Exhibit 10.1
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
(the "Trust")
Special Committee of the Board of Trustees
Statement Regarding
Adjustment of Earnout Performance Benchmarks
Under
The TRO Contribution Agreement
Dated
December 29, 1998
Pursuant to Section 5.19(b) of the TRO Contribution Agreement
dated as of July 30, 1997 (the "Agreement") by and among the Trust, PREIT
Associates, L.P. (the "Partnership"), the former shareholders and debtholders of
The Rubin Organization, Inc. (together, the "TRO Shareholders") and certain
other persons, the Trust's Board of Trustees formed a special committee of
trustees (the "Special Committee") to address and resolve certain matters after
closing pertaining to the transactions contemplated by the Agreement. Section
5.19(b) provides that the Special Committee shall, at the request of at least
one-third of the Partnership's outstanding Class A Units issued to the TRO
Shareholders and affiliates or any trustee of the Trust, consider whether
adjustments should be made to the applicable earnout performance benchmarks (the
"Benchmarks") contained in the Agreement as the result of, among other things,
the raising by the Trust of equity capital. Capitalized terms not otherwise
defined herein have the meanings set forth in the Agreement.
At the request of holders of more than one-third of the
outstanding Class A Units issued to TRO Shareholders and affiliates, the Special
Committee has reviewed the impact of the Trust's December 1997 public offering
of 4,600,000 Shares (the "Offering") on the Benchmarks, considering financial
projections for the Trust both before the Offering and on a pro forma basis,
taking into account the issuance of the new Shares and the general performance
of the Trust during the period following the closing of the transactions under
the Agreement.
Based on its analysis, the Special Committee has determined
that an adjustment to the Benchmarks as a result of the Offering would be
appropriate under Section 5.19 of the Agreement. The Special Committee has
concluded that, because the Offering will in the long run enhance the Trust's
financial performance, both the TRO Shareholders and the Trust should share the
dilutive effect of the Offering on FFO per outstanding share and that the
Benchmarks should be adjusted by applying a declining fraction of the dilution
resulting from the Offering in each successive year of the earnout.
The original Benchmarks and the effect of the new Shares on
FFO per outstanding share are set forth below:
Year 1998 1999 2000 2001 2002
- ---- ---- ---- ---- ---- ----
Original Target $ 2.66 $ 2.81 $ 2.94 $ 3.14 $ 2.43
Original Hurdle $ 2.40 $ 2.53 $ 2.65 $ 2.83 $ 2.19
Dilution $(0.36) $(0.40) $(0.42) $(0.48) $(0.38)
Pursuant to Section 5.19 of the Agreement, the Special
Committee hereby adjusts the foregoing Benchmarks as follows:
Year 1998 1999 2000 2001 2002
- ---- ---- ---- ---- ---- ----
Percent of Dilution Applied 75% 58% 52% 25% 0%
Amount of Dilution Applied $(0.27) $(0.23) $(0.22) $(0.11) $(0.00)
Adjusted Target $ 2.39 $ 2.58 $ 2.72 $ 3.03 $ 2.43
Adjusted Hurdle $ 2.13 $ 2.30 $ 2.43 $ 2.72 $ 2.19
The appropriate officers of the Trust are hereby directed to
cause the Trust's books and records to reflect the adjusted Benchmarks.
The foregoing statement regarding adjustment to the earnout
performance benchmarks under the Agreement was adopted and approved as of
December 29, 1998 by the undersigned members of the Special Committee of the
Board of Trustees of the Trust.
This Statement may be executed in two or more counterparts,
each of which shall be deemed to be an original, and all of such counterparts
together shall be deemed to be one and the same instrument.
/s/ Rosemarie Greco /s/ William R. Dimeling /s/ Leonard I. Korman
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Rosemarie Greco William R. Dimeling Leonard I. Korman
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