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THIS PAPER DOCUMENT IS BEING SUBMITTED
PURSUANT TO RULE 901(D) OF REGULATION S-T
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9
Solicitation/Recommendation Statement Pursuant to
Section 14(d)(4) of the Securities Exchange Act of 1934
PRUDENTIAL REALTY TRUST
(Name of Subject Company)
PRUDENTIAL REALTY TRUST
(Name of Person(s) Filing Statement)
CAPITAL SHARES OF BENEFICIAL INTEREST, PAR VALUE $0.01
(Title of Class of Securities)
74435P-20-3
(CUSIP Number of Class of Securities)
Donna M. Dellechiaie, Esq.
Associate Regional Counsel
Prudential Realty Group
3 Gateway Center
100 Mulberry Street, 14th Floor
Newark, New Jersey 07102-4077
(Name, address and telephone number of person authorized to receive notice
and communications on behalf of the person(s) filing statement)
Copy to:
Michael M. Maney, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
(212) 558-4000
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Item 1. Security and Subject Company.
The name of the subject company is Prudential Realty Trust, a
Massachusetts business trust (the "Trust"). The Trust was formed pursuant
to a Declaration of Trust dated June 19, 1985 and amended August 20, 1985
(the "Declaration") and expects to qualify for 1995 as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended. The principal executive offices of the Trust are located at 751
Broad Street, Prudential Plaza, Newark, New Jersey, 07102-3777. The class
of equity securities to which this statement relates is the Capital Shares
of Beneficial Interest, par value $0.01 per share (the "Capital Shares"),
of the Trust. In addition to the Capital Shares, the Trust has issued and
outstanding Income Shares of Beneficial Interest, par value $0.01 per share
(the "Income Shares"). The Trust owns the following properties: Maple
Plaza, located in Parsippany, Morris County, New Jersey; Huntington
Business Campus, located in Melville, Long Island, New York; and Park 100,
located in Indianapolis, Indiana (collectively, the "Properties").
Item 2. Tender Offer of the Bidder.
This statement relates to the tender offer disclosed in the
Schedule 14D-1, dated May 17, 1995 (the "Schedule 14D-1"), of Black Bear
Realty, Ltd., a newly-formed Ohio limited liability company (the "Bidder"),
of which Richard M. Osborne is the sole managing member, to purchase all of
the outstanding Capital Shares upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated May 17, 1995, and the related
Letter of Transmittal (together, the "Offer"). The Offer to Purchase states
that the business address of the Bidder and Mr. Osborne is located at 7001
Center Street, Mentor, Ohio 44060.
Item 3. Identity and Background.
(a) The name and business address of the Trust, which is the person
filing this statement, are set forth in Item 1 above.
(b)(1) The Trust has entered into an agreement (the "Advisor
Agreement"), dated August 29, 1985, amended May 14, 1987 and amended
May 10, 1993, with The Prudential Realty Advisors, Inc. (the "Advisor").
The Trust's President, and Vice President and Treasurer, who are Trustees
of the Trust, are also Officers of the Advisor. Pursuant to this agreement,
the Advisor received approximately $951,000 in 1994 for portfolio
management and other advisory services. In addition, the Advisor is
entitled to an incentive disposition fee equal to 5% of the gain, if any,
on the sale of the Properties, and a selling commission equal to 2% of the
gross sales price on the sale of the Properties for which the Advisor acts
as broker. In the event that any of the Properties are sold pursuant to the
solicitation process currently being conducted by J.P. Morgan Securities
Inc. ("J.P. Morgan"), as more fully described in Item 5(a) below, it is not
anticipated that the Advisor will earn any such incentive disposition fee
or selling commission.
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The Trust also has entered into a tax indemnification agreement
(the "Tax Indemnification Agreement"), dated March 30, 1994, with the
Advisor. Pursuant to this agreement, the Advisor will indemnify the Trust
against any taxes and related costs the Trust may incur as a result of the
Trust's failure to follow, prior to 1993, a procedural requirement of the
Internal Revenue Code of 1986, as amended.
In addition, the Trust has entered into two separate agreements
(the "Premisys Agreements"), with Premisys Real Estate Services, Inc.
("Premisys"), an affiliate of the Advisor. The first agreement was entered
into on December 31, 1990. The second agreement was entered into on May 1,
1991, and amended on September 1, 1992. Pursuant to the Premisys
Agreements, Premisys received approximately $506,600 in 1994 for property
management, construction and leasing services for the Trust's Park 100 and
Maple Plaza properties.
Copies of the Advisor Agreement, the Tax Indemnification
Agreement and the Premisys Agreements are filed as Exhibits 1 through 4
hereto, and are incorporated herein by reference. The foregoing
descriptions of the Advisor Agreement, the Tax Indemnification Agreement
and the Premisys Agreements are qualified in their entirety by reference to
the text of such agreements.
(b)(2) To the best knowledge of the Trust, there are no
material contracts, agreements, arrangements or understandings or any
actual or potential conflicts of interest, between the Trust, its executive
officers, Trustees or affiliates, on the one hand, and the Bidder, its
executive officers, directors or affiliates, on the other hand.
Item 4. The Solicitation or Recommendation.
(a) At a meeting of the Board of Trustees of the Trust (the
"Board") held on May 30, 1995, the Board carefully considered the Trust's
business, financial conditions and prospects, the terms and conditions of
the Offer and other matters, including presentations by its legal and
financial advisors. The Board had earlier met on May 18, 1995 to consider
the Bidder's unsolicited Offer. The Board, after receiving advice from its
management and professional advisors, unanimously determined to reject the
Offer.
At the May 30 meeting, the Board unanimously concluded, among
other things, that since the policy and original intention of the
Declaration is for the Trust to be completely liquidated 101/2 to 12 years
after its inception (unless there was a change in the Trust's policies and
such change was approved by 75% of each class of shareholders, voting
separately as a class), the Offer represented the first step in a plan
designed by the Bidder to prevent the liquidation of the Trust and is in
direct conflict with the long-standing policy and intent of the Trust.
Accordingly, the Board unanimously recommends that holders of Capital
Shares reject the Offer and not tender their Capital Shares pursuant to the
Offer.
A copy of a letter to shareholders communicating the Board's
recommendation and a form of press release announcing such recommendation
are filed as Exhibits 5 and 6 hereto, respectively, and are incorporated
herein by reference.
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(b)(1) In reaching the conclusions referred to in Item 4(a)
above, the Board took into account numerous factors, including but not
limited to the following:
(i) The Board's familiarity with the business, financial
condition, prospects and current business strategy of the Trust, and the
nature of the real estate industry generally.
(ii) The numerous conditions and sub-conditions to which the
Offer is subject, including the Minimum Condition pursuant to which
consummation of the Offer requires that at least 7,150,000 Capital Shares
be validly tendered and not withdrawn prior to the expiration of the Offer.
(iii) The Offer as it now stands is an offer to purchase all
(but not less than 7,150,000 shares) of the Capital Shares. As stated in
the Offer, if the Bidder acquires 7,150,000 Capital Shares pursuant to the
Offer, the Bidder and its affiliates would, together with the Capital
Shares and Income Shares currently owned by Mr. Osborne and his affiliates,
own more than 50% of the combined voting power of the Capital Shares and
Income Shares with respect to the election of Trustees of the Trust. As
such, the Bidder, Mr. Osborne and their affiliates will have sufficient
voting power to remove all of the current Trustees of the Trust and to
elect new Trustees.
(iv) As more fully described in Item 5(a) below, J.P. Morgan
has solicited bids for the Properties. While
substantial expressions of interest in acquiring the Properties have been
received by J.P. Morgan as part of that process, the best price and terms
pursuant to which potential purchasers would enter into a binding agreement
to purchase any of the Properties are not yet clear. Shareholders should
note that the Offer to Purchase indicates that if the Bidder is successful
in the Offer, the Bidder may replace the current Trustees and the process
conducted by J.P. Morgan of soliciting bids for the Properties may well be
prevented from reaching its conclusion since it is the Bidder's expressed
intent to prevent a liquidation of the Trust. Accordingly, holders of
Capital Shares who tender shares to the Bidder pursuant to the Offer would
in effect be voting such shares against the liquidation of the Trust which
would prevent holders of Income Shares from realizing the liquidation value
of their shares in the near future.
(v) The Board is not able to fully evaluate Mr. Osborne's
past record and experience in the type of business conducted by the Trust
and in the real estate industry generally. In addition, the Board is
similarly unable to assess the experience of the Bidder or the Turkey
Vulture Fund XIII, Ltd., for each of which Mr. Osborne is the sole managing
member.
(vi) The policy and original intention of the Declaration is
for the Trust to be liquidated 101/2 to 12 years after its inception
(unless there was a change in the Trust's policies and such change was
approved by 75% of each class of shareholders, voting separately as a
class), as such, the Offer represents the first step in a plan designed by
the Bidder to prevent the liquidation of the Trust and is in direct
conflict with the long-standing policy and intent of the Trust.
(b)(2) In addition to the foregoing, the Board believes that
shareholders of the Trust should consider the following factors:
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(i) Pursuant to the Offer, the Bidder intends to take all
necessary steps to prevent the liquidation of the Trust. The Bidder
currently proposes, as soon as practicable following consummation of the
Offer, to seek to have the Trust consummate a merger or similar business
combination with a self-administered, indefinite-life REIT, with a single
class of common stock, to be controlled by the Bidder or its affiliates
(the "Proposed Merger"). Under the terms of the Proposed Merger, each then
outstanding Capital Share and each then outstanding Income Share would be
converted into the right to receive a prescribed number of shares of the
new REIT, which would result in holders of Capital Shares owning
approximately 6.9% of the new REIT and holders of Income Shares owning
approximately 93.1% of the new REIT. Accordingly, if the Proposed Merger
were consummated and, contrary to the Bidder's expressed intent to not
liquidate the Trust, the Trust is subsequently liquidated, those people who
held Capital Shares at the time of the Proposed Merger would receive 6.9%
of the amount former holders of Income Shares would have otherwise received
in a liquidation under the current Declaration and former holders of Income
Shares would lose 6.9% of the amount they would have otherwise received in
a liquidation under the current Declaration. As such, under the terms of
the Proposed Merger, holders of Income Shares would lose their liquidation
preference as is set forth in the Declaration.
(ii) As more fully set forth in Item 8(c) below, the Board
believes that the Proposed Merger will require the affirmative vote of 75%
(not the majority vote referred to in the Offer to Purchase) of each class
of shareholders, voting separately as a class. Although the likelihood
that the Proposed Merger is achievable may be remote due to the 75% vote
requirement, shareholders should also consider the potential effect of such
a merger on their holdings in the Trust. Particularly, those shareholders
who hold both Capital Shares and Income Shares may be tempted to tender
their Capital Shares, and should be aware of the possible risk to the
Income Shares of doing so. As more fully set forth in Item 8(a) below, the
Trustees are of the view, after consultation with counsel, that those
shareholders voting against a merger may well have a common law right to
dissent from such a merger and be paid the fair value of their shares
("appraisal rights"). It may well be possible (although not certain) that
a person would be denied the right to invoke appraisal rights if such
person had contributed to the success of the merger by tendering his or her
Capital Shares, even if that person's Income Shares were voted against the
subsequent merger.
(iii) Holders of both Capital Shares and Income Shares should
be aware that if, pursuant to the Trust's engagement of J.P. Morgan,
acceptable bids are received for the Properties, the Trust may be
liquidated in the current year. As stated in the Annual Report on Form 10-K
of the Trust for the year ended December 31, 1994, based on appraisals
conducted as of December 31, 1994, the appraised value of the Properties
was $73,700,000 (the "Appraised Value"). If the Trust had been liquidated
as of December 31, 1994 and the Appraised Value was the proceeds from the
sale of the Properties, the Trust estimates that holders of Income Shares
would have received approximately $4.72 per Income Share. As set forth in
Item 8(b) below, Mr. Osborne has sought a declaration from the Massachusetts
court that any capital gains realized upon a sale of the Properties be
payable to holders of Capital Shares. The Trustees are of the view, after
consultation with counsel, that disposition of one or more of the Properties
at this time would immediately effect a liquidation of the Trust, and that
the proceeds from a liquidation would be payable without regard to the
characterization of the proceeds as capital gain or return of principal.
Rather, the Trustees believe that all proceeds would be aggregated and,
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after paying expenses, would be used to pay holders of Income Shares their
liquidation preference. In accordance with the Declaration, only if the
total proceeds are sufficient to pay the per share stated value ($8.00) to
holders of Income Shares would any funds be available for holders of Capital
Shares.
Although the Board disagrees with Mr. Osborne's
interpretation of the Declaration, holders of Capital Shares should also
consider that if the court accepts Mr. Osborne's interpretation and
determines that capital gains are payable to holders of Capital Shares
prior to the redemption of the Income Shares, tendering shareholders will
lose the opportunity to receive capital gains distributions, if any.
(iv) Holders of both Capital Shares and Income Shares should
consider that by tendering their Capital Shares to the Bidder pursuant to
the Offer, they in effect would be selling the corresponding vote to the
Bidder at a cheap price (in comparison to the value of the Income Shares).
As such, tendering shareholders would be aiding the Bidder in its attempt
to gain control of the Trust by paying a small fraction of the economic
value of the Trust.
(v) Shareholders should consider that the purchase of Capital
Shares pursuant to the Offer (A) would reduce the number of Capital Shares
that might otherwise be traded publicly, (B) could adversely affect the
liquidity and market value of the remaining Capital Shares or, perhaps, the
Income Shares, held by the public, and (C) could be expected to reduce the
number of holders of Capital Shares. It is not possible for the Trust to
predict whether the decrease in the number of Capital Shares that might
otherwise be traded publicly would have a negative or positive effect on
the market price for, or the marketability of, the Capital Shares or the
Income Shares, nor can the Trust predict whether such action would cause
future market prices for the Capital Shares to be greater or less than the
$0.30 per Capital Share offered pursuant to the Offer.
(vi) Shareholders should consider that the current Board holds
2,700 Capital Shares and 7,200 Income Shares. If,
however, the Offer is successful and the Bidder purchases the minimum
7,150,000 Capital Shares sought, pursuant to the information set forth in
the Offer to Purchase, Mr. Osborne and his affiliates would then control
9,310,100 Capital Shares and only 1,873,300 Income Shares. If the Bidder
subsequently replaces the current Board with a new Board elected by
Mr. Osborne and his affiliates, the new Board would be elected by share-
holders that own a disproportionate amount of Capital Shares as compared to
Income Shares. Accordingly, holders of Capital Shares who also hold Income
Shares should consider the potential impact on future dividends if the
Bidder replaces the current Board since a Board elected by Mr. Osborne and
his affiliates could adopt certain policies of the Trust that may have a
direct impact on the amount of dividends, if any, to be paid to holders of
Income Shares.
(vii) Holders of Capital Shares should be aware that on May 16,
1995, the last full trading day prior to the Offer, the reported closing
price of the Capital Shares on the NYSE Composite Tape was $0.22 per
Capital Share. On May 30, 1995, the last full trading day prior to the
filing of this Schedule 14D-9, the reported closing price of the Capital
Shares on the NYSE Composite Tape was $0.25 per Capital Share.
Since 1993, the high price for the Capital Shares has
been $0.41 per Capital Share and the low price has been $0.11 per Capital
Share.
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If the Trust had been liquidated as of December 31, 1994 and the Appraised
Value was the proceeds from the sale of the Properties, the Trust estimates
that holders of Income Shares would have received approximately $4.72 per
Income Share and holders of Capital Shares would not have received any
distribution. There can be no assurance, however, that the Properties will
be sold for the Appraised Value. Pursuant to the Offer, the Bidder has
offered $0.30 per Capital Share, net to the seller in cash, without
interest thereon.
Item 5. Persons Retained, Employed or to be Compensated.
The Trust has retained J.P. Morgan as the Trust's financial
advisors with respect to the sale or other disposition of the stock,
assets, Properties or business of the Trust. In addition, the Trust has
retained Georgeson & Company, Inc. ("Georgeson") to assist the Trust in
connection with its communications with shareholders with respect to, and
to provide other services to the Trust in connection with, the Offer.
(a) J.P. Morgan Securities Inc.
Pursuant to a Letter Agreement, dated December 28, 1994 (the
"December Letter Agreement"), the Board engaged J.P. Morgan to review and
provide recommendations on the strategic options available to maximize the
value of the Trust to its shareholders as it approaches its scheduled
liquidation date (as set forth in the Declaration). After December 31,
1994, J.P. Morgan recommended that the Trustees proceed to solicit bids for
the shares of the Trust or its assets, in the form of cash and/or stock. On
February 9, 1995, the Board accepted J.P. Morgan's and the Advisor's
recommendation and the Board approved the engagement of J.P. Morgan to
solicit bids for the Properties. Thereafter, pursuant to a Letter
Agreement, dated March 16, 1995 (the "March Letter Agreement"), the Board
engaged J.P. Morgan to diligently undertake certain services on the Trust's
behalf including, to the extent requested: (i) assisting the Trust in
preparing an offering memorandum, (ii) identifying and contacting selected
qualified acquirors acceptable to the Trust, (iii) arranging for potential
acquirors to conduct business investigations, (iv) conducting an auction of
the Trust and/or the Properties, (v) assisting the Trust in negotiating the
financial aspects of any proposed transaction, (vi) delivering an opinion
to the Board as to the fairness to the Trust's shareholders from a
financial point of view of the consideration to be received by the Trust in
any proposed transaction, (vii) assisting in the closing of any transaction,
and (viii) such other related or ancillary services as the Trust shall
reasonably request. In accordance with the March Letter Agreement, the
Trust, in its sole discretion, may reject any proposed transaction.
Pursuant to the December Letter Agreement, the Trust paid J.P.
Morgan an advisory fee of $100,000 (the "Phase I Fee") as compensation for
J.P. Morgan's evaluation and recommendations on the strategic options
available to maximize the value of the Trust to its shareholders as it
approaches its scheduled liquidation date. Under the terms of the December
Letter Agreement, J.P. Morgan was reimbursed for its reasonable out-of-
pocket expenses of approximately $2,540. In addition, the Trust agreed
to indemnify J.P. Morgan against certain liabilities, including liabilities
under the federal securities laws.
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Pursuant to the March Letter Agreement, the Trust agreed that,
if the Trust or the Properties are sold or otherwise disposed of in a
transaction by J.P. Morgan or by the Trust, or by or through any other
person during the term of the March Letter Agreement, the Trust will pay to
J.P. Morgan a contingent success fee (the "Success Fee") equal to the
specified percentage rate set forth below multiplied by the transaction
value. The applicable percentage rate was set at one and one half percent
(1.5%) of the transaction value for the Trust's Park 100 and Maple Plaza
properties, and three quarters of one percent (0.75%) of the transaction
value for the Trust's Huntington Business Campus property. Assisting J.P.
Morgan in the solicitation of bids for the Huntington Business Campus is
Sutton and Edwards, Inc. If the Huntington Business Campus is sold, Sutton
and Edwards will receive 2.00% of the gross sales price. The Success Fee
otherwise due J.P. Morgan under the March Letter Agreement is to be
reduced: (i) by one half (50%) of the amount of any expenses reimbursable
to J.P. Morgan, and (ii) in the amount of Fifty Thousand Dollars ($50,000)
representing a credit of one half (50%) of the Phase I Fee. Under the
terms of the March Letter Agreement, J.P. Morgan will be reimbursed for its
reasonable out-of-pocket expenses up to a maximum amount of $75,000 whether
or not a transaction is consummated. In addition, the Trust has agreed to
indemnify J.P. Morgan against certain liabilities, including liabilities
under the federal securities laws.
The Success Fee is deemed payable only upon "consummation" of a
transaction. A transaction is deemed "consummated" upon the earliest of
any of the following events to occur: (i) the acquisition by another person
of at least 75% of each of the Capital Shares and Income Shares; (ii) a
merger or consolidation of the Trust with another person; (iii) closing of
the acquisition of title to one or more of the Properties; (iv) the receipt
by shareholders or the Trust of any cash, securities, or other assets of
any person as payment for the Capital Shares and/or Income Shares, or for
the acquisition of one or more of the Properties; or (v) at the next annual
meeting of the Trust's shareholders, the election of three independent
Trustees who are: (x) different from the current Trustees, and (y) not
endorsed by the current Advisor to the Trust.
Copies of the December Letter Agreement and the March Letter
Agreement are filed as Exhibits 7 and 8 hereto, respectively, and are
incorporated herein by reference. The foregoing descriptions of the
December Letter Agreement and the March Letter Agreement are qualified in
their entirety by reference to the text of such agreements.
(b) Georgeson & Company, Inc.
The Trust has also retained Georgeson to assist the Trust in
connection with its communications with shareholders with respect to, and
to provide other services to the Trust in connection with, the Offer. The
Trust will pay Georgeson reasonable and customary compensation for its
services and will reimburse Georgeson for its reasonable out-of-pocket
expenses incurred in connection therewith.
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Item 6. Recent Transactions and Intent With Respect to Securities.
(a) To the best of the Trust's knowledge, no transactions in the
Capital Shares have been effected during the past 60 days by the Trust or
by any executive officer, trustee, affiliate or subsidiary of the Trust.
(b) To the best of the Trust's knowledge, none of the Trust's
executive officers, trustees, affiliates or subsidiaries presently intends
to tender to the Bidder pursuant to the Offer or sell any Capital Shares
that are held of record or beneficially owned by such persons, but rather
such persons presently intend to continue to hold such securities.
Item 7. Certain Negotiations and Transactions by the Subject Company.
(a) No negotiation is being undertaken or is underway by the Trust
in response to the Offer which relates to or would result in:
(1) An extraordinary transaction such as a merger or
reorganization, involving the Trust or any subsidiary of
the Trust;
(2) A purchase, sale or transfer of a material amount of
assets by the Trust or any subsidiary of the Trust;
(3) A tender offer for or other acquisition of securities by
or of the Trust; or
(4) Any material change in the present capitalization or
dividend policy of the Trust.
However, the Trust is continuing the process that it began in
December 1994 of evaluating all strategic options available to maximize the
value of the Trust to its shareholders as it approaches its scheduled
liquidation date. To that end, as mentioned in Item 5(a) above, J.P.
Morgan has solicited bids for the Properties and the Board is evaluating
such bids. As part of such process, representatives of the Trust have begun
to have discussions with third parties that could lead to a transaction
involving the sale of one or more of the Properties or a merger of the Trust.
There can be no assurance that any of the foregoing will result in a
transaction being recommended to the Board or that any transaction that may
be recommended will be authorized or consummated.
(b) The Board has determined that disclosure with respect to the
parties to, and the possible terms of, any transactions or proposals of the
type referred to in Item 7(a) above would jeopardize any discussions or
negotiations that the Trust may conduct. Accordingly, the Board adopted a
resolution at its May 30, 1995 meeting instructing its advisors not to
disclose the possible terms of any such transactions or proposals, or the
parties thereto, unless and until an agreement in principle relating
thereto has been reached.
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Item 8. Additional Information to be Furnished.
(a) Appraisal Rights. In the Offer to Purchase, the Bidder states
that shareholders will not have statutory appraisal rights in connection
with the Offer or the Proposed Merger. However, holders of Income Shares who
are also holders of Capital Shares may have a risk of losing common law
appraisal rights if they tender Capital Shares in the Offer and a court were
to determine that such common law appraisal rights exist and that such a
tender constituted an implicit approval of the Proposed Merger. The Offer
to Purchase fails to address possible common law appraisal rights that
holders of Income Shares may have in accordance with the Massachusetts
Supreme Judicial Court's decision in the case of Robert W. Sullivan, Jr. v.
First Massachusetts Financial Corporation, 409 Mass. 783, 569 N.E. 2d 814
(Mass. 1991). In this case, the court held that common law appraisal rights
may be available to shareholders of a Massachusetts trust company (a bank)
under certain circumstances where statutory appraisal rights under the
Massachusetts Business Corporation Law were not available. The rationale of
the Court in Sullivan may apply to shareholders of a Massachusetts common
law business trust such as the Trust so as to permit holders of Capital
Shares and/or Income Shares of the Trust who object to the Proposed Merger
and give appropriate notice of such objection and who otherwise follow
appropriate procedures to have the right to a determination of the fair
value of their Capital Shares and/or Income Shares. As the law in this area
may be uncertain, shareholders who are interested in preserving their
appraisal rights are urged to consult with their legal counsel.
(b) Litigation.
(b)(1) The Probate Action.
On April 5, 1995, Mr. Osborne commenced an action in the
Probate Court Department of the Trial Court of the Commonwealth of
Massachusetts captioned Richard M. Osborne v. Prudential Realty Trust, and
Jeffrey L. Danker, Thomas F. Murray, Joseph M. Selzer, Richard J. Boyle,
Francis L. Bryant, as Trustees of Prudential Realty Trust (Suffolk No. 95-
E-0016) (the "Probate Action"). The complaint alleges that the defendant
Trustees have engaged in a systematic course of conduct that is adverse to
the interests of, and detrimental to, the beneficiaries of the Trust by
wasting trust assets and stating their intention to prematurely liquidate
the trust estate. Specifically, the complaint alleges that the Trustees
took no action to halt a slide in the value of the Capital Shares and
allowed unreasonably high advisory and administrative costs. The complaint
also alleges that the Trustees failed to collapse the Trust's shares into a
single class of stock even after it became evident that the marketability
of the Capital Shares was being materially harmed by the two-tiered
structure. The complaint seeks the immediate removal of the Trustees.
On May 31, 1995, the Trust responded to the Probate
Action (the "Probate Response") by answering the complaint and by filing a
counterclaim for declaratory judgment seeking a determination as to whether
a 75% or a majority vote of each class of shareholders, voting separately
as a class, is necessary to effectuate the Proposed Merger.
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Copies of the Probate Action and the Probate Response are
filed as Exhibits 9 and 10 hereto, respectively, and are incorporated
herein by reference. The foregoing description of the Probate Action and
the Probate Response are qualified in their entirety by reference to the
text of such documents.
(b)(2) The Superior Court Action.
On April 14, 1995, Mr. Osborne commenced a second action
in the Superior Court Department of the Trial Court of the Commonwealth of
Massachusetts captioned Richard M. Osborne and Robert G. Stern v.
Prudential Realty Trust, and Jeffrey L. Danker, Thomas F. Murray, Joseph M.
Selzer, Richard J. Boyle, Francis L. Bryant, as Trustees of Prudential
Realty Trust (Civ. Act. No. 95-2095A) (the "Superior Court Action"). The
complaint reiterates certain allegations set forth in the Probate Action,
and further alleges that the defendants breached their fiduciary duty to
the beneficiaries of the Trust, and engaged in unfair and deceptive acts in
violation of Chapter 93A, sec.11, of the laws of the Commonwealth of
Massachusetts, by, inter alia, favoring the interests of holders of Income
Shares over the interests of holders of Capital Shares. In particular, the
complaint alleges that the Trust has wrongly interpreted the Declaration to
require that Income Shares be redeemed prior to the payment of capital
gains to holders of Capital Shares. Further, the complaint alleges that the
Trust's plan to liquidate the trust estate would harm shareholders because
there would be, at best, a modest premium over current market value paid to
holders of Income Shares and no payment at all to holders of Capital
Shares. The complaint seeks unspecified damages for the alleged breach of
fiduciary duty and requests that such damages be doubled or trebled. In
addition, the complaint seeks a declaratory judgment with respect to the
defendants' obligations in distributing proceeds of a liquidation to
holders of Capital Shares and Income Shares.
On May 31, 1995, the Trust responded to the Superior
Court Action (the "Superior Court Response") by answering the complaint and
by filing a counterclaim for declaratory judgment seeking a determination
as to whether a 75% or a majority vote of each class of shareholders,
voting separately as a class, is necessary to effectuate the Proposed Merger.
Copies of the Superior Court Action and the Superior
Court Response are filed as Exhibits 11 and 12 hereto, respectively, and
are incorporated herein by reference. The foregoing description of the
Superior Court Action and the Superior Court Response are qualified in
their entirety by reference to the text of such documents.
(b)(3) Possible Intervention by Holders of Income Shares.
To the extent that the courts do not rule on the issues
set forth above in Item 8(b)(1) and Item 8(b)(2) prior to consummation of
the Offer, it is possible that, if the Offer is successful,
12
the Bidder could take control of the Board and dismiss the litigation,
unless one or more holders of Income Shares has intervened in each
litigation to protect their interests.
(c) Requisite Vote for the Proposed Merger.
As stated in the Offer to Purchase, Mr. Osborne is committed to
avoiding liquidation of the Trust and, in fact, is proposing the Proposed
Merger. While the Offer to Purchase states that the Proposed Merger
requires the approval of a majority of each class of shareholders, voting
separately as a class, the Board believes that such statement is erroneous
and that the Proposed Merger requires the affirmative vote of 75% of each
class of shareholders, voting separately as a class.
The Declaration states explicitly that any amendment to the
Declaration which would have the effect of altering the policy of
liquidating the Trust 101/2 to 12 years after its inception or would
otherwise change the policies set forth in Article V of the Declaration,
shall require the affirmative vote of 75% of each class of shareholders,
voting separately as a class. While the Declaration also permits a merger
with a new entity upon a bare majority vote of each class, voting
separately as a class, the Trustees are of the view, after consultation
with counsel, that a majority vote would be permissible only if the new
entity had a certificate and bylaws which carried forward the policies set
out in the Declaration, but that a change that would have the same effect
as amending the Declaration would require a 75% vote. The proposal
advanced by Mr. Osborne would, in the view of the Trustees, require such an
affirmative vote, including the affirmative vote of 75% of the outstanding
Income Shares. It is thus quite possible that the Offer, if successful,
could result in the abandonment of the solicitation process now being
conducted by J.P. Morgan and not achieve any other objective.
Furthermore, if Mr. Osborne sought to acquire sufficient Income
Shares to ensure that he could achieve the required 75% vote, it is
quite possible that the Trust would cease to qualify as a REIT for Federal
Income Tax purposes, as that may well result in fewer than five holders
owning over 50% of the voting shares of the Trust, measured by value.
Item 9. Material to be Filed as Exhibits.
Exhibit 1 -- Management Agreement, dated August 29, 1985, amended May 14,
1987, and amended May 10, 1993, between the Trust and The
Prudential Realty Advisors, Inc.
Exhibit 2 -- Tax Indemnification Agreement, dated March 30, 1994, between
the Trust and The Prudential Realty Advisors, Inc.
Exhibit 3 -- Management Agreement, dated December 31, 1990, between the
Trust and Premisys Real Estate Services, Inc.
Exhibit 4 -- Management Agreement, dated May 1, 1991, and amended
September 1, 1992, between the Trust and Premisys Real Estate
Services, Inc.
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Exhibit 5 -- Form of Letter to Shareholders of the Trust, dated May 31,
1995.*
Exhibit 6 -- Form of Press Release, dated May 31, 1995.
Exhibit 7 -- Letter Agreement dated December 28, 1994, between the Trust
and J.P. Morgan Securities, Inc.
Exhibit 8 -- Letter Agreement dated March 16, 1995, between the Trust
and J.P. Morgan Securities, Inc.
Exhibit 9 -- Probate Action, filed April 5, 1995.
Exhibit 10 -- Probate Response, filed May 31, 1995.
Exhibit 11 -- Superior Court Action, filed April 14, 1995.
Exhibit 12 -- Superior Court Response, filed May 31, 1995.
[FN]
* Included in copies mailed to shareholders of the Trust.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Dated: May 31, 1995
PRUDENTIAL REALTY TRUST
By: /s/ Jeffrey Danker
Name: Jeffrey Danker
Title: President