UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A No. 1
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
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or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________________ to_________________________
Commission file number 1-9106
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Brandywine Realty Trust
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(Exact name of registrant as specified in its charter)
Maryland 23-2413352
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State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
16 Campus Boulevard, Newtown Square, Pennsylvania 19073
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 325-5600
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
Common Shares of Beneficial Interest, American Stock Exchange
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(par value $0.01 per share)
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Securities registered pursuant to Section 12(g) of the Act:
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(Title of class)
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of 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]
The aggregate market value of the voting shares held by non-affiliates of
the registrant was approximately $163.8 million as of March 10, 1997. The
aggregate market value has been computed by reference to the closing price at
which the Common Shares were sold on the American Stock Exchange on such date.
An aggregate of 9,213,240 Common Shares of Beneficial Interest were outstanding
as of March 10, 1997 and an aggregate of 481,818 Preferred Shares of Beneficial
Interest (convertible under certain circumstances into 1,606,060 Common Shares
of Beneficial Interest) were outstanding as of March 10, 1997.
Documents Incorporated By Reference
None
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Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of March 10, 1997
(except as indicated in note 3) regarding the beneficial ownership of Common
Shares (and Common Shares for which Units and Preferred Shares may be exchanged)
by each Trustee, by each executive officer, by all Trustees and executive
officers as a group, and by each person known to the Company to be the
beneficial owner of 5% or more of the outstanding Common Shares assuming the
issuance of Units in exchange for the Residual Interests. Except as indicted
below, to the Company's knowledge, all of such Common Shares are owned directly,
and the indicated person has sole voting and investment power.
Name and Business Number of Percentage of
Address of Beneficial Owner(1) Common Common Shares(2)
- ------------------------------ Shares ----------------
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Morgan Stanley Group Inc.(3)..... 1,130,800 12.27%
RAI Real Estate Advisers, Inc.(4) 951,019 9.98
Safeguard Scientifics Inc.(5).... 738,753 7.61
Anthony A. Nichols, Sr.(6)....... 285,503 3.05
Joseph L. Carboni(7)............. 1,166 *
Richard M. Osborne(8)............ 440,478 4.74
Gerard H. Sweeney(9)............. 146,934 1.57
Warren V. Musser(10)............. 0 *
Walter D'Alessio(11)............. 300 *
Charles P. Pizzi(12)............. 0 *
John P. Gallagher(13)............ 251,955 2.69
Brian F. Belcher(14)............. 259,200 2.77
All Trustees and Executive
Officers as a Group (9 persons).. 961,626 9.93
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*Less than one percent.
(1) Unless indicated otherwise, the business address of each person listed is
16 Campus Boulevard, Newtown Square, Pennsylvania 19073.
(2) Assumes that all Units and Preferred Shares eligible for conversion held by
each named person or entity are converted into Common Shares. The total number
of Common Shares outstanding used in calculating the percentage of Common Shares
assumes that none of the Units or Preferred Shares eligible for conversion held
by other named persons or entities are converted into Common Shares.
(3) Based on a Schedule 13G dated January 14, 1997, and filed for the year
ended December 31, 1996. Morgan Stanley Group Inc. maintains its principal
office at 1585 Broadway, New York, New York 10036.
(4) The business address of RAI Real Estate Advisers, Inc. ("RAI") is 259
Radnor-Chester Road, Radnor, Pennsylvania 19087. Includes (a) 636,363 Common
Share, (b) 133,333 Common Shares issuable upon exercise of warrants and (c)
181,323 Common Shares issuable upon conversion of Preferred Shares prior to
Conversion Approval. Does not include 1,424,736 Common Shares issuable upon
conversion of Preferred Shares after Conversion Approval or 65,000 Common Shares
held for the benefit of SERS by third parties that possess the voting and
investment power in respect of such Common Shares. RAI serves as the voting
trustee under the SERS Voting Trust established for the benefit of SERS. RAI
disclaims beneficial ownership of such shares in which it has no pecuniary
interest.
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(5) The business address of SSI is 800 The Safeguard Building, 435 Devon Park
Drive, Wayne, Pennsylvania 19087. Includes (a) 241,560 Common Shares, (b)
241,560 Common Shares issuable upon exercise of warrants and (c) 255,633 Units
convertible into Common Shares. Safeguard Securities (Delaware), Inc.
("Safeguard Delaware"), a wholly-owned subsidiary of SSI, is the owner of the
foregoing securities other than 590 Units which are owned by C/N Leedom II,
Inc., another wholly-owned subsidiary. The Units referenced in clause (c) of
the preceding sentence include 3,246 Units issuable to a wholly-owned subsidiary
of SSI on or before September 1, 1999.
(6) Includes (a) 16,773 Common Shares, (b) 56,773 Common Shares issuable upon
exercise of warrants, (c) 110,281 Common Shares held by Newtown I, L.L.C. and
(d) 101, 674 Common Shares issuable upon conversion of Units beneficially owned
by TNC or issuable to TNC on or before September 1, 1999. Mr. Nichols shares
investment and voting power over the Common Shares beneficially owned by Newtown
I, L.L.C. and TNC. The foregoing includes 16,773 Common Shares and warrants to
purchase an additional 16,773 Common Shares which Mr. Nichols owns jointly with
his wife.
(7) The business address of Mr. Carboni is Two Greentree Centre, Marlton, New
Jersey 08053.
(8) The business address of Mr. Osborne is 7001 Center Street, Mentor, Ohio
44060. Includes (a) 179,600 Common Shares owned by The Richard M. Osborne Trust
(the "RMO Trust"), of which Mr. Osborne is the sole trustee and (b) 180,439
Common Shares and warrants exercisable for 80,439 Common Shares held by Turkey
Vulture Fund XIII, Ltd. (the "RMO Fund"). Mr. Osborne has advised the Company
that he possesses sole authority over the voting and disposition of Common
Shares owned by the RMO Fund.
(9) Includes (a) 267 Common Shares and (b) 146,666 Common Shares issuable upon
the exercise of options and warrants.
(10) The business address of Mr. Musser is 800 The Safeguard Building, 435
Devon Park Drive, Wayne, Pennsylvania 19087.
(11) The business address of Mr. D'Alessio is 1735 Market Street, Philadelphia,
Pennsylvania 19103.
(12) The business address of Mr. Pizzi is 1234 Market Street, Philadelphia,
Pennsylvania 19107.
(13) Includes (a) 40,000 Common Shares issuable upon the exercise of warrants,
(b) 110,281 Common Shares held by Newtown I, L.L.C. and (c) 101,674 Common
Shares issuable upon conversion of Units beneficially owned by TNC or issuable
to TNC on or before September 1, 1999. Mr. Gallagher shares investment and
voting power over Common Shares beneficially owned by Newtown I, L.L.C. and TNC.
(14) Includes (a) 40,000 Common Shares issuable upon the exercise of warrants,
(b) 7,245 Common Shares issuable upon conversion of Units, (c) 110,281 Common
Shares held by Newtown I, L.C.C. and (d) 101,674 Units beneficially owned by TNC
or issuable to TNC on or before September 1, 1999. Mr. Belcher shares
investment and voting power over Common Shares beneficially owned by Newtown I,
L.L.C. and TNC.
Item 13. Certain Relationships and Related Transactions
Partnership Agreement; Redemption Rights
In connection with the SSI/TNC Transaction, the Company entered into an
Agreement of Limited Partnership (the "Partnership Agreement") with SSI, TNC and
11 other persons (collectively, the "Limited Partners"). The number of Units
issued by the Operating Partnership to the Limited Partners at the closing of
the SSI/TNC Transaction (495,837) plus the number of additional Units that the
Operating Partnership will be required to issue to the Limited Partners by
September 1, 1999 (44,322) to acquire the Residual Interests were and will be
issued in exchange for direct and indirect interests of the Limited Partners in
the 19 SSI/TNC Properties contributed to the Operating Partnership. The
Partnership Agreement provides, among other things, for the Limited Partners to
have the right to cause the Company to redeem their Units for cash, at a per
Unit price based on the average closing price of the Common Shares for the five
consecutive trading days prior to such determination (or, at the option of the
Company, Common Shares on a
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one Common Share per Unit basis, subject to customary antidilution adjustments).
Pursuant to the terms of the Partnership Agreement, in connection with the
payment of an approximately $500,000 prepayment penalty associated with the
payoff of the debt encumbering certain of the Properties, approximately 30,303
Units held by Limited Partners were canceled by the Operating Partnership.
Repayment of Certain Advances to SSI
In connection with the SSI/TNC Transaction, SSI agreed to loan the
Operating Partnership an aggregate of $400,000 on account of transaction
expenses and agreed to advance the Operating Partnership up to $700,000 to
provide it with working capital for the operation of certain of the Properties.
SSI also agreed to advance funds to the Operating Partnership to enable it to
make certain preferred distributions to the Company. These advances bore
interest at the prime rate. In addition, in June 1996, SSI provided a second
mortgage loan in the amount of $460,000 to a subsidiary of the Operating
Partnership to fund the cost of tenant improvements at one of the Properties.
This loan also bore interest at the prime rate. The principal balance of the
SSI loans, including accrued interest thereon, was repaid in full on December 2,
1996 following consummation by the Company of the 1996 Offering.
Indemnification of Certain Limited Partners
Pursuant to the Partnership Agreement, the Company was obligated either to
contribute sufficient proceeds from the 1996 Offering to the Operating
Partnership to enable it to repay or refinance the mortgage debt encumbering the
SSI/TNC Properties, or in lieu thereof, either obtain general releases from the
holders of such mortgages indebtedness releasing the Limited Partners from all
liability with respect thereto or make other arrangements satisfactory to such
Limited Partners to indemnify them against such liability. As of December 31,
1996, approximately $13.8 million of such mortgage debt remained outstanding, of
which $8.7 million constitutes recourse debt. Accordingly, the Company has
indemnified the Limited Partners who are liable on such recourse debt against
liability thereon.
Partnership Agreement; General Indemnity
In the Partnership Agreement, SSI and TNC made customary representations
and warranties, on a several basis, in favor of the Company. The Company also
made customary representations and warranties in favor of SSI and TNC. In the
event the Company were to suffer a loss as a result of the inaccuracy of any of
the representations and warranties made in its favor, the recourse of the
Company against SSI and TNC is limited to the Units issued to them in the
SSI/TNC Transaction (less the Units that were forfeited in connection with the
repayment of debt upon closing of the 1996 Offering and any Units that the
Company may elect to release from the pledge).
Termination of Standstill Agreements
Each of SSI and Richard M. Osborne, a Trustee of the Company, was a party
to an agreement with the Company which, by its terms, terminated upon completion
of the 1996 Offering. In its respective agreement, each of SSI and Mr. Osborne
had agreed generally to vote its or his Common Shares in accordance with the
recommendation of a majority of the Board of Trustees on any matter submitted to
a vote of shareholders and to refrain from disposing of its or his Common Shares
other than in transactions under Rule 144, in certain private transactions and
in certain extraordinary transactions such as a third party tender offer or
merger.
Option Properties
At the closing of the SSI/TNC Transaction, the Operating Partnership
acquired an option from an affiliate of TNC entitling it to acquire, in the
Operating Partnership's discretion, the four Option Properties at any time
during the two-year period ending August 22, 1998 (subject to two extensions of
one year each). The parties have agreed that the purchase price payable by the
Operating Partnership upon exercise of its option will consist of $10.00 in
excess of the mortgage debt encumbering the Option Properties at the time of
exercise (which as of December 31, 1996 aggregated $21.1 million, including
accrued interest). Exercise of the option is subject to a right of first
refusal in favor of, and the consent of, the holder of the mortgage encumbering
the Option Properties. There can be no assurance that the Company will exercise
its option or that the holder of such mortgage will consent to the exercise of
the option.
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Lease with SSI Affiliate
Approximately 21,580 net rentable square feet is leased by the Company to
an affiliate of SSI at an average rental rate of $9.66 per square foot under a
lease that expires in April 1999. The Company believes that this is the
prevailing market rate for comparable space.
Environmental Indemnity
SSI has agreed to indemnify the Operating Partnership against the cost of
remediation that may be required to be undertaken on account of certain
environmental conditions at one of the SSI/TNC Properties acquired in the
SSI/TNC transaction subject to an aggregate maximum of approximately $2.0
million. The term of the SSI indemnity agreement expires on August 22, 2001.
Employment Agreements; Award of Warrants
At the closing of the SSI/TNC Transaction, each of Messrs. Nichols,
Sweeney, Belcher and Gallagher entered into a two year employment agreement with
the Management Company. These employment agreements were, with the consent of
such executives, subsequently assigned to and assumed by the Company. In order
to induce each such executive to enter into such employment agreements, Messrs.
Nichols, Sweeney, Belcher and Gallagher were awarded warrants to purchase
40,000, 100,000, 40,000 and 40,000 Common Shares, respectively, at an exercise
price of $19.50 per share. See Item 11. "Executive Compensation."
Prior Involvement of Legg Mason
One of the underwriters of the 1996 Offering and the 1997 Offering, Legg
Mason Wood Walker, Incorporated ("Legg Mason"), served as financial advisor to
the Company in connection with the SSI/TNC Transaction. In connection with the
SSI/TNC Transaction, Legg Mason delivered to the Board of Trustees its opinion
to the effect that, as of July 12, 1996, the SSI/TNC Transaction was fair to the
Company's shareholders from a financial point of view. The Company paid Legg
Mason a $100,000 fee for its advisory services and reimbursed it $10,000 for
expenses. Legg Mason is the parent of Legg Mason Real Estate Services, Inc., a
mortgage banking firm of which Walter D'Alessio, a member of the Company's Board
of Trustees and Compensation Committee, is President.
Investment by RMO Fund
On June 21, 1996 (the "Investment Date"), Turkey Vulture Fund XIII, Ltd.
(the "RMO Fund"), a company controlled by Richard M. Osborne, a Trustee of the
Company, invested approximately $1.3 million in the Company by: (i) making an
unsecured loan (the "Osborne Loan") to the Company in the amount of
approximately $992,000 and (ii) by acquiring 19,983 Paired Units (defined below)
at a per unit price of $16.89. Under certain circumstances following the
issuance by the Company of additional Common Shares, the Company was obligated
to issue additional Paired Units, valued at $16.89 each, as a mandatory
prepayment of the Osborne Loan. The Osborne Loan was repaid pursuant to its
terms in 1996 through the issuance by the Company of an aggregate of 60,456
Paired Units. The term "Paired Units" means a unit comprised of one Common
Share and a six-year warrant exercisable for one Common Share at an exercise
price of $19.50 per share.
Land Acquisition
The Company acquired approximately 6.76 acres of undeveloped land in the
Horsham Business Center, Horsham Township, Pennsylvania in March 1997 for
approximately $1.0 million. As of the date of this Form 10-K/A No. 1, the
Company is in the process of developing a two-story office building aggregating
approximately 32,000 net rentable square feet. Mr. Nichols, Sr. owns an
approximately 25% interest in the seller of the land, Horsham Valley, Inc. The
purchase price was determined through negotiations between the Company and the
seller. The Board of Trustees, following disclosure of Mr. Nichols' interest in
the seller and a review of an analysis of the purchase prepared by management of
the Company, unanimously approved the purchase.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BRANDYWINE REALTY TRUST
By: /s/ Gerard H. Sweeney
Gerard H. Sweeney
President and Chief Executive Officer
July 21, 1997
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