUNTING)
7. DIVIDENDS/DISTRIBUTIONS TO SHAREHOLDERS
Under the Internal Revenue Code, a REIT must meet certain qualifications,
including a requirement that it distribute annually to its shareholders at least
90 percent of its REIT taxable income. The Trust's policy is to distribute to
shareholders all taxable income. Dividend distributions for the years ended
December 31, 2003, 2002 and 2001 are summarized as follows:
Record Date Distribution Payment
----------- ------------ -------
December 20, 2004 $.41 per share December 29, 2004
May 10, 2004 $3.25 per share May 20, 2004
December 18, 2003 $.46 per share December 29, 2003
December 15, 2002 $.62 per share December 27, 2002
The distributions listed in the table above represent ordinary income for income
tax purposes, except for the $3.25 per share distribution which was a return of
capital.
8. COMMITMENTS
The Trust leases approximately 4,100 square feet of office space at 747
Third Avenue, New York, New York at an annual base rent of approximately
$264,000. This lease will expire on October 31, 2005.
9. SUBSEQUENT EVENTS
On March 28, 2005, the Trust entered into an Indemnification Agreement
(the "Indemnification Agreement") with Kimco Realty Corporation ("Kimco")
pursuant to which the Trust has agreed to allow Kimco to conduct due diligence
on the Hylan Center. The indemnification agreement is being entered into in
connection with Kimco's bid to acquire the Hylan Center from the trust and
further provides that commencing on March 28, 2005 and for a period of forty
five (45) days thereafter, neither the Trust nor any of its representatives or
agents will engage in negotiations or discussions with any party other than
Kimco for the sale of the capital stock or assets of the Trust, including the
sale of the Hylan Center. While the Trust and Kimco have entered into the
Indemnification Agreement, the Trust has not as of the date hereof accepted
Kimco's offer to purchase the Hylan Center; therefore, there is no assurance
that Kimco and the Trust will enter into a definitive agreement in respect
thereto.
E-28
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, on the 29th day of
March, 2005.
ATLANTIC REALTY TRUST
Date: March 29th, 2005 By:/s/Joel M. Pashcow
------------------------------------------
Name: Joel M. Pashcow
Title: President and Chairman of the Board
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
--------- ----- ----
---------------------
Joel M. Pashcow President and Chairman of March 29, 2005
the Board
--------------------- Executive Vice President, March 29, 2005
Edwin R. Frankel Chief Financial Officer,
Secretary and Principal
Financial and Accounting
Officer
--------------------- Trustee March 29, 2005
Edwin J. Glickman
--------------------- Trustee March 29, 2005
Stephen R. Blank
--------------------- Trustee March 29, 2005
Edward Blumenfeld
--------------------- Trustee March 29, 2005
Arthur H. Goldberg
---------------------
William A. Rosoff Trustee March 29, 2005
E-29
EXHIBIT INDEX
The following exhibits are filed as part of this Annual Report on Form 10-K.
EXHIBIT NO. DESCRIPTION
3.1 Amended and Restated Declaration of Trust of the Trust
(Incorporated by reference to the Trust's definitive registration
statement on Form 10, dated March 28, 1996, File No. 0-27562,
Exhibit 3.1).
3.2 Amended and Restated By-Laws of the Trust (Incorporated by
reference to the Trust's definitive registration statement on
Form 10, dated March 28, 1996, File No. 0-27562, Exhibit 3.2).
3.3 First Amendment to Amended and Restated Declaration of Trust of
the Trust (Incorporated by reference to the Trust's definitive
registration statement on Form 10, dated March 28, 1996, File No.
0-27562, Exhibit 3.3).
4.1 Form of Share Certificate (Incorporated by reference to the
Trust's definitive registration statement on Form 10, dated March
28, 1996, File No. 0-27562, Exhibit 4.1).
10.1 Lease Agreement, dated as of January 16, 1997, by and between
Sage Realty Corporation, as the lessor, and the Trust, as the
lessee (Incorporated by reference to the Trust's annual report on
Form 10-K for the year ended December 31, 1996, File No. 0-27562,
Exhibit 10.1).
10.2 Form of Assignment, Assumption and Indemnification Agreement
between RPS Realty Trust and the Trust (Incorporated by reference
to the Trust's definitive registration statement on Form 10,
dated March 28, 1997, File No. 0-27562, Exhibit 10.1).
10.3 Form of Tax Agreement between RPS Realty Trust and the Trust
(Incorporated by reference to the Trust's definitive registration
statement on Form 10, dated March 28, 1996, File No. 0-27562,
Exhibit 10.2).
10.4 Form of Information Statement (Incorporated by reference to the
Trust's definitive registration statement on Form 10, dated March
28, 1996, File No. 0-27562, Exhibit 20.1).
10.5 Employment Agreement, dated as of June 11, 1998, by and between
the Trust and Edwin R. Frankel (Incorporated by reference to the
Trust's quarterly report on Form 10-Q for the three months ended
June 30, 1998, File No. 0-27562, Exhibit 10.1).
10.6 Amendment to Employment Agreement, dated as of January 29, 2000,
by and between the Trust and Edwin R. Frankel (Incorporated by
reference to the
E-29
Trust's annual report on Form 10-K, for the year ended December
31, 2000, File No. 0-27562, Exhibit 10.6).
10.7 Amended and Restated Standstill Agreement, dated as of July 21,
2000, by and among Atlantic Realty Trust, on the one hand, and
Kimco Realty Corporation, Kimco Realty Services, Inc. and Milton
Cooper, on the other hand.
10.8 Second Amended and Restated Standstill Agreement, dated as of
January 31, 2003, by and among Atlantic Realty Trust, on the one
hand, and Kimco Realty Corporation, Kimco Realty Services, Inc.
and Milton Cooper, on the other hand.
10.9 Standstill Agreement, dated as of January 27, 2004, by and among
Atlantic Realty Trust, on the one hand, and High Rise Capital
Management, L.P., High Rise Capital Advisors, L.L.C., Bridge
Realty Advisors, L.L.C., Zankel Management GP, L.L.C., Cedar
Bridge Realty Fund, L.P., Cedar Bridge Institutional Fund, L.P.,
a Delaware limited partnership Arthur Zankel and David O'Connor
on the other hand. (Filed as an exhibit to Form 8-K filed January
27, 2004, File No. 0-27562.)
10.10 Reimbursement Agreement, dated as of March 24, 2004 by and
between Atlantic Realty Trust and Joel M. Pashcow.
10.11 Reimbursement Agreement, dated as of March 24, 2004 by and
between Atlantic Realty Trust and Arthur H. Goldberg.
10.12 Indemnification Agreement, dated as of March 28, 2005, by and
between Atlantic Realty Trust and Kimco Realty Corporation.
21.1 Subsidiary of the Registrant (incorporated by reference to the
Trust Annual Report on 10-K, for the year ended December 31,
1999, File No. 0-27562, Exhibit 21.1).
E-30
CERTIFICATION BY EDWIN R. FRANKEL PURSUANT TO
SECURITIES EXCHANGE ACT RULE 13a-14
I, Edwin R. Frankel, certify that:
1. I have reviewed this annual report on Form 10-K of Atlantic Realty Trust;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure control and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15(d)-15(e)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this annual report based on such evaluation; and
c) disclosed in this annual report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):
a) all significant deficiencies and material weakness in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
E-31
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: March 29, 2005 /s/Edwin R. Frankel
-----------------------------------
Name: Edwin R. Frankel
Title Executive Vice President,
Chief Financial Officer
and Secretary
(Principal Financial and
Accounting Officer)
E-32
CERTIFICATION BY JOEL M. PASHCOW PURSUANT TO
SECURITIES EXCHANGE ACT RULE 13a-14
I, Joel M. Pashcow, certify that:
1. I have reviewed this annual report on Form 10-K of Atlantic Realty Trust;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure control and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15(d)-15(e)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this annual report based on such evaluation; and
c) disclosed in this annual report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):
a) all significant deficiencies and material weakness in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
E-33
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: March 29, 2005 /s/Joel M. Pashcow
-----------------------------------
Name: Joel M. Pashcow
Title: Chairman and President
(Principal Executive Officer)
E-34
Exhibit 99.1
To Atlantic Realty Trust
Report on Form 10-K
December 31, 2004
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Chairman and President of Atlantic Realty Trust (the
"Company"), hereby certifies, to the best of my knowledge, that the Form 10-K of
the Company for the fiscal year ended December 31, 2004 (the "Periodic Report")
accompanying this certification fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78(d))
and that the information contained in the Periodic Report fairly represents, in
all material respects, the financial condition and results of operations of the
Company. The foregoing certification is incorporated solely for purposes of
complying with the provisions of Section 906 of the Sarbanes-Oxley Act and is
not intended to be used for any other purpose.
Date: March 29, 2005 /s/Joel M. Pashcow
-----------------------------------
Name: Joel M. Pashcow
Title: Chairman and President
(Principal Executive Officer)
E-35
Exhibit 99.2
To Atlantic Realty Trust
Report on Form 10-K
December 31, 2004
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Executive Vice President, Chief Financial Officer and Secretary
of Atlantic Realty Trust (the "Company"), hereby certifies, to the best of my
knowledge, that the Form 10-K of the Company for the fiscal year ended December
31, 2004 (the "Periodic Report") accompanying this certification fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (15 U.S.C. 78m or 78(d)) and that the information contained in the
Periodic Report fairly represents, in all material respects, the financial
condition and results of operations of the Company. The foregoing certification
is incorporated solely for purposes of complying with the provisions of Section
906 of the Sarbanes-Oxley Act and is not intended to be used for any other
purpose
Date: March 29, 2005 /s/Edwin R. Frankel
-----------------------------------
Name: Edwin R. Frankel
Title: Executive Vice President
Chief Financial Officer
and Secretary
(Principal Financial and
Accounting Officer)
E-36
Exhibit 10.10
REIMBURSEMENT AGREEMENT
-----------------------
THIS REIMBURSEMENT AGREEMENT (the "AGREEMENT"), dated as of March 24, 2004,
is between Atlantic Realty Trust, a Maryland real estate investment trust (the
"TRUST"), and Joel M. Pashcow, a trustee and officer of the Trust, (the
"MEMBER").
WHEREAS, the United States Internal Revenue Service (the "IRS") is in
the process of auditing certain of the income tax returns of the Trust (the
"TRUST AUDIT"); and
WHEREAS, the Member, a trustee and officer of the Trust, was
previously a trustee and officer of RPS Realty Trust ("RPS"), a
predecessor-in-interest to the Trust; and
WHEREAS, RPS was previously audited by the IRS (the "RPS AUDIT") in
proceedings that ultimately resulted in a very favorable settlement for RPS and
the Trust; and
WHEREAS, several allegations have been made in the Trust Audit
proceedings that were previously asserted in the RPS Audit proceedings and
ultimately proved unfounded; and
WHEREAS, in the event the Trust Audit does not produce the desired
results the IRS examining agent is attempting to achieve or ultimately results
in a favorable outcome for the Trust as was achieved in the RPS Audit, such
examining agent may proceed to conduct or cause to be conducted audits of the
personal taxes of each of the joint trustees and officers of RPS and the Trust,
including the Member (each such audit, a "MEMBER AUDIT"); and
WHEREAS, while the Member may be entitled to indemnification relating
to claims, actions or proceedings against the Member solely for his actions as a
trustee or officer of the Trust pursuant to the Trust's Declaration of Trust,
Bylaws and/or Maryland law and is covered by director and officer insurance, he
believes that this Agreement is desirable to augment such protection in light of
the fact that it may be difficult or impossible to prove that the initiation of
an audit of his personal taxes is directly connected to (i) his position as a
trustee and officer of the Trust, (ii) the RPS Audit or (iii) the Trust Audit;
and
WHEREAS, the Board of Trustees of the Trust believes that the Member
should be indemnified for certain expenses incurred by him in connection with
any Member Audit and that in the event the Member is unable to link such audit
to (i) his position as an officer and trustee of the Trust, (ii) the RPS Audit
or (iii) the Trust Audit, he should still, in good faith, be entitled to
compensation for his incurrence of such expenses pursuant a contractual
obligation of the Trust;
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. REIMBURSEMENT; PROCEDURE FOR REIMBURSEMENT. (a) The Trust shall
reimburse the Member for all reasonable fees
E-37
and expenses, including, without limitation, the reasonable fees and expenses of
accountants and legal counsel (collectively, "EXPENSES"), incurred in connection
with any Member Audit in an amount not to exceed $50,000.00 (the "FISCAL YEAR
MAXIMUM AMOUNT") for each fiscal year during the term of this Agreement.
Notwithstanding anything to the contrary herein, in the event a Member Audit is
conducted and it shall be proven that the Member failed to properly file such
Member's taxes, the Trust shall not be required to reimburse the Member for any
(i) amounts of federal, New York State or New York City income taxes found by
the auditors to be delinquent, due or owing, (ii) interest associated with the
failure of the Member to make the payments set forth in subsection (i) of this
section on or prior to the date on which such payment was due or (iii) penalties
associated with (x) the Member's failure to properly file the Member's taxes,
(y) the Member's failure to make any tax payment on time or (z) otherwise
incurred in connection with the foregoing subsections (i) and (ii).
Notwithstanding anything to the contrary herein, Member Audits shall only
include audits of any Member with respect to tax years commencing on or after
January 1, 2000 and ending no later than one year following the final
settlement, termination, dismissal or other conclusion of the Trust Audit (each
a "TAX YEAR").
(b) The Member shall provide to the Trust a written request for
reimbursement (the "REIMBURSEMENT REQUEST") and a statement setting forth the
derivation of the Expenses for which the Member is requesting reimbursement (the
"REIMBURSEMENT INVOICE"). Upon receipt by the Trust of the Reimbursement Request
and the Reimbursement Invoice, the Trust shall reimburse the Member for all
Expenses set forth in the Reimbursement Request up to the Maximum Amount, within
thirty (30) days of receipt thereof; PROVIDED, HOWEVER, such Expense amounts
shall not be paid to the extent such amounts are contested in good faith by the
Trust ("CONTESTED AMOUNTS"). Any Contested Amounts shall be settled promptly by
the Member and the Trust. For purposes of this Agreement, the "MAXIMUM AMOUNT"
shall be the lesser of (i) the amount of the Reimbursement Request and (ii) an
amount equal to (a) the number of years this Agreement has been in effect
multiplied by (b) the Fiscal Year Maximum Amount minus (c) any amount previously
paid to the Member under any previous Reimbursement Request.
2. TERM. This Agreement shall be effective as of the date first above
written and shall continue in existence until the earlier of (i) three years
following the filing of any tax return relating to the final Tax Year to which
the Agreement is applicable, unless a Member Audit has been initiated in which
case, until the final settlement, termination, dismissal or other conclusion of
all Member Audits for each of the Tax Years and (ii) termination by mutual
agreement of the parties hereto set forth in writing and signed by the parties
hereto or their successors and assigns.
3. MODIFICATION. This Agreement may not be amended or modified except by a
written instrument duly executed by the Trust and the Member.
4. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding of
the parties with respect to the subject matter hereof and supersedes any prior
or contemporaneous understandings, agreements or representations by or between
the parties.
5. BINDING EFFECT. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and the respective successors and assigns,
PROVIDED HOWEVER that neither party shall be entitled to assign or delegate any
of its rights or duties hereunder without first obtaining the express prior
written consent of other party.
E-38
6. COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, but all of which, taken together,
shall constitute one and the same document.
7. HEADINGS. The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
8. GOVERNING LAW. This Agreement shall be governed by and construed under
the laws of the state of New York, without regard to conflict of laws
principles.
[Signature Page Follows]
3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
ATLANTIC REALTY TRUST
By: /S/ EDWIN R. FRANKEL
-----------------------------------
Name: Edwin R. Frankel
Title: Executive Vice President
Chief Financial Officer
JOEL M. PASHCOW
/S/ JOEL M. PASHCOW
-----------------------------------------
E-39
Exhibit 10.11
REIMBURSEMENT AGREEMENT
-----------------------
THIS REIMBURSEMENT AGREEMENT (the "Agreement"), dated as of March 24, 2004,
is between Atlantic Realty Trust, a Maryland real estate investment trust (the
"Trust"), and Arthur H. Goldberg, a trustee of the Trust, (the "Member").
WHEREAS, the United States Internal Revenue Service (the "IRS") is in
the process of auditing certain of the income tax returns of the Trust (the
"Trust Audit"); and
WHEREAS, the Member, a trustee of the Trust, was previously a trustee
and/or officer of RPS Realty Trust ("RPS"), a predecessor-in-interest to the
Trust; and
WHEREAS, RPS was previously audited by the IRS (the "RPS Audit") in
proceedings that ultimately resulted in a very favorable settlement for RPS and
the Trust; and
WHEREAS, several allegations have been made in the Trust Audit
proceedings that were previously asserted in the RPS Audit proceedings and
ultimately proved unfounded; and
WHEREAS, in the event the Trust Audit does not produce the desired
results the IRS examining agent is attempting to achieve or ultimately results
in a favorable outcome for the Trust as was achieved in the RPS Audit, such
examining agent may proceed to conduct or cause to be conducted audits of the
personal taxes of each of the joint trustees and/or officers of RPS and the
Trust, including the Member (each such audit, a "Member Audit"); and
WHEREAS, while the Member may be entitled to indemnification relating
to claims, actions or proceedings against the Member solely for his actions as a
trustee of the Trust pursuant to the Trust's Declaration of Trust, Bylaws and/or
Maryland law and is covered by director and officer insurance, he believes that
this Agreement is desirable to augment such protection in light of the fact that
it may be difficult or impossible to prove that the initiation of an audit of
his personal taxes is directly connected to (i) his position as a trustee of the
Trust, (ii) the RPS Audit or (iii) the Trust Audit; and
WHEREAS, the Board of Trustees of the Trust believes that the Member
should be indemnified for certain expenses incurred by him in connection with
any Member Audit and that in the event the Member is unable to link such audit
to (i) his position as an trustee of the Trust, (ii) the RPS Audit or (iii) the
Trust Audit, he should still, in good faith, be entitled to compensation for his
incurrence of such expenses pursuant a contractual obligation of the Trust;
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. Reimbursement; Procedure for Reimbursement. (a) The Trust shall
reimburse the Member for all reasonable fees and expenses, including, without
limitation, the reasonable fees and expenses of accountants and legal counsel
(collectively, "Expenses"), incurred in connection
E-40
with any Member Audit in an amount not to exceed $50,000 (the "Fiscal Year
Maximum Amount") for each fiscal year during the term of this Agreement.
Notwithstanding anything to the contrary herein, in the event a Member Audit is
conducted and it shall be proven that the Member failed to properly file such
Member's taxes, the Trust shall not be required to reimburse the Member for any
(i) amounts of federal, New York State or New York City income taxes found by
the auditors to be delinquent, due or owing, (ii) interest associated with the
failure of the Member to make the payments set forth in subsection (i) of this
section on or prior to the date on which such payment was due or (iii) penalties
associated with (x) the Member's failure to properly file the Member's taxes,
(y) the Member's failure to make any tax payment on time or (z) otherwise
incurred in connection with the foregoing subsections (i) and (ii).
Notwithstanding anything to the contrary herein, Member Audits shall only
include audits of any Member with respect to tax years commencing on or after
January 1, 2000 and ending no later than one year following the final
settlement, termination, dismissal or other conclusion of the Trust Audit (each
a "Tax Year").
(b) The Member shall provide to the Trust a written request for
reimbursement (the "Reimbursement Request") and a statement setting forth the
derivation of the Expenses for which the Member is requesting reimbursement (the
"Reimbursement Invoice"). Upon receipt by the Trust of the Reimbursement Request
and the Reimbursement Invoice, the Trust shall reimburse the Member for all
Expenses set forth in the Reimbursement Request up to the Maximum Amount, within
thirty (30) days of receipt thereof; provided, however, such Expense amounts
shall not be paid to the extent such amounts are contested in good faith by the
Trust ("Contested Amounts"). Any Contested Amounts shall be settled promptly by
the Member and the Trust. For purposes of this Agreement, the "Maximum Amount"
shall be the lesser of (i) the amount of the Reimbursement Request and (ii) an
amount equal to (a) the number of years this Agreement has been in effect
multiplied by (b) the Fiscal Year Maximum Amount minus (c) any amount previously
paid to the Member under any previous Reimbursement Request.
2. Term. This Agreement shall be effective as of the date first above
written and shall continue in existence until the earlier of (i) three years
following the filing of any tax return relating to the final Tax Year to which
the Agreement is applicable, unless a Member Audit has been initiated in which
case, until the final settlement, termination, dismissal or other conclusion of
all Member Audits for each of the Tax Years and (ii) termination by mutual
agreement of the parties hereto set forth in writing and signed by the parties
hereto or their successors and assigns.
3. Modification. This Agreement may not be amended or modified except by a
written instrument duly executed by the Trust and the Member.
4. Entire Agreement. This Agreement constitutes the entire understanding of
the parties with respect to the subject matter hereof and supersedes any prior
or contemporaneous understandings, agreements or representations by or between
the parties.
5. Binding Effect. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and the respective successors and assigns,
provided however that neither party shall be entitled to assign or delegate any
of its rights or duties hereunder without first obtaining the express prior
written consent of other party.
E-41
6. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, but all of which, taken together,
shall constitute one and the same document.
7. Headings. The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
8. Governing Law. This Agreement shall be governed by and construed under
the laws of the state of New York, without regard to conflict of laws
principles.
[Signature Page Follows]
E-42
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
ATLANTIC REALTY TRUST
By: /s/ Edwin R. Frankel
-----------------------
Name: Edwin R. Frankel
Title: Executive Vice President
Chief Financial Officer
ARTHUR H. GOLDBERG
/s/ Arthur H. Goldberg
----------------------
E-43
EXECUTION COPY
--------------
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT (this "AGREEMENT") is entered into as
of the 28th day of March 2005, by and among Atlantic Realty Trust ("Seller") and
Kimco Realty Corporation ("Buyer").
RECITALS
A. Buyer and Seller have entered into exclusive good faith
negotiations of a Purchase and Sale Agreement ("Purchase and Sale Agreement"),
in connection with that certain property commonly known as Hylan Plaza Shopping
Center located in Staten Island, New York (collectively with the land and
improvements thereon, the "Property").
B. Buyer desires to conduct the Property Diligence (as defined below)
on the terms and conditions provided herein.
C. Seller is willing to permit Buyer to do the Property Diligence on
the terms and conditions provided herein.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
AGREEMENT
PROPERTY DILIGENCE. Seller hereby agrees to permit Buyer and its
representatives to enter onto the Property to conduct due diligence on the
Property including, without limitation, inspecting and performing tests upon the
Property (including, without limitation, environmental, including "Phase II"
environmental testing, structural, engineering and other tests) (collectively,
the "Property Diligence"). Buyer shall be exclusively responsible for all of its
and its representative's costs and fees associated with its investigation and
review of the Property. Buyer shall conduct and shall cause its representatives
to conduct any inspections and reviews in a commercially reasonable, prudent and
professional manner and in compliance with all applicable laws. A representative
of Seller may, at its option, be present during any inspections or reviews of
the property. Buyer agrees to repair promptly any damage or disturbance Buyer or
its representatives shall cause to the Property. Nothing in this Agreement shall
preclude Buyer or its representatives from complying with any express legal
obligation to report environmental violations or other circumstances existing at
the Property to any governmental authority (to the extent that Buyer can prove
that such an obligation exists) and such compliance alone shall not be the basis
for any liability to Buyer hereunder.
BUYER'S INDEMNIFICATION OF SELLER. Buyer shall indemnify, defend
and hold Seller harmless from any and all claims, damages, costs and liability
resulting directly from Buyer or its representatives conducting the Property
Diligence in a manner that does not comply with the requirements of Section 1
above, except to the extent the same is caused by Seller's gross negligence or
willful misconduct; provided, that in no event shall Buyer be liable for
consequential, punitive, or special damages. Buyer shall exercise commercially
reasonable efforts to minimize disruption to the tenants of the Property in
connection with the Property Diligence and
E-44
Buyer's or its representative's activities. No consent by Seller to any such
activity shall be deemed to constitute a waiver by Seller or the assumption of
liability or risk by Seller.
NO LIENS CREATED BY BUYER. Buyer shall not permit any mechanic's
or materialman's liens or any other liens to attach to the Property by reason of
the performance of the Property Diligence or the purchase of any materials by
Buyer or Buyer's representatives in connection with the Property Diligence.
CONFIDENTIALITY. Buyer agrees to treat any information concerning
the Property furnished by the Seller or obtained by the Buyer in the course of
its diligence activities pursuant to Section 1 (the "Confidential Material")
strictly confidential. Except as required by law, neither Buyer nor any of it
employees, officers, directors, agents, advisors or representatives
("Representatives") shall disclose any Confidential Material to any other
person. The term "Confidential Material" does not include information which (i)
is already in Buyer's possession, provided that such information is not subject
to another confidentiality agreement with or other obligation of secrecy to the
Seller, (ii) becomes generally available to the public other than as a result of
a disclosure, directly or indirectly, by Buyer or its Representatives, or (iii)
becomes available to Buyer on a non-confidential basis from a source other than
the Seller or its Representatives, provided that such source is not bound by a
confidentiality agreement with or other obligation of secrecy to the Seller.
NOTICES. All notices, demands, requests and other communications
required pursuant to the provisions of this Agreement ("Notice") shall be in
writing and shall be delivered to the addresses set forth on the signature pages
hereto.
EXCLUSIVE NEGOTIATIONS. During the period commencing on the date
hereof and ending forty five days after the date hereof (such period, the
"Exclusivity Period"), Seller will not, directly or through its officers,
directors, employees, affiliates, brokers, investment bankers, attorneys and
other agents and representatives (collectively, "Representatives"), solicit,
encourage, engage in negotiations or discussions with, or furnish any
confidential information or data to, any third party (other than Buyer) relating
to a potential or actual proposal to acquire any of the capital stock or assets
of the Seller, including the Property (an "Acquisition Proposal") and will cease
and instruct its Representatives to immediately cease any such activities.
Seller will promptly provide Buyer with any written Acquisition Proposals, and
promptly inform Buyer of the material terms of any oral Acquisition Proposals,
received by Seller or its Representatives during the Exclusivity Period.
BINDING EFFECT; NO OBLIGATION. This Agreement shall be binding
upon and inure to the benefit of Seller and Buyer, and their respective heirs,
personal representatives, successors and permitted assigns. Neither the
execution of this Agreement nor any of the terms or conditions set forth herein
shall create any obligation for Buyer to do any or all of the Property
Diligence. Unless and until a definitive agreement between Seller and Buyer
concerning the purchase and sale of the Property, Buyer will not be under any
legal obligation of any kind whatsoever with respect to such a transaction by
virtue of this or any written or oral expression with respect to such a
transaction by any of its directors, officers, employees, agents or any other
representatives or its advisors, and has no obligation to continue to pursue
such a transaction.
E-45
GOVERNING LAW AND VENUE. The laws of the state of New York shall
govern the validity, construction, enforcement, and interpretation of this
Agreement with respect to the Property, except for the conflict of law
provisions thereof which would result in the application of the laws of another
jurisdiction. All claims, disputes and other matters in question with respect to
the Property arising out of or relating to this Agreement, or the breach
thereof, shall be decided by proceedings instituted and litigated in a state or
federal court for the district in which the Property is situated, and the
parties hereto expressly consent to the venue and jurisdiction of such court.
MULTIPLE COUNTERPARTS. This Agreement may be executed in a number
of identical counterparts. If so executed, each of such counterparts is to be
deemed an original for all purposes and all such counterparts shall,
collectively, constitute one Agreement. In making proof of this Agreement, it
shall not be necessary to produce or account for more than one such
counterparts.
CONSTRUCTION. No provision of this Agreement shall be construed
in favor of, or against, any particular party by reason of any presumption with
respect to the drafting of this Agreement; both parties, being represented by
counsel, having fully participated in the negotiation of this instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
E-46
NOW WHEREFORE, the parties hereto have executed this Agreement as
of the date first set forth above.
SELLER:
-------
ATLANTIC REALTY TRUST
By: /s/ Edwin R. Frankel
--------------------
Name: Edwin R. Frankel
Title: Chief Financial Officer
Address for notices:
Atlantic Realty Trust
747 3rd Avenue
New York, New York 10017
Attention: Joel Pashcow
With a copy to (which shall not consti-
tute notice):
Proskauer Rose LLP
1585 Broadway
New York, New York 10036-8200
Attention: Peter M. Fass, Esq.
[Signature Page to Indemnification Agreement]
E-47
BUYER:
-----
KIMCO REALTY CORPORATION
By: /s/ Bruce M. Kauderer
----------------------
Name: BRUCE M. KAUDERER
Title: VICE PRESIDENT
Address for notices:
Kimco Realty Corporation
3333 New Hyde Park Road
New Hyde Park, New York 11042-0020
Attention: General Counsel
With a copy to (which shall not consti-
tute notice):
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention: Adam O. Emmerich, Esq.
[Signature Page to Indemnification Agreement]
--------------------------------------------------------------------------------
Atlantic Realty Trust
Form 10-Q
Filed May 13, 2005
--------------------------------------------------------------------------------
E-48
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2005
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------------------------------------------
Commission file number 0-27562
---------------------------------------------------------
ATLANTIC REALTY TRUST
--------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 13-3849655
---------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer-
incorporation Identification
or organization) No.)
747 THIRD AVENUE, NEW YORK, NEW YORK 10017
-------------------------------------------
(Address of principal executive offices)
(Zip Code)
212-702-8561
-------------------------------------
(Registrant's telephone number, including area code)
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
----------- ------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes No X
----------- -------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
The number of shares of beneficial interest, par value $.01 per share,
outstanding on May 9, 2005 was 3,561,553.
E-49
I N D E X
This quarterly report on form 10-Q contains historical information and
forward-looking statements. Statements looking forward in time are included in
this Form 10-Q pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. They involve known and unknown risks
and uncertainties that may cause the Trust's actual results in future periods to
be materially different from any future performance suggested herein. In the
context of forward-looking information provided in this Form 10-Q and in other
reports, please refer to the discussion of risk factors detailed in, as well as
the other information contained in, the Trust's Form 10 filed with the
Securities and Exchange Commission on March 28, 1996 as well as the Trust's
filings with the Securities and Exchange Commission during the past 12 months.
PAGE NO.
-------
PART I. - FINANCIAL INFORMATION............................................3
Item 1. Financial Statements............................................3
Item 2. Management's Discussion and Analysis of Financial Condition
and Liquidation Activities......................................9
Item 3. Quantitative and Qualitative Disclosure About Market Risk.......9
Item 4. Controls and Procedures.........................................9
PART II. - OTHER INFORMATION..............................................10
Item 1. Legal Proceedings..............................................10
Item 2. Changes in Securities and Use of Proceeds......................10
Item 3. Defaults Upon Senior Securities................................10
Item 4. Submission of Matters to a Vote of Security Holders............10
Item 5. Other Information..............................................10
Item 6. Exhibits and Reports on Form 8-K...............................10
Signatures.............................................................11
E-50
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ATLANTIC REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
(Liquidation Basis of Accounting)
MARCH 31, 2005 DECEMBER 31, 2004
-------------- -----------------
(unaudited)
ASSETS
Investment in Real Estate................... $80,344,000 $81,319,000
Cash and Short-Term Investments............. 9,126,523 7,852,922
Other Assets................................ 102,000 102,000
----------- -----------
Total Assets................................ $89,572,523 89,273,922
============ ===========
LIABILITIES
Estimated Costs of Liquidation.............. 8,761,141 8,600,164
----------- -----------
NET ASSETS IN LIQUIDATION................... $80,811,382 $80,673,758
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
E-51
ATLANTIC REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
(Liquidation Basis of Accounting)
(UNAUDITED)
For the Period For the Period
January 1, 2005 January 1, 2004 to
to March 31, 2005 March 31, 2004
----------------- ------------------
Net Assets in Liquidation
Beginning of Period......................... $80,673,758 $55,059,691
Adjustments to Reflect
Liquidation Basis of Accounting............. 137,624 13,791,406
----------- -----------
Net Assets in Liquidation End of Period........ $80,811,382 $68,851,097
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
E-52
ATLANTIC REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Atlantic Realty Trust, a Maryland real estate investment trust (the
"Trust"), was formed on July 27, 1995 for the purpose of liquidating its
interests in real properties, its mortgage loan portfolio and certain other
assets and liabilities which were transferred to the Trust from Ramco-Gershenson
Properties Trust (formerly named RPS Realty Trust) ("RPS") on May 10, 1996 (the
"Spin-Off Transaction"). The Trust adopted the liquidation basis of accounting
as of the date of the Spin-Off Transaction based on its originally stated
intention to liquidate its assets or merge or combine operations with another
real estate entity within eighteen months from the date of the Spin-Off
Transaction. The Trust conducts its operations with the intent of meeting the
requirements applicable to a real estate investment trust ("REIT") under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the
"Code"). As a result, the Trust will have no current or deferred income tax
liabilities.
In the opinion of management, the accompanying consolidated financial
statements, which have not been audited, include all adjustments necessary to
present fairly the results for the interim periods. Such adjustments consist
only of normal recurring accruals.
The consolidated financial statements should be read in conjunction with
the annual financial statements and notes thereto included in the Trust's annual
report on Form 10-K filed with the Securities and Exchange Commission for the
year ended December 31, 2004. The results of interim periods may not be
indicative of the results for the entire year.
LIQUIDATION BASIS OF ACCOUNTING
As a result of the Spin-Off Transaction, the Trust has adopted the
liquidation basis of accounting. The liquidation basis of accounting is
appropriate when liquidation appears imminent and the Trust is no longer viewed
as a going concern. Under this method of accounting, assets are stated at their
estimated net realizable values and liabilities are stated at the anticipated
settlement amounts.
The valuations presented in the accompanying consolidated statements of
net assets in liquidation represent the estimates at the dates shown, based on
current facts and circumstances, of the estimated net realizable value of the
assets and estimated costs of liquidating the Trust. In determining the net
realizable values of the assets, the Trust considered each asset's ability to
generate future cash flows, offers to purchase received from third parties, if
any, and other general market information. Such information was considered in
conjunction with operating the Trust's plan for disposition of assets. The
estimated costs of liquidation represent the estimated costs of operating the
Trust through its anticipated termination. These costs primarily include
payroll, consulting and related costs, rent, shareholder relations, legal and
auditing. Changes in these costs during the periods presented are reflected in
the adjustments to reflect the liquidation basis of accounting. Computations of
net realizable value necessitate the use of certain assumptions and estimates.
Future events, including economic conditions that relate to real estate markets
in general, may differ from those assumed or estimated at the time such
computations are made. Because of the inherent uncertainty of valuation when an
entity is in liquidation, the amounts ultimately realized from assets disposed
and costs incurred to settle liabilities may materially differ from amounts
presented.
E-53
Pursuant to the terms of the Trust's Amended and Restated Declaration of
Trust, the Trust was to continue for a period of 18 months from the date of the
Spin-Off Transaction, subject to, among certain other things, satisfactory
resolution of the RPS Tax Issues (as such term is defined in footnote 5 below).
Because the RPS Tax Issues have not yet been satisfactorily resolved, the Trust
has continued its business past that date. The Trust cannot currently estimate
the timing of the future satisfactory resolution of the RPS Tax Issues.
Accordingly, the Trust will continue until there is a final determination of
these issues.
CONSOLIDATION
The consolidated financial statements include the accounts of the Trust
and its wholly-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
2. INVESTMENT IN REAL ESTATE:
ESTIMATED NET REALIZED VALUE (A)(B)
PROPERTY LOCATION MARCH 31, 2005 DECEMBER 31, 2004
-------- -------- --------------- -----------------
Hylan Shopping Center Staten Island, NY $80,344,000 $81,319,000
--------------------------
(a) Includes estimated cash flows using a disposition period of three months
and six months for such periods, respectively. Realized value may differ
depending on actual disposition results and time period.
(b) The operations of the Trust and the Hylan Shopping Center for the three
months ended March 31, 2005 and March 31, 2004 are as follows:
Three Months Three Months
Ended Ended
March 31, 2005 March 31, 2004
-------------- --------------
Rental Income....................................... $ 1,155,959 $1,165,636
Expense Reimbursements.............................. 571,302 588,375
Interest from Short-Term Investments ............... 28,100 52,897
Other............................................... 827 578
----------- -----------
1,756,188 1,801,486
----------- -----------
Operating Property Expenses......................... 758,668 768,165
Depreciation........................................ 83,902 86,016
General and Administrative.......................... 541,055 547,160
----------- -----------
1,383,625 1,401,341
----------- -----------
Net Income.......................................... $ 372,563 $ 406,145
========== ==========
E-54
3. SHARES OUTSTANDING:
The weighted average number of shares of beneficial interest outstanding
for the periods ending March 31, 2005 and 2004 was 3,561,553.
4. CASH AND SHORT-TERM INVESTMENTS:
Cash and short-term investments at March 31, 2005 consist primarily of a
certificate of deposit at a major New York bank of $8,300,000, purchased with an
original maturity of three months or less, bearing interest at a fixed rate of
2.69%.
5. INCOME TAXES:
During the third quarter of 1994, RPS held more than 25% of the value of
its gross assets in overnight Treasury Bill reverse repurchase transactions
which the Internal Revenue Service ("IRS") may view as non-qualifying assets for
the purposes of satisfying an asset qualification test applicable to REITs,
based on a Revenue Ruling published in 1977 (the "Asset Issue"). RPS requested
that the IRS enter into a closing agreement with RPS that the Asset Issue would
not impact RPS' status as a REIT. The IRS declined such request. In February
1995, the IRS initiated an examination of the 1991-1995 income tax returns of
RPS (the "RPS Audit" and, together with the Asset Issue, the "RPS Tax Issues").
Based on developments in the law which occurred since 1977, RPS' tax counsel at
that time, Battle Fowler LLP, rendered an opinion that RPS' investment in
Treasury Bill repurchase obligations would not adversely affect its REIT status.
However, such opinion is not binding upon the IRS.
In connection with the Spin-Off Transaction, the Trust assumed all tax
liability arising out of the RPS Tax Issues (other than liability that relates
to events occurring or actions taken by RPS following the date of the Spin-Off
Transaction) pursuant to a tax agreement, dated May 10, 1996, by and between RPS
and the Trust (the "Tax Agreement"). Such agreement provides that RPS (now named
Ramco-Gershenson Properties Trust), under the direction of four trustees, three
of whom are also trustees of the Trust (the "Continuing Trustees") and not the
Trust, will control, conduct and effect the settlement of any tax claims against
RPS relating to the RPS Tax Issues. Accordingly, the Trust did not have any
control as to the timing of the resolution or disposition of any such claims.
In December 2003, Ramco-Gershenson Properties Trust and the IRS entered
into a Closing Agreement with respect to all of the issues raised by the IRS in
connection with RPS Audit. As a condition of the Closing Agreement,
Ramco-Gershenson Properties Trust was obligated to pay deficiency dividends
(under Code Sec. 860) with respect to its 1992 and 1993 taxable years in amounts
not less than $1,386,503 with respect to the 1992 taxable year and $809,010 with
respect to the 1993 taxable year. In addition, Ramco-Gershenson Properties Trust
is obligated to pay a deficiency in its income taxes with respect to the period
covered by the RPS Audit equal to $770,258, plus interest calculated at the
statutory rate on the amount of the deficiency and the amount of the deficiency
dividends. The aggregate amount of the deficiency dividends, income tax
deficiency and interest on these amounts is approximately $7,400,000, and
because the Trust is required by the Tax Agreement to reimburse Ramco-Gershenson
Properties Trust for these items, they are included in the estimated cost of
liquidation as of December 31, 2003. Although the Closing Agreement provides
that the election of Ramco-Gershenson Properties Trust to be taxed as a "real
estate investment trust" was terminated with respect to its 1994 and 1995
taxable years, it also provides that Ramco-Gershenson Properties Trust will be
treated as having reelected to be taxed as a "real estate investment trust" with
respect to its taxable year beginning January 1, 1996 and that the termination
of its election to be taxed as a "real estate investment trust"
E-55
will not prohibit it or any successor entity (which includes the Trust) from
electing to be taxed as a "real estate investment trust" on or after January 1,
1996.
The Trust remains obligated under the Tax Agreement to assume certain
liabilities relating to the RPS Tax Issues. The Trust established a special
committee (the "Special Committee regarding RPS Tax Issues") comprised of the
two Trustees who are not Continuing Trustees or otherwise affiliated with
Ramco-Gershenson Properties Trust to act on behalf of the Trust in evaluating
the position of the Trust with respect to the RPS Tax Issues and to represent
the Trust with respect to any claims asserted by Ramco-Gershenson Properties
Trust for contribution arising out of the Closing Agreement. On January 21,
2004, the Trust contributed $2,200,091 in respect of the deficiency dividend
required to be paid pursuant to the Closing Agreement. On June 10, 2004 the
Trust paid $1,803,235 in respect of the tax and interest on the tax pursuant to
the Closing Agreement. The Trust will be obligated to make additional payments
with respect to the RPS Tax Issues and the Closing Agreement as a result of its
obligations under the Tax Agreement. In the event the Trust is presented with
further requests or claims for payment or reimbursement arising in connection
with the RPS Tax Issues and the Closing Agreement, the Special Committee
regarding RPS Tax Issues will evaluate the Trust's further obligations at the
time of its receipt of any such claim or request. The Trust does not however
expect the amounts claimed or requested to exceed approximately $3,300,000.
On February 21, 2003, the IRS issued an examination report to the Trust
with respect to the 1996 and 1997 taxable years of the Trust. This examination
report proposes to disallow all of the loss deductions claimed by the Trust upon
the disposition of Trust Assets during that period. In addition, the examination
report proposes to increase the REIT taxable income of the Trust during 1996 and
1997 on account of two items reported on the Trust's tax returns for which the
Trust did not claim any taxable loss or deduction. Counsel to the Trust has
advised that the examination report contains numerous errors of fact with
respect to the operations of the Trust and that the legal conclusions in the
examination report are not consistent with the applicable provisions of the Code
and the income tax regulations. The Trust timely filed an administrative appeals
(the "Trust Protest") challenging the adjustments proposed in the examination
report.
Apart from transferring the responsibility of the Trust's appeal of the
examination report to the IRS appeals office having jurisdiction for this case,
no action has yet been taken by the IRS with respect to the Trust's Protest to
the disallowances proposed in the examination report issued to the Trust. The
outcome of the Trust Protest is uncertain and the impact of the resolution could
be material to the financial statements; however, the Trust anticipates that the
outcome will be favorable to the Trust.
6. OTHER ASSETS:
Other assets include the estimated interest income from the Trust's
short-term investments.
7. SUBSEQUENT EVENTS
On April 22, 2005, the Trust received a letter from RPS stating that RPS
had received a 30-day Letter (the "30-day Letter") from the IRS covering the
years 1996 through 2000. The 30-day Letter takes the position that RPS should be
disqualified as a real estate investment trust ("REIT") for the years 1996
through 2000 and disallows certain claimed deductions of RPS. Because the Trust
is a successor to RPS for REIT tax qualification purposes, there is a risk that
if the IRS' position is sustained, the Trust's status as a REIT could be
jeopardized. The facts presented raise complex issues, many of which are issues
of first impression and therefore the outcome cannot be predicted with
certainty. While there can be no assurance, outside tax counsel has advised the
Trust that, based on the facts known to date, the IRS position on RPS's REIT
status is incorrect and moreover, the possible disqualification of RPS as a REIT
should not result in any material tax liability for
E-56
the Trust. The letter from RPS also stated that RPS might seek indemnification
from the Trust with regard to the 1996 year pursuant to the Tax Agreement. While
there can be no assurance, counsel advises that the Trust does not have any
obligation to make any payment to or indemnify RPS in any manner for any tax,
interest or penalty set forth in the 30-day Letter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
LIQUIDATION ACTIVITIES.
CAPITAL RESOURCES AND LIQUIDITY
At March 31, 2005, the Trust owned one retail property (Hylan Plaza
Shopping Center, located in Staten Island, New York) as well as cash and certain
other assets. The Trust does not intend to make new loans or actively engage in
either the mortgage lending or the property acquisition business.
The Trust's primary objective has been to liquidate its assets in an
eighteen-month period from the date of the Spin-Off Transaction while realizing
the maximum values for such assets; however because the RPS Tax Issues have not
been satisfactorily resolved, the Trust has continued its business beyond such
period. Although the Trust considers its assumptions and estimates as to the
values and timing of such liquidations to be reasonable, the period of time to
liquidate the assets and distribute the proceeds of such assets is subject to
significant business, economic and competitive uncertainties and contingencies,
many of which are beyond the Trust's control. There can be no assurance that the
net values ultimately realized and costs actually incurred for such assets will
not materially differ from the Trust's estimates.
The Trust believes that cash and cash equivalents on hand, proceeds
generated by the real estate property that it owns and operates and proceeds
from the eventual sale of such property will be sufficient to support the Trust
and meet its obligations. As of March 31, 2005, the Trust had approximately
$9,127,000 in cash and short-term investments.
INFLATION
Inflation has been consistently low during the periods presented in the
consolidated financial statements and, as a result, has not had a significant
effect on the operations on the Trust or its investment.
RESULTS OF OPERATIONS
As a result of the Trust adopting the liquidation basis of accounting in
accordance with accounting principles generally accepted in the United States of
America as of May 10, 1996 and thus not reporting results of operations
thereafter, there is no management discussion comparing the corresponding
periods.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this quarterly report on
Form 10-Q, the Company carried out an evaluation, under the supervision of and
with the participation of the Company's management, including the Company's
President and Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14(c) under the Securities
E-57
Exchange Act of 1934. Based upon that evaluation, the President and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective. There were no significant changes made in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
(a) Pursuant to the terms of the Trust's Amended and Restated Declaration of
Trust, the Trust was to continue for a period of 18 months from the date of
the Spin-Off Transaction (which 18-month period ended on November 10,
1997), subject to, among certain other things, satisfactory resolution of
the RPS Tax Issues. Because the RPS Tax Issues have not yet been
satisfactorily resolved, the Trust has continued its business past that
date. The Trust cannot currently estimate the timing of the future
satisfactory resolution of the RPS Tax Issues. Accordingly, the Trust will
continue until there is a final determination of these issues.
(b) None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. None.
(b) Reports on Form 8-K.
None.
E-58
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATLANTIC REALTY TRUST
(Registrant)
Date: May 12, 2005 /S/ JOEL M. PASHCOW
----------------------------
Name: Joel M. Pashcow
Title: Chairman, Chief
Executive Officer and
President
(Principal Executive
Officer)
Date: May 12, 2005 /S/ EDWIN R. FRANKEL
----------------------
Name: Edwin R. Frankel
Title: Executive Vice
President,
Chief Financial Officer
and Secretary
(Principal Financial and
Accounting Officer)
E-59
CERTIFICATION BY JOEL M. PASHCOW PURSUANT TO
SECURITIES EXCHANGE ACT RULE 13a-14
I, Joel M. Pashcow, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Atlantic Realty Trust;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure control and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this quarterly report based on such evaluation; and
c) disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which could adversely
affect the registrant's ability to record, process, summarize and report
financial information; and
E-60
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: May 12, 2005
/s/ Joel M. Pashcow
-------------------------------------------
Name: Joel M. Pashcow
Title: Chairman, Chief Executive Officer
and President
(Principal Executive Officer)
E-61
CERTIFICATION BY EDWIN R. FRANKEL PURSUANT TO
SECURITIES EXCHANGE ACT RULE 13a-14
I, Edwin R. Frankel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Atlantic Realty Trust;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure control and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this quarterly report based on such evaluation; and
c) disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which could adversely
affect the registrant's ability to record, process, summarize and report
financial information; and
14
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: May 12, 2005
/s/ Edwin R. Frankel
--------------------------------------------
Name: Edwin R. Frankel
Title: Executive Vice President,
Chief Financial Officer
and Secretary
(Principal Financing and
Accounting Officer)
E-62
Exhibit 99.1
To Atlantic Realty Trust
Report of Form 10-Q
March 31, 2005
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Chairman and President of Atlantic Realty Trust (the
"Company"), hereby certifies, to the best of my knowledge, that the Form 10-Q of
the Company for the quarter ended March 31, 2005 (the "Periodic Report")
accompanying this certification fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78(d))
and that the information contained in the Periodic Report fairly represents, in
all material respects, the financial condition and results of operations of the
Company. The foregoing certification is incorporated solely for purposes of
complying with the provisions of Section 906 of the Sarbanes-Oxley Act and is
not intended to be used for any other purpose.
Date: May 12, 2005
/s/ Joel M. Pashcow
--------------------------------------------
Name: Joel M. Pashcow
Title: Chairman and President
(Principal Executive Officer)
E-63
Exhibit 99.2
To Atlantic Realty Trust
Report of Form 10-Q
March 31, 2005
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Executive Vice President, Chief Financial Officer and
Secretary of Atlantic Realty Trust (the "Company"), hereby certifies, to the
best of my knowledge, that the Form 10-Q of the Company for the quarter ended
March 31, 2005 (the "Periodic Report") accompanying this certification fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78(d)) and that the information contained
in the Periodic Report fairly represents, in all material respects, the
financial condition and results of operations of the Company. The foregoing
certification is incorporated solely for purposes of complying with the
provisions of Section 906 of the Sarbanes-Oxley Act and is not intended to be
used for any other purpose.
Date: May 12, 2005
/s/ Edwin R. Frankel
--------------------------------------------
Name: Edwin R. Frankel
Title: Executive Vice President,
Chief Financial Officer
and Secretary
(Principal Financing and
Accounting Officer)
E-64
--------------------------------------------------------------------------------
Atlantic Realty Trust
Form 10-Q
Filed August 4, 2005
--------------------------------------------------------------------------------
E-65
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JUNE 30, 2005
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
-------------------------------------------------
Commission file number 0-27562
---------------------------------------------------------
ATLANTIC REALTY TRUST
-----------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 13-3849655
------------------------------------------------ --------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer-
or organization) Identification No.)
747 THIRD AVENUE, NEW YORK, NEW YORK 10017
-----------------------------------------
(Address of principal executive offices)
(Zip Code)
212-702-8561
-----------------------------------------
(Registrant's telephone number, including area code)
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
----------- -----------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes No X
----------- -----------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
The number of shares of beneficial interest, par value $.01 per share,
outstanding on August 2, 2005 was 3,561,553.
E-66
I N D E X
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS HISTORICAL INFORMATION AND
FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN
THIS FORM 10-Q PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. THEY INVOLVE KNOWN AND UNKNOWN RISKS
AND UNCERTAINTIES THAT MAY CAUSE THE TRUST'S ACTUAL RESULTS IN FUTURE PERIODS TO
BE MATERIALLY DIFFERENT FROM ANY FUTURE PERFORMANCE SUGGESTED HEREIN. IN THE
CONTEXT OF FORWARD-LOOKING INFORMATION PROVIDED IN THIS FORM 10-Q AND IN OTHER
REPORTS, PLEASE REFER TO THE DISCUSSION OF RISK FACTORS DETAILED IN, AS WELL AS
THE OTHER INFORMATION CONTAINED IN, THE TRUST'S FORM 10 FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 1996 AS WELL AS THE TRUST'S
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION DURING THE PAST 12 MONTHS.
PAGE NO.
PART I. - FINANCIAL INFORMATION..............................................3
Item 1. Financial Statements............................................3
Item 2. Management's Discussion and Analysis of Financial Condition
and Liquidation Activities......................................8
Item 3. Quantitative and Qualitative Disclosure About Market Risk.......9
Item 4. Controls and Procedures.........................................9
PART II. - OTHER INFORMATION.................................................9
Item 1. Legal Proceedings...............................................9
Item 2. Changes in Securities and Use of Proceeds.......................9
Item 3. Defaults Upon Senior Securities.................................9
Item 4. Submission of Matters to a Vote of Security Holders............10
Item 5. Other Information..............................................10
Item 6. Exhibits and Reports on Form 8-K...............................10
Signatures.............................................................11
E-67
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ATLANTIC REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
(Liquidation Basis of Accounting)
JUNE 30, 2005 DECEMBER 31, 2004
------------- -----------------
(unaudited)
ASSETS
Investment in Real Estate.................. $ 80,669,000 $ 81,319,000
Cash and Short-Term Investments............ 9,417,823 7,852,922
Other Assets............................... 79,000 102,000
------------ ----------------
Total Assets............................... 90,165,823 89,273,922
------------ ----------------
LIABILITIES
Estimated Costs of Liquidation............. 7,569,804 8,600,164
------------ ----------------
NET ASSETS IN LIQUIDATION.................. $ 82,596,019 $ 80,673,758
============ ================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
E-68
ATLANTIC REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
(Liquidation Basis of Accounting)
(UNAUDITED)
For the Period For the Period
April 1,2005 January 1, 2005
to JUNE 30, 2005 to JUNE 30, 2005
---------------- ----------------
Net Assets in Liquidation
Beginning of Period................... $ 80,811,382 $ 80,673,758
Adjustments to Reflect
Liquidation Basis of Accounting....... 1,784,637 1,922,261
------------- ---------------
Net Assets in Liquidation End of Period... $ 82,596,019 $ 82,596,019
============= ===============
For the Period For the Period
April 1,2004 January 1, 2004
to JUNE 30, 2004 to JUNE 30, 2004
---------------- ----------------
Net Assets in Liquidation
Beginning of Period................... $ 68,851,097 $ 55,059,691
Distribution Paid (11,575,096) (11,575,096)
Adjustments to Reflect
Liquidation Basis of Accounting....... (500,546) 13,290,860
---------- ---------------
Net Assets in Liquidation End of Period... $ 56,775,455 $ 56,775,455
============= ===============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
E-69
ATLANTIC REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Atlantic Realty Trust, a Maryland real estate investment trust (the
"Trust"), was formed on July 27, 1995 for the purpose of liquidating its
interests in real properties, its mortgage loan portfolio and certain other
assets and liabilities which were transferred to the Trust from Ramco-Gershenson
Properties Trust (formerly named RPS Realty Trust) ("RPS") on May 10, 1996 (the
"Spin-Off Transaction"). The Trust adopted the liquidation basis of accounting
as of the date of the Spin-Off Transaction based on its originally stated
intention to liquidate its assets or merge or combine operations with another
real estate entity within eighteen months from the date of the Spin-Off
Transaction. The Trust conducts its operations with the intent of meeting the
requirements applicable to a real estate investment trust ("REIT") under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the
"Code"). As a result, the Trust will have no current or deferred income tax
liabilities.
In the opinion of management, the accompanying consolidated financial
statements, which have not been audited, include all adjustments necessary to
present fairly the results for the interim periods. Such adjustments consist
only of normal recurring accruals.
The consolidated financial statements should be read in conjunction
with the annual financial statements and notes thereto included in the Trust's
annual report on Form 10-K filed with the Securities and Exchange Commission for
the year ended December 31, 2004. The results of interim periods may not be
indicative of the results for the entire year.
LIQUIDATION BASIS OF ACCOUNTING
As a result of the Spin-Off Transaction, the Trust has adopted the
liquidation basis of accounting. The liquidation basis of accounting is
appropriate when liquidation appears imminent and the Trust is no longer viewed
as a going concern. Under this method of accounting, assets are stated at their
estimated net realizable values and liabilities are stated at the anticipated
settlement amounts.
The valuations presented in the accompanying consolidated statements of
net assets in liquidation represent the estimates at the dates shown, based on
current facts and circumstances, of the estimated net realizable value of the
assets and estimated costs of liquidating the Trust. In determining the net
realizable values of the assets, the Trust considered each asset's ability to
generate future cash flows, offers to purchase received from third parties, if
any, and other general market information. Such information was considered in
conjunction with operating the Trust's plan for disposition of assets. The
estimated costs of liquidation represent the estimated costs of operating the
Trust through its anticipated termination. These costs primarily include
payroll, consulting and related costs, rent, shareholder relations, legal and
auditing. Changes in these costs during the periods presented are reflected in
the adjustments to reflect the liquidation basis of accounting. Computations of
net realizable value necessitate the use of certain assumptions and estimates.
Future events, including economic conditions that relate to real estate markets
in general, may differ from those assumed or estimated at the time such
computations are made. Because of the inherent uncertainty of valuation when an
entity is in liquidation, the amounts ultimately realized from assets disposed
and costs incurred to settle liabilities may materially differ from amounts
presented.
E-70
Pursuant to the terms of the Trust's Amended and Restated Declaration
of Trust, the Trust was to continue for a period of 18 months from the date of
the Spin-Off Transaction, subject to, among certain other things, satisfactory
resolution of the RPS Tax Issues (as such term is defined in footnote 5 below).
Because the RPS Tax Issues have not yet been satisfactorily resolved, the Trust
has continued its business past that date. The Trust cannot currently estimate
the timing of the future satisfactory resolution of the RPS Tax Issues.
Accordingly, the Trust will continue until there is a final determination of
these issues.
CONSOLIDATION
The consolidated financial statements include the accounts of the Trust
and its wholly-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
2. INVESTMENT IN REAL ESTATE:
ESTIMATED NET REALIZED VALUE (A)(B)
PROPERTY LOCATION JUNE 30, 2005 DECEMBER 31, 2004
-------- -------- -------------- -----------------
Hylan Shopping Center Staten Island, NY $80,344,000 $81,319,000
------------------
(a) Includes estimated cash flows using a disposition period of four
months and six months for such periods, respectively. Realized
value may differ depending on actual disposition results and time
period.
(b) The operations of the Trust and the Hylan Shopping Center for the
six months ended June 30, 2005 and June 30, 2004 are as follows:
Six Months Ended Six Months Ended
June 30, 2005 June 30, 2004
---------------- ----------------
Rental Income............................ 2,294,822 2,309,193
Expense Reimbursements................... 1,284,862 1,131,567
Interest from Short-Term Investments..... 65,513 87,430
Other.................................... 1,573 1,095
----------- -----------
3,646,770 3,529,285
----------- -----------
Operating Property Expenses.............. 1,679,146 1,494,881
Depreciation............................. 167,804 172,034
General and Administrative............... 1,415,469 1,333,066
----------- -----------
3,262,419 2,999,981
----------- -----------
Net Income............................... 384,351 529,304
=========== ===========
3. SHARES OUTSTANDING:
The weighted average number of shares of beneficial interest outstanding
for the periods ending June 30, 2005 and 2004 was 3,561,553.
E-71
4. CASH AND SHORT-TERM INVESTMENTS:
Cash and short-term investments at June 30, 2005 consist primarily of a
certificate of deposit at a major New York bank of $7,900,000, purchased with an
original maturity of three months or less, bearing interest at a fixed rate of
3.00%.
5. INCOME TAXES:
During the third quarter of 1994, RPS held more than 25% of the value of
its gross assets in overnight Treasury Bill reverse repurchase transactions
which the Internal Revenue Service ("IRS") may view as non-qualifying assets for
the purposes of satisfying an asset qualification test applicable to REITs,
based on a Revenue Ruling published in 1977 (the "Asset Issue"). RPS requested
that the IRS enter into a closing agreement with RPS that the Asset Issue would
not impact RPS' status as a REIT. The IRS declined such request. In February
1995, the IRS initiated an examination of the 1991-1995 income tax returns of
RPS (the "RPS Audit" and, together with the Asset Issue, the "RPS Tax Issues").
Based on developments in the law which occurred since 1977, RPS' tax counsel at
that time, Battle Fowler LLP, rendered an opinion that RPS' investment in
Treasury Bill repurchase obligations would not adversely affect its REIT status.
However, such opinion is not binding upon the IRS.
In connection with the Spin-Off Transaction, the Trust assumed all tax
liability arising out of the RPS Tax Issues (other than liability that relates
to events occurring or actions taken by RPS following the date of the Spin-Off
Transaction) pursuant to a tax agreement, dated May 10, 1996, by and between RPS
and the Trust (the "Tax Agreement"). Such agreement provides that RPS (now named
Ramco-Gershenson Properties Trust), under the direction of four trustees, three
of whom are also trustees of the Trust (the "Continuing Trustees") and not the
Trust, will control, conduct and effect the settlement of any tax claims against
RPS relating to the RPS Tax Issues. Accordingly, the Trust did not have any
control as to the timing of the resolution or disposition of any such claims.
In December 2003, Ramco-Gershenson Properties Trust and the IRS entered
into a Closing Agreement with respect to all of the issues raised by the IRS in
connection with RPS Audit. As a condition of the Closing Agreement,
Ramco-Gershenson Properties Trust was obligated to pay deficiency dividends
(under Code Sec. 860) with respect to its 1992 and 1993 taxable years in amounts
not less than $1,386,503 with respect to the 1992 taxable year and $809,010 with
respect to the 1993 taxable year. In addition, Ramco-Gershenson Properties Trust
is obligated to pay a deficiency in its income taxes with respect to the period
covered by the RPS Audit equal to $770,258, plus interest calculated at the
statutory rate on the amount of the deficiency and the amount of the deficiency
dividends. The aggregate amount of the deficiency dividends, income tax
deficiency and interest on these amounts is approximately $7,400,000, and
because the Trust is required by the Tax Agreement to reimburse Ramco-Gershenson
Properties Trust for these items, they are included in the estimated cost of
liquidation as of December 31, 2003. Although the Closing Agreement provides
that the election of Ramco-Gershenson Properties Trust to be taxed as a "real
estate investment trust" was terminated with respect to its 1994 and 1995
taxable years, it also provides that Ramco-Gershenson Properties Trust will be
treated as having reelected to be taxed as a "real estate investment trust" with
respect to its taxable year beginning January 1, 1996 and that the termination
of its election to be taxed as a "real estate investment trust" will not
prohibit it or any successor entity (which includes the Trust) from electing to
be taxed as a "real estate investment trust" on or after January 1, 1996.
The Trust remains obligated under the Tax Agreement to assume certain
liabilities relating to the RPS Tax Issues. The Trust established a special
committee (the "Special Committee regarding RPS Tax Issues") comprised of the
two Trustees who are not Continuing Trustees or otherwise affiliated with
Ramco-Gershenson
E-72
Properties Trust to act on behalf of the Trust in evaluating the position of the
Trust with respect to the RPS Tax Issues and to represent the Trust with respect
to any claims asserted by Ramco-Gershenson Properties Trust for contribution
arising out of the Closing Agreement. On January 21, 2004, the Trust contributed
$2,200,091 in respect of the deficiency dividend required to be paid pursuant to
the Closing Agreement. On June 10, 2004 the Trust paid $1,803,235 in respect of
the tax and interest on the tax pursuant to the Closing Agreement. The Trust
will be obligated to make additional payments with respect to the RPS Tax Issues
and the Closing Agreement as a result of its obligations under the Tax
Agreement. In the event the Trust is presented with further requests or claims
for payment or reimbursement arising in connection with the RPS Tax Issues and
the Closing Agreement, the Special Committee regarding RPS Tax Issues will
evaluate the Trust's further obligations at the time of its receipt of any such
claim or request. The Trust does not however expect the amounts claimed or
requested to exceed approximately $3,300,000.
On February 21, 2003, the IRS issued an examination report to the Trust
with respect to the 1996 and 1997 taxable years of the Trust. This examination
report proposes to disallow all of the loss deductions claimed by the Trust upon
the disposition of Trust Assets during that period. In addition, the examination
report proposes to increase the REIT taxable income of the Trust during 1996 and
1997 on account of two items reported on the Trust's tax returns for which the
Trust did not claim any taxable loss or deduction. Counsel to the Trust has
advised that the examination report contains numerous errors of fact with
respect to the operations of the Trust and that the legal conclusions in the
examination report are not consistent with the applicable provisions of the Code
and the income tax regulations. The Trust timely filed an administrative appeals
(the "Trust Protest") challenging the adjustments proposed in the examination
report.
Apart from transferring the responsibility of the Trust's appeal of the
examination report to the IRS appeals office having jurisdiction for this case,
no action has yet been taken by the IRS with respect to the Trust's Protest to
the disallowances proposed in the examination report issued to the Trust. The
outcome of the Trust Protest is uncertain and the impact of the resolution could
be material to the financial statements; however, the Trust anticipates that the
outcome will be favorable to the Trust.
6. OTHER ASSETS:
Other assets include the estimated interest income from the Trust's
short-term investments.
7. SUBSEQUENT EVENTS
None.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
LIQUIDATION ACTIVITIES.
CAPITAL RESOURCES AND LIQUIDITY
At June 30, 2005, the Trust owned one retail property (Hylan Plaza
Shopping Center, located in Staten Island, New York) as well as cash and certain
other assets. The Trust does not intend to make new loans or actively engage in
either the mortgage lending or the property acquisition business.
The Trust's primary objective has been to liquidate its assets in an
eighteen-month period from the date of the Spin-Off Transaction while realizing
the maximum values for such assets; however because the RPS Tax Issues have not
been satisfactorily resolved, the Trust has continued its business beyond such
period. Although the Trust considers its assumptions and estimates as to the
values and timing of such liquidations to be reasonable, the period of time to
liquidate the assets and distribute the proceeds of such assets is subject to
E-73
significant business, economic and competitive uncertainties and contingencies,
many of which are beyond the Trust's control. There can be no assurance that the
net values ultimately realized and costs actually incurred for such assets will
not materially differ from the Trust's estimates.
The Trust believes that cash and cash equivalents on hand, proceeds
generated by the real estate property that it owns and operates and proceeds
from the eventual sale of such property will be sufficient to support the Trust
and meet its obligations. As of June 30, 2005, the Trust had approximately
$9,418,000 in cash and short-term investments.
INFLATION
Inflation has been consistently low during the periods presented in the
consolidated financial statements and, as a result, has not had a significant
effect on the operations on the Trust or its investment.
RESULTS OF OPERATIONS
As a result of the Trust adopting the liquidation basis of accounting
in accordance with accounting principles generally accepted in the United States
of America as of May 10, 1996 and thus not reporting results of operations
thereafter, there is no management discussion comparing the corresponding
periods.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this quarterly report
on Form 10-Q, the Company carried out an evaluation, under the supervision of
and with the participation of the Company's management, including the Company's
President and Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14(c) under the Securities Exchange Act of 1934. Based
upon that evaluation, the President and Chief Financial Officer concluded that
the Company's disclosure controls and procedures are effective. There were no
significant changes made in the Company's internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
E-74
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Shareholders of the Trust was held on June 3,
2005 to elect six trustees to sit on the Board of Trustees of the Trust (the
"Board") until the next Annual Meeting of Shareholders and until their
successors are duly elected and qualified and (ii) to ratify the selection by
the Board of Deloitte & Touche LLP as the independent auditors of the Trust for
the fiscal year commencing January 1, 2005.
On the first proposal, the vote of the Shareholders was as follows:
Nominee For Withheld Abstain
--------------------------------------------------------------------------------
Stephen R. Blank 3,193,870 9,707 --
Edward Blumenfeld 3,193,822 9,755 --
Edwin J. Glickman 3,193,156 10,421 --
Arthur H. Goldberg 3,192,829 10,748 --
Joel M. Paschow 3,187,534 16,043 --
William A. Rosoff 3,193,964 9,613 --
On the second proposal, the Shareholders voted to ratify the selection
by the Board of Deloitte & Touche LLP as the independent auditors of the Trust.
There were 3,193,796 votes for, 5,241 votes against and 4,539 abstained.
ITEM 5. OTHER INFORMATION.
(a) Pursuant to the terms of the Trust's Amended and Restated Declaration
of Trust, the Trust was to continue for a period of 18 months from the
date of the Spin-Off Transaction (which 18-month period ended on
November 10, 1997), subject to, among certain other things,
satisfactory resolution of the RPS Tax Issues. Because the RPS Tax
Issues have not yet been satisfactorily resolved, the Trust has
continued its business past that date. The Trust cannot currently
estimate the timing of the future satisfactory resolution of the RPS
Tax Issues. Accordingly, the Trust will continue until there is a final
determination of these issues.
(b) None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. None.
(b) Reports on Form 8-K.
The registrant filed three reports on Form 8-K during the three-month
period ended June 30, 2005.
On May 12, 2005, registrant filed a Form 8-K reporting that on April
22, 2005, registrant received a letter from Ramco-Gershenson Properties Trust
(formerly known as RPS Realty Trust, "Ramco") stating (i) that Ramco had
received a 30-day Letter (the "30-day Letter") from the Internal Revenue Service
(the "IRS") covering the years 1996 and 1997 and (ii) that Ramco might seek
indemnification from the registrant with
E-75
regard to the 1996 year pursuant to the Tax Agreement dated as of May 10, 1996
by and between Ramco and the registrant.
On May 13, 2005, registrant filed a Form 8-K reporting that on May 12,
2005, the registrant entered into an amendment of the Indemnification Agreement
the registrant entered into with Kimco Realty Corporation ("Kimco") on March 28,
2005, pursuant to which the Trust agreed to allow Kimco to conduct due diligence
on the Hylan Plaza Shopping Center. A copy of the amendment was attached to the
Form 8-K.
On June 16, 2005, registrant filed a Form 8-K reporting that on June
14, 2005, the registrant entered into a second amendment of the Indemnification
Agreement the registrant entered into with Kimco on March 28, 2005. A copy of
the second amendment was attached to the Form 8-K.
E-76
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATLANTIC REALTY TRUST
(Registrant)
Date: August 4, 2005 /s/ Joel M. Pashcow
--------------------------------------
Name: Joel M. Pashcow
Title: Chairman, Chief Executive
Officer and President
(Principal Executive Officer)
Date: August 4, 2005 /s/ Edwin R. Frankel
--------------------------------------
Name: Edwin R. Frankel
Title: Executive Vice President,
Chief Financial Officer
and Secretary
(Principal Financial and
Accounting Officer)
E-77
CERTIFICATION BY JOEL M. PASHCOW PURSUANT TO
SECURITIES EXCHANGE ACT RULE 13a-14
I, Joel M. Pashcow, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Atlantic Realty Trust;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure control and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this quarterly report based on such evaluation; and
c) disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which could adversely
affect the registrant's ability to record, process, summarize and report
financial information; and
E-78
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: August 4, 2005
/s/ Joel M. Pashcow
----------------------------------------
Name: Joel M. Pashcow
Title: Chairman, Chief Executive
Officer and President
(Principal Executive Officer)
E-79
CERTIFICATION BY EDWIN R. FRANKEL PURSUANT TO
SECURITIES EXCHANGE ACT RULE 13a-14
I, Edwin R. Frankel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Atlantic Realty Trust;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure control and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this quarterly report based on such evaluation; and
c) disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which could adversely
affect the registrant's ability to record, process, summarize and report
financial information; and
E-80
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: August 4, 2005
/s/ Edwin R. Frankel
----------------------------------------
Name: Edwin R. Frankel
Title: Executive Vice President,
Chief Financial Officer
and Secretary
(Principal Financing and
Accounting Officer)
E-81
Exhibit 99.1
To Atlantic Realty Trust
Report of Form 10-Q
June 30, 2005
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Chairman and President of Atlantic Realty Trust (the
"Company"), hereby certifies, to the best of my knowledge, that the Form 10-Q of
the Company for the quarter ended June 30, 2005 (the "Periodic Report")
accompanying this certification fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78(d))
and that the information contained in the Periodic Report fairly represents, in
all material respects, the financial condition and results of operations of the
Company. The foregoing certification is incorporated solely for purposes of
complying with the provisions of Section 906 of the Sarbanes-Oxley Act and is
not intended to be used for any other purpose.
Date: August 4, 2005
/s/ Joel M. Pashcow
----------------------------------------
Name: Joel M. Pashcow
Title: Chairman and President
(Principal Executive Officer)
E-82
Exhibit 99.2
To Atlantic Realty Trust
Report of Form 10-Q
June 30, 2005
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Executive Vice President, Chief Financial Officer and
Secretary of Atlantic Realty Trust (the "Company"), hereby certifies, to the
best of my knowledge, that the Form 10-Q of the Company for the quarter ended
June 30, 2005 (the "Periodic Report") accompanying this certification fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78(d)) and that the information contained
in the Periodic Report fairly represents, in all material respects, the
financial condition and results of operations of the Company. The foregoing
certification is incorporated solely for purposes of complying with the
provisions of Section 906 of the Sarbanes-Oxley Act and is not intended to be
used for any other purpose.
Date: August 4, 2005
/s/ Edwin R. Frankel
----------------------------------------
Name: Edwin R. Frankel
Title: Executive Vice President,
Chief Financial Officer
and Secretary
(Principal Financing and
Accounting Officer)
E-83
--------------------------------------------------------------------------------
Atlantic Realty Trust
Form 10-Q
Filed November 14, 2005
--------------------------------------------------------------------------------
E-84
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2005 OR
-------------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------------------------------------------
Commission file number 0-27562
---------------------------------------------------------
ATLANTIC REALTY TRUST
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 13-3849655
------------------------------------------------- ----------------------
(State or other jurisdiction of incorporation (I.R.S. Employer-
or organization) Identification No.)
747 THIRD AVENUE, NEW YORK, NEW YORK 10017
------------------------------------------
(Address of principal executive offices)
(Zip Code)
212-702-8561
-----------------------------------------------------
(Registrant's telephone number, including area code)
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
----------- -----------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes No X
----------- -----------
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act).
Yes No X
----------- -----------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
The number of shares of beneficial interest, par value $.01 per share,
outstanding on November 7, 2005 was 3,561,553.
E-85
I N D E X
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS HISTORICAL INFORMATION AND
FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN
THIS FORM 10-Q PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. THEY INVOLVE KNOWN AND UNKNOWN RISKS
AND UNCERTAINTIES THAT MAY CAUSE THE TRUST'S ACTUAL RESULTS IN FUTURE PERIODS TO
BE MATERIALLY DIFFERENT FROM ANY FUTURE PERFORMANCE SUGGESTED HEREIN. IN THE
CONTEXT OF FORWARD-LOOKING INFORMATION PROVIDED IN THIS FORM 10-Q AND IN OTHER
REPORTS, PLEASE REFER TO THE DISCUSSION OF RISK FACTORS DETAILED IN, AS WELL AS
THE OTHER INFORMATION CONTAINED IN, THE TRUST'S FORM 10 FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 1996 AS WELL AS THE TRUST'S
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION DURING THE PAST 12 MONTHS.
PAGE NO.
--------
PART I. - FINANCIAL INFORMATION.............................................3
Item 1. Financial Statements.............................................3
Item 2. Management's Discussion and Analysis of Financial Condition
and Liquidation Activities.......................................8
Item 3. Quantitative and Qualitative Disclosure About Market Risk........9
Item 4. Controls and Procedures..........................................9
PART II. - OTHER INFORMATION................................................9
Item 1. Legal Proceedings................................................9
Item 2. Changes in Securities and Use of Proceeds........................9
Item 3. Defaults Upon Senior Securities.................................10
Item 4. Submission of Matters to a Vote of Security Holders.............10
Item 5. Other Information...............................................10
Item 6. Exhibits and Reports on Form 8-K................................10
Signatures..............................................................11
E-86
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ATLANTIC REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
(Liquidation Basis of Accounting)
SEPTEMBER 30, 2005 DECEMBER 31, 2004
------------------ -----------------
(unaudited)
ASSETS
Investment in Real Estate .............. $80,227,756 $81,319,000
Cash and Short-Term Investments ........ 9,514,185 7,852,922
Other Assets ........................... 66,750 102,000
----------- -----------
Total Assets ........................... 89,808,691 89,273,922
----------- -----------
LIABILITIES
Estimated Costs of Liquidation ......... 7,557,709 8,600,164
----------- -----------
NET ASSETS IN LIQUIDATION .............. $82,250,982 $80,673,758
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
E-87
ATLANTIC REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
(Liquidation Basis of Accounting)
(UNAUDITED)
For the Period For the Period
July 1, 2004 January 1, 2004
to September 30, 2005 to September 30, 2005
---------------------- ----------------------
Net Assets in Liquidation
Beginning of Period ............... $ 82,596,019 $ 80,673,758
Adjustments to Reflect
Liquidation Basis of Accounting ... (345,037) 1,577,224
---------------------- ----------------------
Net Assets in Liquidation End of Period $ 82,250,982 $ 82,250,982
====================== ======================
For the Period For the Period
July 1, 2004 January 1, 2004
to September 30, 2004 to September 30, 2004
---------------------- ----------------------
Net Assets in Liquidation
Beginning of Period ............... $ 56,775,455 $ 55,059,691
Distribution Paid ..................... -- (11,575,096)
Adjustments to Reflect
Liquidation Basis of Accounting ... 1,188,086 14,478,946
---------------------- ----------------------
Net Assets in Liquidation End of Period $ 57,963,541 $ 57,963,541
====================== ======================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
E-88
ATLANTIC REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Atlantic Realty Trust, a Maryland real estate investment trust (the
"Trust"), was formed on July 27, 1995 for the purpose of liquidating its
interests in real properties, its mortgage loan portfolio and certain other
assets and liabilities which were transferred to the Trust from Ramco-Gershenson
Properties Trust (formerly named RPS Realty Trust) ("RPS") on May 10, 1996 (the
"Spin-Off Transaction"). The Trust adopted the liquidation basis of accounting
as of the date of the Spin-Off Transaction based on its originally stated
intention to liquidate its assets or merge or combine operations with another
real estate entity within eighteen months from the date of the Spin-Off
Transaction. The Trust conducts its operations with the intent of meeting the
requirements applicable to a real estate investment trust ("REIT") under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the
"Code"). As a result, the Trust will have no current or deferred income tax
liabilities.
In the opinion of management, the accompanying consolidated financial
statements, which have not been audited, include all adjustments necessary to
present fairly the results for the interim periods. Such adjustments consist
only of normal recurring accruals.
The consolidated financial statements should be read in conjunction with
the annual financial statements and notes thereto included in the Trust's annual
report on Form 10-K filed with the Securities and Exchange Commission for the
year ended December 31, 2004. The results of interim periods may not be
indicative of the results for the entire year.
LIQUIDATION BASIS OF ACCOUNTING
As a result of the Spin-Off Transaction, the Trust has adopted the
liquidation basis of accounting. The liquidation basis of accounting is
appropriate when liquidation appears imminent and the Trust is no longer viewed
as a going concern. Under this method of accounting, assets are stated at their
estimated net realizable values and liabilities are stated at the anticipated
settlement amounts.
The valuations presented in the accompanying consolidated statements of net
assets in liquidation represent the estimates at the dates shown, based on
current facts and circumstances, of the estimated net realizable value of the
assets and estimated costs of liquidating the Trust. In determining the net
realizable values of the assets, the Trust considered each asset's ability to
generate future cash flows, offers to purchase received from third parties, if
any, and other general market information. Such information was considered in
conjunction with operating the Trust's plan for disposition of assets. The
estimated costs of liquidation represent the estimated costs of operating the
Trust through its anticipated termination. These costs primarily include
payroll, consulting and related costs, rent, shareholder relations, legal and
auditing. Changes in these costs during the periods presented are reflected in
the adjustments to reflect the liquidation basis of accounting. Computations of
net realizable value necessitate the use of certain assumptions and estimates.
Future events, including economic conditions that relate to real estate markets
in general, may differ from those assumed or estimated at the time such
computations are made. Because of the inherent uncertainty of valuation when an
entity is in liquidation, the amounts ultimately realized from assets disposed
and costs incurred to settle liabilities may materially differ from amounts
presented.
E-89
Pursuant to the terms of the Trust's Amended and Restated Declaration of
Trust, the Trust was to continue for a period of 18 months from the date of the
Spin-Off Transaction, subject to, among certain other things, satisfactory
resolution of the RPS Tax Issues (as such term is defined in footnote 5 below).
Because the RPS Tax Issues have not yet been satisfactorily resolved, the Trust
has continued its business past that date. The Trust cannot currently estimate
the timing of the future satisfactory resolution of the RPS Tax Issues.
Accordingly, the Trust will continue until there is a final determination of
these issues.
CONSOLIDATION
The consolidated financial statements include the accounts of the Trust and
its wholly-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
2. INVESTMENT IN REAL ESTATE:
ESTIMATED NET REALIZED VALUE (a)(b)
SEPTEMBER DECEMBER
PROPERTY LOCATION 30, 2005 31, 2004
-------- ----------------- ----------- -----------
Hylan Shopping Center Staten Island, NY $80,227,756 $81,319,000
----------
(a) Includes estimated cash flows using a disposition period of four months and
six months for such periods, respectively. Realized value may differ
depending on actual disposition results and time period.
(b) The operations of the Trust and the Hylan Shopping Center for the nine
months ended September 30, 2005 and September 30, 2004 are as follows:
Nine Months Ended Nine Months Ended
September 30, 2005 September 30, 2004
------------------ ------------------
Rental Income........................... $3,426,480 $3,473,471
Expense Reimbursements.................. 2,134,289 1,858,646
Interest from Short-Term Investments ... 112,048 107,649
Other................................... 1,782 2,825
---------- ----------
5,674,599 5,442,591
---------- ----------
Operating Property Expenses............. 2,469,541 2,360,044
Depreciation............................ 251,706 258,050
General and Administrative.............. 1,964,150 1,711,289
---------- ----------
4,685,397 4,329,383
---------- ----------
Net Income.............................. $ 989,202 $1,113,208
========== ==========
3. SHARES OUTSTANDING:
The weighted average number of shares of beneficial interest outstanding
for the periods ending September 30, 2005 and 2004 was 3,561,553.
E-90
4. CASH AND SHORT-TERM INVESTMENTS:
Cash and short-term investments at September 30, 2005 consist primarily of
a certificate of deposit at a major New York bank of $8,900,000, purchased with
an original maturity of three months or less, bearing interest at a fixed rate
of 3.68%.
5. INCOME TAXES:
During the third quarter of 1994, RPS held more than 25% of the value of
its gross assets in overnight Treasury Bill reverse repurchase transactions
which the Internal Revenue Service ("IRS") may view as non-qualifying assets for
the purposes of satisfying an asset qualification test applicable to REITs,
based on a Revenue Ruling published in 1977 (the "Asset Issue"). RPS requested
that the IRS enter into a closing agreement with RPS that the Asset Issue would
not impact RPS' status as a REIT. The IRS declined such request. In February
1995, the IRS initiated an examination of the 1991-1995 income tax returns of
RPS (the "RPS Audit" and, together with the Asset Issue, the "RPS Tax Issues").
Based on developments in the law which occurred since 1977, RPS' tax counsel at
that time, Battle Fowler LLP, rendered an opinion that RPS' investment in
Treasury Bill repurchase obligations would not adversely affect its REIT status.
However, such opinion is not binding upon the IRS.
In connection with the Spin-Off Transaction, the Trust assumed all tax
liability arising out of the RPS Tax Issues (other than liability that relates
to events occurring or actions taken by RPS following the date of the Spin-Off
Transaction) pursuant to a tax agreement, dated May 10, 1996, by and between RPS
and the Trust (the "Tax Agreement"). Such agreement provides that RPS (now named
Ramco-Gershenson Properties Trust), under the direction of four trustees, three
of whom are also trustees of the Trust (the "Continuing Trustees") and not the
Trust, will control, conduct and effect the settlement of any tax claims against
RPS relating to the RPS Tax Issues. Accordingly, the Trust did not have any
control as to the timing of the resolution or disposition of any such claims.
In December 2003, Ramco-Gershenson Properties Trust and the IRS entered
into a Closing Agreement with respect to all of the issues raised by the IRS in
connection with RPS Audit. As a condition of the Closing Agreement,
Ramco-Gershenson Properties Trust was obligated to pay deficiency dividends
(under Code Sec. 860) with respect to its 1992 and 1993 taxable years in amounts
not less than $1,386,503 with respect to the 1992 taxable year and $809,010 with
respect to the 1993 taxable year. In addition, Ramco-Gershenson Properties Trust
is obligated to pay a deficiency in its income taxes with respect to the period
covered by the RPS Audit equal to $770,258, plus interest calculated at the
statutory rate on the amount of the deficiency and the amount of the deficiency
dividends. The aggregate amount of the deficiency dividends, income tax
deficiency and interest on these amounts are approximately $7,400,000, and
because the Trust is required by the Tax Agreement to reimburse Ramco-Gershenson
Properties Trust for these items, they were included in the estimated cost of
liquidation as of December 31, 2003. Although the Closing Agreement provides
that the election of Ramco-Gershenson Properties Trust to be taxed as a "real
estate investment trust" was terminated with respect to its 1994 and 1995
taxable years, it also provides that Ramco-Gershenson Properties Trust will be
treated as having reelected to be taxed as a "real estate investment trust" with
respect to its taxable year beginning January 1, 1996 and that the termination
of its election to be taxed as a "real estate investment trust" will not
prohibit it or any successor entity (which includes the Trust) from electing to
be taxed as a "real estate investment trust" on or after January 1, 1996.
The Trust remains obligated under the Tax Agreement to assume certain
liabilities relating to the RPS Tax Issues. The Trust established a special
committee (the "Special Committee regarding RPS Tax Issues") comprised of the
two Trustees who are not Continuing Trustees or otherwise affiliated with
Ramco-Gershenson
E-91
Properties Trust to act on behalf of the Trust in evaluating the position of the
Trust with respect to the RPS Tax Issues and to represent the Trust with respect
to any claims asserted by Ramco-Gershenson Properties Trust for contribution
arising out of the Closing Agreement. On January 21, 2004, the Trust contributed
$2,200,091 in respect of the deficiency dividend required to be paid pursuant to
the Closing Agreement. On June 10, 2004 the Trust paid $1,803,235 in respect of
the tax and interest on the tax pursuant to the Closing Agreement. The Trust
will be obligated to make additional payments with respect to the RPS Tax Issues
and the Closing Agreement as a result of its obligations under the Tax
Agreement. In the event the Trust is presented with further requests or claims
for payment or reimbursement arising in connection with the RPS Tax Issues and
the Closing Agreement, the Special Committee regarding RPS Tax Issues will
evaluate the Trust's further obligations at the time of its receipt of any such
claim or request. The Trust does not however expect the amounts claimed or
requested to exceed approximately $3,300,000.
On February 21, 2003, the IRS issued an examination report to the Trust
with respect to the 1996 and 1997 taxable years of the Trust. This examination
report proposed to disallow all of the loss deductions claimed by the Trust upon
the disposition of Trust Assets during that period. In addition, the examination
report proposed to increase the REIT taxable income of the Trust during 1996 and
1997 on account of two items reported on the Trust's tax returns for which the
Trust did not claim any taxable loss or deduction. Effective October 31, 2005,
the IRS and the Trust entered into an agreement settling all federal income tax
issues with respect to the Trust's 1996 and 1997 taxable years. Under the terms
of that agreement, the Trust will pay additional taxes for those periods
totaling $15,534, plus interest (approximately $12,000). The agreement entered
into between the IRS and the Trust does not affect the Trust's classification as
a REIT.
6. OTHER ASSETS:
Other assets include the estimated interest income from the Trust's
short-term investments.
7. SUBSEQUENT EVENTS
None.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
LIQUIDATION ACTIVITIES.
CAPITAL RESOURCES AND LIQUIDITY
At September 30, 2005, the Trust owned one retail property (Hylan Plaza
Shopping Center, located in Staten Island, New York) as well as cash and certain
other assets. The Trust does not intend to make new loans or actively engage in
either the mortgage lending or the property acquisition business.
The Trust's primary objective has been to liquidate its assets in an
eighteen-month period from the date of the Spin-Off Transaction while realizing
the maximum values for such assets; however because the RPS Tax Issues have not
been satisfactorily resolved, the Trust has continued its business beyond such
period. Although the Trust considers its assumptions and estimates as to the
values and timing of such liquidations to be reasonable, the period of time to
liquidate the assets and distribute the proceeds of such assets is subject to
significant business, economic and competitive uncertainties and contingencies,
many of which are beyond the Trust's control. There can be no assurance that the
net values ultimately realized and costs actually incurred for such assets will
not materially differ from the Trust's estimates.
The Trust believes that cash and cash equivalents on hand, proceeds
generated by the real estate property that it owns and operates and proceeds
from the eventual sale of such property will be sufficient to
E-92
support the Trust and meet its obligations. As of September 30, 2005, the Trust
had approximately $9,514,000 in cash and short-term investments.
INFLATION
Inflation has been consistently low during the periods presented in the
consolidated financial statements and, as a result, has not had a significant
effect on the operations on the Trust or its investment.
RESULTS OF OPERATIONS
As a result of the Trust adopting the liquidation basis of accounting in
accordance with accounting principles generally accepted in the United States of
America as of May 10, 1996 and thus not reporting results of operations
thereafter, there is no management discussion comparing the corresponding
periods.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES
CONCLUSION REGARDING DISCLOSURE CONTROLS AND PROCEDURES
At September 30, 2005, our principal executive officer and principal
financial officer have performed an evaluation of the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) of the
Securities Exchange Act of 1934, the "Exchange Act") and concluded that our
disclosure controls and procedures are effective to ensure that information
required to be disclosed by us in the reports we file or submit under the
Exchange Act is recorded, processed or summarized and reported within the time
periods specified in the Securities and Exchange Commission rules and forms.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no material changes in our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred
during the third quarter of our fiscal year ending December 31, 2005 that have
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
E-93
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
(a) Pursuant to the terms of the Trust's Amended and Restated Declaration of
Trust, the Trust was to continue for a period of 18 months from the date
of the Spin-Off Transaction (which 18-month period ended on November 10,
1997), subject to, among certain other things, satisfactory resolution
of the RPS Tax Issues. Because the RPS Tax Issues have not yet been
satisfactorily resolved, the Trust has continued its business past that
date. The Trust cannot currently estimate the timing of the future
satisfactory resolution of the RPS Tax Issues. Accordingly, the Trust
will continue until there is a final determination of these issues.
(b) None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. None.
(b) Reports on Form 8-K.
The registrant filed two reports on Form 8-K during the three-month
period ended September 30, 2005.
On July 12, 2005, registrant filed a Form 8-K reporting that on July 11,
2005, the registrant entered into a third amendment of the Indemnification
Agreement the registrant entered into with Kimco Realty Corporation ("Kimco") on
March 28, 2005. A copy of the third amendment was attached to the Form 8-K.
On August 5, 2005, registrant filed a Form 8-K reporting that on August
5, 2005, the registrant entered into a fourth amendment of the Indemnification
Agreement the registrant entered into with Kimco on March 28, 2005. A copy of
the fourth amendment was attached to the Form 8-K.
E-94
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATLANTIC REALTY TRUST
(Registrant)
Date: November 11, 2005 /S/ JOEL M. PASHCOW
----------------------------------------
Name: Joel M. Pashcow
Title: Chairman, Chief Executive
Officer and President
(Principal Executive Officer)
Date: November 11, 2005 /S/ EDWIN R. FRANKEL
----------------------------------------
Name: Edwin R. Frankel
Title: Executive Vice President,
Chief Financial Officer
and Secretary
(Principal Financial and
Accounting Officer)
E-95
CERTIFICATION BY JOEL M. PASHCOW PURSUANT TO
SECURITIES EXCHANGE ACT RULE 13a-14
I, Joel M. Pashcow, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Atlantic Realty
Trust;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure control and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this quarterly report based on such evaluation; and
c) disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which could adversely
affect the registrant's ability to record, process, summarize and report
financial information; and
E-96
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: November 11, 2005
/s/ Joel M. Pashcow
----------------------------------------
Name: Joel M. Pashcow
Title: Chairman, Chief Executive Officer
and President
(Principal Executive Officer)
E-97
CERTIFICATION BY EDWIN R. FRANKEL PURSUANT TO
SECURITIES EXCHANGE ACT RULE 13a-14
I, Edwin R. Frankel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Atlantic Realty
Trust;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure control and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this quarterly report based on such evaluation; and
c) disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which could adversely
affect the registrant's ability to record, process, summarize and report
financial information; and
E-98
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: November 11, 2005
/s/ Edwin R. Frankel
----------------------------------------
Name: Edwin R. Frankel
Title: Executive Vice President,
Chief Financial Officer
and Secretary
(Principal Financing and
Accounting Officer)
E-99
Exhibit 99.1
To Atlantic Realty Trust
Report of Form 10-Q
September 30, 2005
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Chairman and President of Atlantic Realty Trust (the
"Company"), hereby certifies, to the best of my knowledge, that the Form 10-Q of
the Company for the quarter ended September 30, 2005 (the "Periodic Report")
accompanying this certification fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78(d))
and that the information contained in the Periodic Report fairly represents, in
all material respects, the financial condition and results of operations of the
Company. The foregoing certification is incorporated solely for purposes of
complying with the provisions of Section 906 of the Sarbanes-Oxley Act and is
not intended to be used for any other purpose.
Date: November 11, 2005
/s/ Joel M. Pashcow
----------------------------------------
Name: Joel M. Pashcow
Title: Chairman and President
(Principal Executive Officer)
E-100
Exhibit 99.2
To Atlantic Realty Trust
Report of Form 10-Q
September 30, 2005
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Executive Vice President, Chief Financial Officer and
Secretary of Atlantic Realty Trust (the "Company"), hereby certifies, to the
best of my knowledge, that the Form 10-Q of the Company for the quarter ended
September 30, 2005 (the "Periodic Report") accompanying this certification fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78(d)) and that the information contained
in the Periodic Report fairly represents, in all material respects, the
financial condition and results of operations of the Company. The foregoing
certification is incorporated solely for purposes of complying with the
provisions of Section 906 of the Sarbanes-Oxley Act and is not intended to be
used for any other purpose.
Date: November 11, 2005
/s/ Edwin R. Frankel
----------------------------------------
Name: Edwin R. Frankel
Title: Executive Vice President,
Chief Financial Officer
and Secretary
(Principal Financing and
Accounting Officer)
E-101
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its shareholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Kimco charter
contains such a provision which eliminates such liability to the maximum extent
permitted by Maryland law.
The Kimco charter authorizes the company, to the maximum extent permitted
by Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former director or officer or (b) any individual who, while a
director of Kimco and at the request of Kimco, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a director, officer, partner or trustee of such corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
The bylaws of Kimco obligate it, to the maximum extent permitted by Maryland
law, to indemnify and to pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to (a) any present or former director or
officer who is made a party to the proceeding by reason of his service in that
capacity or (b) any individual who, while a director of Kimco and at the request
of Kimco, serves or has served another corporation, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a director, officer,
partner or trustee of such corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise and who is made a party to the
proceeding by reason of his service in that capacity. The charter and bylaws
also permit Kimco to indemnify and advance expenses to any person who served a
predecessor of Kimco in any of the capacities described above and to any
employee or agent of Kimco or a predecessor of Kimco.
The MGCL requires a corporation (unless its charter provides otherwise,
which Kimco's charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, a Maryland corporation may not indemnify for
an adverse judgment in a suit by or in the right of the corporation or for a
judgment of liability on the basis that personal benefit was improperly
received, unless in either case a court orders indemnification and then only for
expenses. In addition, the MGCL requires Kimco, as a condition to advancing
expenses, to obtain (a) a written affirmation by the director or officer of his
good faith belief that he has met the standard of conduct necessary for
indemnification by Kimco as authorized by the bylaws and (b) a written
undertaking by him or on his behalf to repay the amount paid or reimbursed by
Kimco if it shall ultimately be determined that the standard of conduct was not
met.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling Kimco
pursuant to the provisions described above, Kimco has
II-1
been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
II-2
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith or incorporated herein by
reference:
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Agreement and Plan of Merger, dated as of December 1, 2005, by
and between Kimco Realty Corporation, SI 1339, Inc. and Atlantic
Realty Trust (included as Annex A to the proxy statement/
prospectus contained in this registration statement)
3.1 Articles of Amendment and Restatement of Kimco Realty Corporation
(incorporated by reference to Exhibit 3.1 to Kimco Realty
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1994)
3.2 Articles Supplementary relating to the 8 1/2% Class B Cumulative
Redeemable Preferred Stock, par value $1.00 per share, of the
Kimco Realty Corporation, dated July 25, 1995 (incorporated by
reference to Exhibit 3.3 to Kimco Realty Corporation's Annual
Report on Form 10-K for the year ended December 31,
1995)
3.3 Articles Supplementary relating to the 8 3/8% Class C Cumulative
Redeemable Preferred Stock, par value $1.00 per share, of the
Kimco Realty Corporation, dated April 9, 1996 (incorporated by
reference to Exhibit 3.4 to Kimco Realty Corporation's Annual
Report on Form 10-K for the year ended December 31,
1996)
3.4 Articles Supplementary relating to the 6.65% Class F Cumulative
Redeemable Preferred Stock, par value $1.00 per share, of the
Kimco Realty Corporation, dated May 7, 2003 (incorporated by
reference to Kimco Realty Corporation's filing on Form 8-A dated
June 3, 2003)
3.5 Amended and Restated Declaration of Trust of Atlantic Realty
Trust (incorporated by reference to Atlantic Realty Trust's
Definitive Registration Statement on Form 10, dated March 28,
1996)
3.6 First Amendment to Amended and Restated Declaration of Trust of
Atlantic Realty Trust (incorporated by reference to Atlantic
Realty Trust's Definitive Registration Statement on Form 10,
dated March 28, 1996)
3.7 By-laws of Kimco Realty Corporation dated February 1, 2005, as
amended (incorporated by reference to Exhibit 3(ii) Kimco Realty
Corporation's Current Report on Form 8-K dated February 1, 2005)
3.8 Amended and Restated By-Laws of Atlantic Realty Trust
(incorporated by reference to Atlantic Realty Trust's Definitive
Registration Statement on Form 10, dated March 28, 1996)
5.1 Opinion of Bruce M. Kauderer, Esq. regarding legality of
securities being registered
8.1 Opinion of Wachtell, Lipton, Rosen & Katz regarding certain U.S.
income tax aspects of the merger*
8.2 Opinion of Proskauer Rose LLP regarding certain U.S. income tax
aspects of the merger*
II-3
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Wachtell, Lipton, Rosen & Katz*
23.4 Consent of Proskauer Rose LLP*
24.1 Powers of Attorney (included on the signature page of this
Registration Statement)
99.1 Form of Proxy of Atlantic Realty Trust*
99.2 Opinion of Robert A. Stanger & Co., Inc. (included as Annex B to
the proxy statement/prospectus contained in this registration
statement)
99.3 Estimate of Market Value of the Hylan Plaza Shopping Center
prepared by Rockwood Realty Associates, L.L.C. (included as
Annex C to the proxy statement/prospectus contained in this
registration statement)
99.4 Consent of Robert A. Stanger & Co., Inc.
99.5 Consent of Rockwood Realty Associates, L.L.C.
-----------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this registration statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
(2) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information called for by
the other items of the applicable form.
(3) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as a
part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial BONA FIDE offering thereof.
II-4
(4) To respond to requests for information that is incorporated by
reference into this prospectus pursuant to Items 4, 10(b), 11, or 13 of
this form, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent
to the effective date of this registration statement through the date of
responding to the request.
(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in this registration statement
when it became effective.
Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is therefore unenforceable. In the event a claim of indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in a successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-5
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS
DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWN OF NEW HYDE PARK, STATE OF
NEW YORK, ON FEBRUARY 6, 2006.
KIMCO REALTY CORPORATION
By: /s/ Michael V. Pappagallo
-----------------------------------------------
Name: Michael V. Pappagallo
Title: Executive Vice President and Chief
Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Milton Cooper and Michael V. Pappagallo
and each of them, his or her true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign to sign a registration
statement on Form S-4 with respect to shares of Kimco Realty Corporation common
stock to be issued in connection with the merger of a wholly-owned subsidiary of
Kimco Realty Corporation with and into Atlantic Realty Trust and any and all
amendments (including post-effective amendments) to this registration statement
and to file the same with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue hereof. This power of attorney may be executed in
counterparts.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON FEBRUARY 6, 2006.
* *
------------------------------------- -------------------------------------
Martin S. Kimmel Milton S. Cooper
DIRECTOR CHAIRMAN OF THE BOARD OF DIRECTORS AND
CHIEF EXECUTIVE OFFICER
* *
------------------------------------- -------------------------------------
Michael J. Flynn Michael V. Pappagallo
VICE CHAIRMAN OF THE BOARD OF EXECUTIVE VICE PRESIDENT AND
DIRECTORS, PRESIDENT AND CHIEF CHIEF FINANCIAL OFFICER
OPERATING OFFICER
* *
------------------------------------- -------------------------------------
David B. Henry Richard G. Dooley
CHIEF INVESTMENT OFFICER AND DIRECTOR
DIRECTOR
* *
------------------------------------- -------------------------------------
Frank Lourenso Joe Grills
DIRECTOR DIRECTOR
* *
------------------------------------- -------------------------------------
F. Patrick Hughes Richard B. Saltzman
DIRECTOR DIRECTOR
* Michael V. Pappagallo as attorney-in-fact
II-6
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Agreement and Plan of Merger, dated as of December 1, 2005, by
and between Kimco Realty Corporation, SI 1339, Inc. and Atlantic
Realty Trust (included as Annex A to the proxy statement/
prospectus contained in this registration statement)
3.1 Articles of Amendment and Restatement of Kimco Realty Corporation
(incorporated by reference to Exhibit 3.1 to Kimco Realty
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1994)
3.2 Articles Supplementary relating to the 8 1/2% Class B Cumulative
Redeemable Preferred Stock, par value $1.00 per share, of the
Kimco Realty Corporation, dated July 25, 1995 (incorporated by
reference to Exhibit 3.3 to Kimco Realty Corporation's Annual
Report on Form 10-K for the year ended December 31, 1995)
3.3 Articles Supplementary relating to the 8 3/8% Class C Cumulative
Redeemable Preferred Stock, par value $1.00 per share, of the
Kimco Realty Corporation, dated April 9, 1996 (incorporated by
reference to Exhibit 3.4 to Kimco Realty Corporation's Annual
Report on Form 10-K for the year ended December 31,
1996)
3.4 Articles Supplementary relating to the 6.65% Class F Cumulative
Redeemable Preferred Stock, par value $1.00 per share, of the
Kimco Realty Corporation, dated May 7, 2003 (incorporated by
reference to Kimco Realty Corporation's filing on Form 8-A dated
June 3, 2003)
3.5 Amended and Restated Declaration of Trust of Atlantic Realty Trust
(incorporated by reference to Atlantic Realty Trust's Definitive
Registration Statement on Form 10, dated March 28, 1996)
3.6 First Amendment to Amended and Restated Declaration of Trust of
Atlantic Realty Trust (incorporated by reference to Atlantic
Realty Trust's Definitive Registration Statement on Form 10,
dated March 28, 1996)
3.7 By-laws of Kimco Realty Corporation dated February 1, 2005, as
amended (incorporated by reference to Exhibit 3(ii) Kimco Realty
Corporation's Current Report on Form 8-K dated February 1, 2005)
3.8 Amended and Restated By-Laws of Atlantic Realty Trust
(incorporated by reference to Atlantic Realty Trust's Definitive
Registration Statement on Form 10, dated March 28, 1996)
5.1 Opinion of Bruce M. Kauderer, Esq. regarding legality of
securities being registered
8.1 Opinion of Wachtell, Lipton, Rosen & Katz regarding certain U.S.
income tax aspects of the merger*
8.2 Opinion of Proskauer Rose LLP regarding certain U.S. income tax
aspects of the merger*
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Deloitte & Touche LLP
II-7
23.3 Consent of Wachtell, Lipton, Rosen & Katz*
24.1 Powers of Attorney (included on the signature page of this
Registration Statement)
99.1 Form of Proxy of Atlantic Realty Trust*
99.2 Opinion of Robert A. Stanger & Co., Inc. (included as Annex B to
the proxy statement/prospectus contained in this registration
statement)
99.3 Estimate of Market Value of the Hylan Plaza Shopping Center
prepared by Rockwood Realty Associates, L.L.C. (included as
Annex C to the proxy statement/prospectus contained in this
registration statement)
99.4 Consent of Robert A. Stanger & Co., Inc.
99.5 Consent of Rockwood Realty Associates, L.L.C.
-----------------
* To be filed by amendment.
II-8