-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PKoDJdfpolkT20Rg6E54DoHeBqNWfFbZsPTqhrpa8V3Z4N8IrzgRgHV1Mq0vUtTy 92ys6K2g5jQF8cwWroD5jg== 0000912057-96-023079.txt : 19961018 0000912057-96-023079.hdr.sgml : 19961018 ACCESSION NUMBER: 0000912057-96-023079 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961017 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VALUE PROPERTY TRUST CENTRAL INDEX KEY: 0000079259 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 231862664 STATE OF INCORPORATION: MD FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-06613 FILM NUMBER: 96644623 BUSINESS ADDRESS: STREET 1: 120 ALBANY STREET STREET 2: 8TH FLOOR CITY: NEW BRUNSWICK STATE: NJ ZIP: 08901- BUSINESS PHONE: 9082963080 FORMER COMPANY: FORMER CONFORMED NAME: MORTGAGE & REALTY TRUST DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: PNB MORTGAGE & REALTY INVESTORS DATE OF NAME CHANGE: 19850102 10-K/A 1 10-K/A ============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ___________ FORM 10-K/A (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM ______________ TO _______________ COMMISSION FILE NUMBER 1-6613 VALUE PROPERTY TRUST (Exact name of registrant as specified in its charter) MARYLAND 23-1862664 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) 120 ALBANY STREET, 8TH FLOOR 08901 NEW BRUNSWICK, NEW JERSEY (Zip code) (Address of principal executive offices) Registrant's telephone number, including area code 908-296-3080 __________ SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Shares, par value $1.00 per share New York Stock Exchange 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 the 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 has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes /X/ No / / The aggregate market value of the Common Shares held by non-affiliates of the registrant at December 18, 1995, computed by reference to the closing sale price of such shares as reported in the Consolidated Transaction Reporting System, was $22,098,835. The number of Common Shares outstanding at December 18, 1995 was 11,226,310. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of the securities under a plan confirmed by a court. Yes X No ---- ---- __________ DOCUMENTS INCORPORATED BY REFERENCE The definitive proxy statement for fiscal year ended September 30, 1995 is incorporated by reference into Part III of this 10-K. ============================================================================== PART I ITEM 1. BUSINESS. GENERAL Value Property Trust (the "Trust") is a Maryland real estate investment trust (a "REIT") engaged in the business of managing its portfolio of mortgage loans and real estate investments. The Trust was organized in 1970 as PNB Mortgage and Realty Investors. In 1984, the Trust changed its name to Mortgage and Realty Trust. In October 1995, the Trust changed its name to Value Property Trust. The Trust is organized under an Amended and Restated Declaration of Trust dated September 29, 1995 and as amended through October 26, 1995 (the "Amended and Restated Declaration of Trust"), and conducts its business in such a fashion as to qualify as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code"). As of September 30, 1995, the Trust had: (1) cash and cash equivalents of $16.8 million of which $6.8 million is restricted as to use under terms of a termination pay plan, and various escrow and lease agreements; and (2) invested assets consisting of 31 mortgage loans and 38 investments in real estate owned. Based upon the amounts of the Trust's investments as of September 30, 1995, approximately 51% of the Trust's portfolio was in investments in California, 18% in Pennsylvania and 12% in New England states. Nationally, 38% of the amounts of its investments are in industrial or research and development properties, 19% in office buildings, 32% in shopping centers, 10% in apartments and 1% in other types of real estate investments. PREVIOUS CHAPTER 11 CASE AND 1991 PLAN OF REORGANIZATION On April 12, 1990, the Trust filed a voluntary petition for reorganization under Chapter 11 in the United States Bankruptcy Court for the Central District of California (the "Bankruptcy Court"), commencing a bankruptcy case, Bankruptcy Case No. LA 90-08976-SB (the "Prior Bankruptcy Case"). On November 21, 1990, a Joint Plan of Reorganization (the "1991 Plan") proposed by the Trust, the creditors' committee and the equity committee was filed with the Bankruptcy Court pursuant to section 1121 of the Bankruptcy Code. The 1991 Plan was confirmed by the Bankruptcy Court by an order entered February 27, 1991. The Prior Bankruptcy Case was closed on November 4, 1994, pursuant to a final order of the Bankruptcy Court. The 1991 Plan provided that the holders of outstanding indebtedness were to receive payments in installments over a period ending on June 30, 1995, with the right of the Trust to defer payment of certain amounts for up to twenty-four months or until December 31, 1995, when all deferred payments would be due. Interest was payable initially at Bank of America N.T. & S.A.'s reference rate plus one percent, increasing by 0.25% every six months, with interest on deferred amounts accruing at the adjusted rate plus two percent. The 1991 Plan also included certain financial, affirmative and negative covenants. The forecast upon which the 1991 Plan was based assumed that the real estate markets would begin to improve in fiscal 1992. However, the markets continued to deteriorate materially. Despite these conditions, the Trust was able to make all required interest payments and to exceed the required amortization payments through December 31, 1991. These results were achieved through liquidating Trust assets at substantial discounts from their acquisition cost. However, due to the continued deterioration of the real estate markets, the Trust could not meet the amortization payment at June 30, 1992, which required the Trust to reduce the debt to $291,250,000, taking into account deferrals permitted under the 1991 Plan. This deterioration also precluded the Trust from maintaining compliance with the financial covenants of the 1991 Plan. Thus, the Trust determined that it was necessary to defer a portion of the principal payments on the outstanding debt and limit certain future cash interest payments to allow sufficient time for liquidity to return to the United States real estate market. Such deferral was accomplished by an out-of-court modification to the 1991 Plan (the "1992 Restructuring"). - 1 - THE 1992 RESTRUCTURING Pursuant to the Trust's negotiations with the creditors' committee, on June 15, 1992, the Trust commenced a solicitation of acceptances to certain modifications (the "1992 Modifications") to the outstanding debt obligations of the Trust and to a prepackaged plan of reorganization (the "Proposed 1992 Plan") to effect the 1992 Modifications. The 1992 Modifications to the outstanding debt obligations provided, among other things, for (i) an increased amount of required principal payments that could be deferred (while retaining the final payment date for deferred payments at December 31, 1995), (ii) an extension of the permitted repayment period of such deferred amounts from 24 months to 30 months from the date a deferral is utilized, (iii) the establishment of a limit on the maximum rate of interest to be paid in cash on a current basis at 9% through June 30, 1994, with any excess being accrued and paid at December 31, 1995, (iv) changes in certain required financial covenants to reflect the then-existing financial condition of the Trust and the then-existing real estate market, (v) with the approval of the holders of 66-2/3% of the outstanding debt obligations, the release of collateral for certain financings by the Trust, and (vi) the payment of additional consideration to the holders of the outstanding debt obligations equal to one percent of the principal amount of the outstanding debt obligations, payable in four semi-annual installments commencing on the date the 1992 Restructuring became effective. The Trust received 100% acceptance of the 1992 Modifications and, on July 15, 1992, the Trust successfully restructured its outstanding debt by issuance of new notes in accordance with the proposed 1992 Modifications (the "Old Notes") and entered into an indenture (the "Old Note Indenture") with Wilmington Trust Company, as trustee (the "Old Note Trustee"), entered into a second amendment to the Trust's then outstanding Collateral and Security Agreement dated as of February 21, 1991 (as amended, the "Old Collateral Agreement") and amended the 1991 Plan (as amended pursuant to the 1992 Restructuring, the "Prior Plan"). RECENT CHAPTER 11 CASE AND 1995 PREPACKAGED PLAN OF REORGANIZATION The financial projections upon which the 1992 Restructuring was based assumed that the real estate markets would stop or slow their decline by 1993 with some improvement in 1994. Instead, after the effective date of the 1992 Restructuring, these markets failed to improve materially. The Trust's business operations, including its ongoing efforts to refinance and sell property, did not generate cash flow sufficient to service the Old Notes during the fiscal years ended September 30, 1993 and 1994. Because its operating income had declined due to the continued deterioration of the real estate markets, the Trust was not able to meet its scheduled June 30, 1993 principal payment on the Old Notes of $20,000,000, and subsequently the Trust also failed to make additional principal payments, constituting events of default under the Old Note Indenture. The Trust also failed to make interest payments on the Old Notes. In addition, the Trust failed to meet certain ratios set forth in the financial covenants of the Old Note Indenture which constituted additional events of default under the Old Note Indenture. Throughout the second and third quarters of fiscal 1994, the Trust's management and advisors continued discussions with certain principal holders of the Old Notes and their representatives to explore various alternatives for restructuring the Old Notes. In March 1994, the principal holders requested that the Trust agree to pay certain fees and expenses of legal counsel to the principal holders. The Trust agreed, and in March 1994, the principal holders retained counsel to advise them in the Trust's financial restructuring. Thereafter, in June 1994, the principal holders requested and the Trust agreed to pay certain fees and expenses of a new financial advisor to the principal holders. The negotiations among the Trust, the various creditor constituencies and other interested parties in the Trust's financial restructuring continued into the fourth quarter of fiscal 1994. On November 17, 1994, the Trust announced that it had reached a non-binding agreement in principle with the Old Note holders to restructure the indebtedness represented by the Old Notes (the "1995 Restructuring"). Under the 1995 Restructuring, the Trust and the Board of Trustees recommended to the Old Note holders that the Trust utilize a "prepackaged plan" of reorganization (the "Prepackaged Plan") governed by Chapter 11 title 11 of the United States Bankruptcy Code, as amended (the "Bankruptcy Code"). The use of the Prepackaged Plan allowed the Trust, the Board of Trustees and holders of the Old Notes to agree in advance on the method and course - 2 - of restructuring prior to the filing of the bankruptcy petition in Chapter 11. To this end, the Trust and certain holders who had acquired a significant portion of the Old Notes entered into an agreement of understanding (the "Agreement of Understanding") pursuant to which the Trust agreed to distribute to the holders of the Old Notes $25 million in cash prior to the Prepackaged Plan's petition date. Under this agreement, the principal holders (who held in excess of 80% of the Old Notes), among other things, agreed to vote in favor of the Prepackaged Plan when solicited. On April 11, 1995, the Trust paid $25.0 million pursuant to the Agreement of Understanding, with such payment to be credited against the cash payment of at least $50.0 million to be made to the holders of the Old Notes pursuant to the Prepackaged Plan. On July 12, 1995, the Trust mailed to each holder of Old Notes, outstanding common shares, other secured claims and unsecured claims (collectively, the "Holders") as of the close of business on July 7, 1995 (the "Record Date"), a copy of the Disclosure Statement and Proxy Statement for the Solicitation of Votes for the Prepackaged Plan of Reorganization (the "Disclosure Statement"). Pursuant to the Disclosure Statement, the solicitation of ballots in favor of the Prepackaged Plan expired at midnight (New York time) on August 17, 1995. On August 18, 1995, the Trust filed a voluntary petition for reorganization under Chapter 11 in the Bankruptcy Court commencing a bankruptcy case, Bankruptcy Case No. LA 95-31101-SB. The Prepackaged Plan was confirmed by the Bankruptcy Court by an order entered September 22, 1995. The Trust entered into an amended and restated indenture (the "New Indenture") with Wilmington Trust Company as trustee, an amended and restated collateral and security agreement (the "New Security Agreement"), a pledge agreement (the "Pledge Agreement"), and a registration rights agreement (the "Registration Rights Agreement"). The Prepackaged Plan became effective September 29, 1995 (the "Effective Date") and provided for, among other things, (i) a 1 for 33.33 reverse stock split of the outstanding common shares affecting the shareholders of record as of September 29, 1995, and (ii) the issuance to holders of the Trust's debt securities: (a) $110,000,000 principal amount of newly issued 11-1/8% Senior Secured Notes due 2002 (the "Senior Notes"), (b) $71,000,000 in cash and (c) approximately 10,889,430 new common shares, par value $1.00 per share, representing, in the aggregate, approximately 97% of the common shares outstanding after the Effective Date (all common shares outstanding after the Effective Date hereinafter referred to as the "Common Shares"). BUSINESS PLAN Since emerging from bankruptcy on September 29, 1995, the Trust has not yet formulated a long-term strategic plan. The Trust's current plan is to evaluate each of its assets and identify, over the next one to two years, a core portfolio of properties to retain and operate or to offer for sale, with a view to maximizing the Trust's overall return to investors. The Trust's core portfolio may focus on one or more property types or on specific geographical regions, in each case where the Trust believes opportunities for appreciation exist. It may seek to make improvements to such properties in order to maximize their value, or may hold properties when it believes them to be undervalued. Management may from time to time determine to sell one or more properties consistent with the Trust's goal of focusing its holdings on a core portfolio. In addition, the Trust may receive unsolicited bids for one or more properties and will consider such bids in light of management's assessment of such factors as the price offered for the properties, their possibility for future appreciation and/or the current return to the Trust from operating such properties, and the fit of such properties with the Trust's remaining portfolio of core properties. The Trust may also, from time to time, identify new properties for acquisition or make investments as opportunities arise, in each case consistent with the Trust's definition of its core portfolio. In addition to reviewing each of its properties, the Trust is currently assessing its mortgage loan portfolio, with a view to identifying and formulating a plan of action with respect to non-performing loans and loans that are unlikely to be collected in a timely manner. Performing loans may be retained by the Trust for their current yield - 3 - and the Trust may, from time to time, solicit bulk sale bids for some or all of its non-performing and/or performing loans. As of September 30, 1995 the Trust had cash and marketable securities valued at approximately $16.8 million of which $6.8 million is restricted as to use under terms of a termination pay plan, and various escrow and lease agreements. The Trust intends to use available funds, together with funds from operations and net proceeds from the sale of assets, to make appropriate capital and tenant improvements to its properties and to make acquisitions of new properties from time to time as described above. Pending such use, the Trust will use its funds to reduce leverage by repaying, redeeming or repurchasing its indebtedness or to make other investments (including investments in the Trust's Common Shares), subject to the terms of its debt instruments as in effect from time to time. COMPETITION, REGULATION, AND OTHER FACTORS The success of the Trust depends upon, among other factors, general economic conditions and trends, including real estate trends, interest rates, government regulations and legislation, income tax laws and zoning laws. The Trust's real estate investments are located in markets in which they face significant competition. Many of the Trust's investments, particularly the office buildings, are located in markets which have an over-supply of available space, resulting in intense competition for tenants and low rents. GOVERNMENT REGULATIONS The Trust's properties are subject to various federal, state and local regulatory requirements such as local building codes and other similar regulations. The Trust believes that the properties are currently in substantial compliance with all applicable regulatory requirements, although expenditures at properties owned by the Trust may be required to comply with changes in these laws. No material expenditures are contemplated at this time in order to comply with any such laws or regulations. The Trust believes that it is in compliance in all material respects with all federal, state and local laws regarding hazardous or toxic substances, and the Trust has not been notified by any governmental authority of any noncompliance or other claim in connection with any of its present or former properties. To date, compliance with federal, state and local environmental protection regulations has not had a material effect upon the Trust. OTHER INFORMATION As of September 30, 1995, the Trust employed 25 people. The Trust is currently in the process of assessing and redeploying its employees. As such, the number of employees of the Trust will be fluctuating for the first quarter of fiscal 1996. The Trust's current business constitutes a single business segment. The Trust is not dependent upon a single tenant or a limited number of tenants. The Trust's principal offices are currently located at 120 Albany Street, 8th Floor, New Brunswick, New Jersey 08901 and 22120 Clarendon Street, Suite 230, Woodland Hills, California 91367; the Trust's telephone numbers are (908) 296-3080 and (818) 594-8586, respectively. INVESTMENTS Although the Trust has continued to fund previously existing investment commitments and to fund limited tenant improvements and similar investments necessary to retain or obtain tenants, the Trust has not made any new investments in loans or properties since its Prior Bankruptcy Case filing, but it has continued to manage its investment portfolio. Loans are secured by first or junior mortgages as well as mortgages secured by leaseholds. Loans made by the Trust are secured by mortgages on income-producing properties, including office buildings, shopping centers, - 4 - industrial projects, apartments and condominium projects. When the Trust made investments, it abided by various restrictions consisting principally of loan-to-value ratios, investment ranges and percentage of total assets invested in loans to a single borrower. The Trust's investments are primarily located in major metropolitan areas throughout the United States. As of September 30, 1995, the Trust held investments in mortgage loans, investments in real estate and other interests in real properties located in 18 states. The following pages contain summaries of the Trust's investments at September 30, 1995. - 5 - VALUE PROPERTY TRUST REAL ESTATE INVESTMENTS SEPTEMBER 30, 1995
ASSET DATE OCCUPANCY # PROJ TYPE ASSET NAME CITY ST ACQUIRED OWNERSHIP TOTAL SQ. FT. @ 9/30/95 - ----- ---------- -------------------------- --------------- --- -------- --------- -------------- --------- 498 Apartments Junipers Yarmouth ME Feb-92 100% 188,087 SF 97.0% 643 Apartments Villa del Cresta Florissant MO Feb-92 100% 333,038 SF 95.0% 646 Apartments McLaughlin Hammond IN Apr-94 100% 166,056 SF 96.0% ------------------------- TOTAL APARTMENTS 687,181 SF 95.8% ------------------------- 421 Industrial Parkway Richmond CA Jan-89 100% 87,654 SF 67.0% 452 Office/Ind. Keewaydin Salem NH Aug-92 100% 125,230 SF 72.0% 467 Industrial North County Yorba Linda CA Mar-91 100% 105,930 SF 88.0% 563 Industrial Slauson Whittier CA May-87 100% 111,923 SF 91.0% 575 Office/Whse Turnpike Canton MA Jan-91 100% 50,972 SF 43.0% 577 Whse/Office South St. Hopkinton MA Jan-91 100% 119,000 SF 0.0% 606 Industrial Maryland Road Willow Grove PA Jun-93 100% 108,514 SF 0.0% 629 Industrial Nash El Segundo CA Jan-94 100% 45,924 SF 84.0% 637 Office/Ind 900 Bldg Minneapolis MN Sep-93 100% 216,000 SF 95.0% 638 Warehouse 6950 Bldg Eden Prairie MN Sep-93 100% 90,000 SF 100.0% 647 Industrial Moreno Valley Moreno Valley CA Nov-92 100% 251,090 SF 100.0% 659 Industrial Avenue Hall Valencia CA Jul-91 100% 86,980 SF 90.0% 679 Office/Whse Mellen St. Framingham MA Apr-92 100% 57,797 SF 68.0% 682 Whse/Distr Fife-TPIP II * Fife (Tacoma) WA Dec-92 15% 332,508 SF 100.0% 684 Whse/Distr Keystone I Partnership * Bristol Twp. PA Jun-93 70% 100,725 SF 100.0% 641 Ind/Office Bay City Holdings * Santa Monica CA Jan-95 85% 114,375 SF 93.0% ------------------------- TOTAL INDUSTRIAL 2,004,622 SF 80.2% ------------------------- 439 Office Summer Street Boston MA Jan-90 100% 69,527 SF 70.0% 447 Office Riverside Centre Portland OR Aug-89 100% 99,233 SF 95.0% 448 Office Stadium Towers Anaheim CA Aug-88 100% 64,574 SF 71.0% 462 Office Chestnut Street Philadelphia PA Jan-91 100% 50,326 SF 73.0% 542 Office Southampton Southampton PA Feb-92 100% 42,040 SF 94.0% 558 Office Pinebrook I King of Prussia PA May-87 100% 57,756 SF 77.0% 409 Office Pinebrook II King of Prussia PA May-87 100% 58,521 SF 97.0% 687 Office Six Sentry Parkway Blue Bell PA Jun-94 100% 91,587 SF 75.0% 420 Office Hoes Lane Piscataway NJ Aug-91 100% 37,238 SF 81.0% 544 Office Two Executive Campus Cherry Hill NJ Oct-92 100% 102,310 SF 55.0% 664 Office Clarewood Woodland Hills CA May-92 100% 39,902 SF 89.0% 574 Office Burtonsville Commerce Burtonsville MD Mar-95 100% 91,428 SF 98.0% ------------------------- TOTAL OFFICE 804,442 SF 80.4% ------------------------- 591 Retail Creekside Partnership * Vacaville CA Oct-94 80% 116,215 SF 74.0% 630 Retail Newark Partnership * Newark CA Oct-94 90% 65,760 SF 85.0% 672 Retail Paseo Padre Fremont CA Oct-90 100% 194,625 SF 89.0% 673 Retail Arcade Square Sacramento CA Sep-93 100% 76,452 SF 81.0% 590 Retail Berdon Plaza Fairhaven MA Apr-91 100% 116,151 SF 18.0% 639 Retail Bradford Plaza West Chester PA Aug-95 100% 129,609 SF 71.0% ------------------------- TOTAL RETAIL 698,812 SF 70.1% ------------------------- TOTAL PORTFOLIO 4,195,057 SF 81.1% ------------------------- -------------------------
* The Trust has a partnership interest in this property - 6 - VALUE PROPERTY TRUST GEOGRAPHIC DISTRIBUTION OF INVESTMENTS SEPTEMBER 30, 1995
State Apartments Hotel Industrial Office Residential - ------ ---------- ----- ---------- ------ ----------- Arizona . . . . . . . $2,963,521 California. . . . . . $170,064 33,983,030 $8,980,257 $52,453 Colorado. . . . . . . Delaware. . . . . . . 155,928 Georgia . . . . . . . 45,449 Indiana . . . . . . . 3,658,732 Maine . . . . . . . . 7,649,887 Maryland. . . . . . . 5,220,406 549,086 Massachusetts . . . . 5,325,881 1,657,311 Minnesota . . . . . . 2,040,161 Missouri. . . . . . . 8,208,281 Nevada. . . . . . . . $1,985,852 New Hampshire . . . . 3,599,438 New Jersey. . . . . . 2,074,301 Oregon. . . . . . . . 5,850,051 Pennsylvania. . . . . 11,168,874 16,127,183 Virginia. . . . . . . 105,577 Washington. . . . . . 3,998,323 ----------- ---------- ----------- ----------- -------- Totals $19,686,964 $1,985,852 $63,079,228 $39,909,509 $908,493 ----------- ---------- ----------- ----------- -------- ----------- ---------- ----------- ----------- -------- Percentage 9.50% 0.96% 30.44% 19.26% 0.44% ----------- ---------- ----------- ----------- -------- ----------- ---------- ----------- ----------- -------- Retail Research & Secured Buildings Development Notes Totals % ---------- ------------ ------- ----- ----- Arizona . . . . . . . $2,963,521 1.43% California. . . . . . $49,869,065 $11,313,263 $370,276 104,738,408 50.59% Colorado. . . . . . . 133,599 133,599 0.06% Delaware. . . . . . . 155,928 0.08% Georgia . . . . . . . 45,449 0.02% Indiana . . . . . . . 3,658,732 1.77% Maine . . . . . . . . 7,649,887 3.69% Maryland. . . . . . . 5,769,492 2.78% Massachusetts . . . . 6,752,852 13,736,044 6.63% Minnesota . . . . . . 2,393,919 4,434,080 2.14% Missouri. . . . . . . 8,208,281 3.96% Nevada. . . . . . . . 1,985,852 0.96% New Hampshire . . . . 3,599,438 1.74% New Jersey. . . . . . 2,074,301 1.00% Oregon. . . . . . . . 5,850,051 2.82% Pennsylvania. . . . . 8,925,536 1,528,820 262,936 38,013,349 18.35% Virginia. . . . . . . 105,577 0.05% Washington. . . . . . 3,998,323 1.93% ----------- ----------- --------- ------------ ------- Totals $65,681,052 $15,236,002 $633,212 $207,120,312 ----------- ----------- --------- ------------ ----------- ----------- --------- ------------ Percentage 31.70% 7.39% 0.31% 100.00% ----------- ----------- --------- ------- ----------- ----------- --------- -------
- 7 - FRESH START REPORTING In connection with its emergence from Chapter 11 proceedings, the Trust implemented Fresh Start Reporting as provided in Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("Fresh Start Reporting"). As a result, as of September 30, 1995 all assets were recorded at reorganization value and all liabilities were recorded to reflect their fair value. For additional information on this reporting method, see Note 1 - "Basis of Financial Information and Plan of Reorganization" in the Notes to the Financial Statements. ITEM 2. PROPERTIES. INVESTED ASSETS The Trust has 69 assets under management consisting of 31 loans and 38 real estate investments. At September 30, 1995, as a result of the approval of the Trust's Prepackaged Plan of Reorganization, the carrying amount of all assets have been restated in accordance with Fresh Start Reporting. The Trust has classified these assets as follows: INVESTED ASSETS --------------- Reorganization Value % -------------- ---- ($000) ASSETS HELD FOR SALE: --------------------- Mortgage loans $ 21,966 10.6% Real estate investments 42,059 20.3% Investments in partnerships 5,220 2.5% --------- ----- Subtotal 69,245 33.4% --------- ----- ASSETS HELD FOR INVESTMENT: --------------------------- Mortgage loans 35,013 16.9% Real estate investments 81,581 39.4% Investments in partnerships 20,648 10.0% Notes receivable 633 .3% --------- ----- Subtotal 137,875 66.6% --------- ----- TOTAL INVESTED ASSETS $207,120 100.0% ======== ====== ITEM 3. LEGAL PROCEEDINGS. A discussion of events surrounding the Trust's Prior Bankruptcy Case and an explanation of the material terms of the Trust's reorganization under the 1991 Plan are set forth in the section entitled "Previous Chapter 11 Case and 1991 Plan of Reorganization" under Item 1 above. The Prior Bankruptcy Case was closed on November 4, 1994 pursuant to a final order of the Bankruptcy Court. A discussion of events surrounding the Trust's 1995 prepackaged bankruptcy filing and an explanation of the material terms of the Trust's reorganization under the Prepackaged Plan are set forth in the section entitled - 8 - "Recent Chapter 11 Case and 1995 Prepackaged Plan of Reorganization" under Item 1 above. Notwithstanding the confirmation of the Trust's Prepackaged Plan, as of September 29, 1995, the bankruptcy court continued to have jurisdiction among other things, to resolve disputes that may arise under the Prepackaged Plan. A third party has alleged the existence of a purchase contract with respect to one of the Trust's properties which the Trust disputes. This dispute may lead to litigation, but the Trust believes that any such litigation would not have a material effect on earnings or business prospects of the Trust. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On July 12, 1995 the Disclosure Statement was mailed to the shareholders of the Trust pursuant to a consent solicitation for votes for the Prepackaged Plan. The Disclosure Statement described the 1995 Restructuring pursuant to the Prepackaged Plan. The consent solicitation expired at 12:00 midnight, New York City time, on August 17, 1995. The following is a summary of the results of the ballots received from the classes that were solicited: (i) Class 2 - Claims of holders of Old Notes - 24 out of 24 claims voted in favor of the Prepackaged Plan; (ii) Class 4 - Unsecured Claims - the entire $368,561.67 amount of claims was voted in favor of the Prepackaged Plan; and (iii) Class 5 - Interest of holders of outstanding common shares - 5,384,146 out of 10,260,215 of the outstanding common shares were voted, 5,221,355 in favor and 162,791 against the Prepackaged Plan. On or about October 5, 1995, in response to a mailing of consent requests on or about October 4, 1995 to the holders of approximately 97% of the Trust's outstanding Common Shares, the Trust had received the written consent of 85.29% of the Trust's outstanding Common Shares approving an amendment to the Trust's Amended and Restated Declaration of Trust changing the Trust's name to "Value Property Trust." Subsequently, on or about October 6, 1995, the Trust mailed a 14-C Information Statement describing this vote to all of the holders of the Trust's outstanding Common Shares. - 9 - PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON SHARES AND RELATED SHAREHOLDER MATTERS. (a) MARKET PRICE AND DIVIDENDS The Trust's Common Shares are listed for trading on the New York Stock Exchange under the symbol "VLP", and until October 27, 1995 they were traded under the symbol "MRT". No dividends have been declared by the Trust in the past two years. The following table shows the high and low sales prices for each fiscal quarter during the past two years: High Low ---- --- 1995 First Quarter . . . . . $ 1/4 $ 1/8 Second Quarter . . . . . 3/8 3/16 Third Quarter . . . . . 11/32 7/32 Fourth Quarter . . . . . 11/32 9/32 1994 First Quarter . . . . . $ 5/8 $ 3/8 Second Quarter . . . . . 5/8 3/8 Third Quarter . . . . . 1/2 3/8 Fourth Quarter . . . . . 1/2 1/4 On October 2, 1995, pursuant to the conditions of the Prepackaged Plan, the Trust directed the New York Stock Exchange to effectuate a 1 for 33.33 reverse stock split of the Trust's outstanding common shares which resulted in a reduction of the Trust's outstanding common shares from approximately 11,226,215 to approximately 336,820. Simultaneously, and also pursuant to the conditions of the Prepackaged Plan in exchange for the release of certain debt by the Trust's noteholders, the Trust directed the New York Stock Exchange to issue approximately 10,890,180 new Common Shares. The combined result of these actions by the Trust on the New York Stock Exchange is that, as of October 2, 1995, substantially the same amount of Common Shares are authorized and outstanding as before the reverse stock split and issuance of new Common Shares and on October 2, 1995 the Trust's Common Shares were trading at $10 1/2. The Trust incurred net operating losses ("NOLs") of $35 million, $38 million, $31 million and $12 million for tax purposes in fiscal 1994, 1993, 1992 and 1991, respectively. The Trust estimates a net operating loss before cancellation of indebtedness ("COD") income for tax purposes of approximately $41 million for fiscal 1995. Beginning with fiscal 1996, NOLs available to offset taxable income in future years will be approximately $82 million after the recognition for tax purposes of the COD income of approximately $75 million. These NOLs will be subject to the Code Section 382 annual limitations on the use of the NOLs. The Trust estimates this annual limitation to be approximately $6 million with any portion of the Section 382 limitation not used in any taxable year carried forward up to fifteen years. After the recognition of the COD income, the remaining NOLs available will be $9 million, $38 million and $35 million from fiscal 1992, 1993 and 1994, respectively. (b) HOLDERS OF COMMON SHARES There were approximately 4,700 record holders of the Trust's Common Shares at December 20, 1995. (c) The Trust did not declare or pay any dividends during either the fiscal year ended September 30, 1995 or the fiscal year ended September 30, 1994. In addition, the New Indenture governing the New Notes - 10 - prohibits the Trust from declaring or making any dividends to shareholders other than dividends required for the Trust to maintain its REIT status unless the Consolidated Net Worth (as defined in the New Indenture) of the Trust at the time of such payment and after giving effect thereto is at least $50 million; provided, however, that the Trust shall in no event declare or make any such payment or other distribution if a Default or Event of Default (as defined in the New Indenture) has occurred and is continuing under the New Indenture. - 11 - ITEM 6. SELECTED FINANCIAL DATA. SELECTED FINANCIAL DATA
Post Confirmation Pre-Confirmation ------------ ----------------------------------------------------------------------------- Years Ended September 30 ----------------------------------------------------------------------------- 1995 1994 1993 1992 1991 ------------- ------------- ------------- ------------- ------------- OPERATING DATA Total Income $ 39,464,000 $ 36,277,000 $ 38,342,000 $ 42,009,000 $ 56,253,000 Interest and other operating expenses 52,120,000 47,668,000 43,967,000 42,077,000 51,736,000 Depreciation and amortization 7,306,000 5,839,000 5,500,000 4,470,000 3,062,000 Provision for losses 3,000,000 2,000,000 37,000,000 32,000,000 33,000,000 Gain on sale of real estate - - - - 244,000 Loss from operations before reorganization items and extraordinary items (22,962,000) (19,230,000) (48,125,000) (36,538,000) (31,301,000) Reorganization Items Professional fees and other expenses, net (5,778,000) (2,360,000) (5,844,000) (934,000) (4,352,000) Write down of invested assets to reorganization value (66,597,000) Net loss before extraordinary item (95,337,000) Extraordinary Item - Gain on extinguishment of debt 75,304,000 - - - - Net loss $ (20,033,000) $ (21,590,000) $ (53,969,000) $ (37,472,000) $ (35,653,000) Net loss per share* September 30, September 30, September 30, September 30, September 30, BALANCE SHEET DATA 1995 1994 1993 1992 1991 ------------- ------------- ------------- ------------- ------------- Invested assets $ 207,120,000 $ 309,973,000 $ 347,526,000 $ 424,394,000 $ 505,600,000 Total assets 232,329,000 364,740,000 353,874,000 427,268,000 514,754,000 Allowance for losses - 13,430,000 11,808,000 19,353,000 14,707,000 Senior Notes (due 1995) - 290,000,000 290,000,000 312,000,000 374,000,000 Senior Notes (due 2002) 109,975,000 Mortgage payable 17,535,000 17,593,000 17,572,000 15,615,000 - Shareholders' equity 100,074,000 20,033,000 41,623,000 95,592,000 133,064,000
* Net loss per share for all pre-confirmation periods is not presented because this information is not meaningful as a result of the Reorganization and "Fresh Start Reporting". See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations on Page 13. -12- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. MANAGEMENT DISCUSSION Value Property Trust is a Maryland REIT engaged in the business of managing its portfolio of mortgage loans and real estate investments. On October 26, 1995, the Trust's name was changed from Mortgage and Realty Trust to Value Property Trust. On September 29, 1995, the Trust's Prepackaged Plan of Reorganization was declared effective by the United States Bankruptcy Court for the Central District of California. Under the Prepackaged Plan, holders of the Trust's $290,000,000 principal amount of Old Notes received: (i) $110,000,000 principal amount of newly issued Senior Notes; (ii) $71,000,000 in cash; and (iii) approximately 10,889,430 new Common Shares representing in the aggregate approximately 97% of the Common Shares outstanding after the Effective Date. In connection with the Prepackaged Plan, the Trust effected a 1 for 33.33 reverse stock split of its outstanding common shares. In connection with its emergence from Chapter 11 proceedings, the Trust implemented Fresh Start Reporting as of September 30, 1995. Fresh Start Reporting was required because: (1) the reorganization value of the Trust's assets immediately before the date of confirmation was less than the total of all post-petition liabilities; (2) there was more than a 50% change in the ownership of the Trust; and (3) there was a permanent and substantive loss of control by existing shareholders. As a result, all assets and liabilities were restated to reflect their appropriate carrying value. The September 30, 1995 balance sheet amounts have been segregated by a black line in order to signify that the balance sheet is that of a new reporting entity and has been prepared on a basis not comparable to the pre-confirmation balance sheets. (See "Note 1, Notes to Financial Statements" for additional information concerning Fresh Start Reporting). The following section includes a discussion and analysis of the results of operations on a pre-confirmation basis, for the years ended September 30, 1995, 1994 and 1993. The Trust has, for the past several years, reported significant net losses. As a result of the restructuring, past results should not be indicative of future operating performance. Future results of operations of the Trust will not be comparable to the historical operating performance. RESULTS OF OPERATIONS The Trust reported a net loss for fiscal 1995 of $20.0 million. The loss includes: (1) reorganization items for professional fees, interest income and an adjustment that reduced invested assets by $66.6 million as a result of adopting Fresh Start Reporting; and (2) an extraordinary item of $75.3 million reflecting the gain on extinguishment of debt. The Trust's loss from operations before the reorganization items and the extraordinary item was $23.0 million. The 1995 loss includes a provision for losses of $3.0 million and interest expense accrued of $35.9 million. The Trust reported a net loss for fiscal 1994 of $21.6 million compared to a net loss of $54.0 million for fiscal 1993. The 1994 loss includes a provision for losses of $2.0 million compared to a provision for losses of $37.0 million in 1993. Reorganization expense was $2.4 million in 1994 compared to $5.8 million in 1993. Interest and fee income on mortgage loans was $9.4 million for fiscal 1995 compared to $14.7 million in fiscal 1994. The decrease results primarily from a reduction in earning mortgage loans which averaged $97.8 million for fiscal 1995 compared to $131.4 million for fiscal 1994. During fiscal 1995, mortgage loans of approximately $10.9 million were transferred to real estate and $22.7 million have been repaid. Interest and fee income decreased from $19.0 million in 1993 to $14.7 million in fiscal 1994. The decrease resulted primarily from repayment of mortgage loans which totalled $25.5 million and the transfer of $13.1 million of loans to real estate owned. - 13 - Rental income was $24.6 million for fiscal 1995 compared to $18.5 million for fiscal 1994 and $17.4 million for fiscal 1993. In addition to rental income, the Trust received reimbursement of certain operating expenses totalling $2.3 million, $1.7 million and $1.6 million for fiscal 1995, 1994 and 1993, respectively. Operating expenses and depreciation and amortization on rental properties increased to $19.0 million in fiscal 1995 compared to $15.7 million for both fiscal 1994 and 1993. The increases in income and expenses on rental properties results from continued acquisition of real estate properties and improvement in occupancy levels. At September 30, 1995 the Trust owned 38 real estate properties compared to 34 at September 30, 1994. A total of 5 properties were added during the year as a result of foreclosures and 1 property was sold. Rental Income, reimbursed operating expenses and operating expenses attributable to the net increase in the number of properties owned totaled $2.9 million, $.7 million and $2.1 million respectively. Occupancy levels increased to 81.1% at September 30, 1995 compared to 79.6% at September 30, 1994. Interest on short-term investments was $3.5 million in 1995 compared to $1.2 million and $.2 million for fiscal years 1994 and 1993, respectively. The increase in fiscal 1995 was due to the continuing accumulation of available cash. Available cash averaged $57.6 million for fiscal 1995 compared to $32 million and $8.6 million in fiscal years 1994 and 1993, respectively. The increase results from the fact that the Trust made no payment (interest or principal) on the Old Notes since September 30, 1993. On April 11, 1995 the Trust made a $25.0 million payment and on September 29, 1995 an additional $46 million payment was made to Old Note holders. At September 30, 1995 cash and cash equivalents were $16.8 million, including restricted cash for borrowers deposits and the Trust's termination pay plan. Interest expense accrued for fiscal 1995 totalled $35.9 million compared to $33.0 million and $28.5 million for fiscal years 1994 and 1993, respectively. The Trust's average borrowing rate for fiscal 1995 was 13.3% compared to 10.7% and 9.2% for fiscal years 1994 and 1993, respectively. The unamortized cost of restructuring of Old Notes totalling $3.4 million was charged off during fiscal 1993 as a result of the monetary default. As a result of implementing Fresh Start Reporting, the Trust wrote down its real estate investments by $66.6 million to reorganization value. In addition, net reorganization expenses incurred by the Trust were $5.8 million in fiscal 1995, compared to $2.4 million and $5.8 million in fiscal years 1994 and 1993, respectively. The Trust recorded a $75.3 million extraordinary item-gain on extinguishment of debt against interest and principal due of $331.4 million on the Old Notes. Other operating expenses declined to $4.5 million for fiscal 1995 from $4.8 million and $5.3 million for fiscal years 1994 and 1993, respectively. The decrease was primarily due to a decrease in professional fees and expenses. A $3.0 million provision for losses was established in the current fiscal year compared to a provision of $2.0 million in 1994 and $37.0 million in 1993. The Trustees review the investment portfolio quarterly using current estimates and assumptions to determine the adequacy of the allowance for losses. The estimates and assumptions used in the valuation process are subject to changes which may be material. LIQUIDITY AND CAPITAL RESOURCES Prior to its 1995 Restructuring, the Trust faced significant liquidity problems. The Trust did not generate sufficient cash flow from normal operations and was not able to liquidate mortgage loans and real estate investments in order to meet scheduled amortization on its Old Notes. As a result of the 1995 Restructuring, the Trust should no longer have the liquidity problems that it faced in the past years. Cash flow from operating activities should be sufficient to meet minimum debt service requirements. In the near term, capital expenditure needs will be met through liquidation of existing assets and the cash available at September 30, 1995. The Trust may, in the future, seek to raise additional capital through issuance of equity securities and/or the incurring of additional indebtedness for the purpose of meeting additional capital expenditures or retiring the New Notes. The New Indenture restricts the payment of dividends, other than such declaration and making of dividend payments that the Trust deems necessary to preserve its status as a REIT, unless the Consolidated Net Worth (as defined in the New Indenture) of the Trust at the time of such payment and after giving effect thereto is at least $50 million; provided, however, that the Trust shall in no event declare or make any such dividend payment or other - 14 - distribution if a Default or Event of Default (as defined in the New Indenture) has occurred and is continuing. Under the Code, the Trust must distribute 95% of its "REIT taxable income" to its shareholders to continue to qualify as a REIT. Taxable income required to be distributed will be less than financial reporting under generally accepted accounting principles due to differences related to depreciation, use of NOLs (subject to the Code Section 382 limitations) and timing differences related to bad debt deductions. The New Indenture contains various affirmative, negative and financial covenants including limitations on investments. The Trust's cash flow is derived from operating, investing and financing activities. In 1995, cash flow provided from operating activities decreased substantially as a result of a $32.6 million reduction in interest payable. Interest payable increased $32.2 million in 1994 from 1993 as the Trust did not generate cash flow sufficient to service the Old Notes and was in default as to the payment of principal and interest. Cash provided by investing activities also declined substantially in 1995 compared to 1994. Repayments on mortgage loans and real estate sales activity declined in 1995 to $22.7 million and $3.3 million from $34.3 million and $6.4 million in 1994, respectively. In 1993, repayments were $25.0 million and sales of real estate totaled $16.2 million. The Trust has offered discounts on the repayment of mortgage loans and has sold real estate in an effort to generate cash to meet principal and interest payments on the Old Notes. Cash used in financing activities increased to $8.5 million in 1995 compared to $3.0 million in 1994 primarily as a result of a $4.6 million principal payment on the Old Notes. Principal payments were not made in 1994 as the Trust was in default as to principal and interest payments on the Old Notes. In 1993, the Trust made a $22.0 million principal payment on the outstanding debt. In 1994, as a result of being in default and not making scheduled payments with respect to the Old Notes, cash and cash equivalents increased from $11.5 million to $57.3 million. However, as a result of the Prepackaged Plan of Reorganization, principal and interest payments were made in 1995 and cash and cash equivalents decreased to $10.0 million at the end of 1995. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements and supplementary data are as set forth in the "Index to Financial Statements" on page 28. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. - 15 - PART III ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT. EXECUTIVE OFFICERS OF THE REGISTRANT The following are the executive officers of the Trust: NAME AGE POSITIONS AND OFFICES WITH THE TRUST ---- --- ------------------------------------ George R. Zoffinger 47 President, Chief Executive Officer and Trustee Hugh T. Regan, Jr. 35 Treasurer and Secretary The officers of the Trust serve a one-year term of office and are elected to their positions each year by the Trustees at the annual organization meeting of Trustees which normally immediately follows the annual meeting of shareholders. Mr. Zoffinger was appointed the President and Chief Executive Officer of the Trust pursuant to the terms of the Prepackaged Plan. The Board of Trustees ratified such appointment and elected Hugh T. Regan, Jr. to the positions of Treasurer and Secretary on October 2, 1995. Mr. Regan has served as a Vice President of the Trust since 1989. For information about Mr. Zoffinger's professional background, see "Trustees of the Registrant" below. TRUSTEES OF THE REGISTRANT The following biographical information is furnished as to each of the current Trustees of the Trust. NAME, AGE AND POSITIONS YEAR FIRST WITH THE BECAME TRUSTEE TRUST PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS(1) - -------------- ---------- ----------------------------------------------- Jeffrey Altman Chairman, Chairman of the Board of Trustees of the Trust 29 years Trustee since October 1995. Vice President of Mutual September 1995 Series Fund Inc. since 1995. Analyst with Heine Securities Corporation since 1990. Director of Resurgence Properties Inc. George R. President, Mr. Zoffinger served as Chairman of the Board of Zoffinger Chief Corestates New Jersey National Bank from April 47 years Executive 1994 to the present. From December 1991 to September 1995 Officer, April 1994, he served as President and Chief Trustee Executive Officer of Constellation Bancorp and Constellation Bank. From March 30, 1990 to December 1991, Mr. Zoffinger served as the Commissioner for the New Jersey State Department of Commerce and Economic Development, as well as Chairman of the Board of the New Jersey Economic Development Authority. Mr. Zoffinger has served on the Board of Directors of Multicare, Inc. since April 1995. Carl A. Mayer, Trustee Founded The Mayer Group in 1990, an advisor Jr. group offering consulting and marketing 57 years expertise and services to real estate investment September 1995 companies who are seeking investment capital from the pension fund community. Mr. Mayer continues to serve as a principal of The Mayer Group. Martin Bernstein Trustee A private investor who has been managing family 58 years funds since 1988. Prior to this period, Mr. September 1995 Bernstein served as a founding General Partner of Halcyon Investments and Alan B. Slifka & Co. (investments). Mr. Bernstein also currently serves on the Board of Directors of Astro Communications and MBO Properties, Inc. - 16 - John B. Levy Trustee Currently the President of John B. Levy & 48 years Company, Inc., a real estate consulting firm September 1995 based in Richmond, Virginia, and has served in that capacity since June 1995. Mr. Levy was an Executive Vice President of Republic Realty Mortgage Corporation from 1993 to June 1995. Prior to 1993, Mr. Levy acted as Senior Vice President of Nationsbanc Mortgage Corporation, and was charged with lender relations, production of new income property loans and management of the production offices. Richard B. Trustee Currently the President of Realty Capital Jennings International Inc., a real estate investment 51 years banking firm, and has served in that capacity September 1995 since 1991. Between 1990 and 1991, Mr. Jennings acted as Senior Vice President of Landauer Associates, Inc., a real estate appraisal and advisory firm based in New York, New York. Mr. Jennings has also been President of Jennings Securities Corporation since 1995. Mr. Jennings currently serves on the Board of Directors of MBO Properties, Inc. Richard S. Frary Trustee The founding partner and majority shareholder of 48 years Tallwood Associates, Inc., a private merchant September 1995 banking firm specializing in corporate restructurings and real estate, and has served in that capacity since 1990. Mr. Frary currently serves on the Board of Directors of Washington Homes, Inc. - ---------------- (1) Included are only directorships in companies with a class of equity securities registered pursuant to Section 12 or subject to the requirements of Section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and in financial institutions and insurance companies. ITEM 11. TRUSTEE AND EXECUTIVE COMPENSATION. COMPENSATION OF FORMER NON-OFFICER TRUSTEES During the fiscal year ended September 30, 1995, the Trustees received as compensation for their services as Trustees an annual retainer of $10,000 plus $800 for each regular monthly Trustee meeting attended in person or conducted by telephone conference; $600 for each committee meeting attended in person; and $400 for any Trustee or committee meeting, other than the regular, monthly Trustee meeting, convened by telephone conference; except that no additional compensation was paid for attendance at any committee meeting held on the same day as any Trustee meeting. An additional $100 fee was payable per meeting to the chairman of any committee. On September 20, 1989, the Trustees adopted the Pension Plan for Trustees, effective October 1, 1989. Trustees become eligible for plan benefits upon completion of five years of service as Trustee, including years served prior to the plan's effective date. Under the plan, each eligible Trustee will be entitled to a normal retirement benefit equal to the annual retainer for Trustees at the rate in effect on the Trustee's normal retirement date or, if earlier, the Trustee's last day of Board membership. On April 5, 1995, the Board of Trustees amended the pension plan for Trustees to provide that should any Trustee's service terminate for any reason within one year after the Effective Date of the Prepackaged Plan, such terminated Trustee shall receive a one-time single-sum cash payment equal in amount to the net present value of the maximum aggregate projected benefit obligation of the Trust to that Trustee. No other death benefits became payable on behalf of any Trustee under the plan. All former Trustees received lump sum distributions in connection with the termination of their service under the Prepackaged Plan. - 17 - COMPENSATION OF CURRENT NON-OFFICER TRUSTEES Current Trustees receive $750 for each meeting and, in lieu of an annual retainer, the Trustees will be granted options to purchase Common Shares under the proposed 1995 Common Share Option Plan, as described in "1995 Common Share Option Plan". The Pension Plan for the Trustees, as currently in effect, would provide no retirement benefits for the current Trustees because they receive no annual retainer. The following table provides information about the compensation for the Chief Executive Officers and the four other most highly compensated officers of the Trust for the fiscal years ended September 30, 1995, 1994, 1993 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE Awards Payouts -------------------- ------- Annual Compensation(1) ------------------------------------------------------- Other Annual Restricted Options/ LTIP All Other Name and Fiscal Salary Bonus Compensation Shares SARs Payouts Compensations Principal Position Year ($)(2) ($) ($) ($) (#) ($) ($)(3) - ------------------ ------ ------ ------ ------------ ----------- ------- ------- ------------- George R. Zoffinger 1995(4) -- -- -- -- -- -- -- President and Chief 1994 -- -- -- -- -- -- -- Executive Officer 1993 -- -- -- -- -- -- -- C.W. Strong, Jr. 1995 $175,000 -- -- -- -- -- $3,000 Former Chief 1994 175,000 -- -- -- -- -- 3,000 Executive Officer 1993 175,000 -- -- -- -- -- 3,000 Victor H. 1995 $100,000 -- -- -- -- -- $3,000 Schlesinger 1994 100,000 -- -- -- -- -- 3,000 Former Chairman 1993 100,000 -- -- -- -- -- 3,000 -- James A. Dalton, 1995 $200,301 $25,000 -- -- -- -- $3,000 Former Vice 1994 188,348 25,000(5) -- -- -- -- 3,000 President 1993 181,104 20,000 -- -- -- 3,000 Daniel F. 1995 $129,488 $20,000 -- -- -- -- $3,000 Hennessey, 1994 129,488 20,000(5) -- -- -- -- 3,000 Former Chief 1993 124,508 20,000 -- -- -- -- 3,000 Financial Officer Donald W. Burnes, 1995 $127,968 $25,000 -- -- -- -- $3,000 Jr. 1994 120,595 30,000(5) -- -- -- -- 3,000 Former Vice 1993 114,448 30,000 -- -- -- -- 3,000 President
(1) In the fiscal year ended September 30, 1995, the Trust provided certain personal benefits to its executive officers. The amount of such benefits to each of the Named Executive Officers did not exceed the lesser of $50,000 or 10% of salary and bonus for such fiscal year. (2) Includes salary deferrals and employee contributions to the Trust's Savings Incentive Plan. See "Savings Incentive Plan" below. (3) Includes the Trust's matching contributions under the Trust's Savings Incentive Plan. See "Savings Incentive Plan" below. (4) Between April 24, 1995 and September 29, 1995, the Trust paid a monthly consulting fee of $17,667 to GRZ, Inc. for the consulting services of George R. Zoffinger. Mr. Zoffinger became the President and Chief Executive Officer of the Trust on September 29, 1995, but he received no salary in fiscal year 1995. (5) Does not include bonuses for calendar year 1994, which was paid in November 1994. The bonuses were $25,000 for Mr. Dalton, $20,000 for Mr. Hennessey, and $25,000 for Mr. Burnes. - 18 - OPTION GRANTS IN FISCAL YEAR 1995; AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1995 AND FISCAL YEAR-END 1995 OPTION VALUES All options outstanding at the time of the Effective Date of the Prepackaged Plan were cancelled pursuant to the terms of the Prepackaged Plan, and no options were granted or exercised in fiscal year 1995. EMPLOYEES' RETIREMENT PLAN On September 20, 1989, the Trustees adopted an Employees' Retirement Plan effective September 30, 1989. On December 16, 1992, the Trustees amended and restated the Employees' Retirement Plan effective January 1, 1992 (as amended on July 20, 1994, and effective January 1, 1994 and as may be further amended, the "Retirement Plan"). All employees are eligible to participate in the Retirement Plan provided that they are at least 21 years of age and have been employed for twelve consecutive months, during which period the employee has completed at least 1000 hours of service. Under the Retirement Plan, each eligible employee after completing five years of vesting service becomes 100% vested and entitled to a retirement pension. Benefits can be paid as a lump sum or as an annual retirement income for life equal to the greater of (a) the sum of (i) 1.3% of the highest five-year average annual base salary, multiplied by the number of years of credited service up to and including 35 thereof and (ii) 0.4% of the highest five-year average annual base salary in excess of Social Security covered compensation (as adjusted every five years), multiplied by the number of years of credited service up to and including 35 thereof or (b) the sum of (i) 1.3% of the highest five-year average annual base salary, multiplied by the number of credited service up to and including 15 thereof; (ii) 1.5% of the highest five-year average annual base salary, multiplied by the number of years of credited service from 16 to 25 years inclusive; (iii) 0.5% of the highest five-year average annual base salary, multiplied by the number of years of credited service from 26 to 35 years inclusive; and (iv) 0.4% of the highest five-year average annual base salary in excess of Social Security covered compensation (as adjusted every five years), multiplied by the number of years of credited service up to and including 25 thereof. In November 1995, the Trustees amended the Retirement Plan effective January 1, 1996 to switch from the Pension Benefit Guaranty Corporation interest rate used for valuing lump sum distributions to the new General Agreement on Tariffs and Trade interest rate and mortality table for valuing lump sum distributions. As a result of this amendment, the current market value of Retirement Plan assets approximates the current aggregate lump sum amounts due to participants. Unreduced retirement benefits may begin to be paid at normal retirement (age 65 and five years of participation in the Retirement Plan), late retirement, or five years prior to Social Security retirement age with 20 years of service. The table below shows the estimated annual benefits payable upon retirement under the Trust's Retirement Plan. Retirement benefits shown are based upon retirement at age 65 and the payment of a straight life annuity to the employee. The annual benefit under the Retirement Plan will not exceed the lesser of $112,221 or 100% of the participant's average compensation for three consecutive Fiscal Years (as defined in the Retirement Plan) in which such eligible employee is an active participant in the Retirement Plan. - 19 - PENSION PLAN TABLE ESTIMATED ANNUAL RETIREMENT BENEFIT AVERAGE OF 5 HIGHEST ANNUAL COMPENSATION LEVELS YEARS OF SERVICE 15 20 25 30 35 -------- -------- -------- ------- ------- -------- $125,000 $29,427 $40,486 $51,545 $58,854 $68,663 150,000 35,802 49,236 62,670 71,604 83,538 175,000 42,177 57,986 73,795 84,354 98,413 200,000 48,552 66,736 84,920 97,104 112,221 225,000 54,927 75,486 96,045 109,854 112,221 For the fiscal year ended September 30, 1995, the base salary for purposes of the Retirement Plan for Named Executive Officers is set forth in the salary column of the Summary Compensation Table. The Named Executive Officers were credited with years of service under the Retirement Plan as follows: Mr. Dalton, 13 years; Mr. Hennessey, 24 years; Mr. Burnes, 6 years; and Mr. Zoffinger 0 years. Mr. Strong and Mr. Schlesinger did not participate in the Retirement Plan. The benefits listed in the Pension Plan Table are not subject to reduction for Social Security or other offset amounts. SAVINGS INCENTIVE PLAN On September 20, 1989, the Trustees adopted a Savings Incentive Plan effective September 30, 1989, to provide retirement benefits for eligible employees of the Trust. On December 16, 1992, the Trustees amended and restated the Savings Incentive Plan effective January 1, 1992 and the current Board of Trustees further amended the Plan on October 2, 1995 (as amended, the "Savings Plan"). As of October 2, 1995, all other employees of the Trust are eligible to participate in the Savings Plan immediately upon employment. Under the Savings Plan, each eligible employee may authorize payroll deductions of not less than 1% nor more than 15% of the employee's earnings before bonus income, not to exceed the dollar limit permissible under the Code ($9,240 in 1995). The Trust will match each employee's contribution for the payroll period, subject to a limitation of 6% of the employee's compensation for the payroll period, with the maximum amount of contribution by the Trust in any year being $3,000. Benefits will be paid to terminating participants as soon as possible following the participant's date of termination. Participants have a 100% nonforfeitable right to their contributions to the Savings Plan and the Trust's matching contributions vest at the rate of 20% for each year of service, but will, in any event, be 100% vested at the later of age 65 or after five years of participation in the Savings Plan, or in the event of disability or death. Subject to certain limitations, hardship distributions of a participant's fully vested account balance are permitted on account of a demonstrable, immediate and heavy financial need. EMPLOYEE RETENTION PLAN The Trustees adopted an Employee Retention Plan as amended, dated October 17, 1990, as amended January 16, 1991 and March 20, 1991 (the "Retention Plan"), designed to provide a financial incentive for key employees to successfully restructure the Trust and maximize the net worth of the Trust. The Retention Plan was approved by the Bankruptcy Court by order dated February 26, 1991. The Retention Plan is administered by the Compensation and Nominating Committee which determines the allocation of amounts among the participants. Victor H. Schlesinger, former Chairman, and C.W. Strong, Jr., former Chief Executive Officer, did not participate in the Retention Plan. Two portions of the Retention Plan as originally adopted remain in place. The first portion of the Retention Plan provides for a termination pay plan (the "Termination Pay Plan") that will remain in effect during the period ending on the later of (i) the - 20 - date that the obligations (including, without limitation, interest accrued from and after January 31, 1991) payable by the Trust to or for the benefit of any creditor holding a "Class 3 Claim" under the 1992 amendment to the Trust's 1991 Plan are no longer outstanding (the "Original Effective Period"), (ii) the maturity date of the Trust's New Notes, or (iii) the date on which the New Notes are repaid in full (periods set forth in (i)-(iii), collectively, are referred to as the "Effective Period"). Any eligible employee who is terminated without Cause (as defined in the Retention Plan) during the Effective Period will be entitled to termination pay of not less than 12 weeks and not more than 18 months salary depending on the employee's years of employment and position with the Trust. The number of months salary for Messrs. Dalton, Hennessey and Burnes are 18, 18 and 12, respectively. Medical and dental coverage will be continued during any termination pay period. On September 30, 1995, the Trust expensed the $1.3 million representing the cost of the Termination Pay Plan. After fiscal year end, the majority of existing employees were terminated and the Trust commenced payments to such employees. The second portion of the Retention Plan is an incentive program which may provide total incentive payments during the Original Effective Period of not more than $1,250,000. On September 16, 1992, the Compensation and Nominating Committee approved a continuation of the incentive program for calendar year 1993 based on a formula for reducing the Trust's outstanding indebtedness. Under this incentive program, because the Trust's outstanding indebtedness was no greater than $290,000,000 at December 31, 1992, $125,000 was deposited in the pool. Similarly, $125,000 was deposited in the pool at December 31, 1993 and December 31, 1994. The amounts paid from the pool to the Named Executive Officers for the fiscal years ended September 30, 1995, 1994 and 1993 are included in the Summary Compensation Table. 1995 COMMON SHARE OPTION PLAN The Board of Trustees has adopted the 1995 Common Share Option Plan (the "1995 Plan") for Trustees, officers, employees and other key persons of the Trust and its subsidiaries, subject to the approval of the 1995 Plan by the shareholders. The Board of Trustees believes that Common Share options and other Common Share-based incentive awards can play an important role in the success of the Trust by encouraging and enabling the officers and other employees of the Trust and its subsidiaries upon whose judgment, initiative and efforts the Trust largely depends for the successful conduct of its business to acquire a proprietary interest in the Trust. The Board of Trustees anticipates that providing such persons with a direct stake in the Trust will assure a closer identification of the interests of participants in the 1995 Plan with those of the Trust, thereby stimulating their efforts on the Trust's behalf and strengthening their desire to remain with the Trust. The Board of Trustees believes that the proposed 1995 Plan will help the Trust to achieve its goals by keeping the Trust's incentive compensation program dynamic and competitive with those of other companies. NUMBER OF COMMON SHARES SUBJECT TO THE 1995 PLAN. The 1995 Plan provides for the grant of options to purchase up to 870,000 Common Shares, subject to adjustment for share splits, share dividends and similar events. To the extent that awards under the 1995 Plan do not vest or otherwise revert to the Trust, the Common Shares represented by such awards may be the subject of subsequent awards. NATURE OF OPTIONS. The 1995 Plan provides for the grant of incentive stock options ("Incentive Options") which qualify under Section 422 of the Code and nonqualified stock options ("Non-Qualified Options"). Holders of options also receive dividend equivalent rights. 1995 PLAN ADMINISTRATION. The 1995 Plan is administered by the Compensation Committee. It is the intention of the Trust that all members of the Compensation Committee be "disinterested persons" as that term is defined under the rules promulgated by the SEC. ELIGIBILITY. The Compensation Committee has full power to select, from among the employees eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the 1995 Plan. Incentive Options may be granted only to officers and other full-time employees of the Trust or its subsidiaries. Non-qualified Options may be granted to officers, employees and other key persons of the Trust or its subsidiaries. Trustees of the Trust who are not employed by the Trust or its subsidiaries ("Independent Trustees") will also be eligible for certain awards under the 1995 Plan, as described below. - 21 - COMMON SHARE OPTIONS GRANTED TO INDEPENDENT TRUSTEES. The 1995 Plan provides that each person who was a non-employee member of the Board of Trustees on October 5, 1995 shall automatically be granted on such date a Non-qualified Option to purchase 35,000 Common Shares and each person who first becomes a non- employee member of the Board of Trustees after October 5, 1995 shall automatically be granted, upon the date such person first becomes a Trustee, a Non-qualified Option to purchase 10,000 shares. All of these options granted have an exercise price set at the fair market value on the date of grant. OTHER OPTION TERMS. The option exercise price of each option will be determined by the Compensation Committee but may not be less than 100% of the fair market value of the Common Shares. The term of each option will be fixed by the Compensation Committee and may not exceed ten years from date of grant. The Compensation Committee will determine at what time or times each option may be exercised and, subject to the provisions of the 1995 Plan, the period of time, if any, after retirement or termination of employment for any reason during which options may be exercised. Options may be made exercisable in installments and the exercisability of options may be accelerated by the Compensation Committee. The Plan provides that in the event of a "Change of Control" (as defined in the 1995 Plan) of the Trust, all options shall automatically become fully exercisable. Upon exercise of options, the option exercise price must be paid in full either in cash, check or other instrument acceptable to the Compensation Committee or, if the Compensation Committee so permits, by delivery of Common Shares already owned by the optionee. The exercise price may also be delivered to the Trust by a broker pursuant to irrevocable instructions to the broker from the optionee. No options shall be transferable by the optionee other than by will or by the laws of descent and distribution, and options may be exercised during the optionee's lifetime only by the optionee, his or her guardian or legal representative. DIVIDEND EQUIVALENT RIGHTS. Each option granted under the 1995 Plan shall also generate dividend equivalent rights ("DERs") which shall entitle the optionee to receive an additional Common Share for each DER received upon the exercise of the option, at no additional cost, based on the following formula: As of the last business day of each such calendar quarter, the amount of cash dividends paid by the Trust on each Common Share with respect to that quarter shall be divided by the fair market value per Common Share as of the last business day of each calendar quarter to determine the actual number of DERs accruing on each Common Share subject to the option. Such amount of DERs shall be applied against the number of shares covered by the option to determine the number of DERs which accrued during such quarter. ADJUSTMENTS FOR COMMON SHARE DIVIDENDS, MERGERS, ETC. The Compensation Committee will make appropriate adjustments as to the number and kind of shares and the per share exercise prices to reflect share dividends, share splits and similar events. In the event of a merger, liquidation, sale of the Trust or similar event, the 1995 Plan and the options shall terminate, unless provision is made in connection with such transaction for the assumption of options granted, or the substitution for such options of new options of the successor entity, with appropriate adjustment as to the number and kind of shares and the per share exercise prices. In the event of such a termination, all outstanding options shall be exercisable in full for at least fifteen days prior to the date of such termination whether or not otherwise exercisable during such period. TAX WITHHOLDING. Optionees are responsible for the payment of any federal, state or local taxes that the Trust is required by law to withhold upon the exercise of any option granted by the 1995 Plan. Optionees may elect to have such tax withholding obligations satisfied either by authorizing the Trust to withhold Common Shares to be issued pursuant to an option exercise or by transferring to the Common Shares having a value equal to the amount of such taxes. Such an election is subject to certain limitations for participants subject to the requirements of Section 16(b) of the Exchange Act. AMENDMENTS AND TERMINATION. The Board of Trustees may at any time amend the 1995 Plan. However, no amendment shall be effective unless approved by the shareholders at an annual meeting or a special meeting held within twelve months before or after the date of adoption of such amendment, where such amendment increases the number of Common Shares issuable under the 1995 Plan, effects any substantive change in the eligibility provisions of the 1995 Plan, reduces the minimum option price, or materially increases benefits accruing to participants under the 1995 Plan. EFFECTIVE DATE OF 1995 PLAN. The 1995 Plan will become effective upon the affirmative vote of the holders of at least a majority of the Common Shares present or represented and entitled to vote at the Annual Meeting of Shareholders. Subject to such approval of shareholders and to the requirement that no Common Shares may be issued prior to such approval, options - 22 - may be granted on and after adoption of the 1995 Plan by the Board of Trustees. No option may be granted after the tenth anniversary of the effective date of the 1995 Plan. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Messrs. Bucher, Colwell, Gassaway, Krout and Rostvold served as members of the Trust's former Compensation Committee during the Trust's fiscal year ended September 30, 1995. None of such individuals was, during such fiscal year, an officer or employee of the Trust, or formerly an officer of the Trust or had any relationship requiring disclosure by the Trust under Item 404 of Regulation S-K promulgated under the Exchange Act. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Section 16(a) of the Exchange Act requires the Trust's executive officers and Trustees, and persons who own more than 10% of a registered class of the Trust's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and the New York Stock Exchange. Officers, Trustees and greater than 10% shareholders are required by Securities and Exchange Commission regulation to furnish the Trust with copies for all Section 16(a) forms they file. To the Trust's knowledge, based solely on review of the copies of such reports furnished to the Trust and written representations that no other reports were required during the fiscal year ended September 30, 1995, all Section 16(a) filing requirements applicable to its executive officers, Trustees and greater than 10% beneficial owners were satisfied. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The table below sets forth information concerning the only persons, entities or groups which the Trust believes are the beneficial owners of five percent or more of the outstanding shares of the Trust's Common Shares, as of December 18, 1995. NAME AND ADDRESS OF AMOUNT AND NATURE OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS - ------------------------ ------------------------- ------------------- Heine Securities Corp.(1) 5,611,048 49.98% 51 JFK Parkway Short Hills, New Jersey 07078 Intermarket Corporation 2,788,827 24.84% 667 Madison Avenue 20th Floor New York, New York 10021 Angelo, Gordon & Co., L.P.(2) 1,260,632 10.75% 245 Park Avenue New York, New York 10167 - ---------------- (1) Heine Securities Corporation ("HSC"), is an investment adviser registered under the Investment Advisers Act of 1940. One or more of HSC's advisory clients are the beneficial owners of 5,611,048 shares of the Trust's common stock. Pursuant to investment advisory agreements with its advisory clients, HSC has sole investment discretion and voting authority with respect to such securities. HSC has no interest in dividends or proceeds from the sale of such securities and disclaims beneficial ownership of all the securities owned by HSC's advisory clients. - 23 - (2) Includes Common Shares held by investment funds and managed accounts controlled by Angelo, Gordon & Co., L.P. CONTROL SHARE STATUTE AND ITS EFFECT ON BENEFICIAL OWNERS Subtitle 7 of Title 3 of the Maryland General Corporation Law (the "Maryland Control Share Statute") generally excludes from shares entitled to vote "control shares" (as described below) of a Maryland corporation acquired pursuant to a "control share acquisition" (as described below), unless voting rights for such shares have been approved by the shareholders of the corporation by the affirmative vote of two-thirds of all votes entitled to be cast (other than "interested shares", as described below) or, among other exceptions, such acquisition of shares is made pursuant to a merger agreement with the corporation or the corporation's charter or by-laws are amended to permit the acquisition of such shares prior to the acquiring person's acquisition thereof. "Control shares" generally means shares of a corporation acquired by a person within any of the following ranges of voting power: (i) one-fifth or more, but less than one-third of all voting power; (ii) one-third or more, but less than a majority of all voting power; or (iii) a majority or more of all voting power. Generally, only those shares acquired in the transaction that causes a shareholder to own in excess of 20% of the voting common shares of a corporation that is subject to the Maryland Control Share Statute and the voting common shares thereafter acquired are precluded from voting under such statute. "Control share acquisition" generally means the acquisition of ownership of, or the right to direct the exercise of voting power with respect to, issued and outstanding control shares, but does not include the acquisition of shares in a merger, consolidation or share exchange to which the corporation is a party. "Interested shares" generally means shares of a corporation in respect of which an acquiring person, an officer of the corporation or an employee of the corporation who is also a director or trustee of the corporation is entitled to exercise voting power. Certain entities related to Intermarket Corporation (the "Intermarket Entities") may be deemed to own "control shares" under clause (i) of the foregoing definition, and certain entities related to Mutual Series Fund Inc. (the "Mutual Entities") may be deemed to own "control shares" under clause (ii) of the foregoing definition. The Trust believes, based on information provided to it by the Mutual Entities and the Intermarket Entities, that all of the Common Shares held by the Mutual Entities and the Intermarket Entities were received pursuant to the Trust's Prepackaged Plan. All of the Common Shares owned by the Mutual Entities and the Intermarket Entities may therefore be precluded from voting under the Maryland Control Share Statute. While the language of the Control Share Acquisition Statute is not completely clear, the Trust believes that Common Shares held by the Mutual Entities and the Intermarket Entities are not covered by, and therefore have not lost their voting power under, the Maryland Control Share Statute. (All references to "corporations" in this section also refer to Maryland REITs.) As stated above, the Maryland Control Share Statute provides a procedure by which the voting rights for control shares may be approved by the shareholders of the Trust. Such vote may either be requested by any shareholder who owns control shares, in which case the Trust must present the issue for consideration by its shareholders, or the Trust may, on its own volition, present the issue for consideration by its shareholders and may call a meeting of shareholders specifically for such purpose. The Board of Trustees did not intend, and believes that the shareholders of the Trust who ratified the Trust's Prepackaged Plan did not intend, to preclude the Mutual Entities and the Intermarket Entities from voting any of their Common Shares. Moreover, the Board of Trustees believes that it is in the best interests of the Trust that its shareholders with the majority of the Trust's economic interest have the corresponding voting power. The Board of Trustees has therefor resolved to propose to the shareholders of the Trust at the Trust's upcoming annual meeting that the voting power of the Common Shares held by the Mutual Entities and the Intermarket Entities be approved. SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth information at December 18, 1995, taking into effect the 1 for 33.33 reverse Common Share split with respect to the beneficial ownership of the Common Shares by each Named Executive Officer and Trustee of the Trust and by all Trustees and Named Executive Officers as a group. The information set forth below is based upon filings with the Securities and Exchange Commission, the Trust's share records, and information obtained by the Trust from the persons named - 24 - below. As of December 18, 1995, no individual Trustee or officer had beneficial ownership of 1% or more of the outstanding Common Shares and all Trustees and officers as a group beneficially owned .8% of the outstanding Common Shares. AMOUNT AND NATURE OF PERCENT NAME BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP OF CLASS - ------------------------ -------------------- -------- C.W. Strong, Jr. . . . . . . . . . . . . . . 70 (*) James A. Dalton . . . . . . . . . . . . . . . 0 (*) Daniel F. Hennessey . . . . . . . . . . . . . 17 (*) Donald W. Burnes, Jr. . . . . . . . . . . . . 0 (*) Victor H. Schlesinger . . . . . . . . . . . . 256 (*) George R. Zoffinger . . . . . . . . . . . . . 8,443 (*) Carl A. Mayer, Jr. . . . . . . . . . . . . . 5,000 (*) Martin Bernstein . . . . . . . . . . . . . . 33,162(2) (*) John B. Levy . . . . . . . . . . . . . . . . 9,206(3) (*) Richard B. Jennings . . . . . . . . . . . . . 5,000 (*) Richard S. Frary . . . . . . . . . . . . . . 23,775 (*) Jeffrey Altman . . . . . . . . . . . . . . . 5,000(4) (*) Trustees and Named Executive Officers(5) as a 89,929 (*) group (12 persons) . . . . . . . . . . . . . __________________ (*) Less than one percent (1) The address of all Named Executive Officers is in care of the Trust. (2) Includes 18,775 Common Shares owned by Evelyn Bernstein, Mr. Bernstein's wife. Mr. Bernstein disclaims beneficial ownership of such shares. (3) Includes 4,206 Common Shares owned by Judith Brown Levy, Mr. Levy's wife. Mr. Levy disclaims beneficial ownership of such shares. (4) Beneficial ownership of 5,000 of the Common Shares reported as beneficially owned by Mr. Altman is vested in Heine Securities Corporation pursuant to an agreement between Mr. Altman and Heine Securities Corporation. (5) Includes all Named and current Executive Officers. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. (a) TRANSACTIONS WITH MANAGEMENT AND OTHERS. The Trust is subleasing a portion of the 8th floor of 120 Albany Street from the New Brunswick Development Authority, a not-for-profit 501(c)(3) corporation for the benefit of the city of New Brunswick of which George R. Zoffinger, C.E.O., President and Trustee of the Trust, is Chairman of the Board of Trustees. The sublease covers 4000 square feet at an annual rental rate of $75,000. The sublease is in effect until December 31, 1996, at which point the Trust has the option to renew at the same rate for another year. The Trust has three more subsequent options to renew the sublease at the current rental rate in December 1997, 1998, and 1999. (b) CERTAIN BUSINESS RELATIONSHIPS. Jeffrey Altman, who was appointed in connection with the Trust's Prepackaged Plan as Chairman of the Board of Trustees, is also a Vice President of Mutual Series Fund Inc. since 1995. Two of the four series which constitute Mutual Series Fund Inc. currently hold $50,327,000 in principal amount of the Trust's Senior Notes. - 25 - PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) Documents Filed as a Part of the Report. The following documents are filed as part of this report. 1. Financial Statements. The financial statements of the Trust are set forth in the "INDEX TO FINANCIAL STATEMENTS" on page 28. 2. Financial Statement Schedules. See 3(d) below. 3. Exhibits. (a) Exhibits are as set forth in the "INDEX TO EXHIBITS" on pages 49-51. (b) REPORTS ON FORM 8-K. On August 25, 1995, the Registrant filed a current report on Form 8-K regarding the closure of the consent solicitation for its prepackaged plan of reorganization, commencement of its chapter 11 bankruptcy case, and the scheduling of a confirmation hearing of the prepackaged plan of bankruptcy by the United States Bankruptcy Court for the Central District of California. (c) EXHIBITS, INCLUDING THOSE INCORPORATED BY REFERENCE. Exhibits are set forth in the "INDEX TO EXHIBITS" on pages 49-51. Where so indicated by footnote in the index, exhibits which were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated in parentheses. Copies of the exhibits are available to shareholders upon payment of $.25 per page fee to cover the Trust's expenses in furnishing the exhibits. For copies contact: Value Property Trust, 120 Albany Street, 8th floor, New Brunswick, New Jersey 08901. (d) Financial Statement Schedules, except those indicated in the "INDEX TO FINANCIAL STATEMENTS" on page 28, have been omitted because the required information is included in the financial statements or notes thereto, or the amounts are not significant. - 26 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized. VALUE PROPERTY TRUST By: /s/ GEORGE R. ZOFFINGER -------------------------- George R. Zoffinger President and Chief Executive Officer Date: October __, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K/A has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ JEFFREY ALTMAN Chairman and Trustee October __, 1996 - ------------------------------- Jeffrey Altman President, Chief Executive /s/ GEORGE R. ZOFFINGER Officer and Trustee October __, 1996 - ------------------------------- (Principal Executive Officer George R. Zoffinger By: /s/ ROBERT T. ENGLISH Treasurer and Secretary - ------------------------------- (Principal Financial October __, 1996 Robert T. English Officer and Principal Accounting Officer) /s/ MARTIN BERNSTEIN Trustee October __, 1996 - ------------------------------- Martin Bernstein /s/ RICHARD S. FRARY Trustee October __, 1996 - ------------------------------- Richard S. Frary /s/ RICHARD B. JENNINGS Trustee October __, 1996 - ------------------------------- Richard B. Jennings /s/ JOHN B. LEVY Trustee October __, 1996 - ------------------------------- John B. Levy /s/ CARL A. MAYER, JR. Trustee October __, 1996 - ------------------------------- Carl A. Mayer, Jr. By: /s/ GEORGE R. ZOFFINGER - ------------------------------- George R. Zoffinger Attorney-in-fact - 27 - VALUE PROPERTY TRUST INDEX TO FINANCIAL STATEMENTS Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . 29 Financial Statements Statement of Operations (Years ended September 30, 1995, 1994, 1993) . . . . . . . . . . . . . 30 Balance Sheet (September 30, 1995 and 1994) . . . . . . . . . . . . . . . . . . . . 31 Statement of Cash Flows (Years ended September 30, 1995, 1994 and 1993) . . . . . . . . . . . 32 Statement of Shareholder's Equity (Years ended September 30, 1995, 1994 and 1993) . . . . . . . . . . . 33 Notes to the Financial Statements . . . . . . . . . . . . . . . . . . 34 Financial Statements Schedules Schedule XI --- Real Estate Accumulated Depreciation and Amortization (September 30 1995) . . . . . . . . 44 Schedule XII --- Mortgage Loans on Real Estate (September 30, 1995) . . . . . . . . . . . . . . . . . . . . . . 47 - 28 - REPORT OF INDEPENDENT AUDITORS Trustees and Shareholders Value Property Trust We have audited the accompanying balance sheets of Value Property Trust (formerly Mortgage and Realty Trust) at September 30, 1995 and 1994 and the related statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended September 30, 1995. Our audits also included the financial statement schedules referenced at Item 14(a). These financial statements and schedules are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As more fully described in Note 1 to the financial statements, on September 22, 1995, the Bankruptcy Court confirmed the Trust's plan of reorganization which was consummated on September 29, 1995 permitting the Trust to emerge from proceedings under the Bankruptcy Code. The Trust implemented the guidance as to the accounting for entities emerging from Chapter 11 set forth in Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("Fresh Start Reporting") as of September 30, 1995. Due to the reorganization and the implementation of Fresh Start Reporting, assets were recorded at reorganization value, liabilities were recorded at fair values and outstanding obligations were discharged primarily in exchange for cash, new indebtedness and equity. As a result, the balance sheet at September 30, 1995 reflects a new basis of accounting and, accordingly, is not comparable to balance sheets prior to that date. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Value Property Trust, at September 30, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material aspects the information set forth therein. ERNST & YOUNG LLP Philadelphia, Pennsylvania November 10, 1995 - 29 - STATEMENT OF OPERATIONS YEARS ENDED SEPTEMBER 30
PRE-CONFIRMATION -------------------------------------------------- 1995 1994 1993 --------------- -------------- -------------- Income: Income of rental properties: Rental income $ 24,608,000 $ 18,495,000 $ 17,368,000 Operating expense reimbursement 2,286,000 1,705,000 1,601,000 Interest and fee income on mortgage loans 9,353,000 14,725,000 19,027,000 Interest on short-term investments 3,086,000 1,238,000 237,000 Other 131,000 114,000 109,000 --------------- -------------- -------------- 39,464,000 36,277,000 38,342,000 --------------- -------------- -------------- Expenses: Interest 35,900,000 33,002,000 28,510,000 Expenses of rental properties: Depreciation and amortization 7,306,000 5,839,000 5,500,000 Operating 11,702,000 9,827,000 10,199,000 Other operating expenses 4,518,000 4,839,000 5,258,000 Provision for losses on mortgage loans and related investments 3,000,000 2,000,000 37,000,000 --------------- -------------- -------------- 62,426,000 55,507,000 86,467,000 --------------- -------------- -------------- Loss from operations before reorganization items, and extraordinary item (22,962,000) (19,230,000) (48,125,000) --------------- -------------- -------------- Reorganization items: Professional fees and other (6,219,000) (2,360,000) (5,844,000) Interest income 441,000 - - Write down of invested assets to reorganization value (66,597,000) - - --------------- -------------- -------------- Total reorganization items (72,375,000) (2,360,000) (5,844,000) --------------- -------------- -------------- Net loss before extraordinary item (95,337,000) (21,590,000) (53,969,000) --------------- -------------- -------------- Extraordinary item-Gain on extinguishment of debt 75,304,000 - - --------------- -------------- -------------- Net loss $ (20,033,000) $ (21,590,000) $ (53,969,000) --------------- -------------- -------------- --------------- -------------- -------------- Weighted average number of common shares outstanding 11,226,000 11,226,000 11,226,000
* Per share amounts are not meaningful due to Fresh Start reporting See accompanying notes. -30- BALANCE SHEET YEARS ENDED SEPTEMBER 30 ASSETS
1995 1994 ------------------- ------------------ (Post Confirmation) (Pre-Confirmation) ASSETS HELD FOR SALE: Mortgage loans $ 21,966,000 $ 38,051,000 Investment in partnerships 5,220,000 6,247,000 Real estate owned 42,059,000 47,768,000 -------------- -------------- 69,245,000 92,066,000 -------------- -------------- ASSETS HELD FOR INVESTMENT: Mortgage loans 35,013,000 60,712,000 Investment in partnerships 20,648,000 27,601,000 Notes receivable 633,000 917,000 Real estate owned 81,581,000 128,677,000 -------------- -------------- 137,875,000 217,907,000 -------------- -------------- 207,120,000 309,973,000 Less allowance for - (13,430,000) -------------- -------------- 207,120,000 296,543,000 Cash and cash equivalents 9,977,000 57,349,000 Restricted cash 6,791,000 2,983,000 Interest receivable and other assets 8,441,000 7,865,000 -------------- -------------- $ 232,329,000 $ 364,740,000 -------------- -------------- -------------- -------------- LIABILITIES Senior Secured Notes (Due 2002) $ 109,975,000 $ - Senior Secured Notes (Due 1995) - 290,000,000 Mortgage payable 17,535,000 17,593,000 Accounts payable and accrued expenses 4,745,000 4,546,000 Interest payable - 32,568,000 -------------- -------------- 132,255,000 344,707,000 -------------- -------------- SHAREHOLDERS' EQUITY Preferred shares, $1 par value: 3,500,000 shares authorized, none issued - - Common shares, $1 par value: 20,000,000 shares authorized, 11,226,000 shares issued and outstanding 11,226,000 11,226,000 Additional paid-in capital 88,848,000 182,375,000 Accumulated Deficit - (173,568,000) -------------- -------------- Total shareholders' equity 100,074,000 20,033,000 -------------- -------------- -------------- -------------- $ 232,329,000 $ 364,740,000 -------------- -------------- -------------- --------------
See accompanying notes. -31- STATEMENT OF CASH FLOWS YEARS ENDED SEPTEMBER 30
PRE-CONFIRMATION --------------------------------------------------- 1995 1994 1993 ---------------- --------------- --------------- Net loss $ (20,033,000) $ (21,590,000) $ (53,969,000) Add back (deduct) items not affecting cash and cash equivalents: Write down of invested assets to reorganization value 66,597,000 - - Extraordinary item-gain on extinguishment of debt (75,304,000) - - ---------------- --------------- --------------- Loss from operations after reorganization and extraordinary item (28,740,000) (21,590,000) (53,969,000) ---------------- --------------- --------------- Adjustments to reconcile loss from operations to net cash provided by operating activities: Depreciation and amortization on real estate 7,306,000 5,839,000 5,500,000 Provision for losses 3,000,000 2,000,000 37,000,000 Increase (decrease) in payable and accrued expenses 199,000 (217,000) 106,000 Increase (decrease) in interest payable (32,568,000) 32,156,000 412,000 Decrease (increase) in receivable and other assets (576,000) (1,160,000) 2,669,000 Net change in interest reserves, deferred income (162,000) (582,000) (934,000) Recoveries of charge-offs to allowance for losses 631,000 1,019,000 - Other - (967,000) - ---------------- --------------- --------------- Total adjustments (22,170,000) 38,088,000 44,753,000 ---------------- --------------- --------------- Net cash provided by (used in) operating activities (50,910,000) 16,498,000 (9,216,000) ---------------- --------------- --------------- Cash flows from investing activities: Investment in real estate: Real estate owned (11,283,000) (7,116,000) (7,105,000) Advances on mortgage loans (including in-substance foreclosures) (733,000) (1,337,000) (1,737,000) Partnerships (2,211,000) - (2,078,000) Principal repayments on mortgage loans 22,711,000 34,308,000 24,964,000 Sale of real estate 3,350,000 6,360,000 16,170,000 Repayments on notes receivable 217,000 168,000 - ---------------- --------------- --------------- Net cash provided by investing activities 12,051,000 32,383,000 30,214,000 ---------------- --------------- --------------- Cash flows from financing activities: Payment on loan on equity investment (58,000) - - Principal payment of senior secured notes (4,647,000) - (22,000,000) Increase in restricted cash (3,808,000) (2,983,000) - ---------------- --------------- --------------- Net cash used in financing activities (8,513,000) (2,983,000) (22,000,000) ---------------- --------------- --------------- Net increase (decrease) (47,372,000) 45,898,000 (1,002,000) Cash and cash equivalent and beginning of period 57,349,000 11,451,000 12,453,000 ---------------- --------------- --------------- Cash and cash equivalent at end of period $ 9,977,000 $ 57,349,000 $ 11,451,000 ---------------- --------------- --------------- ---------------- --------------- --------------- Supplemental schedule of non-cash investing activities: Charge-offs against allowance for losses $ 5,515,000 $ 378,000 $ 44,545,000 ---------------- --------------- --------------- ---------------- --------------- ---------------
See accompanying notes. -32- STATEMENT OF SHAREHOLDERS' EQUITY
ADDITIONAL TOTAL COMMON SHARES PAID-IN ACCUMULATED SHAREHOLDERS' SHARES AMOUNT CAPITAL DEFICIT EQUITY ------------ -------------- --------------- --------------- -------------- Balance at September 30, 1992 11,076,000 $ 11,076,000 $ 182,525,000 $ (98,009,000) $ 95,592,000 Shares issued-Litigation Settlement 150,000 150,000 (150,000) - Net loss (53,969,000) (53,969,000) ------------ -------------- --------------- --------------- -------------- Balance at September 30, 1993 11,226,000 11,226,000 182,375,000 (151,978,000) 41,623,000 Net loss (21,590,000) (21,590,000) ------------ -------------- --------------- --------------- -------------- Balance at September 30, 1994 11,226,000 11,226,000 182,375,000 (173,568,000) 20,033,000 Net loss (20,033,000) (20,033,000) Reverse stock split (10,889,000) (10,889,000) (268,905,000) (279,794,000) Issuance of Common Stock 10,889,000 10,889,000 175,378,000 186,267,000 Adjustment to restate accumulated deficit to zero 193,601,000 193,601,000 ------------ -------------- --------------- --------------- -------------- Balance at September 30, 1995 11,226,000 $ 11,226,000 $ 88,848,000 $ 0 $ 100,074,000 ------------ -------------- --------------- --------------- -------------- ------------ -------------- --------------- --------------- --------------
-33- NOTES TO THE FINANCIAL STATEMENTS 1. BASIS OF FINANCIAL INFORMATION AND PLAN OF REORGANIZATION On September 29, 1995, the Trust's Prepackaged Plan of Reorganization was declared effective by the United States Bankruptcy Court for the Central District of California. Under the Prepackaged Plan, holders of the Trust's $290,000,000 principal amount of Senior Secured Uncertificated Notes due 1995 received (i) $110,000,000 principal amount of newly issued 11-1/8% Senior Secured Notes due 2002, (ii) $71,000,000 ($25,000,000 paid in April 1993) in cash and (iii) approximately 10,889,430 new Common Shares representing in the aggregate approximately 97% of the Common Shares outstanding after the effective date. In connection with the Prepackaged Plan, the Trust effected a 1 for 33.33 for one reverse stock split of its outstanding Common Shares. In connection with its emergence from the Chapter 11 proceeding, the Trust implemented Fresh Start Reporting as of September 30, 1995, as set forth in Statement of Position 90-7 "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code." The Trust adopted Fresh Start Reporting because (i) holders of existing voting shares immediately before filing and confirmation of the Prepackaged Plan received less than 50% of the voting shares of the new entity and (ii) the reorganization value immediately before the date of confirmation was less than the total of all post-petition liabilities and allowed claims, as shown below: ($ in 000) Total post-petition liabilities and allowed claims $ 351,833 Reorganization value (278,354) --------- Excess of liabilities over reorganization value $ 73,479 The September 30, 1995 balance sheet amounts have been segregated by a black line in order to signify that the 1995 balance sheet is that of a new reporting entity and has been prepared on a basis not comparable to the pre-confirmation balance sheet. The Trust based the reorganization value of assets on the mid-point of the range of values prepared by independent specialists in the field of real estate valuation. The valuation of its real estate investments was prepared as of March 31, 1995 and adjusted to September 30, 1995 for various accounts such as cash and cash equivalents, accounts receivable and accounts payable. The Trust's liabilities are stated at their fair value. The difference between reorganization value of the assets and the fair value of the liabilities is recorded as shareholders' equity with the accumulated deficit restated to zero. The real estate valuation analysis reflects the selection of 26 assets representing 81% of the Trust's book value at March 31, 1995. The selection was divided between east coast and west coast assets and generally represented the highest dollar values in the portfolio. The analysis factored in, among other things, (i) the most recent property cash flow projections for the properties selected, (ii) where applicable, the most recent operating rent roll and other financial information relative to the assets selected, (iii) the most recent third party, independent appraisals, where applicable and available, (iv) discussions with the respective asset managers to determine loan status, property characteristics, current occupancy, existing market rental rates, new leases, current payoff discussions and asset sales, and (v) a review of limited market information for the properties. The valuation of the asset portfolio assumed continued operation of the portfolio for several years. Sales and pay-offs of certain assets occurred throughout the analysis period (six years) and no additional investments were made. Property cash flows, loan payments and pay-offs, and reversion amounts (based on normalized capital expenditures in the reversion year) were discounted to present value at 12 percent per year. Amounts do not include extraordinary expenses for reorganization or litigation. The going concern value was reduced by other operating expenses that would be incurred over a six year period. The present value of expenses was calculated by applying a capitalization rate of 10 percent to Year 6 stabilized other expenses and discounting both the capitalized, stabilized Year 6 expenses and the annual expenses at 12 percent. The net present value of operating expenses was $27.3 million. The effect of the Fresh Start Reporting on the Trust's historical cost balance sheet at September 30, 1995 is as follows: - 34 - - ---------------------------------------------- VALUE PROPERTY TRUST BALANCE SHEET AS OF SEPTEMBER 30, 1995 - ----------------------------------------------
PRE- REORGANIZATION FRESH START POST- CONFIRMATION ADJUSTMENTS ADJUSTMENTS CONFIRMATION ------------ -------------- ----------- ------------ ($ in 000) ASSETS Assets held for sale: Mortgage loans $30,225 ($8,259)(E) $21,966 Investments in partnerships 6,478 (1,258)(E) 5,220 Real estate owned 50,406 (8,347)(E) 42,059 -------- ---------- -------- ------- 87,109 0 (17,864)(E) 69,245 -------- ---------- -------- ------- ASSETS HELD FOR INVESTMENT: Mortgage loans 46,721 (11,708)(E) 35,013 Investments in partnerships 26,249 (5,601)(E) 20,648 Notes receivable 700 (67)(E) 633 Real estate owned 124,484 (42,903)(E) 81,581 -------- ---------- -------- ------- 198,154 0 (60,279)(E) 137,875 -------- ---------- -------- ------- 285,263 0 (78,143)(E) 207,120 Less: allowance for losses (11,546) 11,546 (E) 0 -------- ---------- -------- ------- 273,717 0 (66,597)(E) 207,120 Cash & cash equivalents 56,002 (46,025)(A) 9,977 Restricted cash 6,791 6,791 Interest receivable and other assets 8,441 8,441 -------- ---------- -------- ------- Total assets $344,951 ($46,025) ($66,597) $232,329 -------- ---------- -------- ------- -------- ---------- -------- ------- LIABILITIES Outstanding Notes $290,000 ($290,000)(B) $0 New Senior Notes 0 109,975 (B) 109,975 Mortgage payable 17,535 17,535 Interest payable 41,378 (41,378)(B) 0 Accounts payable and other 2,920 1,825 (C) 4,745 -------- ---------- -------- ------- Total liabilities 351,833 (219,578) 0 132,255 -------- ---------- -------- ------- SHAREHOLDERS' EQUITY Common stock at par 11,226 11,226 Additional paid in capital 182,375 175,378 (D) (268,905)(F) 88,848 Accumulated deficit (200,483) (1,825)(C) 202,308 (F) 0 -------- ---------- -------- ------- Total shareholders' equity (6,882) 173,553 (66,597) 100,074 -------- ---------- -------- ------- Total liabilities and equity $344,951 ($46,025) ($66,597) $232,329 -------- ---------- -------- ------- -------- ---------- -------- -------
-35- ADJUSTMENTS TO REFLECT REORGANIZATION (A) Reflects a $46,025 payment to creditors made at implementation of the plan. (B) Reflects the cancellation of the Senior Secured notes due 1995 in the face amount of $290,000 and the related interest payable on these notes of $41,378 and the recording of the new Senior Notes due 2002 in the face amount of $109,975. (C) Reflects the cost of the termination pay plan ($1,325) and the cost associated with the restructuring ($500). (D) Reflects the conversion of amounts previously owed under the Senior Secured notes due 1995 converted to a 97% interest in the common shares of the reorganized Trust as follows:
($ in 000) Face amount of Senior Notes due 1995 $290,000 Interest payable 41,378 -------- Total amount payable to creditors 331,378 Less: New Senior Notes due 2002 (109,975) Less: Cash payment to creditors (46,025) -------- Amount previously due creditors converted to equity $175,378 -------- --------
The following table shows the ownership (as between holders of Outstanding Common Shares and holders of Outstanding Notes) of the Trust's Common Shares before and after consummation of the Restructuring.
COMMON SHARES BEFORE COMMON SHARES AFTER COMMON REVERSE STOCK SPLIT REVERSE STOCK SPLIT BUT SHARES AFTER OR CONSUMMATION BEFORE CONSUMMATION OF CONSUMMATION OF THE RESTRUCTURING THE RESTRUCTURING OF THE RESTRUCTURING ------------------------- ------------------------- ------------------------- NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF SHARES COMMON SHARES SHARES COMMON SHARES SHARES COMMON SHARES ($ in 000) --------- ------------- --------- ------------- --------- ------------- Holders of Outstanding Notes . . . . . . . . . . . . . -0- -0- -0- -0- 10,889 97% Holders of Outstanding Common Shares . . . . . . . . . 11,226 100% 337 100% 337 3%
ADJUSTMENT TO REFLECT FRESH START ACCOUNTING (E) Reflects adjustment made to carrying value of loans and owned real estate to adjust to reorganization values. (F) Reflects the adjustment of the accumulated deficit to zero as a result of the restructure and the adjustment of additional paid in capital as follows:
($ in 000) Adjust accumulated deficit to reset to zero ($202,308) Adjustment to carrying value of invested assets (66,597) -------- ($269,905) -------- --------
The following unaudited Pro Forma Statement of Operations is presented as if the Prepackaged Plan of Reorganization and implementation of Fresh Start Reporting had occurred as of October 1, 1994. Such pro forma information is based upon the historical financial statements of Value Property Trust. In management's opinion all adjustments necessary to reflect the effects of those transactions have been made. The following unaudited Pro Forma Statement of Operations is not necessarily indicative of what the actual results of operations of the Trust would have been assuming such transaction had occurred as of October 1, 1994, nor does it purport to represent the results of operations for future periods. PRO FORMA STATEMENT OF OPERATIONS Year Ended September 30, 1995 (Unaudited)
PRO FORMA 1995 ADJUSTMENTS PRO FORMA ----------- ------------ ----------- INCOME: Income of rental properties: Rental income . . . . . . . . . . . . . . . . . . . . . . . . $ 24,608,000 $ -- $24,608,000 Operating expense reimbursements. . . . . . . . . . . . . . . 2,286,000 -- 2,286,000 Interest and fee income on mortgage loans . . . . . . . . . . . 9,353,000 -- 9,353,000 Interest on short-term investments. . . . . . . . . . . . . . . 3,086,000 (2,586,000)(G) 500,000 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131,000 -- 131,000 ------------ ------------ ----------- 39,464,000 (2,586,000) 36,878,000 ------------ ------------ ----------- EXPENSES: Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,900,000 (21,780,000)(H) 14,120,000 Expenses of rental properties: Depreciation and amortization . . . . . . . . . . . . . . . . 7,306,000 (2,390,000)(J) 4,916,000 Operating . . . . . . . . . . . . . . . . . . . . . . . . . . 11,702,000 -- 11,702,000 Other operating expenses. . . . . . . . . . . . . . . . . . . . 4,518,000 -- 4,518,000 Provision for losses on mortgage loans and related investments . . . . . . . . . . . . . . . . . . . . . 3,000,000 (3,000,000)(I) -- ------------ ------------ ----------- 62,426,000 (27,170,000) 35,256,000 ------------ ------------ ----------- Income (loss) from operations before reorganization items, and extraordinary item . . . . . . . . . . . . . . . . . . . . (22,962,000) 24,584,000 1,622,000 Reorganization items: Professional fees and other . . . . . . . . . . . . . . . . . (6,219,000) 6,219,000 (K) -- Interest Income . . . . . . . . . . . . . . . . . . . . . . . 441,000 (441,000)(K) -- Write down of invested assets to reorganization value . . . . (66,597,000) 66,597,000 (K) -- ------------ ------------ ----------- Total reorganization items. . . . . . . . . . . . . . . . . . . (72,375,000) 72,375,000 -- ------------ ------------ ----------- Net income (loss) before extraordinary item . . . . . . . . . . (95,337,000) 96,959,000 1,622,000 ------------ ------------ ----------- Extraordinary item-Gain on extinguishment of debt . . . . . . . 75,304,000 (75,304,000)(L) -- ------------ ------------ ----------- Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . $(20,033,000) $ 21,655,000 $ 1,622,000 ------------ ------------ ----------- ------------ ------------ ----------- Weighted average number of common shares outstanding. . . . . . 11,226,000 11,226,000 Net income per share. . . . . . . . . . . . . . . . . . . . . . * $ .14
* Per share amounts prior to reorganization are not meaningful due to Fresh Start Reporting Notes To Unaudited Pro Forma Statement of Operations Pro Forma Adjustments (G) Reflects the adjustment to investment income to reflect an average cash position of approximately $10.0 million at an average investment rate of 5.0% for fiscal 1995. (H) Reflects the reversal of interest expense related to the Outstanding Notes ($34.0 million) which were cancelled and the addition of interest expense for the New Senior Notes ($12.2 million) which bear interest at a fixed rate of 11.125%. (I) Reflects the reversal of the $3.0 million provision for losses which would be eliminated as a result of the adjustment of invested assets to reorganization value. (J) Reflects the adjustment to depreciation and amortization resulting from the reduced basis in owned real estate as a result of the adjustment of invested assets to reorganization value. (K) Reflects the reversal of reorganization expenses based upon the assumption that the Restructuring was completed and no expenses related to the Restructuring were incurred. (L) Reflects the reversal of gain on extinguishment of debt based upon the assumption that the Restructuring was completed October 1, 1994. - 36 - 2. SIGNIFICANT ACCOUNTING POLICIES RECLASSIFICATIONS Certain amounts in the September 30, 1994 pre-confirmation balance sheet have been reclassified to conform with the September 30, 1995 post- confirmation balance sheet. INCOME TAXES The Trust is a real estate investment trust (a "REIT") that has elected to be taxed under Sections 856-860 of the Internal Revenue Code of 1986, as amended. Accordingly, no provision has been made for income taxes in the financial statements. For the fiscal years ended September 30, 1995, 1994 and 1993, there were significant differences between taxable net loss and net loss as reported in the financial statements. The differences were related to the recognition of bad debt deductions and accounting for reorganization costs and Fresh Start Reporting. For financial accounting purposes, these items are expensed currently, while for tax purposes some portion of these items may be deferred to future periods or may not be deductible. In addition, the Fresh Start Reporting discussed in Note 1 is not recognized for tax purposes, and will result in future years book/tax differences. The Trust incurred net operating losses ("NOLs") of $35 million, $38 million $31 million and $12 million for tax purposes in fiscal 1994, 1993, 1992 and 1991, respectively. The Trust estimates a net operating loss before Cancellation of Indebtedness ("COD") income for tax purposes of approximately $41 million for fiscal 1995. Beginning with fiscal 1996, NOLs available to offset taxable income in future years will be approximately $82 million after the recognition for tax purposes of the COD income of approximately $75 million. These NOLs will be subject to Internal Revenue Code Section 382 annual limitations on the use of the NOLs. The Trust estimates this annual limitation to be approximately $6 million with any portion of the Section 382 limitation not used in any taxable year carried forward up to fifteen years. After the recognition of the COD income, the remaining NOLs available will be $9 million, $38 million and $35 million from fiscal 1992, 1993 and 1994, respectively. The New Indenture restricts the payment of dividends, other than such declaration and making of dividend payments that the Trust deems necessary to preserve its status as a REIT, unless the consolidated net worth of the Trust at the time of such payment and after giving effect thereto is at least $50 million; provided, however, that the Trust shall in no event declare or make any such dividend payment or other distribution if a default or event of default under the New Indenture has occurred and is continuing. Under the Internal Revenue Code, the Trust must distribute 95% of its "REIT taxable income" to its shareholders to continue to qualify as a REIT. INTEREST INCOME Interest income on each loan is recorded as earned. Interest income is not recognized if, in the opinion of the Trustees, collection is doubtful. The Trust generally considers loans as delinquent if payment of interest and/or principal, as required by the terms of the note, is more than 60 days past due. Accrual of interest income is generally terminated and foreclosure proceedings are started if payment is more than 60 days past due. - 37 - 2. (continued) ALLOWANCE FOR LOSSES Prior to the implementation of Fresh Start Reporting, the allowance for losses on mortgage loans and related investments was determined in accordance with The American Institute of Certified Public Accountants Statement of Position on Accounting Practices of Real Estate Investment Trusts 75-2 ("SOP 75-2"), as amended. This statement requires adjustment of the carrying value of mortgage loans to the lower of their carrying value or estimated net realizable value. Estimated net realizable value is the estimated selling price of a property offered for sale in the open market allowing a reasonable time to find a buyer, reduced by the estimated cost to complete and hold the property (including the estimated cost of capital), net of estimated cash income. With the implementation of Fresh Start Reporting, as of September 30, 1995, the allowance for losses was reset to zero. Further provisions for losses on mortgage loans and related investments in accordance with SOP 75-2 may be necessary if there is deterioration in real estate markets, or there is a significant increase in the Trust's cost of capital. NET LOSS PER SHARE Net loss per share for all pre-confirmation periods is not presented because this information is not meaningful as a result of the Reorganization and "Fresh Start Reporting". DEPRECIATION AND AMORTIZATION Depreciation and amortization are computed on the straight-line method over an estimated useful life of 40 years for buildings and three to five years for other property and lease commissions. Real estate held for investment will be depreciated on a straight line method over the remaining life of the asset. CASH AND CASH EQUIVALENTS Cash and cash equivalents and restricted cash include short-term investments (high grade commercial paper carried at a cost of $11.0 million at September 30, 1995) with maturities ranging from 5 to 33 days. INVESTMENT IN PARTNERSHIPS Investment in partnerships represents the Trust's investment in real estate partnerships. The Trust owns a majority percentage interest in these partnerships and receives substantially all the cash flow. The Trust accounts for these partnerships in a similar manner as real estate investments. REAL ESTATE OWNED At September 30, 1995, real estate owned and held for investment are carried at reorganization value and are depreciated using the straight line method over their estimated useful lives. At September 30, 1994, real estate owned and held for investment are carried at the lower of cost or net realizable value and are depreciated using the straight line method over their estimated useful lives. The estimated lives are as follows: Buildings 40 years Equipment 5 years Tenant Improvement Term of related lease Real estate owned and held for sale are carried at net realizable value which approximates reorganization value. Such assets are not depreciated. - 38 - 3. MORTGAGE LOANS AND INVESTMENT IN REAL ESTATE The following table summarizes the Trust's mortgage loan portfolio:
POST CONFIRMATION PRE-CONFIRMATION ----------------------- ----------------------- SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 ----------------------- ----------------------- NUMBER OF CARRYING NUMBER OF CARRYING TYPE OF UNDERLYING SECURITY INVESTMENTS AMOUNT INVESTMENTS AMOUNT - ------------------------------ ----------- -------- ----------- -------- ($000) ($000) Apartments 1 $ 170 2 $ 6,950 Residential/Condominium* 8 909 9 1,334 Office Buildings 3 4,579 3 6,353 Industrial Buildings 10 19,046 8 40,494 Research & Development Bldgs. 4 17,081 4 24,293 Retail Buildings 4 13,208 4 16,279 Hotel/Motels 1 1,986 1 3,060 -- -------- -- -------- Total 31 $ 56,979 31 $ 98,763 -- -------- -- -------- -- -------- -- --------
_____________ * Includes 80 mortgage end loans on 8 investments at September 30, 1995 and 80 mortgage end loans on 9 investments at September 30, 1994. The Trust's mortgage loan portfolio consists of loans located principally in California, 51% and Pennsylvania, 18%. As of September 30, 1995, there were four mortgage loans, two earning and two non-earning, with a carrying value of $12 million that were delinquent (more than 60 days past due) as to principal and/or interest. Subsequent to September 30, 1995, the Trust foreclosed on the two non-earning loans totalling $5.1 million and has obtained title to them. Interest income on the remaining two loans continues to be recognized as collection is not considered doubtful. During fiscal 1995 and 1994, loans totalling $38,834,000 and $104,142,000, respectively, were extended beyond their original contractual maturity dates. Loan terms are extended in the normal course of business due to financial difficulties of the borrower. During fiscal 1995 and 1994, seven loans totalling $26,101,000 and eight loans totalling $81,501,000, respectively, had interest rate reductions due to financial difficulties of the borrower. At September 30, 1995 and 1994, mortgage loans outstanding consisted of fixed rate loans of $41,050,000 and $101,851,000 floating rate loans of $15,929,000 and $40,096,000 and participating loans of $1,529,000 and $2,010,000, respectively. -39- The following table summarizes the Trust's real estate owned, net of accumulated depreciation of $-0- at September 30, 1995 and $18,352,000 at September 30, 1994:
POST CONFIRMATION PRE-CONFIRMATION ----------------------- ----------------------- SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 ----------------------- ----------------------- NUMBER OF CARRYING NUMBER OF CARRYING TYPE OF PROPERTY INVESTMENTS AMOUNT INVESTMENTS AMOUNT - ------------------------------ ----------- -------- ----------- --------- ($000) ($000) Apartments 3 $ 19,517 3 $ 21,012 Office Buildings 14 38,352 15 64,918 Industrial Buildings 9 19,904 10 37,217 Retail Buildings 5 41,133 5 47,313 Research & Development Bldgs 2 4,734 2 5,985 -- -------- -- -------- Total 33 $123,640 35 $176,445 -- -------- -- -------- -- -------- -- --------
The following table summarized the Trust's investment in partnerships, net of accumulated depreciation of $-0- at September 30, 1995 and $314,000 at September 30, 1994:
POST CONFIRMATION PRE-CONFIRMATION SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 ----------------------- ----------------------- NUMBER OF CARRYING NUMBER OF CARRYING TYPE OF PROPERTY INVESTMENTS AMOUNT INVESTMENTS AMOUNT - ------------------------------ ----------- -------- ----------- --------- ($000) ($000) Industrial Buildings 3 $ 13,988 3 $ 15,772 Retail Buildings 2 11,880 2 18,076 -- -------- -- -------- Total 5 $ 25,868 5 $ 33,848
The Trust may be liable for environmental problems on sold properties. At September 30, 1995, the Trust was not aware of any environmental problems on sold properties. - 40 - 4. ALLOWANCE FOR LOSSES The changes in the allowance for losses for the years ended September 30, 1995, 1994 and 1993 were as follows:
1995 1994 1993 -------- ------- ------- ($ AMOUNTS IN THOUSANDS) Balance at beginning of year $13,430 $11,808 $19,353 Provisions charged to expense 3,000 2,000 37,000 -------- ------- ------- 16,430 13,808 56,353 Less charges against allowance, net of recoveries 16,430 378 44,545 -------- ------- ------- Balance at end of year $ -0- $13,430 $11,808 -------- ------- ------- -------- ------- -------
Approximately $-0-, $6,276,000 and $6,394,000 of the allowance for losses at September 30, 1995, 1994 and 1993, respectively, are applicable to real estate properties acquired through foreclosure. The Trust adjusted the balance of allowance for losses at September 30, 1995 as part of "Fresh Start Reporting" (See Note 1). 5. BORROWINGS MORTGAGE PAYABLE The Trust has a mortgage payable of $17,535,000 outstanding at September 30, 1995. The contractual interest rate on this loan at September 30, 1995 was 10.75% (Prime + 2%, floor of 8.5%) and the loan was to mature on December 5, 1995. In October 1995, the Trust made a paydown of $3.5 million, reducing the balance outstanding to $14 million and extending the maturity date to December 20, 1996. SENIOR SECURED NOTES DUE 2002 The 11-1/8% Senior Secured Notes (the "Notes") are secured obligations (secured by a first priority lien on all of the Trust's collateral) governed by the New Indenture between the Trust and Wilmington Trust Co., as Trustee, dated as of the effective date (September 29, 1995). Interest on these Notes accrues at 11-1/8% per annum and is payable semi-annually in arrears on each June 30 and December 31. The Trust is not required to make mandatory redemption payments or sinking fund payments other than with respect to Asset Sale Proceeds (as defined in the New Indenture). If at any time the aggregate amount of Asset Sale Proceeds exceeds $10 million, the Trust is required to make an offer to all holders of Notes to purchase the maximum principal amount of Notes that, together with accrued and unpaid interest thereon, may be purchased with 80% of any such asset sale proceeds or 100% of net cash proceeds of Indebtedness incurred as permitted under the New Indenture. The Trust has the option to redeem the Notes, in whole or in part, at 100% of the principal amount plus accrued and unpaid interest. The New Indenture includes affirmative covenants, negative covenants and financial covenants. See Note 2 - Income Taxes - regarding restrictions on dividend payments. 6. FAIR VALUE OF FINANCIAL INSTRUMENTS The Financial Accounting Standards Board Statement No. 107--Disclosure of Fair Value of Financial Statements ("SFAS 107") requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in -41- immediate settlement of the instrument. SFAS 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Trust. The carrying value of cash and cash equivalents approximates their fair value because of the liquidity and short-term maturities of these instruments. The mortgage payable is a variable rate loan that reprices frequently, thus fair value is based on the carrying amount of the loan. 7. SHARE OPTION PLAN 1984 SHARE OPTION PLAN As part of the Plan of Reorganization, all options outstanding pursuant to the 1984 Share Option Plan (348,500) were canceled. 1995 SHARE OPTION PLAN On October 2, 1995, the Board of Trustees adopted a 1995 Share Option Plan (the "1995 Plan") for Trustees, officers, employees and other key persons of the Trust, subject to the approval of the 1995 Plan by the Trust's shareholders. The 1995 Plan provides for the grant of options to purchase up to 870,000 Common Shares at not less than 100% of the fair market value of the Common Shares, subject to adjustment for share splits, share dividends and similar events. To the extent that awards under the 1995 Plan do not vest or otherwise revert to the Trust, the Common Shares represented by such awards may be the subject of subsequent awards. The 1995 Plan provides for the grant of incentive stock options ("Incentive Options") which qualify under Section 422 of the Code and nonqualified stock options ("Non-Qualified Options"). Holders of options also receive dividend equivalent rights. 8. PENSION PLANS On September 20, 1989, the Trustees adopted an Employees' Retirement Plan effective September 30, 1989. On December 16, 1992, the Trustees amended and restated the Employees' Retirement Plan effective January 1, 1992 (as amended on July 20, 1994, and effective January 1, 1994 and as may be further amended, the "Retirement Plan"). All employees are eligible to participate in the Retirement Plan provided that they are at least 21 years of age and have been employed for twelve consecutive months, during which period the employee has completed at least 1000 hours of service. Under the Retirement Plan, each eligible employee after completing five years of vesting service becomes 100% vested and entitled to a retirement pension. Benefits can be paid as a lump sum or as an annual retirement income for life equal to the greater of (a) the sum of (i) 1.3% of the highest five- year average annual base salary, multiplied by the number of years of credited service up to and including 35 thereof and (ii) 0.4% of the highest five-year average annual base salary in excess of Social Security covered compensation (as adjusted every five years), multiplied by the number of years of credited service up to and including 35 thereof or (b) the sum of (i) 1.3% of the highest five-year average annual base salary, multiplied by the number of credited service up to and including 15 thereof; (ii) 1.5% of the highest five-year average annual base salary, multiplied by the number of years of credited service from 16 to 25 years inclusive; (iii) 0.5% of the highest five-year average annual base salary, multiplied by the number of years of credited service from 26 to 35 years inclusive; and (iv) 0.4% of the highest five-year average annual base salary in excess of Social Security covered compensation (as adjusted every five years), multiplied by the number of years of credited service up to and including 25 thereof. -42- In November 1995, the Trustees amended the Retirement Plan effective January 1, 1996 to switch from the Pension Benefit Guaranty Corporation interest rate used for valuing lump sum distributions to the new General Agreement on Tariffs and Trade interest rate and mortality table for valuing lump sum distributions. As a result of this amendment, the current market value of Retirement Plan assets approximates the current aggregate lump sum amounts due to participants. The Trust also maintains a 401(k) profit and sharing plan and trust. Employer contributions are limited to 6% of participant's compensation, with a maximum per year of $3,000 per participant. Profit sharing expense was $72,000, $61,000 and $65,000 for years ended September 30, 1995, 1994 and 1993, respectively. 9. EMPLOYEE TERMINATION PLAN A termination pay plan has been established to cover termination of employment without cause during the period that the Notes, as defined, are outstanding. Employees are entitled to compensation ranging from a minimum of twelve weeks to a maximum of eighteen months pay. In addition, certain health benefits will continue to be paid by the Trust over a period of time equal to the period used in calculating severance pay. At September 30, 1995, the Trust accrued the $1.3 million cost of the Termination Pay Plan. After fiscal year end, the majority of existing employees were terminated and the Trust commenced payments to those employees. 10. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The quarterly results of operations (all pre-confirmation) for fiscal 1995 and 1994 are summarized as follows:
QUARTER ENDED ----------------------------------------------------------- DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 ----------- -------- -------- ------------ (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) FISCAL 1995 Total income $ 10,002 $ 9,774 $ 10,038 $ 9,650 Interest expense 9,559 10,273 10,378 5,690 Provision for losses - 3,000 - - Reorganization expense 370 1,135 1,063 3,651 Write down of invested assets to reorganization value - - - (66,597) Gain on extinguishment of debt - - - 75,304 Net loss (5,454) (10,263) (7,326) 3,010 - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- FISCAL 1994 Total income $ 8,846 $ 8,420 $ 9,516 $ 9,495 Interest expense 7,799 7,663 8,360 9,180 Provision for losses - - - - Reorganization expense 676 741 591 352 Net loss (4,656) (5,152) (4,745) (7,037) - --------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------
Per share amounts are not meaningful due to Fresh Start Reporting. 11. ACCOUNTING PRONOUNCEMENTS In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company will adopt Statement 121 in the first quarter of fiscal 1997 and, based on current circumstances, does not believe the effect of adoption will be material. -43- VALUE PROPERTY TRUST SCHEDULE XI REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION SEPTEMBER 30, 1995
FRESH START REPORTING ADJUSTMENTS (b) INITIAL COST TO TRUST COSTS ------------------------- -------------------------- CAPITALIZED CHARGE OFF (a) BUILDINGS & SUBSEQUENT TO ACCUMULATED CLASSIFICATION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION DEPRECIATION BASIS -------------- ------------ ----------- ------------ ------------- ------------ ------------ ASSETS HELD FOR SALE Apartments: Other - $ 3,995,000 $ 17,005,000 $ 2,147,000 $2,300,000 $ (1,330,000) Office Buildings: Pennsylvania - 750,000 1,547,000 146,000 237,000 (255,000) Other - 1,500,000 6,197,000 2,126,000 2,280,000 (1,693,000) Industrial Buildings: California - 316,000 - - - (46,000) Pennsylvania - 550,000 1,731,000 1,210,000 227,000 (1,734,000) Other 1,568,000 3,684,000 284,000 518,000 (1,223,000) Research & Development Buildings: Other - 685,000 2,216,000 - 116,000 (391,000) Retail Buildings: Other - 1,400,000 7,009,000 366,000 302,000 (1,721,000) ----------- ------------ ----------- ----------- ------------ 10,764,000 39,389,000 6,279,000 5,980,000 (8,393,000) ----------- ------------ ----------- ----------- ------------ ASSETS HELD FOR INVESTMENT Office Buildings: California - 4,350,000 14,291,000 2,966,000 3,280,000 (8,067,000) Pennsylvania - 1,790,000 18,010,000 1,614,000 3,449,000 (7,435,000) Other - 3,903,000 11,719,000 2,142,000 2,162,000 (5,841,000) Industrial Buildings: California 6,375,000 14,637,000 6,501,000 6,786,000 (9,478,000) Other - 630,000 4,231,000 683,000 463,000 (2,021,000) Research & Development Buildings: California - 1,390,000 1,725,000 158,000 104,000 (829,000) Retail Buildings: California 17,535,000 7,742,000 21,527,000 4,903,000 2,546,000 (4,445,000) Pennsylvania - 1,585,000 8,982,000 - - (3,907,000) Other - 250,000 1,179,000 70,000 125,000 (834,000) ----------- ----------- ------------ ----------- ----------- ------------ 17,535,000 28,015,000 96,301,000 19,037,000 18,915,000 (42,857,000) ----------- ----------- ------------ ----------- ----------- ------------ TOTAL REAL ESTATE OWNED $17,535,000 $38,779,000 $135,690,000 $25,316,000 $24,895,000 $(51,250,000) ----------- ----------- ------------ ----------- ----------- ------------ ----------- ----------- ------------ ----------- ----------- ------------
AMOUNT CARRIED AT END OF PERIOD ---------------------------------------- BUILDINGS & CLASSIFICATION LAND IMPROVEMENTS TOTAL -------------- ----------- ------------ ------------ ASSETS HELD FOR SALE Apartments: Other $ 3,900,000 $15,617,000 $19,517,000 Office Buildings: Pennsylvania 390,000 1,561,000 1,951,000 Other 1,170,000 4,680,000 5,850,000 Industrial Buildings: California 270,000 - 270,000 Pennsylvania 310,000 1,220,000 1,530,000 Other 760,000 3,035,000 3,795,000 Research & Development Buildings: Other 480,000 1,914,000 2,394,000 Retail Buildings: Other 1,350,000 5,402,000 6,752,000 ----------- ----------- ----------- 8,630,000 33,429,000 42,059,000 ----------- ----------- ----------- ASSETS HELD FOR INVESTMENT Office Buildings: California 2,050,000 8,210,000 10,260,000 Pennsylvania 1,420,000 9,110,000 10,530,000 Other 1,960,000 7,801,000 9,761,000 Industrial Buildings: California 2,250,000 8,999,000 11,249,000 Other 610,000 2,450,000 3,060,000 Research & Development Buildings: California 470,000 1,870,000 2,340,000 Retail Buildings: California 5,440,000 21,741,000 27,181,000 Pennsylvania 1,330,000 5,330,000 6,660,000 Other 110,000 430,000 540,000 ----------- ----------- ------------ 15,640,000 65,941,000 81,581,000 ----------- ----------- ------------ TOTAL REAL ESTATE OWNED $24,270,000 $99,370,000 $123,640,000 (c)(d) ----------- ----------- ------------ ----------- ----------- ------------
-44- VALUE PROPERTY TRUST SCHEDULE XI REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION SEPTEMBER 30, 1995 NOTES: (a) In addition to the encumbrances listed above, the new Senior Notes due 2002 will be secured by a first priority Lien on all of the Trust's assets, including all personal property and real property held by the Trust or any subsidiary. (b) See Note 1 to financial statements. (c) Cost for federal income tax purposes is $195,917,000. (d) The changes in carrying amounts during the year ended September 30, 1995 are summarized as follows: Balance at September 30, 1994 $ 66,880,000 Reclassification from foreclosure property and mortgage loans 109,565,000 Additions during year: Improvements 11,283,000 Deductions during year: Sale of real estate $ 3,350,000 Charge off against allowance for losses 2,881,000 Adjustments for fresh start reporting 57,857,000 64,088,000 ------------ ------------ Balance at September 30, 1995 $123,640,000 ------------ ------------ The changes in carrying amounts during the year ended September 30, 1994 are summarized as follows: Balance at September 30, 1993 $ 65,012,000 Additions during year: Improvements $ 1,847,000 Loan advance by construction lender 21,000 1,868,000 ------------ ------------ Balance at September 30, 1994 $ 66,880,000 ------------ ------------ The changes in carrying amounts during the year ended September 30, 1993 are summarized as follows: Balance at September 30, 1992 $ 46,400,000 Additions during year: Reclassification from real estate equities held for sale and other assets $ 16,427,000 Improvements 2,505,000 Loan advance by construction lender 2,057,000 20,989,000 ------------ Deductions during year: Charge off against allowance for losses 2,377,000 ------------ Balance at September 30, 1993 $ 65,012,000 ------------ ------------ -45- VALUE PROPERTY TRUST SCHEDULE XI (CONTINUED) REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION SEPTEMBER 30, 1995 The change in accumulated depreciation and amortization during the year ended September 30, 1995 is summarized as follows: Balance at September 30, 1994 $ 10,023,000 Reclassification from foreclosure property 8,264,000 Additions during year: Charge to income 6,608,000 Deductions during year: Adjustment for fresh start reporting 24,895,000 ------------ Balance at September 30, 1995 $ -0- ------------ ------------ The change in accumulated depreciation and amortization during the year ended September 30, 1994 is summarized as follows: Balance at September 30, 1993 $ 7,799,000 Additions during year: Charge to income 2,224,000 ------------ Balance at September 30, 1994 $ 10,023,000 ------------ ------------ The change in accumulated depreciation and amortization during the year ended September 30, 1993 is summarized as follows: Balance at September 30, 1992 $ 3,132,000 Additions during year: Reclassification from real estate equities held for sale and other assets 2,553,000 Charge to income 2,114,000 ------------ Balance at September 30, 1993 $ 7,799,000 ------------ ------------ -46- VALUE PROPERTY TRUST SCHEDULE XII MORTGAGE LOANS ON REAL ESTATE SEPTEMBER 30, 1995
PRINCIPAL AMOUNT OF LOANS SUBJECT NUMBER CONTRACTUAL TO DELIQUENT OF INTEREST AMOUNT OF PRINCIPAL TYPE OF LOANS LOANS RATE FINAL MATURITY DATE MORTGAGES OR INTEREST - ------------------------ -------- -------- ------------------- --------------- ------------ ASSETS HELD FOR SALE: Industrial buildings: Carson, CA 1 7.00% November 1995 $ 4,029,000 - Tucson, AZ 1 8.00% March 1999 4,385,000 - Chula Vista, CA 1 10.00% August 2005 4,200,000 - Other 1 10.00% January 2000 1,500,000 - Research and development buildings: Santa Ana, CA 1 8.00% December 1999 12,168,000 - Retail buildings: Citrus Heights, CA 1 10.25% February 1996 3,957,000 - ------------ ----------- 30,239,000 - ------------ ----------- ASSETS HELD FOR INVESTMENT: Apartments 1 9.00% July 2000 217,000 - Residential/Condominiums (a) 80 6.20%-9.50% July 1995-June 2009 1,120,000 - Office buildings: Marina Del Rey, CA 1 9.00% October 1995 7,500,000 - Other 2 7.25%-9.75% April 1999-June 1999 1,458,000 - Industrial buidlings: Chester, PA 1 10.00% December 1998 3,895,000 - Worcester, MA 1 11.00% May 2002 2,423,000 - Chino, CA 1 10.75% January 1995 4,514,000 4,514,000 Other 3 9.25%-10.00% July 1997-November 1999 870,000 - Research and development buildings: San Dimas, CA 1 11.75% March 1995 2,484,000 2,484,000 Allentown, PA 1 5.00% December 1994 11,526,000 11,526,000 Other 1 9.00% November 1995 2,010,000 - Retail buildings: El Toro, CA 1 10.50% December 1999 9,191,000 - Philadelphia, PA 1 8.25% December 1995 3,250,000 - Other 1 8.88% November 1999 169,000 - Hotel: Sparks, NV 1 10.00% October 1996 3,060,000 - ------------ ----------- 53,687,000 18,524,000 ------------ ----------- Total contractual amount of mortgage loans 83,926,000 $18,524,000 ----------- ----------- Adjust contractual amount to reorganization value of mortgage loans (26,947,000) ------------ Carrying Value of Mortgage Loans and Investments $ 56,979,000 (b)(c) ------------ ------------
-47- VALUE PROPERTY TRUST SCHEDULE XII (CONTINUED) MORTGAGE LOANS ON REAL ESTATE SEPTEMBER 30, 1995 NOTES: (a) Consists of 80 mortgage end loans on 8 projects. (b) The aggregate cost for federal income tax purposes is $83,771,000. (c) The change in carrying value of mortgage loans during the year ended September 30, 1995 were as follows:
Balance at September 30, 1994 $ 69,322,000 Reclassification from in-substance foreclosure 29,441,000 Advances on mortgage loans 733,000 Net change in interest reserves 162,000 ------------------ 99,658,000 Collections of principal (22,711,000) Adjustment for fresh start accounting (19,968,000) ------------------ $ 56,979,000 ------------------ ------------------
The change in carrying value of mortgage loans during the year ended September 30, 1994 were as follows:
Balance at September 30, 1993 $ 104,193,000 Advances on mortgage loans - Transfer of real estate to mortgage loans 750,000 Net change in interest reserves, deferred income 480,000 ------------------ 105,423,000 Collections of principal (25,555,000) Transfer to real estate (10,321,000) Chargeoff against allowance for losses (225,000) ------------------ $ 69,322,000 ------------------ ------------------
The change in carrying value of mortgage loans during the year ended September 30, 1993 were as follows:
Balance at September 30, 1992 $ 237,428,000 Advances on mortgage loans 602,000 Transfer of real estate to mortgage loans 348,000 Net change in interest reserves, deferred income 1,323,000 ------------------ 239,701,000 Collections of principal (24,604,000) Transfer to real estate (110,218,000) Chargeoff against allowance for losses (686,000) ------------------ $ 104,193,000 ------------------ ------------------
-48- VALUE PROPERTY TRUST INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION ---------- ----------- 3.1(a) Amended and Restated Declaration of Trust dated September 29, 1995 (14) (Exhibit 3.1). 3.1(b)(*) October 26, 1995 Amendment to Amended and Restated Declaration of Trust dated September 29, 1995. 3.2 By-Laws, as amended through June 20, 1984 (2) (Exhibit 3.3). 4.1(*) Form of Certificate for Common Shares. 4.2(a) Joint Plan of Reorganization Proposed by Debtor, Creditors' Committee and Equity Security Holders Committee (4) (Exhibit 10.11) 4.2(b) Modification to Joint Plan of Reorganization Proposed by Debtor, Creditors' Committee and Equity Security Holders Committee (5) (Exhibit 2). 4.2(c) Amendment No. 1 and Consent to Plan of Reorganization dated as of September 30, 1991 (6) (Exhibit 4.4(c)). 4.2(d) Amendment No. 2 to Plan of Reorganization, dated as of July 15, 1992 (7) (Exhibit 4.2(d)). 4.2(e) Prepackaged Plan of Reorganization as confirmed by the Bankruptcy Court of the Central District of California (14) (Exhibit 2.1). 4.3(a) Indenture dated as of July 15, 1992 between Mortgage and Realty Trust (predecessor to Value Property Trust) and Wilmington Trust Company, as trustee, governing the registrant's Senior Secured Uncertificated Notes due 1995 (7) (Exhibit 4.3). 4.3(b) Indenture dated as of September 29, 1995 between Mortgage and Realty Trust (predecessor to Value Property Trust) and Wilmington Trust Company, as trustee, governing the registrants 11-1/8% Senior Secured Notes due 2002. (14) (Exhibit 4.1). 4.3(c) Amended and Restated Collateral and Security Agreement between Mortgage and Realty Trust (predecessor to Value Property Trust), its Subsidiaries, its Lenders and Wilmington Trust Company and William J. Wade as Collateral Agent, dated as of September 29, 1995 (14) (Exhibit 4.2). 4.3(d) Letter of Agreement between Mortgage and Realty Trust (predecessor to Value Property Trust) and Wilmington Trust Company and William J. Wade as Collateral Agent, dated as of September 29, 1995 (14) (Exhibit 4.3). 4.3(e) Pledge Agreement between Mortgage and Realty Trust (predecessor to Value Property Trust) and Wilmington Trust Company as Collateral Agent, dated as of September 29, 1995 (14) (Exhibit 4.5). 10.1 1984 Share Option Plan (8) (Exhibit 19.1). -49- 10.2 Form of Incentive Stock Option Agreement under the 1984 Share Option Plan (9) (Exhibit 10.9). 10.3 Form of Non-Qualified Stock Option Agreement under the 1984 Share Option Plan (2) (Exhibit 10.19). 10.4 Amended and Restated Savings Incentive Plan effective January 1, 1992 (7) (Exhibit 10.7). 10.5 Amended and Restated Employees' Retirement Plan effective January 1, 1992 (7) (Exhibit 10.8). 10.6 Pension Plan for Trustees dated October 1, 1989 (10) (Exhibit 10.13). 10.7 Employee' Retention Plan dated October 17, 1990 as amended January 16, 1991 and March 10, 1991 (11) (Exhibit 19.1). 10.8 Resolutions of Amendment to Amended and Restated Employees' Retirement Plan (13) (Exhibit 10.8). 10.9 Registration Rights Agreement between Mutual Series Fund Inc., Intermarket Corporation, Angelo, Gordon & Co., L.P., Emerald Partners, Strome-Susskind & Co. and Mortgage and Realty Trust (predecessor to Value Property Trust), dated September 29, 1995 (14) (Exhibit 10.1). November 28, 1995 Amendment to Registration 10.10(*) Rights Agreement dated September 29, 1995. 10.11 Form of 1995 Share Option Plan (15) (Exhibit A). 20.1 Press Release (12) (Exhibit 20.1). 20.2 Term Sheet (12) (Exhibit 20.2). 21 Subsidiaries (13) (Exhibit 21). 27(*) Financial Data Schedule. - ------------- (1) Filed on May 13, 1993 as an exhibit to the Quarterly Report on Form 10-Q (No. 1-6613) and incorporated herein by reference. (2) Filed on December 6, 1984 as an exhibit to the Annual Report on Form 10-K (No. 1-6613) and incorporated herein by reference. (3) Filed on May 20, 1981 as an exhibit to Amendment No. 1 to the Registration Statement on Form 8-A (No. 1-6613) and incorporated herein by reference. (4) Filed on December 28, 1990 as an exhibit to the Annual Report on Form 10-K (No. 1-6613) and incorporated herein by reference. (5) Filed on March 14, 1991 as an exhibit to the Current Report on Form 8-K (No. 1-6613) and incorporated herein by reference. (6) Filed on December 27, 1991 as an exhibit to the Annual Report on Form 10-K (No. 1-6613) and incorporated herein by reference. (7) Filed on December 22, 1992 as an exhibit to the Annual Report on Form 10-K (No. 1-6613) and incorporated herein by reference. -50- (8) Filed on August 13, 1987 as an exhibit to the Quarterly Report on Form 10-Q (No. 1-6613) and incorporated herein by reference. (9) Filed on December 29, 1987 as an exhibit to the Annual Report on Form 10-K (No. 1-6613) and incorporated herein by reference. (10) Filed on December 21, 1989 as an exhibit to the Annual Report on Form 10-K (No. 1-6613) and incorporated herein by reference. (11) Filed on May 14, 1991 as an exhibit to the Quarterly Report on Form 10-Q (No. 1-6613) and incorporated herein by reference. (12) Filed on November 28, 1994 as an exhibit to the Current Report on Form 8-K (No. 1-6613) and incorporated herein by reference. (13) Filed on December 29, 1994 as an exhibit to the Annual Report on Form 10-K (No. 1-6613) and incorporated herein by reference. (14) Filed on October 13, 1995 as an exhibit to the Current Report on Form 8-K (No. 1-6613) and incorporated herein by reference. (15) Filed on December 12, 1995 as an Exhibit to the 1995 Proxy Statement for fiscal year ended September 30, 1995. (*) Exhibit filed with this Form 10-K. -51- -----END PRIVACY-ENHANCED MESSAGE-----