10-K
April 17, 2017
Period Ending December 31, 2016
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The aggregate market value of voting stock held by non-affiliates based on the closing price of the stock at June 30, 2016 was $176,040. For purposes of this calculation it is assumed that officers and directors of the registrant are affiliates and that the BBJ Family Irrevocable Trust is an affiliate. The registrant has no non-voting stock. The number of shares outstanding of each of the registrant’s classes of common stock as of April 7, 2017 was 442,533 shares of Class A common stock and 4,746,147 shares of Class B common stock.
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The Company’s acquisition of the interest in the Avalon Property was completed on January 6, 2017. The Avalon Property consists of 251 non-contiguous single-family, residential lots and a 10,000 square foot clubhouse, within the Jubilee at Los Lunas subdivision located in Los Lunas, New Mexico (the “Avalon Property”). At the Closing, in exchange for the contribution to Presidential OP of FC OP’s membership interests in Avalon, FC OP received 4,632,000 Presidential OP Units in, and became a limited partner of, Presidential OP. Such limited partnership interests are convertible, upon the satisfaction of certain conditions, into shares of Class B common stock of the Company on a one-for-one basis. In connection with the Closing, FC REIT paid $800,000 to Presidential to be used as operating capital.
On March 31, 2017, the Company and Presidential OP entered into a second amendment to the Agreement pursuant to which the T9 Transferred Interest was assigned to PRES-T9 Holdings, LLC, a Delaware limited liability company and wholly owned subsidiary of Presidential OP (PRES-T9). PRES-T9 was admitted as a member of the T9/JV. The Second Amendment also provides for the satisfaction of certain conditions prior to the issuance and delivery of 100% of the Presidential OP Units to be issued in connection with the transaction. Those Presidential OP Units will be held back (the “Holdback Units”) until a new appraisal of the FC/T9 Interest has been obtained and the loan secured by the T9 Properties has been extended or refinanced. The loan is currently in default. Presidential has an opportunity for 30 days to endeavor to obtain an extension or refinancing of the loan. Thereafter, the FC Parties will continue to seek an extension/refinancing of the loan. If the appraisal and the loan extension/refinancing are not obtained within 180 days, then the FC Parties and Presidential may within 10 days mutually agree in writing to extend the time to complete the extension/refinancing of the loan, or either the FC Parties or Presidential may elect to cancel the transfer of the T9 Transferred Interest following 10 days prior written notice to the other party.
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In connection with and as a condition of the Agreement, on January 6, 2017, the Company entered into various agreements with the officers, directors and Management of the Company to restructure amounts owed to them as well as change the equity compensation due or held by them. The Company entered into an agreement with Signature Group Advisors, LLC (“Signature”), an affiliate of Nickolas W. Jekogian, III, a director, Chairman and Chief Executive Officer of the Company, and an adviser to the Company (the “Signature Agreement”) pursuant to which (i) Signature will receive $1,000,000 payable in cash as consideration for sourcing, negotiating and documenting the transactions contemplated by the Agreement (“Transaction Fee”), which will become earned, due and payable upon the closing by the Company or Presidential OP of a preferred stock offering (or similar instrument) of at least $50,000,000 in gross proceeds; and (ii) commencing on the closing for the T9 Property under the Agreement, Signature will be engaged as a consultant to the Company for a four year term. The fee payable to Signature as a consultant (the “Consulting Fee”) will be $500,000 per annum, payable in cash in arrears on each anniversary of the closing for the T9 Property; provided, however, that no portion of the Consulting Fee will be earned or paid unless and until the net asset value of the Company is at least $200,000,000.
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On January 6, 2017, the Company and Mr. Alexander Ludwig, our President and Chief Operating Officer, entered into a Cancellation and Release Agreement for the cancellation of all stock options and warrants held by Mr. Ludwig as of such date in consideration for the issuance of (x) 450,000 shares of Class B common stock of the Company and (y) an option to purchase an additional 550,000 shares of Class B common stock of the Company. The exercise of such option is subject to certain conditions, including that the issuance of any shares of Class B common stock of the Company covered by Mr. Ludwig’s option would not be deemed “Excess Shares” as that term is defined in our certificate of incorporation. The exercise price of the option is $0.00.
On January 6, 2017, Mr. Jekogian entered into a Cancellation and Release Agreement for the (x) cancellation of all stock options and warrants held by Mr. Jekogian as of such date and (y) termination of his Employment Agreement effective as of such date. Mr. Jekogian will continue as an employee of the Company in his capacity as Chairman and Chief Executive Officer on a month-to-month basis until such time as otherwise determined by the Company in its sole discretion. It is expected that his salary will remain unchanged.
On January 6, 2017, each of Richard Brandt, Robert Feder and Jeffrey Joseph, non-management directors of the Company, and Jeffrey Rogers, a former non-management director of the Company, entered into Issuance and Release Agreements for the issuance of an aggregate of 450,000 shares of Class B common stock of the Company in consideration of the release of the Company’s obligations to pay past due and current director’s fees, of which 90,000 were issued to the current directors for their services in connection with the Agreement.
On January 6, 2017, the Company and Presidential OP entered into an Acknowledgement and Certification (the “Shareholder Certification”) with Mr. Jekogian, The BBJ Family Irrevocable Trust (the “Trust”), FC OP and FC REIT, pursuant to which the Trust agreed to, among other things, (i) exchange its shares of Class A stock for shares of Class B stock of the Company upon the occurrence and satisfaction of certain conditions, (ii) refrain from taking certain actions, and (iii) vote its shares of Class A stock in favor of certain actions. Pursuant to such Shareholder Certification, the Company agreed not to issue or cause to be issued any additional shares of its Class A stock.
In connection with the foregoing, certain holders of Class A common stock of the Company, representing an aggregate of 49,000 shares of Class A common stock, entered into a Proxy and Option to Purchase with The BBJ Family Irrevocable Trust designating The BBJ Family Irrevocable Trust as proxy to vote on all matters with respect to their shares. In addition, such agreement granted The BBJ Family Irrevocable Trust an option to purchase such shares at a purchase price of $2.00 per share. During the first quarter the Trust exercised its option and purchased 49,000 shares of Class A common stock. The Company was not a party to that agreement.
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" On December 16, 2016, the “Company” and its newly formed operating partnership, Presidential Realty Operating Partnership LP (“Presidential OP”), entered into an interest contribution agreement (the “Initial Agreement”) with First Capital Real Estate Trust Incorporated (“FC REIT”), First Capital Real Estate Operating Partnership (the “FC OP”), Township Nine Owner, LLC (T9/JV), Capital Station Holdings, LLC, Capital Station Member, LLC, Capital Station 65 LLC and Avalon Jubilee LLC. On January 6, 2017, the Company and the other parties to the Initial Agreement entered into the First Amendment to the Initial Agreement (the “Amendment,” and, together with the Initial Agreement, the “Agreement”) and FC OP entered into the Agreement of Limited Partnership (the “Limited Partnership Agreement”) of Presidential OP, as limited partner, with the Company as general partner. The Agreement contemplated that the Company would acquire from FC OP its 31.3333% interest in the owner of a residential community referred to as the “Avalon Property” and 66% percent (the “T9 Transferred Interest”) of its 92% interest (FC/T9 Interest) in the owner of a development property known as the “T9 Property.” The purchase price for the interests is payable in limited partnership interests in Presidential OP (“Presidential OP Units”) convertible under certain conditions into shares of the Company’s Class B common stock.
The Company’s acquisition of the interest in the Avalon Property was completed on January 6, 2017. The Avalon Property consists of 251 non-contiguous single-family, residential lots and a 10,000 square foot clubhouse, within the Jubilee at Los Lunas subdivision located in Los Lunas, New Mexico (the “Avalon Property”). At the Closing, in exchange for the contribution to Presidential OP of FC OP’s membership interests in Avalon, FC OP received 4,632,000 Presidential OP Units in, and became a limited partner of, Presidential OP. Such limited partnership interests are convertible, upon the satisfaction of certain conditions, into shares of Class B common stock of the Company on a one-for-one basis. In connection with the Closing, FC REIT paid $800,000 to Presidential to be used as operating capital.
On March 31, 2017, the Company and Presidential OP entered into a second amendment to the Agreement pursuant to which the T9 Transferred Interest was assigned to PRES-T9 Holdings, LLC, a Delaware limited liability company and wholly owned subsidiary of Presidential OP (PRES-T9). PRES-T9 was admitted as a member of the T9/JV. The Second Amendment also provides for the satisfaction of certain conditions prior to the issuance and delivery of 100% of the Presidential OP Units to be issued in connection with the transaction. Those Presidential OP Units will be held back (the “Holdback Units”) until a new appraisal of the FC/T9 Interest has been obtained and the loan secured by the T9 Properties has been extended or refinanced. The loan is currently in default. Presidential has an opportunity for 30 days to endeavor to obtain an extension or refinancing of the loan.
F- 15
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Subsequent Events (Continued)
Thereafter, the FC Parties will continue to seek an extension/refinancing of the loan. If the appraisal and the loan extension/refinancing are not obtained within 180 days, then the FC Parties and Presidential may within 10 days mutually agree in writing to extend the time to complete the extension/refinancing of the loan, or either the FC Parties or Presidential may elect to cancel the transfer of the T9 Transferred Interest following 10 days prior written notice to the other party.
The number of Presidential OP Units ultimately issued if these conditions are satisfied is subject to adjustment based on the new appraisal and the amount of the mortgage debt (the extended/refinanced loan) at that time. These adjustments could result in a material change in the number of Presidential OP Units that are ultimately issued and delivered if the conditions are satisfied. The final number of Presidential OP Units will be determined by taking the amount of the new appraisal, subtracting therefrom the amount of the extended/refinanced loan and the legal costs and expenses incurred by the Company in securing the extended/refinanced loan and multiplying the amount thereby obtained by 66%. As a result of the conditional nature of the transfer of the Transferred Interest, the Company will not be reflecting the Transferred Interest in its financial statements until the conditions in the Second Amendment have been satisfied and the applicable number of OP Units has been determined and issued.
In connection with the Agreement, Palisades Pacific Realty Trust, Inc (“Palisades”) became a consultant to the Company to provide services relating to the integration of the First Capital properties (the interests in the Avalon Property and T9 Property) and in connection with potential capital raising activities. The Company paid Palisades $200,000 and reimbursed certain expenses approved by the Company. Palisades notified the Company on March 1, 2017 that they were ceasing to provide services thus terminating the arrangement. Palisades has requested reimbursement of certain other expenses which the Company believes it is not responsible for.
In connection with and as a condition of the Agreement, on January 6, 2017, the Company entered into various agreements with the officers, directors and Management of the Company to restructure amounts owed to them as well as change the equity compensation due or held by them. The Company entered into an agreement with Signature Group Advisors, LLC (“Signature”), an affiliate of Nickolas W. Jekogian, III, a director, Chairman and Chief Executive Officer of the Company, and an adviser to the Company (the “Signature Agreement”) pursuant to which (i) Signature will receive $1,000,000 payable in cash as consideration for sourcing, negotiating and documenting the transactions contemplated by the Agreement (“Transaction Fee”), which will become earned, due and payable upon the closing by the Company or Presidential OP of a preferred stock offering (or similar instrument) of at least $50,000,000 in gross proceeds; and (ii) commencing on the closing for the T9 Property under the Agreement, Signature will be engaged as a consultant to the Company for a four year term. The fee payable to Signature as a consultant (the “Consulting Fee”) will be $500,000 per annum, payable in cash in arrears on each anniversary of the closing for the T9 Property; provided, however, that no portion of the Consulting Fee will be earned or paid unless and until the net asset value of the Company is at least $200,000,000.
F- 16
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Subsequent Events (Continued)
On January 6, 2017, the Company and Mr. Alexander Ludwig, our President and Chief Operating Officer, entered into a Cancellation and Release Agreement for the cancellation of all stock options and warrants held by Mr. Ludwig as of such date in consideration for the issuance of (x) 450,000 shares of Class B common stock of the Company and (y) an option to purchase an additional 550,000 shares of Class B common stock of the Company. The exercise of such option is subject to certain conditions, including that the issuance of any shares of Class B common stock of the Company covered by Mr. Ludwig’s option would not be deemed “Excess Shares” as that term is defined in our certificate of incorporation. The exercise price of the option is $0.00.
On January 6, 2017, Mr. Jekogian entered into a Cancellation and Release Agreement for the (x) cancellation of all stock options and warrants held by Mr. Jekogian as of such date and (y) termination of his Employment Agreement effective as of such date. Mr. Jekogian will continue as an employee of the Company in his capacity as Chairman and Chief Executive Officer on a month-to-month basis until such time as otherwise determined by the Company in its sole discretion. It is expected that his salary will remain unchanged.
On January 6, 2017, each of Richard Brandt, Robert Feder and Jeffrey Joseph, non-management directors of the Company, and Jeffrey Rogers, a former non-management director of the Company, entered into Issuance and Release Agreements for the issuance of an aggregate of 450,000 shares of Class B common stock of the Company in consideration of the release of the Company’s obligations to pay past due and current director’s fees, of which 90,000 were issued to the current directors for their services in connection with the Agreement.
On January 6, 2017, the Company and Presidential OP entered into an Acknowledgement and Certification (the “Shareholder Certification”) with Mr. Jekogian, The BBJ Family Irrevocable Trust (the “Trust”), FC OP and FC REIT, pursuant to which the Trust agreed to, among other things, (i) exchange its shares of Class A stock for shares of Class B stock of the Company upon the occurrence and satisfaction of certain conditions, (ii) refrain from taking certain actions, and (iii) vote its shares of Class A stock in favor of certain actions. Pursuant to such Shareholder Certification, the Company agreed not to issue or cause to be issued any additional shares of its Class A stock.
In connection with the foregoing, certain holders of Class A common stock of the Company, representing an aggregate of 49,000 shares of Class A common stock, entered into a Proxy and Option to Purchase with The BBJ Family Irrevocable Trust designating The BBJ Family Irrevocable Trust as proxy to vote on all matters with respect to their shares. In addition, such agreement granted The BBJ Family Irrevocable Trust an option to purchase such shares at a purchase price of $2.00 per share. During the first quarter the trust exercised its option and purchased 49,000 shares of Class A common stock. The Company was not a party to that agreement.
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