AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 1998
REGISTRATION NO. 333-33977
============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 4
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES
---------------
EQUITY ONE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENTS)
---------------
<TABLE>
<S> <C>
CHAIM KATZMAN
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
EQUITY ONE, INC.
777 17TH STREET, PENTHOUSE 777 17TH STREET, PENTHOUSE
MIAMI BEACH, FLORIDA 33139 MIAMI BEACH, FLORIDA 33139
(305) 538-5488 (305) 538-5488
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (NAME AND ADDRESS OF AGENT FOR SERVICE)
</TABLE>
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WITH COPIES TO:
<TABLE>
<S> <C> <C>
GARY EPSTEIN, ESQ. JUDITH D. FRYER, ESQ. THOMAS W. DOBSON, ESQ.
GREENBERG TRAURIG HOFFMAN GREENBERG TRAURIG HOFFMAN LATHAM & WATKINS
LIPOFF ROSEN & QUENTEL, P.A. LIPOFF ROSEN & QUENTEL, 633 WEST FIFTH STREET, SUITE 4000
1221 BRICKELL AVENUE A PARTNERSHIP OF LOS ANGELES, CALIFORNIA 90071-2007
MIAMI, FLORIDA 33131 PROFESSIONAL CORPORATIONS (213) 485-1234
(305) 579-0500 153 EAST 53RD STREET
NEW YORK, NEW YORK 10021
(212) 801-9200
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===========================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value.. 6,167,487 Shares $ 15.00 $92,512,305 $ 27,291.13(3)
============================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
(1) Includes 804,455 shares of Common Stock which may be purchased by the
Underwriters pursuant to an over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee.
(3) The Company had previously paid $26,206.06 of such amount.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MARCH 27, 1998
[EQUITY ONE LOGO]
5,363,032 Shares
EQUITY ONE, INC.
Common Stock
($.01 par value)
-----------
Equity One, Inc., a Maryland corporation (together with its subsidiaries, the
"Company"), is a self-administered, self-managed real estate investment trust
("REIT") that principally acquires, renovates, develops and manages
community and neighborhood shopping centers anchored by national and
regional supermarket chains. The Company's portfolio consists of 16 shopping
centers, two mixed use (office/retail) properties, one office building, one
mini-warehouse facility and certain other properties acquired for renovation
or development.
Of the 5,363,032 shares of Common Stock offered hereby (the "Offering"),
3,700,000 shares are being sold by the Company and 1,663,032 shares are being
sold by a stockholder of the Company (the "Selling Stockholder"). The Company
will not receive proceeds from the sale of shares by the Selling Stockholder.
Prior to the Offering, there has been no public market for the Common Stock.
It is anticipated that the initial public offering price will be between
$12.00 and $15.00 per share. For information relating to the factors
considered in determining the initial public offering price, see
"Underwriting". Upon completion of the Offering, the shares of Common Stock
offered hereby will represent 49.2% of the outstanding Common Stock (52.7% if
the Underwriters' over-allotment option is exercised in full).
To assist the Company in maintaining its qualification as a REIT, ownership by
any person is limited to 9.9% of the then outstanding Common Stock, although
the Company's Board of Directors has previously exempted certain existing
stockholders from this ownership limitation. The Common Stock has been
approved for listing on the New York Stock Exchange, subject to official
notice of issuance, under the symbol "EQY". No assurance can be given that a
public market for the Common Stock will develop or if developed, will be
maintained. The Company is in no way related to, or affiliated with, Equity
Inns, Inc., Equity Office Properties Trust or Equity Residential Properties
Trust, or any other publicly-traded REIT. See "Glossary" beginning on page 108
for definitions of certain terms used in this Prospectus.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" COMMENCING ON PAGE
17, INCLUDING:
/bullet/ Dependence on key tenants, particularly Winn-Dixie and Publix
supermarkets, increases the potential impact on the Company of adverse
developments in the business of, or its relationship with, such tenants.
/bullet/ All but two of the Company's properties are located in Florida,
and therefore the Company may be adversely affected by a downturn in the
general economic conditions in such state.
/bullet/ The Company plans to develop and redevelop properties, despite no
experience as a developer and limited experience as a redeveloper, which
may increase the risk of loss in such activities.
/bullet/ Management and affiliates of the Company will own 50.4% of the
outstanding Common Stock after the Offering, and the public stockholders'
ability to influence the Company is limited by their minority positions,
the Company's organizational documents and Maryland law.
/bullet/ Certain members of management, particularly the Company's Chief
Executive Officer and Chief Operating Officer, are subject to conflicts of
interest in that they may engage in other activities, including other real
estate activities.
/bullet/ The Company would be subject to adverse tax consequences if it
fails to qualify as a REIT.
/bullet/ Since the Company's initial annual distribution is estimated at
91.5% of cash available for distribution, the Company may be required to
fund distributions from working capital or borrowings or reduce the amount
of such distribution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDER
------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Per Share ......... $ $ $ $
Total(2) .......... $ $ $ $
</TABLE>
(1) Before deduction of expenses payable by the Company estimated at $ .
(2) The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase a maximum of 804,455
additional shares to cover over-allotments of shares. If the option is
exercised in full, the total Price to Public will be $ , Underwriting
Discounts and Commissions will be $ , Proceeds to Company will be
$ and Proceeds to the Selling Stockholder will be $ .
The Common Stock is offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters, and subject to their right to
reject orders in whole or in part. It is expected that the Common Stock will be
ready for delivery on or about , 1998, against payment therefor in
immediately available funds.
CREDIT SUISSE FIRST BOSTON
MORGAN KEEGAN & COMPANY, INC.
THE ROBINSON-HUMPHREY COMPANY
Prospectus dated , 1998
<PAGE>
[PHOTOGRAPHS OF STORE FRONTS OF CERTAIN OF THE TENANTS
OF THE COMPANY'S LAKE MARY SHOPPING CENTRE, LAKE MARY, FLORIDA
FOUR CORNERS SHOPPING CENTER, TOMBALL, TEXAS
OAK HILL SHOPPING CENTER, JACKSONVILLE, FLORIDA
BIRD LUDLUM SHOPPING CENTER, MIAMI, FLORIDA
THE INSIDE FRONT COVER ALSO CONTAINS THE FOLLOWING CAPTION
"PHOTOGRAPHS DEPICT CERTAIN PROPERTIES, AND DO NOT INCLUDE ALL PROPERTIES,
OWNED BY THE COMPANY"]
[MAP OF FLORIDA INDICATING THE LOCATION OF THE COMPANY'S SHOPPING CENTERS]
[COMPANY LOGO]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING".
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUMMARY ............................. 1
The Company ................................... 1
Summary Risk Factors .......................... 2
Business and Growth Strategies ................ 5
Market Data ................................... 6
The Properties ................................ 8
Distributions ................................. 11
Mortgage Indebtedness and
Credit Facilities ........................ 11
Financing Policies ............................ 12
Possible Conflicts of Interest ................ 13
Benefits of the Offering to Existing
Stockholders, Including Management ....... 13
Restrictions on Ownership of
Common Stock ............................. 13
Tax Status of the Company ..................... 13
Company Information ........................... 14
The Offering .................................. 14
Summary Consolidated Financial Data ........... 15
RISK FACTORS ................................... 17
The Company Is Dependent Upon
Certain Key Tenants ...................... 17
Geographic Concentration of the
Company's Properties Creates a Risk
of a Negative Impact as a Result of
Economic Downturns in Such Areas ......... 18
The Company Will Be Subject to Risks
Associated with its Entry into New
Markets .................................. 18
The Company Is Subject to Risks
Associated with Construction and
Development Activities ................... 18
The Company Relies on Key Personnel
Who Conduct Other Business
Activities ............................... 19
Directors, Executive Officers and
Affiliates Have the Ability to Control
the Company .............................. 19
The Company Is Subject to Possible
Conflicts of Interest .................... 20
REIT Distribution Requirements and
the Company's Financial Condition
Will Affect the Amount of
Distributions to Stockholders ............ 20
Estimated Initial Cash Available for
Distribution May Not Be Sufficient to
Make Distribution at Expected Levels...... 20
The Company Is Subject to Risks
Associated with the Real Estate
Industry ................................. 21
Failure to Qualify as a REIT Would
Cause the Company to Be Taxed as a
Regular Corporation ...................... 22
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Costs of Compliance with Laws Could
Have an Adverse Effect on the
Company .................................. 23
The Company's Use of Debt,
Refinancing Needs, Increases in
Interest Rates and an Absence of a
Limitation on Debt Could Adversely
Affect the Company ....................... 25
The Company is Subject to Risks
Involving Litigation with Albertsons ..... 26
Management of the Company Has Broad
Discretion in Determining How to
Apply a Significant Portion of the
Proceeds of the Offering ................. 26
Stockholder Approval Is Not Required
to Engage in Investment Activity ......... 27
Changes in Interest Rates Could
Adversely Affect the Company ............. 27
The Purchasers of Common Stock Will
Experience Dilution ...................... 27
The Price of the Common Stock May Be
Adversely Affected by the Lack of a
Prior Public Market and Fluctuations
in the Stock Market; The Offering
Price Is Not Based Upon Property
Valuations ............................... 27
The Company Could Be Affected by
Damage to Property Not Covered by
Insurance ................................ 27
Certain Indebtedness of the Company
May Be in Default ........................ 28
The Company May be Susceptible to
Year 2000 System Risk .................... 28
Availability of Shares of Common Stock
for Future Sale Could Adversely
Affect the Price of the Common
Stock .................................... 28
The Ability to Effect a Change of
Control of the Company Is Limited ........ 28
USE OF PROCEEDS ................................ 31
DISTRIBUTION POLICY ............................ 32
DILUTION ....................................... 36
CAPITALIZATION ................................. 37
SELECTED CONSOLIDATED
FINANCIAL DATA .............................. 38
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS ............................... 40
Results of Operations ......................... 40
Mortgage Indebtedness ......................... 42
Liquidity and Capital Resources ............... 43
Inflation ..................................... 44
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
BUSINESS ..................................... 45
General ..................................... 45
Business and Growth Strategies .............. 46
Market Data ................................. 50
The Properties .............................. 54
Redevelopment and Development
Properties ............................. 56
Other Property .............................. 57
Major Tenants ............................... 57
Lease Expirations ........................... 58
Additional Information Concerning
the Existing Properties ................ 59
Property Management, Leasing and
Related Service Business ............... 62
Competition ................................. 63
Regulations and Insurance ................... 63
Environmental Matters ....................... 64
Employees ................................... 65
Legal Proceedings ........................... 65
MANAGEMENT ................................... 67
Directors and Executive Officers ............ 67
Management and Key Employees ................ 67
Directors' Compensation ..................... 69
Committees of the Board of Directors ........ 69
Executive Compensation ...................... 70
Employment Agreements ....................... 70
Insurance ................................... 71
Stock Option Plan ........................... 71
CERTAIN TRANSACTIONS ......................... 73
Settlement of Dispute Among the
Company and Certain Affiliates ......... 73
Transfer of Assets and Related In-Kind-
Dividend ............................... 74
Investment Agreement ........................ 74
Acquisition of Global Realty &
Management, Inc. ....................... 75
Loans to Executive Officers ................. 75
Consulting Agreements ....................... 75
Managed Properties .......................... 76
Registration Rights ......................... 76
Benefits of Offering to Existing
Stockholders, Including Management ..... 76
Use Agreement ............................... 76
Service Agreement ........................... 76
Other ....................................... 77
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
POLICIES WITH RESPECT TO
CERTAIN ACTIVITIES ........................ 77
Investment Policies ......................... 77
Financing Policies .......................... 78
Conflicts of Interest Policies .............. 78
Redevelopment and Development
Policies ............................... 78
Policies with Respect to
Other Activities ....................... 79
PRINCIPAL AND SELLING
STOCKHOLDERS .............................. 80
DESCRIPTION OF CAPITAL STOCK ................. 82
Common Stock ................................ 82
Preferred Stock ............................. 83
Warrants .................................... 83
Restrictions on Ownership and Transfer
of Common Stock ........................ 83
Anti-Takeover Effects of Certain
Provisions of Maryland Law, and the
Company's Charter and Bylaws ........... 86
Advance Notice of Director Nominations
and New Business ....................... 88
Indemnification of Directors and
Officers ............................... 88
Transfer Agent and Registrar ................ 89
SHARES ELIGIBLE FOR FUTURE
SALE ...................................... 90
FEDERAL INCOME TAX
CONSIDERATIONS ............................ 91
Taxation of the Company ..................... 91
Failure to Qualify for Taxation
as a REIT .............................. 96
Taxation of U.S. Stockholders ............... 97
Backup Withholding .......................... 98
Taxation of Certain Tax-Exempt
Stockholders ........................... 98
Taxation of Non-U.S. Stockholders ........... 99
Taxpayer Relief Act of 1997 ................. 101
Proposed Tax Legislation .................... 102
Other Tax Consequences ...................... 102
ERISA CONSIDERATIONS ......................... 103
Fiduciary Considerations .................... 103
Plan Assets Issue ........................... 103
UNDERWRITING ................................. 105
LEGAL MATTERS ................................ 106
EXPERTS ...................................... 106
ADDITIONAL INFORMATION ....................... 107
GLOSSARY ..................................... 108
INDEX TO FINANCIAL STATEMENTS................. F-1
</TABLE>
ii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND THE NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, (I) THE "COMPANY"
REFERS TO THE BUSINESS AND PROPERTY OF EQUITY ONE, INC. AND ITS CONSOLIDATED
SUBSIDIARIES, (II) THE INFORMATION SET FORTH IN THIS PROSPECTUS GIVES EFFECT TO
THE TWO-FOR-ONE STOCK SPLIT THAT OCCURRED ON JULY 15, 1997, ASSUMES
CONSUMMATION OF THE SETTLEMENT EMBODIED IN THE SETTLEMENT AGREEMENT AND
COMPLETION OF THE IN-KIND DIVIDEND (BOTH AS DEFINED HEREIN), ASSUMES AN INITIAL
PUBLIC OFFERING PRICE OF $13.50 PER SHARE OF COMMON STOCK (REPRESENTING THE
MID-POINT OF THE RANGE SET FORTH ON THE COVER PAGE OF THIS PROSPECTUS) AND
ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED AND (III)
ALL REFERENCES TO SQUARE FOOTAGE REFER TO GROSS LEASABLE AREA ("GLA") AND
PERCENTAGES OF GLA AND SQUARE FOOTAGE ARE APPROXIMATE. SEE "GLOSSARY" BEGINNING
ON PAGE 108 FOR THE DEFINITIONS OF CERTAIN TERMS USED IN THIS PROSPECTUS,
INCLUDING CAPITALIZED TERMS USED HEREIN WITHOUT DEFINITION.
THE COMPANY
The Company is a self-administered, self-managed real estate investment
trust ("REIT") that principally acquires, renovates, develops and manages
community and neighborhood shopping centers anchored by national and regional
supermarket chains ("Supermarket Centers"). The Company's portfolio consists of
15 Supermarket Centers, one drug store anchored neighborhood shopping center, a
shopping center located in Northeast Miami-Dade County, Florida which is being
comprehensively redeveloped into a 300,000 square foot Supermarket Center ("Sky
Lake"), two mixed-use (office/retail) properties, one office building and one
mini-warehouse facility (collectively, the "Existing Properties"). The Existing
Properties are located primarily in the Miami, Orlando and Jacksonville
metropolitan areas of Florida, and in Texas, and contain an aggregate of 2.1
million square feet of GLA.
In January 1998, the Company acquired a Supermarket Center consisting of
an aggregate of 85,300 square feet of GLA located in Lantana, Florida ("Lantana
Village") and has recently entered into agreements to purchase a Supermarket
Center consisting of an aggregate of 110,200 square feet of GLA located in Fort
Myers, Florida ("Summerlin Square") and a drug store anchored neighborhood
shopping center consisting of an aggregate of 67,930 square feet of GLA located
in Jacksonville, Florida ("Beauclerc Village").
The Company also owns an aggregate of 6.25 acres of land adjacent to
certain of the Existing Properties and recently agreed to purchase 4.4 acres of
vacant land located in Southwest Miami-Dade County, Florida, and 10.5 acres of
vacant land as part of the acquisition of Summerlin Square, substantially all
of which is intended for retail development. The Company also has an option to
purchase (the "Option"), 10.0 acres of land in Southwest Miami-Dade County,
Florida ("Coral Way"), which property is commercially zoned and has received
county site plan approval for the development of a 100,000 square foot
Supermarket Center, and 6.7 acres of vacant land adjacent to certain of the
Existing Properties. The Option is exercisable by the Company for a period of
five years. See "Certain Transactions".
Supermarket Centers are anchored by national and regional supermarkets
such as Winn-Dixie (the fourth largest supermarket chain in the country),
Publix (the largest supermarket chain in Florida), Albertsons (the sixth
largest supermarket chain in the country) and Kroger (the largest supermarket
chain in the country). Additional tenants particularly responsible for drawing
tenants and shoppers to the Company's Supermarket Centers (including national
and regional supermarkets, "Anchor Tenants") include national retailers such as
K-Mart, Best Buy, Walgreens and Eckerd. Non-Anchor Tenants of the Supermarket
Centers include such well known national and regional businesses as Einstein
Bros. Bagels, Rainbow Shops, Boat US Marine, Little Caesars, Video Avenue,
General Nutrition Center,
1
<PAGE>
Radio Shack, NationsBank, Play It Again Sports, Burger King and Chili's, as
well as local tenants such as Swim 'N Fun Pool Supply, Vision Works, Dollar
General, Rent A Center and United Consumer Club. The Company believes that
supermarkets and other Anchor Tenants offering daily necessity items generate
regular consumer traffic and enhance the performance and stability of a center.
As of December 31, 1997, the Company's supermarket Anchor Tenants, other Anchor
Tenants and non-Anchor Tenants contributed 22.9%, 22.3% and 54.8%,
respectively, of the Company's aggregate annualized minimum rents and accounted
for approximately 30.2%, 21.7% and 48.1%, respectively, of GLA.
The Company was organized in June 1992 under the laws of the State of
Maryland to acquire Supermarket Centers in high growth, densely populated areas
throughout the Southeast generating stable cash flows and long-term value. The
Company selects properties for acquisition or development which have, or are
suitable for, supermarket and other Anchor Tenants, and are adaptable over time
for expansion, renovation and redevelopment. In order to take advantage of
property management operating efficiencies and present attractive leasing
opportunities to tenants who seek multiple locations in an area, the Company
also targets properties proximate to its other properties. All properties must
be well located and have high visibility, open air designs, ease of entry and
exit and ample parking. The Company acquires both Supermarket Centers that are
substantially fully leased (i.e., existing tenants occupy 85% or more of GLA),
appropriately tenanted and well maintained ("Performing Supermarket Centers"),
and Supermarket Centers which are not Performing Supermarket Centers which meet
the Company's turnaround criteria ("Underperforming Supermarket Centers"). In
acquiring Performing Supermarket Centers, the Company requires attractive and
sustainable rates of return, and in acquiring Underperforming Supermarket
Centers, the Company seeks opportunities to increase revenues primarily through
renovation and retenanting.
The Company believes that its management team possesses the experience and
expertise necessary to identify, acquire, renovate, develop and manage
additional Supermarket Centers. The Company's principal senior executives and
property managers average 15 years experience in the real estate industry and
have acquired and managed all the Existing Properties. Management believes that
it has cultivated strong relationships with supermarkets and other Anchor
Tenants which, in combination with its in-depth knowledge of the Company's
primary markets, has contributed substantially to the Company's success in
identifying, acquiring and operating its properties.
Since its formation, the Company has experienced sustained growth in its
real estate portfolio, revenues and net income. From December 31, 1993 to
December 31, 1997, the Company increased total assets and GLA to $126.9 million
and 2.0 million square feet, respectively, from $28.5 million and 600,000
square feet, respectively. For the year ended December 31, 1997, total revenues
and net income increased to $20.5 million and $6.2 million, respectively, from
$2.1 million and $49,000, respectively, for the year ended December 31, 1993.
For a discussion of the growth in the Company's funds from operations, see
"Summary Consolidated Financial Data" and "Selected Consolidated Financial
Data".
SUMMARY RISK FACTORS
Prospective investors should carefully consider the matters discussed
under "Risk Factors" prior to making an investment in the Common Stock which,
individually or in the aggregate, could have a material adverse effect on the
Company's financial condition, results of operations, liquidity, funds from
operations and its ability to make distributions to stockholders. These risks
include:
/bullet/ The Company's results of operations are dependent on certain key
tenants, particularly Winn-Dixie and Publix supermarkets, which
represented approximately 11.9% and 3.6%, respectively, of the Company's
aggregate annualized minimum rental revenues (i.e., fixed
2
<PAGE>
base rentals, excluding tenant reimbursements and percentage rents) for
leases in effect at December 31, 1997, thereby increasing the potential
negative impact to the Company of downturns in the business of, or its
relationship with, such tenants.
/bullet/ All but two of the Company's properties are located in the State
of Florida, increasing the risk that the Company will be materially
adversely affected by a downturn in the general economic conditions in
such state.
/bullet/ The Company plans to develop and redevelop properties, despite no
experience as a developer and limited experience as a redeveloper, which
may increase the risk of loss in development and redevelopment.
/bullet/ Management and affiliates of the Company will own 50.4% of the
outstanding Common Stock after the Offering, and the public stockholders'
ability to influence the Company is limited by their minority positions,
the Company's organizational documents and Maryland law. The parties who
currently control the Company have agreed to a settlement of litigation
which will effectively result in a transfer of control of the Company to
affiliates of Chaim Katzman, the Company's Chairman of the Board,
President and Chief Executive Officer. Certain portions of the settlement
are required to be performed after the consummation of the Offering. No
assurance can be given that such performance will occur, or of the effect
of any non-performance on the Company or control of the Company.
/bullet/ The Company is dependent on key personnel, particularly Chaim
Katzman, the Company's Chairman of the Board, President and Chief
Executive Officer, and Doron Valero, the Company's Executive Vice
President and Chief Operating Officer.
/bullet/ The affairs of the Company are controlled by its Board of
Directors and by certain affiliated stockholders who may change the
investment and other policies of the Company without the consent of
stockholders, which may adversely affect the Company.
/bullet/ Certain members of the Company's management, particularly Messrs.
Katzman and Valero, are subject to conflicts of interest in that they may
engage in other activities, including other real estate activities.
/bullet/ The distribution requirements for REITs under federal income tax
laws may limit the Company's ability to finance future acquisitions,
redevelopments and developments without additional debt or equity
financing and may limit cash available for distribution (as defined in the
Glossary and described under "Distribution Policy") to stockholders.
/bullet/ The Company's estimated annual distribution following the Offering
will represent 91.5% of the Company's estimated cash available for
distribution (98.2% of the Company's cash available for distribution if
the over-allotment option granted to the Underwriters is exercised in
full), without giving effect to the interest earned on excess proceeds of
the Offering to be used in connection with development and redevelopment
activities, potentially requiring the Company to fund distributions from
working capital or borrowings. See "Distribution Policy".
/bullet/ The Company would be taxed as a corporation if it fails to qualify
as a REIT for federal income tax purposes in which event the Company's
liability for certain federal, state and local income taxes would decrease
cash available for distribution.
3
<PAGE>
/bullet/ The value of the Company's real estate investments is affected by
economic and other conditions, the general lack of liquidity of
investments in real estate, the ability of tenants to pay rents, the
possibility that leases may not be renewed or will be renewed on terms
less favorable to the Company, the possibility of uninsured losses,
including losses associated with natural disasters, the ability of the
Company's Existing Properties to generate sufficient cash flow to meet
operating expenses, including debt service, and competition in seeking
properties for acquisition and in seeking tenants, which factors,
individually or in the aggregate, may negatively impact the Company's
ability to make distributions to stockholders.
/bullet/ The Company is potentially liable for environmental matters and
the costs of compliance with certain governmental regulations, which may
have an adverse effect on the Company.
/bullet/ The Company is subject to litigation with Albertsons, which may
have an adverse effect on the Company.
/bullet/ The Company is subject to risks associated with borrowing,
including: (i) the Company's possible inability to obtain new financing on
favorable terms, (ii) the required refinancing of mortgage indebtedness of
approximately $54.1 million at maturity dates ranging from May 1999 to
February 2015, (iii) the possibility that indebtedness might be refinanced
on less favorable terms, (iv) the absence of limitations on the amount of
indebtedness that the Company may incur, (v) that interest rates might
increase on any variable rate or refinanced indebtedness and (vi) that the
Company's leverage may limit its ability to grow through additional debt
financing, which may have an adverse effect on the ability of the Company
to repay debt, particularly in the event of a downturn in the Company's
business.
/bullet/ The Company is able to incur additional debt, thereby increasing
its debt service, which could adversely affect the Company.
/bullet/ Management of the Company will have broad discretion as to the
application of a significant portion of the proceeds of the Offering.
/bullet/ Purchasers of Common Stock in the Offering will incur immediate
and substantial dilution of $4.75 per share in the net tangible book value
per share of Common Stock.
/bullet/ There has been no prior public market for the Common Stock, and an
active trading market might not develop, or might not be maintained, which
may negatively impact the ability to sell Common Stock and the price at
which shares of Common Stock may be resold.
/bullet/ Fluctuations in interest rates or equity markets may negatively
impact the price at which shares of Common Stock may be resold and may
limit the Company's ability to raise additional capital to finance future
development.
/bullet/ The possible issuance of additional shares of Common Stock after
completion of the Offering, including (i) 1,012,694 shares issuable upon
the exercise of outstanding warrants to purchase Common Stock, (ii)
580,288 shares issuable to an affiliate of the Company pursuant to a stock
purchase agreement and (iii) 1,000,000 shares reserved for issuance upon
exercise of stock options granted under the Company's 1995 Stock Option
Plan, pursuant to which options to purchase 664,000 shares have been
granted, may adversely affect the market price of the Common Stock or
result in additional dilution.
4
<PAGE>
BUSINESS AND GROWTH STRATEGIES
The Company intends to maximize total return to stockholders by increasing
cash flow per share and maximizing the value of its real estate portfolio. The
Company believes it can achieve this objective primarily through the
acquisition, renovation, development and management of Supermarket Centers and
other properties which meet the Company's investment criteria. The Company
believes it has certain competitive advantages which enhance its ability to
capitalize on acquisition opportunities, including: (i) management's
significant local market experience and expertise; (ii) the Company's long-
standing relationships with real estate brokers, tenants and institutional and
other real estate owners in its current target markets; (iii) a streamlined
acquisition process; (iv) access to capital; and (v) the ability to offer cash
and tax advantaged structures to sellers. The Company's principal business and
growth strategies include:
/bullet/ ACQUISITION OF PERFORMING SUPERMARKET CENTERS. The Company intends to
acquire Performing Supermarket Centers that offer attractive and
sustainable rates of return in areas throughout the Southeast having
demographic characteristics similar to those of its present markets.
Examples of acquisitions of Performing Supermarket Centers include,
(i) Lantana Village in 1998, (ii) West Lake Plaza Shopping Center
("West Lake") and Forest Edge Shopping Center ("Forest Edge") in 1996,
(iii) Lake Mary Shopping Centre ("Lake Mary") and Pointe Royale
Shopping Center ("Pointe Royale") in 1995 and (iv) Bird Ludlum
Shopping Center ("Bird Ludlum") in 1994. The Company will target
Performing Supermarket Centers which are adaptable to expansion,
renovation and redevelopment, and, in order to maximize property
management efficiencies and present attractive leasing opportunities
to tenants who seek multiple locations in one area, are located
proximate to other Company owned Supermarket Centers or to one
another. When entering new markets, the Company considers its ability
to increase and concentrate holdings in order to achieve economies of
scale. See "Business--Business and Growth Strategies".
The Company has recently entered into an agreement to acquire Summerlin
Square for approximately $10.0 million. Summerlin Square is a Performing
Supermarket Center located in Fort Myers, Florida, which contains 110,200
square feet of GLA, as well as two parcels containing an aggregate of 10.5
acres of adjacent vacant land, represents aggregate annualized minimum
rental revenues of approximately $1.1 million and is anchored by
Winn-Dixie and Rite-Aid. The vacant land adjacent to Summerlin Square is
commercially zoned and intended for retail development. The Company has
also entered into an agreement to acquire Beauclerc Village, subject to
satisfaction of certain conditions, for approximately $3.0 million.
Beauclerc Village is a performing drug store anchored neighborhood
shopping center located in Jacksonville, Florida which contains 67,930
square feet of GLA, represents aggregate annualized minimum rental
revenues of approximately $300,000 and is anchored by a Walgreens. The
Company anticipates that both of these acquisitions will be consummated by
May 1998; however there is no assurance that the acquisitions will be
consummated.
/bullet/ ACQUISITION OF UNDERPERFORMING SUPERMARKET CENTERS. The Company
intends to acquire Underperforming Supermarket Centers that meet the
Company's turnaround criteria, which includes having the potential to
increase revenues and operating cash flows through renovation and
retenanting. Underperforming Supermarket Centers are typically
undercapitalized, poorly managed and/or poorly maintained and may
require significant capital improvements. The Company also requires
attractive location and market demographics, availability on favorable
terms, and willingness of supermarket and other Anchor Tenants to
commit to lease space. Examples of the Company's enhancement of
Underperforming Supermarket Centers include East Bay Plaza ("East
Bay"), Four Corners Shopping Center ("Four Corners"), and Parker Towne
Centre ("Parker Towne"). East Bay, which was acquired in July 1993 at
a 48.0% occupancy rate, was 88.0% occupied at December 31, 1997; Four
Corners, which was acquired in January 1993 at a 76.0% occupancy rate,
was 93.3% occupied at December 31, 1997; and Parker Towne, which was
acquired in December 1993 at a 40.0% occupancy rate, was 65.7%
occupied at December 31, 1997. While the Company has increased
5
<PAGE>
occupancy by 64.2% and redeveloped space since its acquisition, the
retenanting of Parker Towne is proceeding at a slower pace than anticipated.
The Company believes that its market knowledge, strong relationships with
supermarkets and other Anchor Tenants and its capabilities in renovation and
redevelopment, are particularly integral to its ability to acquire and
reposition Underperforming Supermarket Centers. See "Business--Business and
Growth Strategies".
/bullet/ REDEVELOPMENT AND DEVELOPMENT OF SUPERMARKET CENTERS. The Company will
redevelop existing and develop new Supermarket Centers with
characteristics similar to those of the Existing Properties. The
Company will consider development only if the overall economics of
developing a property appear to be more favorable than acquiring
and/or redeveloping an existing property. For example, the Company
acquired Sky Lake, which is being comprehensively redeveloped into a
300,000 square foot Supermarket Center. The redevelopment is expected
to cost $18.4 million and to be completed by September 1999. In
addition, the Company owns 6.25 acres of land adjacent to certain of
the Existing Properties, substantially all of which is intended for
retail development. The Company also has agreed to acquire 4.4 acres of
vacant land located in Southwest Miami-Dade County, Florida for future
development, contingent upon, among other things, the rezoning of such
property for commercial use. Additionally, the Company has agreed to
acquire an aggregate of 10.5 acres of vacant land intended for retail
development in connection with its purchase of Summerlin Square, and
has an Option to purchase Coral Way, which has received site plan
approval for development of a 100,000 square foot Supermarket Center.
Although the Company intends to complete pending property acquisitions
upon satisfaction of conditions and to exercise the Option for Coral
Way, there is no assurance the pending property acquisitions will be
consummated or the Option will be exercised.
The Company has not previously developed shopping centers and has not had
extensive experience in redeveloping properties, although it has done so
on both a whole property basis, such as the redevelopment of the Company's
mixed use (office/retail) property located in West Palm Beach, Florida
("Diana Building"), as well as on an individual basis in order to meet
specific tenant needs, including at Parker Towne, where more than 100,000
square feet have been redeveloped as leased. In addition, certain members
of management have extensive experience in development and redevelopment
activities. The Company has recently hired a licensed architect and
general contractor to head its development department and is in the
process of retaining at least one additional full-time employee to support
its construction and development operations. See "Management" and
"Business--Business and Growth Strategies".
/bullet/ INCREASING REVENUES AND INCREASING OPERATING MARGINS. The Company will
continue to seek to improve the financial performance of its portfolio
by increasing revenues (through increased occupancy and/or rental
rates), maintaining high tenant retention rates (i.e., the percentage
of tenants who renew their leases upon expiration), replacing certain
existing tenants with more creditworthy tenants and aggressively
managing operating expenses. Most of the Company's lease agreements
provide for percentage rents, indexed rent increases (based on CPI or
other criteria) and/or scheduled rent escalations. See
"Business-Business and Growth Strategies".
MARKET DATA
GENERAL
The Company retained Robert Charles Lesser & Co. ("Lesser"), nationally
recognized experts in real estate consulting and urban economics, to assess the
economic and demographic characteristics of the State of Florida, as well as
the three metropolitan areas in Florida (Miami, Jacksonville and Orlando) in
which 19 of the 21 Existing Properties are located. The discussion of these
markets set forth below is derived from the findings set forth in a market
overview prepared by Lesser (the "Lesser Market Overview"). The selected
economic and demographic characteristics (population, employment, retail sales
and food store sales) are key factors which indicate the strength of a market
for owning and
6
<PAGE>
operating Supermarket Centers. While the Company believes that Lesser's views
of economic and demographic trends in these areas are reasonable, there can be
no assurance that these trends will in fact continue.
POPULATION
Florida represented approximately 5.4% of the total population of the
United States or 14.6 million people, ranking it as the fourth largest state in
the nation. For the period 1990 to 1997, the total population of Florida
increased by approximately 1.7% annually, as compared to an approximately 1.0%
increase nationwide. Orlando, Jacksonville and Miami, which are the Company's
key sub-markets in Florida, have experienced annual population growth rates of
2.3%, 1.7% and 1.1%, respectively, each of which is higher than the national
average. Orlando was the sixth fastest growing major metropolitan area in the
United States between 1990 and 1997. For the period 1997 to 2002, population in
Florida is expected to increase annually by 1.4%, as compared to an annual
population growth rate nationwide of 0.9%. In the submarkets of Orlando,
Jacksonville and Miami, population is expected to increase annually by 2.0%,
1.8% and 1.1%, respectively.
EMPLOYMENT
For the period 1990 to 1997, employment in Florida increased annually by
2.5%, as compared to an annual growth rate of 1.6% nationwide. In the
submarkets of Orlando, Jacksonville and Miami, employment increased annually by
3.7%, 2.8% and 1.3%, respectively. For the period 1997 to 2002, employment in
Florida is expected to increase annually by 1.9%, as compared to an annual
employment growth rate nationwide of 1.3%. In the submarkets of Orlando,
Jacksonville and Miami, employment is expected to increase annually by 2.2%,
1.3% and 1.5%, respectively.
RETAIL SALES
For the period 1990 to 1997, retail sales in Florida increased annually by
6.2%, as compared to an annual growth rate of 4.8% nationwide. In the
submarkets of Orlando, Jacksonville and Miami, retail sales increased annually
by 7.1%, 5.8% and 5.3%, respectively, each of which is higher than the national
average. For the period 1997 to 2002, retail sales in Florida are expected to
increase annually by 6.4%, as compared to 5.5% nationwide. In the submarkets of
Orlando, Jacksonville and Miami, retail sales are expected to increase annually
by 6.7%, 5.1% and 5.0%, respectively.
FOOD STORE SALES
For the period 1990 to 1997, food store sales in Florida increased
annually by 3.4%, as compared to an annual growth rate of 2.3% nationwide. In
the submarkets of Orlando, Jacksonville and Miami, food store sales increased
annually by 6.6%, 4.1% and 2.5%, respectively.
7
<PAGE>
THE PROPERTIES
EXISTING PROPERTIES
The Existing Properties, consisting primarily of Supermarket Centers,
contain an aggregate of 2.1 million square feet of GLA. All of the Company's
Supermarket Centers were developed after 1982. Management believes that the
location and quality of its Existing Properties have enabled the Company to
develop and retain an attractive and diverse tenant base. As of December 31,
1997, the Existing Properties (excluding Lantana Village, which was acquired by
the Company in January 1998) were 93.0% leased to approximately 376 tenants
(not including 505 tenants of the Company's mini-warehouse facility). The
following table provides a brief description of each of the Existing
Properties:
<TABLE>
<CAPTION>
NET OPERATING AVERAGE
INCOME FOR MINIMUM
GLA THE YEAR RENT PER PERCENT
(SQ. FT.) ENDED SQ. FT. AS OF PERCENT LEASED AT
DATE AT DEC. 31, DEC. 31, DEC. 31, LEASED AT DEC. 31, CERTAIN
PROPERTY(1) ACQUIRED 1997 1997 1997 ACQUISITION 1997 TENANTS
- --------------------- ---------- --------------- ----------------- --------------- ------------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SOUTH FLORIDA
Bird Ludlum August 192,327 $2,326,820 $ 12.88 96% 100% Winn-Dixie, Eckerd,
Shopping Center 1994 Blockbuster Video,
Miami, FL Vision Works,
Rainbow Shops,
Radio Shack, Boat
US Marine,
Barnett Bank, GNC
Plaza Del Rey December 50,146 $ 576,998 $ 11.90 82% 98% Navarro,
Shopping Center 1992 Rent A Center
Miami, FL
Pointe Royale July 199,068 $1,013,789 $ 5.64 96% 100% Winn-Dixie, Best
Shopping Center(2) 1995 Buy, Dollar Bills,
Miami, FL Household Finance
Company
Pointe Royale July 18,000 -- -- -- -- --
Office Building 1995
Miami, FL
West Lake Plaza November 100,747 $ 860,461 $ 9.90 96% 100% Winn-Dixie, Burger
Shopping Center(2) 1996 King, United
Miami, FL Consumer Club
Diana Building February 18,707 $ 75,683 $ 14.44 -- 55% Fat Tuesday's
West Palm Beach, FL 1995
Equity One April 28,980(3) $ 286,812 $ 12.29 -- 100% City of Miami
Office Building 1992 Beach Parking
Miami Beach, FL Department
Sky Lake August 60,839(4) $ 266,956(5) $ 12.13 100% 100% Humana,
N. Miami Beach, FL 1997 First Union Bank,
McDonald's
CENTRAL FLORIDA
East Bay Plaza July 81,826 $ 336,705 $ 7.47 48% 88% Scotty's, Hollywood
Shopping Center 1993 Video, Albertsons(6)
Largo, FL
Eustis Square October 126,791 $ 722,057 $ 6.88 95% 91% Publix, Bealls,
Shopping Center 1993 Walgreens, US Pak
Eustis, FL N Ship
Forest Edge December 68,631 $ 374,901 $ 6.77 100% 100% Winn-Dixie, Auto
Shopping Center 1996 Zone
Orlando, FL
Lake Mary November 288,450 $3,005,855 $ 10.91 97% 99% K-Mart, Albertsons,
Shopping Centre 1995 General Cinema,
Lake Mary, FL Play It Again
Sports, Chili's
Einstein Bros.
Bagels,
NationsBank,
Swim N Fun
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NET OPERATING
INCOME FOR
GLA THE YEAR
(SQ. FT.) ENDED
DATE AT DEC. 31, DEC. 31,
PROPERTY(1) ACQUIRED 1997 1997
- --------------------------- ---------- ------------- -----------------
<S> <C> <C> <C>
NORTH FLORIDA
Atlantic Village June 100,559 $ 775,619
Shopping Center(7) 1995
Atlantic Beach, FL
Commonwealth February 71,021 $ 419,744
Shopping Center 1994
Jacksonville, FL
Fort Caroline Trading January 74,546 $ 464,683
Post(8) 1994
Jacksonville, FL
Monument Pointe January 75,328 $ 385,283(9)
Shopping Center 1997
Jacksonville, FL
Oak Hill Shopping Center December 78,492 $ 465,989
Jacksonville, FL 1995
Mandarin Mini-Storage May 52,880 $ 215,412
Jacksonville, FL 1994
TEXAS
DALLAS AREA
Parker Towne Centre December 201,927 $ 467,077
Plano, TX 1993
HOUSTON AREA
Four Corners January 115,178 $ 852,353
Shopping Center 1993
Tomball, TX
TOTAL/WEIGHTED
AVERAGE 2,004,443 $13,893,197
========= ============
RECENTLY ACQUIRED/PROPOSED
ACQUISITION PROPERTIES
Lantana Village January 85,300 $ 683,030
Shopping Center 1998
Lantana, FL
Summerlin Square (10) 97,806 $ 969,819
Shopping Center
Fort Myers, FL
Beauclerc Village (10) 66,575 $ 386,371
Shopping Center
Jacksonville, FL
<CAPTION>
AVERAGE
MINIMUM
RENT PER PERCENT
SQ. FT. AS OF PERCENT LEASED AT
DEC. 31, LEASED AT DEC. 31, CERTAIN
PROPERTY(1) 1997 ACQUISITION 1997 TENANTS
- --------------------------- --------------- --------------- ---------- --------------------
<S> <C> <C> <C> <C>
NORTH FLORIDA
Atlantic Village $ 7.92 100% 94% Publix, Blockbuster
Shopping Center(7) Music, Village Shoe
Atlantic Beach, FL Box
Commonwealth $ 6.83 100% 95% Winn-Dixie, Subway
Shopping Center
Jacksonville, FL
Fort Caroline Trading $ 6.97 83% 92% Winn-Dixie, Eckerd,
Post(8) McDonalds
Jacksonville, FL
Monument Pointe $ 6.16 94% 98% Winn-Dixie, Eckerd
Shopping Center First Union Bank
Jacksonville, FL
Oak Hill Shopping Center $ 6.65 96% 100% Publix, Walgreens,
Jacksonville, FL Blockbuster Video,
Little Caesars
Mandarin Mini-Storage $ 5.58 98% 95% --
Jacksonville, FL
TEXAS
DALLAS AREA
Parker Towne Centre $ 5.21 40% 66% Minyards,
Plano, TX Blockbuster
Video, Dollar
General
HOUSTON AREA
Four Corners $ 9.07 76% 93% Kroger, Eckerd,
Shopping Center Wendy's,
Tomball, TX Mailboxes Etc.,
Rent A Center
TOTAL/WEIGHTED
AVERAGE $ 8.58 84% 93%
======= === ===
RECENTLY ACQUIRED/PROPOSED
ACQUISITION PROPERTIES
Lantana Village $ 9.64 100% 100% Winn-Dixie,
Shopping Center Rite-Aid, Denny's
Lantana, FL
Summerlin Square $ 11.89 96%(11) 96% Winn-Dixie, Eckerd
Shopping Center
Fort Myers, FL
Beauclerc Village $ 5.93 100%(11) 100% Walgreens,
Shopping Center Old America,
Jacksonville, FL Big Lots
</TABLE>
- --------------
(1) Does not include any redevelopment and development properties other than
SkyLake.
(2) Eckerd has vacated their sites, but continues to make lease payments.
(3) Includes 3,000 square feet of GLA which is occupied by the Company.
(4) Does not include 240,000 square feet of vacant GLA which is to be
redeveloped. See "--Redevelopment and Development Properties", "Use of
Proceeds", and "Business--Redevelopment and Development Properties".
(5) Represents net operating income for the four and one-half months ended
December 31, 1997.
(6) Albertsons is located on property contiguous to the Company's property
which is not owned by the Company. Accordingly, Albertsons does not pay
base rent or make payments to the Company for common area maintenance and
similar charges at this location.
(7) Walgreens has vacated the site, but continues to make lease payments.
(8) Since its acquisition in 1994, Winn-Dixie's space has been increased by an
aggregate of 7,200 square feet.
(9) Represents net operating income for the eleven months ended December 31,
1997.
(10) Under contract to purchase.
(11) Represents percentage leased as of the date of contract.
See "Business--Existing Properties", "--Major Tenants", "--Lease
Expirations", and "--Additional Information Concerning the Existing
Properties".
9
<PAGE>
REDEVELOPMENT AND DEVELOPMENT PROPERTIES
EXISTING PROPERTY
SKY LAKE. In August 1997 the Company acquired Sky Lake, an existing
community shopping center, for $11.8 million. Sky Lake is located in the North
Miami Beach, Florida area. Approximately 150,000 residents with household
incomes averaging $51,000 are located within a three mile radius of Sky Lake.
The Company is conducting a comprehensive redevelopment program at Sky Lake in
order to create a Supermarket Center containing 300,000 square feet of GLA. The
Company expects that the redevelopment will cost approximately $18.4 million
and will occur in several phases which are expected to be completed by September
1999. The Company has entered into an agreement with Publix for the lease of
51,000 square feet of redeveloped GLA at Sky Lake. During the redevelopment,
the Company expects to receive certain rental revenue from tenants who will
continue operations during the redevelopment process. As of December 31, 1997,
61,000 square feet of such GLA, representing approximately $738,000 of
aggregate annualized minimum rental revenue, had been leased, substantially all
of which related to out-parcels located on the property.
LAND FOR DEVELOPMENT. The Company owns 6.25 acres of vacant land adjacent
to certain of the Existing Properties, substantially all of which the Company
intends to develop as retail space. The Company expects to commence
construction on 5.0 acres adjacent to Lake Mary and 0.5 acres adjacent to its
Commonwealth Shopping Center ("Commonwealth") within three months following the
Offering. The Company expects to complete these projects by December 1998, at a
cost of approximately $3.0 million and $450,000, respectively, using proceeds
of the Offering. In addition, the Company has agreed to acquire (i) 4.4 acres
of land located in Southwest Miami-Dade County, Florida for future development
contingent upon, among other things, the rezoning of such property for
commercial use and (ii) an aggregate of 10.5 acres of vacant land located in
Fort Myers, Florida for future development as part of its acquisition of
Summerlin Square.
OPTION PROPERTY
CORAL WAY. The Company has an Option, exercisable for a period of five
years from the consummation of the Offering, to acquire 10.0 acres of vacant
land at Coral Way for $2.0 million. Coral Way is commercially zoned and has
received county site plan approval for the development of a 100,000 square foot
Supermarket Center. Coral Way is located in a newly rezoned high growth area of
Southwest Miami-Dade County, Florida. The Company intends to exercise this
Option and develop this property as a Supermarket Center to be completed by
December 1999. The acquisition and development costs of Coral Way are
anticipated to be $12.0 million. See "Certain Transactions".
LAND FOR DEVELOPMENT. The Company also has an Option, exercisable for a
period of five years from the consummation of the Offering, to purchase 0.50
acres of vacant land adjacent to the Equity One Office Building, which property
is commercially zoned, and 6.20 acres of vacant land adjacent to Bird Ludlum,
which property is residentially zoned, for a purchase price of $1.7 million and
$1.1 million, respectively.
There can be no assurance that Sky Lake or any other redevelopment or
development project, including the Company's purchase and development of Coral
Way, will be completed or, if completed, will be successful. See
"Business--Redevelopment and Development Properties", "Policies with Respect to
Certain Activities--Redevelopment and Development Policies" and "Use of
Proceeds".
OTHER PROPERTY
The Company has entered into an agreement to acquire a restaurant property
for $1.2 million in Miami Beach, Florida, for one of the Company's tenants,
which will lease the facility pursuant to a
10
<PAGE>
long-term operating lease. The Company will consider such investment
opportunities from time to time when economically merited, although it expects
such instances to be uncommon.
DISTRIBUTIONS
In general, qualification as a REIT requires the annual distribution to
stockholders of at least 95.0% of the REIT's taxable income. Following the
consummation of the Offering, the Company intends to continue to pay regular
quarterly dividends to its stockholders. The Company anticipates that the first
dividend to stockholders purchasing Common Stock in the Offering will be paid
with respect to the quarterly period ended June 30, 1998, and is anticipated to
be in a prorated amount based upon a quarterly distribution of $0.25 per share
(which if annualized, would be $1.00 per share or an annual distribution rate
of approximately 7.4% based on an initial public offering price of $13.50 per
share). Additionally, the Company anticipates that its Board of Directors will
declare a distribution immediately prior to the consummation of the Offering
for stockholders of record with respect to a prorata portion of the anticipated
quarterly distribution of $0.25 per share based on the number of days between
and including April 1, 1998 and the day immediately preceding the closing date,
and will effect the In-Kind Dividend (see "Certain Transactions"). The Company
does not intend to reduce the expected dividend per share if the Underwriters'
over-allotment option is exercised in full. The Company has established its
initial dividend based on information and certain assumptions described herein.
See "Distribution Policy". The Company intends to maintain its initial
distribution rate through March 31, 1999, unless actual results of operations,
economic conditions or other factors differ from the assumptions used in its
estimate, and to review the dividend rate on a quarterly basis.
The Company currently expects to distribute approximately 91.5% of its
estimated cash available for distribution for the four quarters following the
consummation of the Offering (98.2% if the over-allotment option granted to the
Underwriters is exercised in full). Cash available for distribution is funds
from operations (as defined in footnote 3 to the "Summary Consolidated
Financial Data" set forth below) as adjusted for certain capital expenditures
and scheduled principal payments ("Cash Available for Distribution"). The
Company's intended distributions are based on pro forma net income for the four
quarters ended March 31, 1999, as adjusted for certain events and contractual
commitments described in "Distribution Policy". This calculation is made solely
for the purpose of setting the distribution amount and is not intended to be a
projection or prediction of the Company's actual results of operations nor is
the methodology upon which such adjustments are made intended to be a basis for
determining future distributions. Future distributions by the Company will be
at the discretion of the Board of Directors. However, the Company has adopted a
policy pursuant to which it intends to limit distributions to no more than
94.0% of its Cash Available for Distribution for periods subsequent to March
31, 1999. There can be no assurance that any distributions will be made by the
Company or that the expected level of distributions will be maintained.
In general, distributions by the Company to the extent of its current or
accumulated earnings and profits, other than capital gain dividends, will be
taxable to stockholders as ordinary income for federal income tax purposes. The
Company anticipates that approximately 2.5% of the distributions intended to be
paid by the Company for the four quarters following the consummation of the
Offering will represent a return of capital for federal income tax purposes.
For a discussion of the tax treatment of distributions to stockholders, see
"Federal Income Tax Considerations-Taxation of U.S. Stockholders".
For a discussion of dividends paid by the Company since January 1, 1995,
see "Distribution Policy".
MORTGAGE INDEBTEDNESS AND CREDIT FACILITIES
As of December 31, 1997, the Company had total indebtedness of $71.0
million, all of which was fixed rate mortgage indebtedness bearing interest at
a weighted average annualized rate of 8.0% and collateralized by 15 of the
Existing Properties. As of such date, the percentage of the net book value of
11
<PAGE>
the Company's rental properties that were encumbered by debt was 59.5%. None of
the existing mortgages is subject to cross default provisions of mortgages on
other properties or is cross collateralized. However, in connection with the
Company's acquisition of Lake Mary, the Company has provided a $1.5 million
letter of credit to secure certain obligations, which letter of credit is
collateralized by the Diana Building. At December 31, 1997, no amount was drawn
under this letter of credit. The Company's mortgage indebtedness contains
customary terms and conditions typically found in mortgages including, among
others, the requirement to preserve and maintain the properties, the
requirement to maintain insurance on the properties, and restrictions upon the
incurrence of liens on the properties and upon changes in control of the
Company. See "Risk Factors--Certain Indebtedness of the Company May Prohibit
the Sale of Shares of Common Stock" for a discussion of other restrictions.
The Company has received a commitment for a revolving line of credit of up
to $35.0 million to finance the acquisition, development and redevelopment of
properties and for general corporate purposes (the "City National Line of
Credit"), to be secured by certain of the Company's unencumbered Existing
Properties (including Existing Properties which will become unencumbered
following the application of the net proceeds from the Offering) and other
properties to be acquired by the Company. See "Use of Proceeds". Borrowings
under the City National Line of Credit will bear interest at 225 basis points
over the London Interbank Offered Rate ("LIBOR") and be due three years after
the execution of a definitive loan document. The City National Line of Credit
is expected to provide a revolving line of credit for three years with interest
due and payable each month and the outstanding principal balance together with
any accrued, unpaid interest due upon maturity. In addition, the proposed terms
of the commitment for the City National Line of Credit allow the lender to
cease funding and/or accelerate the maturity date of the City National Line of
Credit if neither Chaim Katzman, the Company's Chairman of the Board, President
and Chief Executive Officer, nor Doron Valero, the Company's Executive Vice
President and Chief Operating Officer, remain as the executives in control of
the Company. The Company expects that the City National Line of Credit will be
subject to customary conditions, including, among other things, the payment of
commitment fees and the required delivery of various title, insurance, zoning
and environmental assurances on the secured properties, and will contain
various covenants, such as a prohibition on secondary financing on any of the
secured properties and a 70.0% loan to value requirement. The Company is also
currently negotiating a commitment with a certain financial institution for a
revolving line of credit of up to $100.0 million to finance the acquisition,
development and redevelopment of properties and for general corporate purposes
(the "Additional Line of Credit," and together with the City National Line of
Credit the "Acquisition Line of Credit"). See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources". There can be no assurance that negotiations with such financial
institution will be successfully concluded or that the Acquisition Line of
Credit will become or remain available to the Company.
The Company has a line of credit from City National Bank of Florida in the
amount of $2.5 million collateralized by its mixed office and retail property
located in Miami Beach, Florida ("Equity One Office Building"). The Company
anticipates that this line of credit will be terminated upon the effectiveness
of the Acquisition Line of Credit. At December 31, 1997, no amount was
outstanding under this line of credit. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources".
FINANCING POLICIES
Subject to economic conditions, the Company intends to maintain a policy
limiting its total indebtedness to 50.0% of its total market capitalization
(defined as total debt plus the market value of outstanding Common Stock). Such
objective may be altered without the consent of the Company's stockholders, and
the Company's organizational documents do not limit the amount of indebtedness
that the Company may incur. Upon application of the estimated net proceeds of
the Offering set forth
12
<PAGE>
herein, total debt will constitute approximately 27.0% of the Company's total
market capitalization (assuming an initial public offering price of $13.50 per
share and no exercise of the Underwriters' over-allotment option). The Company
intends to utilize various sources of capital, including the proceeds of the
Offering, the Acquisition Line of Credit, other credit facilities, mortgage
indebtedness, the issuance of debt or equity securities in public or private
capital markets when appropriate, and reserves, for future acquisitions,
capital improvements and development activities. See "Policies with Respect to
Certain Activities--Financing Policies", "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Indebtedness", "--Liquidity
and Capital Resources" and Note 5 of Notes to Consolidated Financial
Statements.
POSSIBLE CONFLICTS OF INTEREST
The Company is subject to possible conflicts of interest. Pursuant to his
employment agreement with the Company, Chaim Katzman, the Company's Chairman of
the Board, President and Chief Executive Officer, is only required to devote so
much of his business time, attention, skill and efforts as shall be required
for the faithful performance of his duties. Presently, his significant other
activities consist primarily of serving as the President and Chief Executive
Officer of Gazit Inc., a public company whose securities are traded on the Tel
Aviv Stock Exchange and whose primary activity is its substantial investment in
the Company. Mr. Katzman intends to continue to focus his primary business
activities on the Company and, accordingly, devotes substantially all of his
time to the affairs of the Company. Mr. Katzman also currently invests in and
serves as the non-executive chairman of the board of real estate companies
whose holdings include commercial properties in Canada and Israel and may have
other interests in the future. Doron Valero, the Company's Executive Vice
President, Chief Operating Officer and director, currently serves as the
President and director of, or has an ownership interest in, several entities
which own apartment properties in Florida. Although the Company does not
currently engage in activities outside the United States or acquire residential
properties, no assurance can be given that it will not do so in the future or
that its interests will not conflict with those of Messrs. Katzman or Valero.
See "Risk Factors--The Company Is Subject to Possible Conflicts of Interest"
and "Management--Employment Agreements".
BENEFITS OF THE OFFERING TO EXISTING STOCKHOLDERS, INCLUDING MANAGEMENT
The Selling Stockholder will sell all of its shares of Common Stock in
connection with the Offering. Additionally, the Company's existing
stockholders, including certain members of management, are expected to benefit
from the Offering due to the anticipated improved liquidity of their shares of
Common Stock, an increase in the net tangible book value of their shares of
Common Stock and the potential increase in the value of any options and/or
warrants which they hold to purchase additional shares of Common Stock.
RESTRICTIONS ON OWNERSHIP OF COMMON STOCK
Due to limitations on the concentration of ownership of stock of a REIT
imposed by the Internal Revenue Code of 1986, as amended (the "Code"), the
Company's charter prohibits any stockholder from actually or constructively
owning more than 9.9% in value or number of the outstanding shares of Common
Stock, whichever is more restrictive (the "Ownership Limit"); the Board of
Directors has waived the Ownership Limit with respect to Gazit (1995), Inc.,
Globe Reit Investments, Ltd., and M.G.N. (USA), Inc., affiliates of the
Company. See "Risk Factors--The Ability to Effect a Change in Control of the
Company is Limited" and "Description of Capital Stock--Restrictions on
Ownership and Transfer of Common Stock".
TAX STATUS OF THE COMPANY
The Company elected to be taxed as a REIT under Sections 856 through 860
of the Code, commencing with its taxable year ending December 31, 1995, and
believes that it has met and will
13
<PAGE>
continue to meet the requirements for qualification as a REIT. Based on various
assumptions and factual representations made by the Company and others, in the
opinion of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A., tax counsel
to the Company, the Company has been organized in conformity with the
requirements for qualification as a REIT under the Code beginning with the
taxable year of the Company starting January 1, 1995, and the method of
operation of the Company and its subsidiaries since January 1, 1995 has enabled
the Company, and the proposed method of operation of the Company will enable
the Company, to meet the requirements for qualification and taxation as a REIT
under the Code. The opinion of counsel is not, however, binding on the Internal
Revenue Service or on any court.
To maintain REIT status, an entity must meet a number of organizational
and operational requirements, including a requirement that it currently
distribute at least 95.0% of its taxable income to its stockholders. See
"Federal Income Tax Considerations--Taxation of the Company--Annual
Distribution Requirements". As a REIT, the Company generally will not be
subject to federal income tax on net income it distributes currently to its
stockholders. If the Company fails to qualify as a REIT in any taxable year, it
will be subject to federal income tax at regular corporate rates, which would
adversely affect its funds from operations and its ability to make expected
distributions to its stockholders and could preclude the Company from
qualifying as a REIT for subsequent taxable years. See "Federal Income Tax
Considerations" and "Risk Factors--Failure to Qualify as a REIT Would Cause the
Company to Be Taxed as a Regular Corporation". Even if the Company qualifies
for taxation as a REIT, the Company may be subject to certain federal, state
and local taxes on its income and property.
COMPANY INFORMATION
The Company was incorporated under the laws of the State of Maryland in
1992. The Company's principal executive offices are located at 777 17th Street,
Penthouse, Miami Beach, Florida 33139, and its telephone number is (305)
538-5488.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company ..................... 3,700,000 shares(1)
Common Stock offered by the Selling Stockholder ......... 1,663,032 shares
Shares outstanding after the Offering ................... 10,901,560 shares(1)(2)
Use of Proceeds ......................................... The net proceeds will be used for the
repayment of the Mortgage Indebtedness,
the Performing Supermarket Center
Acquisitions, the Renovation and
Development of Existing Properties, the
Redevelopment of Sky Lake and Other
Acquisitions. See "Use of Proceeds".
Risks of Offering ....................................... See "Risk Factors", beginning on page 17.
New York Stock Exchange symbol .......................... "EQY"
</TABLE>
- ----------------
(1) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting".
(2) Includes 293,430 shares of Common Stock issuable to the Selling Stockholder
upon exercise of oustanding Series C Warrants. Does not include as of
December 31, 1997 an aggregate of (i) 1,000,000 shares of Common Stock
reserved for issuance upon exercise of stock options granted under the
Company's 1995 Plan, pursuant to which options to purchase 664,000 shares
of Common Stock have been granted, (ii) 580,288 shares of Common Stock
reserved for issuance to an affiliate of the Company pursuant to a stock
purchase agreement, and (iii) 1,012,694 shares of Common Stock reserved
for issuance upon exercise of outstanding Series C Warrants, other than
the Series C Warrants to be exercised by the Selling Stockholder. See
"Management--Stock Option Plan" and "Certain Transactions".
14
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE DATA)
The summary consolidated financial data and balance sheet data set forth
below have been derived from the consolidated financial statements of the
Company, including the consolidated financial statements for the years ended
December 31, 1995, 1996 and 1997 contained elsewhere herein. The consolidated
financial statements as of and for the years ended December 31, 1993, 1994,
1995, 1996 and 1997 have been audited by Deloitte & Touche LLP, independent
auditors. The data set forth below should be read in conjunction with the
consolidated financial statements and related notes, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
The unaudited pro forma consolidated balance sheet data as of December 31,
1997 set forth below is presented as if the Pro Forma Adjustments (as defined
herein) had occurred on December 31, 1997. The unaudited pro forma consolidated
statement of operations data for the year ended December 31, 1997 are presented
as if the Pro Forma Adjustments and the acquisitions of Sky Lake and Monument
Pointe Shopping Center ("Monument Pointe"), had occurred on January 1, 1997.
The pro forma consolidated financial data should be read in conjunction with
the Company's pro forma consolidated financial statements and related notes and
historical consolidated financial statements and related notes included
elsewhere in this Prospectus. The pro forma consolidated financial data does
not purport to represent the Company's actual financial position as of December
31, 1997 had the Pro Forma Adjustments occurred on December 31, 1997, or the
actual results of operations for the year ended December 31, 1997 had the Pro
Forma Adjustments and the acquisitions of Sky Lake and Monument Pointe occurred
on January 1, 1997, or to project the Company's financial position or results
of operations as of any future date or for any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
PRO FORMA HISTORICAL
----------- -----------------------------------------------------------------
1997 1997 1996 1995 1994 1993
----------- ------------ ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues .......................... $ 23,638 $ 20,545 $ 16,714 $ 11,348 $6,198 $ 2,070
Operating expenses ...................... 6,397 5,693 4,832 3,293 2,236 665
Depreciation and amortization ........... 2,850 2,392 2,067 1,496 996 298
Interest ................................ 5,147 5,681 5,380 3,498 2,099 734
General and administrative expenses ..... 731 581 515 549 504 324
-------- -------- -------- -------- ------ -------
Total expenses ........................ 15,125 14,347 12,794 8,836 5,835 2,021
-------- -------- -------- -------- ------ -------
Net income .............................. $ 8,513 $ 6,198 $ 3,920 $ 2,512 $ 233(2) $ 49
======== ======== ======== ======== ======== =======
Basic earnings per share(1) ............. $ 0.80 $ 0.96 $ 0.79 $ 0.56 $ 0.07 $ 0.03
======== ======== ======== ======== ======== =======
Diluted earnings per share (1) .......... $ 0.76 $ 0.87 $ 0.69 $ 0.47 $ 0.07 $ 0.03
======== ======== ======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA DECEMBER 31,
----------- --------------------------------------------------------
1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total rental properties, before accumulated
depreciation ............................. $153,614 $126,441 $106,706 $92,770 $52,047 $22,491
Total assets .............................. 153,847 126,903 111,822 94,470 63,644 28,526
Mortgage notes payable .................... 54,079 71,004 66,831 60,583 32,690 15,543
Total liabilities ......................... 56,398 73,323 68,727 64,331 33,846 15,922
Stockholders' equity ...................... 97,449 53,580 43,095 29,139 28,798 12,604
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
PRO FORMA HISTORICAL
----------- ------------------------------------------------------------
1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds From Operations(3) .................. $ 11,488 $ 8,220 $ 6,136 $ 3,973 $ 1,308 $ 347
Ratio of earnings to fixed charges(4) ..... 2.65 2.09 1.73 1.72 1.11 1.07
Cash flows from:
Operating activities(5) .................. 11,363 8,843 6,680 3,469 2,433 (289)
Investing activities(6) .................. (22,334) (6,173) (18,277) (37,211) (29,755) (20,414)
Financing activities(7) .................. (12,311) (2,023) 12,778 27,441 32,726 20,671
Gross leasable area (square feet)
(at end of period) ....................... -- 2,004 1,807 1,670 1,003 583
Occupancy (at end of period) .............. -- 93% 91% 90% 80% 60%
</TABLE>
- ----------------
(1) Calculated in accordance with SFAS No. 128.
(2) Represents net income after income tax expense of $130.
(3) In March 1995, the National Association of Real Estate Investment Trusts
("NAREIT") adopted the NAREIT White Paper on Funds from Operations (the
"White Paper") which provided additional guidance on the calculation of
funds from operations. The White Paper defines funds from operations as
net income (loss) (computed in accordance with generally accepted
accounting principles ("GAAP")), excluding gains (or losses) from debt
restructuring and sales of property, plus real estate related depreciation
and amortization and after adjustments for unconsolidated partnerships and
joint ventures ("FFO"). Management believes FFO is helpful to investors as
a measure of the performance of an equity REIT because, along with cash
flows from operating activities, financing activities and investing
activities, it provides investors with an understanding of the ability of
the Company to incur and service debt and make capital expenditures. The
Company computes FFO in accordance with standards established by the White
Paper, which may differ from the methodology for calculating FFO utilized
by other equity REITs, and, accordingly, may not be comparable to such
other REITs. Further, FFO does not represent amounts available for
management's discretionary use because of needed capital replacement or
expansion, debt service obligations, or other commitments and
uncertainties. The Company believes that in order to facilitate a clear
understanding of the consolidated historical operating results of the
Company, FFO should be examined in conjunction with the income (loss) as
presented in the audited consolidated financial statements and information
included elsewhere in this Prospectus. FFO should not be considered as an
alternative to net income (determined in accordance with GAAP) as an
indication of the Company's financial performance or to cash flows from
operating activities (determined in accordance with GAAP) as a measure of
the Company's liquidity, nor is it indicative of funds available to fund
the Company's cash needs, including its ability to make distributions. See
"Distribution Policy". FFO is derived from pro forma and historical net
income (loss) as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
PRO FORMA HISTORICAL
----------- -----------------------------------------------
1997 1997 1996 1995 1994 1993
----------- --------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) ............................ $ 8,513 $6,198 $3,920 $2,512 $ 233 $ 49
Add:
Real estate depreciation and amortization .. 2,836 2,378 2,037 1,461 945 298
Non-recurring items(*) ..................... 139 (356) 179 -- 130 --
FFO .......................................... $11,488 $8,220 $6,136 $3,973 $1,308 $347
</TABLE>
- ----------------
(*) Reflects pre-payment penalties, write-offs of unamortized loan costs
related to repayment of debt, lease termination fees and income tax
expense as non-recurring.
(4) For the purposes of calculating the ratio of earnings to fixed charges,
earnings include pre-tax income plus interest expense, amortization of
interest previously capitalized, and amortization of financing costs.
Fixed charges include all interest costs consisting of interest expense,
interest capitalized, and amortization of financing costs.
(5) Pro forma cash flow from operating activities represents pro forma net
income plus depreciation and amortization. The pro forma amounts do not
include the results from changes in working capital resulting from changes
in current assets and current liabilities, or other changes.
(6) Pro forma cash flow used in investing activities represents estimated
capital expenditures for the four quarters subsequent to the Offering from
proceeds of the Offering.
(7) Pro forma cash flow used in financing activities represents estimated
mortgage loan principal payments and estimated dividends and distributions
(based upon an initial annual distribution of $1.00 per share) for the
four quarters subsequent to the Offering.
16
<PAGE>
RISK FACTORS
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK, INCLUDING THE
RISKS DESCRIBED BELOW. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
SPECIFIC FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS, BEFORE DECIDING TO INVEST IN THE COMMON STOCK OFFERED HEREBY.
THIS PROSPECTUS CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS" WHICH
REPRESENT THE COMPANY'S EXPECTATIONS OR BELIEFS, INCLUDING, BUT NOT LIMITED TO,
STATEMENTS CONCERNING INDUSTRY PERFORMANCE, THE COMPANY'S OPERATIONS,
PERFORMANCE, FINANCIAL CONDITION, PLANS, GROWTH AND STRATEGIES. FOR THIS
PURPOSE, ANY STATEMENTS CONTAINED IN THIS PROSPECTUS THAT ARE NOT STATEMENTS OF
HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, WORDS SUCH AS "MAY", "WILL",
"EXPECT", "ANTICIPATE", "INTEND", "COULD", "ESTIMATE" OR "CONTINUE" OR THE
NEGATIVE OR OTHER VARIATIONS THEREOF OR COMPARABLE TERMINOLOGY ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS BY THEIR NATURE INVOLVE
SUBSTANTIAL RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND THE COMPANY'S
CONTROL, AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY OF
IMPORTANT FACTORS, INCLUDING THOSE DESCRIBED BELOW UNDER THIS "RISK FACTORS"
SECTION AND ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY IS DEPENDENT UPON CERTAIN KEY TENANTS
ADVERSE DEVELOPMENTS IN THE BUSINESS OF WINN-DIXIE OR PUBLIX COULD HAVE A
NEGATIVE IMPACT ON THE COMPANY
As of December 31, 1997, 308,864 square feet and 118,110 square feet, or
15.4% and 5.9% of the aggregate GLA owned by the Company, were leased to
Winn-Dixie and Publix, respectively, and these leases represented approximately
$1.9 million and $600,000, or 11.9% and 3.6%, respectively, of the aggregate
annualized minimum rental revenues from the Existing Properties. Further,
Winn-Dixie leases space at Lantana Village, acquired by the Company in January
1998, representing $293,000 of annualized minimum rent, and Summerlin Square,
which the Company has a contract to acquire, representing $262,000 of
annualized minimum rent, and has agreed to lease expanded space at Commonwealth
representing $144,000 of annualized minimum rent. Moreover, Publix has agreed
to lease space at Sky Lake representing $635,000 of annualized minimum rent.
The Company's financial condition, results of operations, liquidity, FFO
and its ability to make expected distributions to stockholders could be
adversely affected in the event of the bankruptcy or insolvency of, or a
downturn in the business of, Winn-Dixie, Publix or any other Anchor Tenant such
as, General Cinemas or Eckerd, or in the event that any of such tenants is
unable to pay its rent as it becomes due or does not renew its lease as it
expires or renews at lower rental rates. Tenants may seek the protection of the
bankruptcy laws, which could result in the rejection and termination of their
leases, or a continuation of their leases on less advantageous terms. No
assurance can be given that any Anchor Tenants (or other tenants) will not file
for bankruptcy protection in the future, or if they file, that they will affirm
their leases and continue to make rental payments in a timely manner.
ANCHOR TENANTS ARE CENTRAL TO THE FINANCIAL SUCCESS OF THE COMPANY'S
SUPERMARKET CENTERS
Shopping centers generally rely on Anchor Tenants to attract customers to
the centers. Vacated Anchor Tenant space reduces rental revenues if not
re-rented promptly at the same rental rates and, even when the tenant continues
to make rental payments, tends to adversely affect the entire shopping center
because of the loss of the departed Anchor Tenant's power to draw customers to
the center. No assurances can be given that existing Anchor Tenants will renew
their leases as they expire or will not vacate their space prior to expiration.
The closing of one or more stores occupied by Anchor Tenants or lease
terminations by one or more Anchor Tenants could adversely affect that property
and result in lease terminations or rent reductions by other tenants whose
leases may permit termination or rent reduction in such circumstances. Each of
these developments could adversely affect the Company's financial condition,
results of operations, liquidity, FFO and its ability to make expected
distributions to stockholders. In three instances, drug store Anchor Tenants
have vacated their leased space; Eckerd has
17
<PAGE>
vacated its leased space at Pointe Royale and West Lake, and Walgreens has
vacated its leased space at Atlantic Village. These leases represented
approximately $300,000 and $372,000 of the Company's revenues for the year
ended December 31, 1996 and 1997, respectively. Although these tenants have
vacated their respective leased space, each tenant has continued to pay rent in
accordance with the terms of its lease. See "--Reliance on Tenants in Certain
Industries", "--The Company is Subject to Risks Involving Litigation with
Albertsons", "Business--Additional Information Concerning the Existing
Properties", and "Business--Legal Proceedings".
IMPORTANT TENANTS ARE CONCENTRATED IN CERTAIN INDUSTRIES
As of December 31, 1997, 606,191 square feet and 108,669 square feet, or
30.2% and 5.4% of the aggregate GLA owned by the Company was leased to Anchor
Tenants who are supermarkets and drugstores, respectively, and these leases
represented $3.6 million and $900,000, or 22.9% and 5.9%, respectively, of the
aggregate annualized minimum rental revenues from the Existing Properties. The
Company's financial condition, results of operations, liquidity, FFO and its
ability to make expected distributions to stockholders could be adversely
affected by having a tenant base concentrated in these or other industries in
the event that there is an economic downturn in these industries or if there is
a change in the manner in which these industries conduct business. For example,
it has recently become more common for drugstores to seek to rent freestanding
structures instead of space within shopping centers. During the last year,
before the expiration of its leases, Eckerd, a drugstore chain Anchor Tenant,
vacated the premises of two sites which it leased from the Company, and on
which it continues to make rental payments, in favor of nearby freestanding
structures. Eckerd presently leases and continues to occupy 3.0% of the
aggregate GLA owned by the Company, representing approximately 3.3% of the
aggregate annualized minimum rental revenues from Existing Properties at
December 31, 1997. Walgreens, another drugstore chain Anchor Tenant, has also
vacated its leased space in Atlantic Village to locate to nearby free standing
space.
GEOGRAPHIC CONCENTRATION OF THE COMPANY'S PROPERTIES CREATES A RISK OF A
NEGATIVE IMPACT AS A RESULT OF ECONOMIC DOWNTURNS IN SUCH AREAS
The Existing Properties are located exclusively in Florida and Texas.
Approximately 84.1% of the Existing Properties (based on GLA) are located in
Florida and represented $14.2 million, or 89.5%, of annual minimum rental
revenues as of December 31, 1997. The Company's performance may therefore be
linked to economic conditions and especially the market for Supermarket Centers
in Florida. A decline in the economy in this market may adversely affect the
Company's financial condition, results of operations, liquidity, FFO and its
ability to make expected distributions to stockholders.
THE COMPANY WILL BE SUBJECT TO RISKS ASSOCIATED WITH ITS ENTRY INTO NEW MARKETS
Although the Company is seeking additional properties and sites in its
primary markets, it will also seek to locate properties in other areas with
similar demographic characteristics throughout the Southeast. In seeking
investment opportunities in other areas of the Southeast, the Company will not
initially possess the same level of familiarity as it possesses with respect to
its current markets, which could adversely affect its ability to acquire,
develop, manage or lease properties in new markets.
THE COMPANY IS SUBJECT TO RISKS ASSOCIATED WITH CONSTRUCTION AND DEVELOPMENT
ACTIVITIES
THE COMPANY'S INEXPERIENCE IN CONSTRUCTION AND DEVELOPMENT COULD ADVERSELY
AFFECT THE COMPANY'S FINANCIAL CONDITION
Until recently, the Company's growth strategy has focused primarily on the
acquisition and renovation of existing Supermarket Centers. In light of
changing market conditions, the Company plans to develop vacant land and
redevelop certain existing properties. See "Summary--Business and Growth
Strategies", "--Properties--Redevelopment and Development Properties" and "Use
of Proceeds". The Company has not developed any new Supermarket Centers,
although its management has undertaken
18
<PAGE>
and completed renovation, expansion and redevelopment projects with respect to
certain of the Existing Properties, including (i) completion of renovation
projects in connection with retenanting activities at substantially all of the
Existing Properties, (ii) expansion of the space leased by Winn-Dixie at Fort
Caroline by 7,200 square feet and (iii) redevelopment of the Equity One Office
Building, Diana Building and Parker Towne. The Company has recently hired a
licensed architect and general contractor to head its development department
and is in the process of retaining at least one additional full-time employee
to support its construction and development operations. See "Management". The
Company's relative inexperience in these activities may make it more difficult
for it to develop and redevelop Supermarket Centers successfully.
CONSTRUCTION COSTS AND OTHER CONTINGENCIES COULD AFFECT THE COMPANY'S
PERFORMANCE
The Company intends to pursue development activities as opportunities
arise. Such activities may include expanding and/or renovating properties or
developing new sites. See "Business-Business and Growth Strategies". Expansion,
renovation and development projects generally require expenditures of capital,
as well as various governmental and other approvals, which the Company may not
be able to obtain, or may only obtain after delay and at substantial costs.
While policies with respect to expansion, renovation and development activities
are intended to limit some of the risks otherwise associated with such
activities, such as initiating construction only after securing commitments
from Anchor Tenants, the Company will nevertheless be subject to risks that
construction costs of a property may exceed original estimates, possibly making
the property uneconomical; occupancy rates and rents at a newly completed
property may not be sufficient to make the property profitable; construction
and permanent financing may not be available on favorable terms for
development; and construction and lease-up may not be completed on schedule,
resulting in increased debt service expense and construction costs.
THE COMPANY RELIES ON KEY PERSONNEL WHO CONDUCT OTHER BUSINESS ACTIVITIES
The Company's ability to successfully execute its acquisition and growth
strategy depends to a significant degree upon the continued contributions of
Chaim Katzman, the Company's Chairman of the Board, President and Chief
Executive Officer, and Doron Valero, the Company's Executive Vice President and
Chief Operating Officer. Pursuant to Mr. Katzman's employment agreement with
the Company, Mr. Katzman is only required to devote so much of his business
time, attention, skill and efforts as shall be required for the faithful
performance of his duties. The loss of the services of either Mr. Katzman or
Mr. Valero could have a material adverse effect on the Company's financial
condition, results of operations, liquidity, FFO and its ability to make
expected distributions to stockholders. Neither Mr. Katzman nor Mr. Valero is a
citizen of the United States. Although Mr. Katzman and Mr. Valero each have
resident alien cards, there can be no assurance that changes in the immigration
laws or policies of the Immigration and Naturalization Service will permit each
of Mr. Katzman and Mr. Valero to remain in the country or continue to work in
the United States. See "--The Company Is Subject to Possible Conflicts of
Interest".
DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATES HAVE THE ABILITY TO CONTROL THE
COMPANY
Management and affiliates of the Company will own 50.4% of the outstanding
Common Stock after the Offering, and the public stockholders ability to
influence the Company is limited by their minority positions, the Company's
organizational documents and Maryland law. The parties who currently control
the Company have agreed to a settlement of litigation which will effectively
result in a transfer of control of the Company to affiliates of Chaim Katzman,
the Company's Chairman of the Board, President and Chief Executive Officer.
Certain portions of the settlement are required to be performed after the
consummation of the Offering. No assurance can be given that such performance
will occur, or of the effect of any non-performance on the Company or control
of the Company. See "Certain Transactions".
Certain stockholders of the Company have entered into agreements to
control the Company following the Offering. Such stockholders will directly and
indirectly own and/or control an aggregate of
19
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48.6% of the issued and outstanding Common Stock of the Company after giving
effect to the Offering. Pursuant to the agreements, the parties have granted an
irrevocable power of attorney (the "Irrevocable Proxy") to Globe Reit, which is
an affiliate of Mr. Katzman, under which Globe Reit has the power to vote all
of the shares of Common Stock owned by the stockholders who are parties to the
Irrevocable Proxy for the election of directors through May 2001. The parties
to these agreements may be deemed a "group" within the meaning of Section 13(d)
of the Exchange Act and may direct the business and affairs of the Company.
There can be no assurance that this group of stockholders will control the
Company in a manner that is favorable to either the Company or the other
stockholders. See "Certain Transactions" and "Principal and Selling
Stockholders".
THE COMPANY IS SUBJECT TO POSSIBLE CONFLICTS OF INTEREST
Pursuant to his employment agreement with the Company, Mr. Katzman is only
required to devote so much of his business time, attention, skill and efforts
as shall be required for the faithful performance of his duties. Presently, his
significant other activities consist primarily of serving as the President and
Chief Executive Officer of Gazit, a public company whose securities are traded
on the Tel Aviv Stock Exchange and whose primary activity is its substantial
investment in the Company. Mr. Katzman intends to continue to focus his primary
business activities on the Company and, accordingly, devotes substantially all
of his time to the affairs of the Company. Mr. Katzman currently also invests
in and serves as the non-executive chairman of the board of real estate
companies whose holdings include commercial properties in Canada and Israel and
may have other interests in the future. Mr. Valero currently serves as the
President and director of, or has an ownership interest in, several entities
which own apartment properties in Florida. Although the Company does not
currently engage in activities outside the United States or acquire residential
properties, no assurance can be given that it will not do so in the future or
that its interests will not conflict with those of Messrs. Katzman or Valero.
REIT DISTRIBUTION REQUIREMENTS AND THE COMPANY'S FINANCIAL CONDITION WILL
AFFECT THE AMOUNT OF DISTRIBUTIONS TO STOCKHOLDERS
The Code requires a REIT to annually distribute to its stockholders 95.0%
of its taxable income (excluding capital gains). Subject to this requirement,
the amount of distributions by the Company will be dependent on a number of
other factors, including the Company's financial condition, results of
operations and cash flows, which in turn will be influenced by new investments
in properties, debt service, capital expenditures and construction and
development activities.
Distributions by the Company to its stockholders will be based principally
on Cash Available for Distribution, and for the 12-months following the
Offering are expected to be 91.5% of Cash Available for Distribution (98.2% if
the Underwriters' over-allotment option is exercised in full). See
"Distribution Policy". Subject to changes in expenses, debt service and capital
requirements, increases in base rent from the Existing Properties and rents
from other properties owned or acquired by the Company in the future should
increase Cash Available for Distribution, while decreases in or cessations of
rents should decrease Cash Available for Distribution. Any such failure to make
expected distributions could result in a decrease in the market price of the
Common Stock.
ESTIMATED INITIAL CASH AVAILABLE FOR DISTRIBUTION MAY NOT BE SUFFICIENT TO MAKE
DISTRIBUTIONS AT EXPECTED LEVELS
The Company's estimated initial annual distributions represent 91.5% of
the Company's estimated initial Cash Available for Distribution for the 12
months ending March 31, 1999 (98.2% if the over-allotment option granted to the
Underwriters is exercised in full). Accordingly, the Company may not be able to
make its estimated initial distribution of $1.00 per share to stockholders out
of Cash Available for Distribution as calculated under "Distribution Policy"
below. Under such circumstances, the Company could be required to fund
distributions through borrowings under available lines of credit (if any), or
to reduce the amount of such distribution. Pending investment of the net
proceeds and the production of income therefrom or in the event the
Underwriters' over-allotment option is exercised,
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the Company's ability to pay such distribution out of Cash Available for
Distribution may be further adversely affected. See "--REIT Distribution
Requirements and the Company's Financial Condition Will Affect the Amount of
Distributions to Stockholders".
THE COMPANY IS SUBJECT TO RISKS ASSOCIATED WITH THE REAL ESTATE INDUSTRY
THE VALUE OF THE COMPANY'S PROPERTIES IS AFFECTED BY NUMEROUS FACTORS
Real estate values are affected by a number of factors, including changes
in the general economic climate, local conditions (such as an over-supply of
space or a reduction in demand for real estate in an area), the quality and
policies of management, competition from other properties, the ability of the
owner to provide adequate maintenance and insurance, and variable operating
costs. Shopping centers, in particular, may be affected by changing perceptions
of retailers or shoppers of the safety, convenience and attractiveness of the
shopping center. Real estate values are also affected by such factors as
governmental regulations, interest rate levels, the availability of financing
and potential liability under and changes in environmental, zoning, tax and
other laws. Because substantially all of the Company's income and FFO will be
derived from rental income from real property, the Company's financial
condition, results of operations, liquidity, FFO and its ability to make
expected distributions to stockholders would be adversely affected if a number
of the Company's tenants were unable to meet their obligations to the Company,
or if the Company were unable to lease a significant amount of space in its
properties on economically favorable terms. In the event of a default by a
tenant, the Company may experience delays in enforcing, and incur substantial
costs to enforce, its rights as landlord. As a result of the above, or other
factors, including the cyclical nature of real estate markets, the value of the
Company's properties could decrease.
LEASE EXPIRATIONS AND UNLEASED SPACE COULD ADVERSELY AFFECT THE COMPANY'S
PERFORMANCE
The ability of the Company to rent unleased or vacated space will be
affected by many factors, including covenants found in certain leases with
tenants restricting the use of other space at a property. Of the leases for the
Existing Properties at December 31, 1997, leases covering 188,624 square feet,
118,641 square feet and 181,613 square feet (representing 10.7%, 6.7% and
10.2%, respectively, of the total occupied GLA), will expire in 1998, 1999 and
2000, respectively. Based upon existing annualized minimum rental revenue, such
leases will represent $2.0 million, $1.4 million and $1.8 million of the
Company's annualized minimum rental revenue for the years ended December 31,
1998, 1999 and 2000, respectively. No Anchor Tenant lease expires before 2004.
If the Company is able to re-let vacated space, there is no assurance that
rental rates will be equal to or in excess of current rental rates. In
addition, the Company may incur substantial costs in obtaining new tenants,
including Leasing Commissions, and the cost of making Tenant Improvements or
repairs required by a new tenant.
ALL EXISTING PROPERTIES ARE, AND FUTURE PROPERTIES ARE EXPECTED TO BE, SUBJECT
TO COMPETITION
All of the Company's Supermarket Centers are located in developed areas
that include other Supermarket Centers. The number of retail properties in a
particular area could materially adversely affect the Company's ability to
lease vacant space and maintain the rents charged at the Supermarket Centers or
at any newly acquired property or properties. One shopping center constructed
less than two years ago stands within a two-mile radius of Bird Ludlum. In
addition, several smaller and older strip centers are located along Bird Road
in Miami. Lake Mary is located on a retail thoroughfare which includes direct
and proximate competition from a freestanding Home Depot, a Target store and
two shopping centers anchored by Winn-Dixie and Publix, respectively. West Lake
and Four Corners each competes with nearby shopping centers anchored by
supermarkets. Pointe Royale is proximate to Cutler Ridge Mall and a
Publix-anchored shopping center. Freestanding retailers such as Circuit City
and Toys R' Us located within one mile of Point Royale compete directly with
tenants in such Supermarket Center. In addition, there are several strip
shopping centers in the vicinity. The Company's other properties are subject to
similar competition. Retailers at the Existing Properties face increasing
competition from outlet malls, discount shopping clubs, direct mail and
telemarketing sales.
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The Company has determined that competitive factors have made it less
likely that the Company will be able to achieve its growth objectives
exclusively through acquisitions and that it will need to develop or redevelop
properties to achieve these objectives. There can be no assurance that it will
be able to do so successfully. There can be no assurance that the Company will
be able to acquire suitable properties and tenants for its properties in the
future or that such properties will be profitable. See "Business--Competition".
THE COMPANY FACES COMPETITION FROM LARGER, WELL-FUNDED DEVELOPERS WHO ARE ALSO
SEEKING TO ACQUIRE AND DEVELOP PROPERTIES WITHIN THE TARGET MARKETS
There are numerous commercial developers, real estate companies, including
REITs such as Regency Realty Corp. and Excel Realty Trust, and other owners of
real estate in the areas in which the Existing Properties are located,
including financial institutions, pension funds and private owners, that
compete with the Company in seeking land for development, properties for
acquisition, financing and tenants. Many of such competitors have substantially
greater resources than the Company. Such competition may reduce the number of
suitable development and redevelopment properties and increase the bargaining
position of the owners of those properties.
THE ILLIQUIDITY OF REAL ESTATE INVESTMENTS COULD ADVERSELY AFFECT THE COMPANY'S
FINANCIAL CONDITION
Equity real estate investments are relatively illiquid and therefore tend
to limit the ability of the Company to vary its portfolio promptly in response
to changes in economic or other conditions. The Existing Properties are
primarily Supermarket Centers. The Company has no present intention to vary the
types of real estate in its portfolio.
FIXED COSTS DO NOT VARY WITH REVENUES
Certain significant expenditures associated with properties (such as
mortgage payments, real estate taxes and maintenance costs) are generally not
reduced when circumstances cause a reduction in income from the property.
Should such circumstances occur, they would adversely affect the Company's
financial condition, results of operations, liquidity, FFO and its ability to
pay expected distributions to stockholders. The Company may be unable to
increase revenues to the same extent that its fixed costs increase.
FAILURE TO QUALIFY AS A REIT WOULD CAUSE THE COMPANY TO BE TAXED AS A REGULAR
CORPORATION
Although the Company believes that it has operated so as to qualify as a
REIT under the Code since its REIT election in 1995, no assurance can be given
that the Company has qualified or will remain qualified as a REIT. In addition,
no assurance can be given that legislation, new regulations, administrative
interpretations or court decisions will not significantly change the tax laws
with respect to qualification as a REIT or the federal income tax consequences
of such qualification. Qualification as a REIT involves the application of
highly technical and complex Code provisions for which there are only limited
judicial and administrative interpretations. The determination of various
factual matters and circumstances not entirely within the Company's control may
affect the Company's ability to qualify as a REIT. For example, in order to
qualify as a REIT, at least 95.0% of the Company's gross income in any year
must be derived from qualifying sources and the Company must make distributions
to stockholders aggregating annually at least 95.0% of its REIT taxable income
(excluding capital gains). The Company intends to make distributions to its
stockholders to comply with the distribution provisions of the Code. Although
the Company anticipates that its cash flows from operating activities and FFO
will be sufficient to enable it to meet distribution requirements, no
assurances can be given in this regard.
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates, and
would not be allowed a deduction in computing its taxable income for amounts
distributed to its stockholders. Moreover, unless entitled to relief under
certain statutory
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provisions, the Company also would be ineligible for qualification as a REIT
for the four taxable years following the year during which qualification was
lost. Such disqualification would reduce the net earnings of the Company
available for investment or distribution to its stockholders due to the
additional tax liability of the Company for the years involved. See "Federal
Income Tax Considerations--Failure to Qualify for Taxation as a REIT".
COSTS OF COMPLIANCE WITH LAWS COULD HAVE AN ADVERSE EFFECT ON THE COMPANY
LIABILITY FOR ENVIRONMENTAL MATTERS COULD ADVERSELY AFFECT THE COMPANY
Under various federal, state and local laws, ordinances and regulations
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act, as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("CERCLA"), Chapter 403 of the Florida Statutes,
the Florida Dry Cleaning Contamination Clean-Up Act and the Dade County
(Florida) Pollution Protection Ordinance, an owner or operator of real estate
may be required to investigate and clean up hazardous or toxic substances or
petroleum product releases at such property and may be held liable to a
governmental entity or to third parties for property damage and for
investigation and clean-up costs incurred by such parties in connection with
contamination. Many of such laws, including CERCLA, typically impose liability
without regard for whether the owner knew of, or was responsible for, the
presence of such hazardous or toxic substances and the liability under such
laws has been interpreted to be joint and several unless divisible and there is
a reasonable basis for allocation of responsibility. The cost of investigation,
remediation or removal of such substances may be substantial, and the presence
of such substances, or the failure to properly remediate such substances, may
adversely affect the owner's ability to sell or rent such property or to borrow
using such property as collateral. In connection with the ownership (direct or
indirect), operation, management and development of real properties, the
Company is generally considered an owner or operator of such properties or as
having arranged for the disposal or treatment of hazardous or toxic substances
and, therefore, potentially liable for removal or remediation costs, as well as
certain other related costs, including governmental fines and damages for
injuries to persons and property.
The Company believes that the environmental studies conducted to date have
not revealed significant environmental liabilities that would have a material
adverse effect on the Company's financial condition, results of operations,
liquidity and FFO; however, no assurance can be given that environmental
studies obtained by the Company reveal all environmental liabilities, that any
prior owner of land or a property owned or acquired by the Company did not
create any material environmental condition not known to the Company, or that a
material environmental condition does not otherwise exist (or may not exist in
the future). Tenants at the Existing Properties include plant-on-premises dry
cleaners, gasoline service stations and tire centers, photo development firms
and other retailers which use hazardous substances in their businesses.
Although leases with such tenants contain provisions intended to minimize the
environmental risks and to shift the financial risks to the tenants, there is
no assurance that the Company will not incur liability in this regard.
A limited monitoring program with respect to groundwater testing has been
implemented at Plaza Del Rey based on questions raised by environmental studies
conducted at the time of purchase. Groundwater impacts have also been detected
at Atlantic Village, which is located in an area where a former municipal
landfill was operated. Buried refuse consistent with known landfill parameters
has been identified by the Company's consultants on the Atlantic Village site.
While these sites are not regarded by management as significant environmental
risks, if a material environmental condition does in fact exist (or exists in
the future) at these or other properties, it could have a significant adverse
impact upon the Company's financial condition, results of operations, liquidity
and FFO. No assurance can be given that the environmental studies that were
performed at the properties would disclose all environmental liabilities
thereon, that any prior owner thereof did not create a material environmental
condition not known to the Company or that a material environmental condition
does not otherwise exist as to any of the Existing Properties.
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As noted, tenants at the shopping centers include plant-on-premisis dry
cleaners. As a result of environmental site assessments conducted in the past
few months, low levels of perchloroethylene have been detected in soils at the
Commonwealth, Fort Caroline and Eustis Square properties. The Company
understands that the owners of these cleaners are applying to participate in
state funded dry cleaner's programs. In connection with the Company's
acquisition of Sky Lake, a Phase II Environmental Site Assessment dated July
15, 1997 revealed the existence of perchloroethylene at levels above regulatory
limits caused by a dry cleaning business operated on the premises. The Company
has learned that this site is included in the Florida Dry Cleaners State
Program. As a condition to the Company's purchase of the property, the seller
agreed to pay all remediation costs, which environmental consultants have
estimated will approximate $250,000. In addition, $500,000 was placed into an
escrow account at closing to pay for the remediation. Based on the remediation
cost estimates, guarantees by the seller to pay for the cleanup and the
establishment of the escrow account, the Company has concluded that the
property does not pose a material liability to the Company. See
"Business--Environmental Matters".
COMPLIANCE WITH LOCAL BUILDING CODES AND ORDINANCES COULD ADVERSELY AFFECT THE
COMPANY
In developing a project, the Company must obtain the approval of various
state and local government authorities such as county and municipal commissions
regarding land use and building permits, the State Department of Transportation
regarding driveway access, and county water and sewer authorities regulating
water use, waste disposal, and drainage permits on the Existing Properties.
Several local authorities in Florida have imposed impact fees as a means of
defraying the cost of providing certain governmental services to developing
areas and the amount of these fees has increased significantly during recent
years. Other Florida laws require the use of specific construction materials
which reduce the need for energy-consuming heating and cooling systems. In
addition, Broward and Palm Beach counties, adjacent to Miami-Dade County, have
attempted to impose restrictive zoning and density requirements in order to
limit the number of persons who live and work within their boundaries. As a
result of Hurricane Andrew, which struck Southern Florida in August 1992,
Miami-Dade and Broward counties in Florida enacted stringent building codes,
such as the South Florida Building Code, which have increased costs of
construction. The State of Florida has also, at times, declared moratoriums on
the issuance of building permits and imposed other restrictions in areas where
the infrastructure does not reach minimum standards. Other states and
localities in which the Company seeks to develop projects may have similar or
other government regulations. There is no assurance that these and other
restrictions will not adversely affect the Company in the future.
The ability of the Company to obtain necessary approvals and permits for
projects is often beyond the Company's control, and could restrict or prevent
the development of otherwise desirable property. The period of time necessary
to obtain permits and approvals increases the carrying costs of unimproved
property acquired for the purpose of development and construction. In addition,
the continued effectiveness of permits already granted is subject to factors
such as changes in policies, rules and regulations and their interpretation and
application.
Certain employees of the Company are required to maintain certain real
estate and mortgage brokers licenses in order for the Company to manage
properties and receive certain commissions. Changes in the requirements for
maintaining these licenses or failure of such employees to qualify for such
licenses could have an adverse affect on the Company.
THE COST OF COMPLYING WITH THE AMERICANS WITH DISABILITIES ACT COULD ADVERSELY
AFFECT THE COMPANY
Under the ADA, places of public accommodation or commercial facilities are
required to meet certain federal requirements related to access and use by
disabled persons. These requirements became effective after January 1, 1991.
Although management of the Company believes that the Existing Properties are
substantially in compliance with the present requirements of the ADA, the
Company may incur additional costs in connection with such compliance in the
future. Also, a number of additional federal, state and local laws and
regulations exist that may require modifications to the Company's properties,
or affect certain future renovations thereof, with respect to access by
disabled
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persons. Non-compliance with the ADA could result in the imposition of fines,
an award of damages to private litigants, or an order to correct any
non-complying feature. Under certain of the Company's leases, the tenant is
responsible for ensuring that the property complies with all laws and
regulations, including the ADA. Notwithstanding the foregoing, the Company may
be required to make substantial capital expenditures to comply with this law.
In addition, provisions of the ADA may impose limitations or restrictions on
the completion of certain renovations and thus may limit the overall returns on
the Company's investments.
THE COMPANY'S USE OF DEBT, REFINANCING NEEDS, INCREASES IN INTEREST RATES AND
AN ABSENCE OF A LIMITATION ON DEBT COULD ADVERSELY AFFECT THE COMPANY
The Company will be subject to the risks normally associated with debt
financing, including the risk that the Company's cash flow will be insufficient
to meet required payments of principal and interest, and the risk that
indebtedness on its properties will not be refinanced at maturity or that the
terms of such refinancing will not be as favorable as the terms of such
indebtedness. Most of the Company's existing mortgage indebtedness has an
amortization schedule which results in substantial payments being due at
maturity. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Indebtedness" and Note 5 of Notes to Consolidated
Financial Statements.
If the Company were unable to refinance its indebtedness on acceptable
terms, or at all, the Company might be forced to dispose of one or more of its
properties upon disadvantageous terms, which might result in losses to the
Company and might adversely affect Cash Available for Distribution. If
prevailing interest rates or other factors at the time of refinancing result in
higher interest rates on refinancings, the Company's interest expense would
increase, without a corresponding increase in its rental rates, which would
adversely affect the Company's financial condition, results of operations,
liquidity, FFO and its ability to pay expected distributions to stockholders.
Further, if one of the Company's properties is mortgaged to secure payment of
indebtedness and the Company is unable to meet mortgage payments, or is in
default under the related mortgage or deed of trust, such property could be
transferred to the mortgagee, or the mortgagee could foreclose upon the
property, appoint a receiver and receive an assignment of rents and leases or
pursue other remedies, all with a consequent loss of income and asset value to
the Company. Foreclosure could also create taxable income without accompanying
cash proceeds, thereby hindering the Company's ability to meet the REIT
distribution requirements under the Code.
The Company has received a commitment for the $35.0 million City National
Line of Credit from City National Bank of Florida and BankAtlantic. Borrowings
under the City National Line of Credit will bear interest at 225 basis points
over LIBOR and be due three years after the execution of a definitive loan
agreement. Changes in interest rates on the City National Line of Credit are
unlikely to correspond with changes in rental rates, and the Company has no
present intention to (but may) purchase hedge agreements against interest rate
fluctuations. In addition, the terms of the commitment for the City National
Line of Credit allow the lender to cease funding and/or accelerate maturity of
the City National Line of Credit if neither Mr. Katzman nor Mr. Valero remain
as the executives in control of the Company. The Company is also currently
negotiating a commitment with a certain financial institution for the Additional
Line of Credit, a revolving line of credit of up to $100.0 million to finance
the acquisition, development and redevelopment of properties and for general
corporate purposes. There can be no assurance that the Company will ultimately
obtain the Acquisition Line of Credit or any other line of credit. Nor can there
be any assurance that if the Company does receive the Acquisition Line of
Credit, Mr. Katzman and Mr. Valero will not cease to act as the executives in
control of the Company, which could accelerate the maturity date of and cease
all future financing under the Acquisition Line of Credit. The failure to
obtain, or the loss of, the Acquisition Line of Credit or any other line of
credit would adversely affect the Company's ability to pursue the acquisition
and development and redevelopment of properties. In particular, the success of
the Company's redevelopment of Sky Lake is dependent on the receipt of the
Acquisition Line of Credit or other source of financing in an amount necessary
to complete the redevelopment project. If the Company is unable to secure
financing to complete the Sky Lake redevelopment, the Company may be unable to
recover its initial investment in
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such property. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources".
As of December 31, 1997, the Company had total indebtedness of
approximately $71.0 million, all of which was fixed rate mortgage indebtedness
collateralized by 15 of the Existing Properties. The Company's existing
mortgage indebtedness contains customary terms and conditions typically found
in mortgages including, among others, the requirement to maintain insurance on
the properties, the requirement to preserve and maintain the properties and
restrictions upon the incurrence of liens on the properties and upon changes in
control of the Company See "--Certain Indebtedness of the Company May Prohibit
the Sale of Shares of Common Stock".
Upon consummation of the Offering, the Company's debt as a percentage of
total market capitalization (i.e., the market value of the issued and
outstanding shares of Common Stock, plus total debt) will be approximately
27.0%. The Board of Directors has adopted a policy limiting the Company's
indebtedness to approximately 50.0% of its total market capitalization. The
organizational documents of the Company do not contain any limitation on the
amount or percentage of indebtedness that the Company may incur. The Board of
Directors, without the vote of the Company's stockholders, could alter or
eliminate its current policy on borrowing at any time at its discretion. If
this policy were changed, the Company could become more highly leveraged,
resulting in an increase in debt service costs that could adversely affect the
Company's financial condition, results of operations, liquidity, FFO and its
ability to make expected distributions to its stockholders and an increased
risk of default on the Company's obligations.
THE COMPANY IS SUBJECT TO RISKS INVOLVING LITIGATION WITH ALBERTSONS
On February 26, 1998, Albertsons commenced an action against a subsidiary
of the Company in the Circuit Court for the Eleventh Judicial District in and
for Miami-Dade County, Florida, alleging breach of a letter agreement and
seeking injunctive relief and the payment of damages in excess of $10.0 million
representing lost profits and other damages. This action was commenced in
response to the subsidiary's entering into a lease agreement with Publix for
anchor space at Sky Lake, following unsuccessful negotiations with Albertsons
respecting the lease of such space. On March 18, 1998, the Company filed a
motion to dismiss the complaint based upon various procedural grounds (the
"Motion"). As set forth in the Motion, the subsidiary has asserted that it did
not execute any lease agreement and that although the parties engaged in a
series of negotiations, there was never an offer and acceptance or a "meeting
of the minds" respecting the lease of space at Sky Lake. At a hearing on the
Motion held on March 26, 1998, the court dismissed with prejudice Albertsons'
claim for specific performance upon finding that no written lease existed which
could be specifically enforced. Resolution of the remaining issues raised in the
Motion was deferred until a future date. In the event that the Motion is denied,
the Company intends to defend this action fully and vigorously. Although the
Company believes that it has meritorious defenses to this action, an unfavorable
result in this action could adversely affect the Company's financial condition,
results of operations, liquidity, FFO and the ability to make expected
distributions to stockholders. See "Business--Legal Proceedings". Moreover, even
if the Company prevails in the action, its future relationship with Albertsons
may be damaged, resulting in loss or dimunition of leases with Albertsons and
future opportunities. See "Business--Major Tenants".
MANAGEMENT OF THE COMPANY HAS BROAD DISCRETION IN DETERMINING HOW TO APPLY A
SIGNIFICANT PORTION OF THE PROCEEDS OF THE OFFERING
The Company will have broad discretion as to the application of a
significant portion of net proceeds of the Offering, specifically those
proceeds that have been allocated to redevelopment and development activities.
This amount would be increased to the extent the Underwriters' over-allotment
option is exercised, or to the extent any other proposed use of proceeds
requires less funds or becomes impracticable, and would be decreased to the
extent any of such proposed uses would require more funds than is currently
forecast. An investor will not have the opportunity to evaluate the economic,
financial and other relevant information which will be utilized by the Company
in determining the application of such proceeds and will be dependent on
management's determination how to deploy successfully these proceeds. See "Use
of Proceeds".
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STOCKHOLDER APPROVAL IS NOT REQUIRED TO ENGAGE IN INVESTMENT ACTIVITY
The Company's Board of Directors determines the Company's investment and
financing policies and its policies with respect to certain other activities,
including its debt capitalization, growth, distributions, REIT status, and
investment and operating policies. The Board of Directors has no present
intention to amend or revise these policies. However, the Board of Directors
may do so at any time without a vote of the Company's stockholders. A change in
these policies could adversely affect the Company's financial condition,
results of operations, liquidity, FFO and the Company's ability to make
expected distributions to its stockholders.
CHANGES IN INTEREST RATES COULD ADVERSELY AFFECT THE COMPANY
The market price of the Common Stock will be affected by the annual
distribution rate on the shares of Common Stock. Increasing market interest
rates may lead prospective purchasers of the Common Stock to seek a higher
annual distribution rate from their investments. Such an increase in market
expectations or requirements would likely adversely affect the market price of
the Common Stock. Likewise, increases in interest rates may have the effect of
depressing the value (including the collateral value) of retail properties such
as the Existing Properties.
THE PURCHASERS OF COMMON STOCK WILL EXPERIENCE DILUTION
Purchasers of the Common Stock offered hereby will experience immediate
and significant dilution of $4.75 per share ($4.49 per share if the
Underwriters' over-allotment option is exercised in full) in the net tangible
book value of their shares. See "Dilution".
THE PRICE OF THE COMMON STOCK MAY BE ADVERSELY AFFECTED BY THE LACK OF A PRIOR
MARKET AND FLUCTUATIONS IN THE STOCK MARKET; THE OFFERING PRICE IS NOT BASED
UPON PROPERTY VALUATIONS
Prior to the Offering, there has been no public market for the Common
Stock. Although the Common Stock has been approved for listing on the New York
Stock Exchange, subject to official notice of issuance, there can be no
assurance that an active trading market for the Common Stock will develop or
that, if developed, will be sustained. In connection with the Offering, neither
the Company nor the Underwriters have obtained appraisals or other valuations
of the Company's properties. The initial public offering price of the Common
Stock has been determined by negotiation among the Representatives of the
several Underwriters and the Company and may not reflect the fair market value
of the Company's properties. The Offering price may not be indicative of the
market price for the Common Stock after the Offering. The market price of the
Common Stock could be subject to significant fluctuations in response to the
Company's operating results and other factors. In addition, the stock market in
recent years has experienced extreme price and volume fluctuations that often
have been unrelated or disproportionate to the operating performance of
individual companies. Such fluctuations, and general economic and market
conditions, may adversely affect the market price of the Common Stock. See
"Selected Consolidated Financial Data", "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Underwriting".
THE COMPANY COULD BE ADVERSELY AFFECTED BY DAMAGE TO PROPERTY NOT COVERED BY
INSURANCE
The Company believes that it carries (or causes its tenants to carry)
comprehensive liability, fire, flood, extended coverage and rental loss
insurance with respect to its properties with policy specifications and insured
limits customarily carried for similar properties. The Company believes that
the insurance currently carried on its properties is adequate and in accordance
with industry standards. There are, however, certain types of losses (such as
from hurricanes) which may be or become uninsurable, or the cost of insuring
against such losses may not be economically justifiable. Should an uninsured
loss occur, the Company could lose both its invested capital in and anticipated
revenues from the property, and would continue to be obligated to repay any
recourse mortgage indebtedness on the
27
<PAGE>
property. This risk may be intensified by the fact that most of the Company's
properties are clustered in certain markets, making it likely that a natural
disaster in any such market could affect a number of the Existing Properties.
CERTAIN INDEBTEDNESS OF THE COMPANY MAY BE IN DEFAULT
Certain of the mortgages on the Existing Properties contain prohibitions
on transfers of ownership interests in the mortgagor without the prior written
consent of the lenders, which provisions may have been violated by previous
issuances of Common Stock and may be violated by the Offering. A violation
could serve as a basis for the lenders to accelerate amounts due under the
related mortgages. The Company is currently in the process of obtaining a
clarification, amendment or consent from each of the various lenders under such
mortgages, unless such mortgage is to be repaid by the Company with proceeds of
the Offering. See "Use of Proceeds". The outstanding amounts under the
mortgages on the affected Existing Properties covered by such restrictions on
transfer total approximately $11.0 million, of which approximately $8.0 million
of such mortgages will be repaid with the proceeds of the Offering. In the
event that the requested assurances or consents are not obtained and the
mortgage holders declare defaults under the mortgage documents, the Company
will, if required, prepay the remaining mortgages from existing resources, any
excess Offering proceeds, drawings under the Acquisition Line of Credit, or
other sources of financing. The repayment of these mortgages could, among other
things, affect the Company's ability to make distributions in the anticipated
amounts.
THE COMPANY IS SUSCEPTIBLE TO YEAR 2000 SYSTEM RISK
Computer systems generally record date information in two digit format. As
a result, the year 2000 will be recorded at "00", which may result in an
operating system making errors, failing to properly recognize dates, or
refusing to process data. The Company has retained outside consultants to
ensure that the Company's systems are year 2000 compliant, and expects to
accomplish all requisite hardware and software updates during 1998 at a cost
not to exceed $50,000. The Company intends to make inquiry of its customers and
suppliers concerning their compliance to the extent it may impact the Company,
and to take appropriate actions in response.
AVAILABILITY OF SHARES OF COMMON STOCK FOR FUTURE SALE COULD ADVERSELY AFFECT
THE PRICE OF THE COMMON STOCK
Future sales of substantial amounts of Common Stock in the public market,
or the availability of such shares for future sale, could impair the Company's
ability to raise capital through an offering of securities and may adversely
affect the then-prevailing market prices. See "Shares Eligible for Future
Sale". The Company and holders of substantially all of the outstanding Common
Stock have agreed not to sell any shares of Common Stock for 180 days from the
date of this Prospectus without the prior written consent of Credit Suisse
First Boston. See "Underwriting". Following such 180-day period, approximately
5,538,528 shares held by current stockholders will be available for sale under
Rule 144 of the Act. Additionally, 1,000,000 shares of Common Stock have been
reserved for issuance under the Company's 1995 Plan, under which options to
purchase 664,000 shares have been granted. The Company intends to register
under the Act all shares reserved for issuance under the 1995 Plan. See
"Management--Stock Option Plan". Shares covered by such registration will, when
issued, be eligible for resale in the public market, subject to Rule 144
limitations applicable to affiliates. Pursuant to certain registration rights
agreements among the Company and certain stockholders, the Company has granted
various registration rights to such stockholders. See "Certain Transactions".
THE ABILITY TO EFFECT A CHANGE OF CONTROL OF THE COMPANY IS LIMITED
MARYLAND LAW AND THE CHARTER AND BYLAWS OF THE COMPANY MAY INHIBIT A
CHANGE OF CONTROL OF THE COMPANY. Certain provisions of the Maryland General
Corporation Law, as amended (the "MGCL"), and of the Company's Charter and
Bylaws may have the effect of delaying, deferring or preventing a
28
<PAGE>
change in control of the Company or the removal of existing management and, as
a result, may prevent the stockholders of the Company from receiving a
substantial premium for their shares over then-current market prices.
CERTAIN BUSINESS COMBINATIONS MAY BE PROHIBITED UNDER MARYLAND LAW. Under
the MGCL, certain "business combinations" (including a merger, consolidation,
share exchange, or, in certain circumstances, an asset transfer or issuance or
reclassification of equity securities) between a Maryland corporation and any
person who beneficially owns ten percent or more of the voting power of the
corporation's shares or an affiliate of the corporation who, at any time within
the two-year period prior to the date in question, was the beneficial owner of
ten percent or more of the voting power of the then outstanding voting stock of
the corporation (an "Interested Stockholder") or an affiliate thereof are
prohibited for five years after the most recent date on which the Interested
Stockholder becomes an Interested Stockholder. Thereafter, any such business
combination must be recommended by the board of directors of such corporation
and approved by two supermajority stockholder votes unless, among other
conditions, the holders of Common Stock receive a minimum price (as defined in
the MGCL) for their shares of Common Stock and the consideration is received in
cash or in the same form as previously paid by the Interested Stockholder for
its Common Stock. These provisions of the MGCL do not apply, however, to
business combinations that are approved or exempted by the Board of Directors
prior to the time that the Interested Stockholder becomes an Interested
Stockholder. The Company's Board of Directors has previously exempted from such
provisions of the MGCL any business combination with an officer and/or director
of the Company or any affiliate of an officer and/or director of the Company.
THE CONTROL SHARE ACQUISITION STATUTE COULD INHIBIT CHANGES IN
CONTROL. The MGCL provides that "control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquiror, by officers or by
directors who are employees of the corporation. "Control shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by such person, or in respect of which such person is able
to exercise or direct the exercise of voting power (except solely by virtue of
a revocable proxy), would entitle the acquirer to exercise voting power in
electing directors within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third, (ii) one-third or more but less than
a majority, or (iii) a majority of all voting power. Control shares do not
include shares the acquiring person is then entitled to vote as a result of
having previously obtained stockholder approval. A "control share acquisition"
means the acquisition of control shares subject to certain exceptions.
A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the Board of Directors to call a special meeting of
stockholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the corporation may itself
present the question at any stockholders meeting.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws
of a corporation.
The Bylaws of the Company contain a provision exempting from the control
share acquisition statute any and all acquisitions by any person of the
Company's shares of Common Stock. Such provision of the Bylaws may be amended
by the Board of Directors without stockholder approval. There can be no
assurance that such provision will not be amended or eliminated at any time in
the future. As a result of the Company's decision to opt out of the control
share acquisition statute, stockholders who acquire a substantial block of
Common Stock are not precluded from exercising full voting rights with respect
to their shares on all matters without first obtaining the approval of other
stockholders entitled to vote. This may have the effect of making it easier for
any such control share stockholder to effect a business combination with the
Company. However, no assurance can be given that any such business combination
would be consummated or, if consummated, would result in a purchase of shares
of Common Stock from any stockholder at a premium.
29
<PAGE>
In addition, certain provisions of the Company's Charter and Bylaws
summarized in the following paragraphs may be deemed to have anti-takeover
effects and may delay, defer or prevent a tender offer or takeover attempt that
a stockholder might consider in its best interest, including those attempts
that might result in a premium over the market price for the shares held by
stockholders. See "Description of Capital Stock--Anti-Takeover Effect of
Certain Provisions of Maryland Law and the Company's Charter and Bylaws".
THE BOARD OF DIRECTORS IS CLASSIFIED INTO THREE CLASSES. The Company's
Board of Directors is divided into three classes with staggered three-year
terms. The initial terms of the first, second and third classes will expire in
1999, 2000 and 2001, respectively. Beginning in 1999, directors of each class
will be chosen for three-year terms upon the expiration of their current terms,
with one class of directors elected annually by the stockholders. The staggered
terms of directors may delay, defer or prevent a change in control or other
transaction because control of the Company's Board of Directors could not be
obtained at a single annual meeting of stockholders.
CAUSE AND A SUPERMAJORITY VOTE ARE REQUIRED TO REMOVE A DIRECTOR. The
Charter provides that one or more directors may be removed only for Cause (as
defined in the Charter) and by the affirmative vote of at least two-thirds of
all votes entitled to be cast at an annual or special meeting of stockholders
in the election of directors. This provision, when coupled with the provision
in the Charter authorizing the Board of Directors to fill vacant directorships,
precludes stockholders from removing incumbent directors except upon the
existence of Cause and a substantial affirmative vote and filling the vacancies
created by such removal with their own nominees.
STOCK OWNERSHIP LIMIT IN THE CHARTER COULD INHIBIT CHANGES IN CONTROL. The
Charter includes limitations on the actual or constructive ownership of
outstanding Common Stock by any single stockholder to 9.9% in value of the
outstanding Common Stock or number of shares, whichever is more restrictive, in
order to protect the Company against the loss of REIT status due to the
concentration of ownership among its stockholders. The Board of Directors has
waived such Ownership Limit with respect to certain of its affiliates, Gazit
(1995), Globe Reit, and M.G.N.
THE CHARTER PERMITS THE ISSUANCE OF ADDITIONAL STOCK. The Charter
authorizes the issuance of additional shares of stock and the classification or
reclassification of unissued shares of either Common Stock or preferred stock
with such preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms
and conditions of redemption as may be determined from time to time by the
Board of Directors. Accordingly, the Board of Directors is empowered, without
stockholder approval (unless otherwise required by the rules of any stock
exchange on which the Common Stock is then traded), to issue preferred stock
with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the Common
Stock. In the event of such issuance, the issuance of preferred stock could be
utilized, under certain circumstances, as a method of delaying, deferring or
preventing a change in control of the Company. Although the Company has no
present intention to issue any shares of preferred stock, there can be no
assurance that the Company will not do so in the future.
SPECIAL MEETINGS OF STOCKHOLDERS. The Bylaws provide that special meetings
of stockholders may be called only by the President, Chief Executive Officer,
or Chairman of the Board of Directors and must be called upon the written
demand of the holders of not less than a majority of all the votes entitled to
be cast at the meeting.
PROVISIONS IN THE CHARTER AND BYLAWS COULD PREVENT ACQUISITIONS AND
CHANGES IN CONTROL. Under the Company's Charter, a majority of the votes cast
at a meeting of stockholders duly called at which a quorum is present is
required to approve any matter properly before the meeting unless a greater
percentage is required by statute or by the Charter.
30
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of shares of
Common Stock offered hereby, based upon an assumed initial public offering
price of $13.50 per share and after deducting the underwriting discounts and
commissions and estimated Offering expenses, are estimated to be approximately
$45.5 million ($55.6 million if the Underwriters' over-allotment option is
exercised in full). See "Principal and Selling Stockholders".
The Company intends to use the net proceeds from the Offering as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE OF
APPLICATION OF PROCEEDS DOLLAR AMOUNT NET PROCEEDS
- -------------------------------------------------------------- --------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Repayment of Mortgage Indebtedness(1) ........................ $23,120 51%
Performing Supermarket Center Acquisitions(2) ................ 13,000 29
Renovation and Development of Existing Properties(3) ......... 5,100 11
Redevelopment of Sky Lake and Other Acquisitions (4) ......... 4,234 9
------- --
Total(5) ................................................... $45,454 100%
======= ===
</TABLE>
- ----------------
(1) Represents the repayment of approximately (i) $3.0 million outstanding
under a mortgage loan related to Four Corners obtained in 1993, which
accrues interest at an annual rate of 9.49% and is due and payable in
January 2003, (ii) $2.0 million outstanding under a mortgage loan related
to Forest Edge obtained in 1996, which accrues interest at an annual rate
of 8.25% and is due and payable in October 2002, (iii) $4.0 million
outstanding under a mortgage loan related to Atlantic Village obtained in
1995 which accrues interest at an annual rate of 8.15% and is due and
payable in July 2002, (iv) $3.0 million outstanding under a mortgage loan
related to Plaza Del Rey obtained in 1996, which accrues interest at an
annual rate of 8.125% and is due and payable in September 2011, (v) $5.8
million outstanding under a mortgage loan related to West Lake obtained in
1996, which accrues interest at an annual rate of 7.875% and is due and
payable in June 2006, (vi) $5.0 million outstanding under a mortgage loan
related to Sky Lake obtained in 1997 which accrues interest at an annual
rate of 7.0% and is due and payable in August 1998 (collectively, the
"Mortgage Indebtedness") and (vii) $495,000 of prepayment penalties
related to the repayment of certain of the Mortgage Indebtedness. See
"Management's Discussion of Financial Condition and Results of
Operations--Indebtedness".
(2) Represents approximately (i) $3.0 million to acquire Beauclerc Village,
which the Company has an agreement to purchase, and (ii) $10.0 million to
acquire Summerlin Square and 10.5 acres of adjacent vacant land, which the
Company has an agreement to purchase (collectively, the "Performing
Supermarket Center Acquisitions").
(3) Represents approximately (i) $850,000 to renovate Atlantic Village, (ii)
$450,000 to renovate and develop a pad site containing 6,000 square feet
of GLA at Commonwealth, (iii) $3.0 million to develop approximately 50,000
square feet of additional GLA at Lake Mary and (iv) $800,000 to renovate
the 18,000 square foot office building at Pointe Royale (collectively the
"Renovation and Development of Existing Properties").
(4) Represents (i) approximately $2.0 million for the renovation and/or
development of retail space at Sky Lake, (ii) $1.0 million to acquire 4.4
acres of vacant land in Miami-Dade County, Florida which the Company has
under contract, and (iii) $1.2 million to acquire a restaurant property
which the Company has under contract (the "Redevelopment of Sky Lake and
Other Acquisitions"). While the Company intends to designate approximately
$2.0 million of the proceeds for the renovation and/or development of
retail space at Sky Lake, such proceeds may be used by the Company for the
acquisition of additional properties or other uses where such use of
proceeds would be more favorable than alternative financings and provided
that funds are available under then existing credit facilities for the
development of Sky Lake.
(5) Does not include approximately $2.4 million of proceeds from the exercise
of Series C Warrants by the Selling Stockholder. Such proceeds, any
proceeds from the Underwriter's exercise of the over-allotment option,
and, to the extent any proposed application of proceeds requires less
funds or becomes impracticable, such excess proceeds, may be applied to
working capital, general corporate purposes, renovation, development,
redevelopment or unspecified property acquisitions.
Proceeds not immediately required for the purposes described above will be
invested by the Company in interest-bearing accounts and short-term,
interest-bearing securities, which are consistent with the Company's intention
to continue to qualify for taxation as a REIT. Such investments may include,
for example, government and government agency securities, mortgage backed
securities, collateralized mortgage obligations, certificates of deposit,
commercial paper, money market funds or investment grade preferred stock of
other publicly traded REITs.
31
<PAGE>
DISTRIBUTION POLICY
Subsequent to the Offering, the Company intends to make regular quarterly
distributions to the holders of its Common Stock. The first dividend, for the
period commencing upon the consummation of the Offering and ending June 30,
1998, is anticipated to be in a prorated amount based upon a quarterly
distribution of $0.25 per share (which, if annualized, would equal $1.00 per
share), or an annual yield of approximately 7.4% based on an assumed initial
public offering price per share of $13.50. See "--Dividends". The Company does
not intend to reduce the expected distribution per share if the Underwriters'
over-allotment option is exercised. The Company currently expects to distribute
approximately 91.5% of its estimated Cash Available for Distribution for the
four quarters following the consummation of the Offering (98.2% if the
over-allotment option granted to the Underwriters is exercised in full). In the
event the Company is not able to make its estimated initial distribution of
$1.00 per share out of Cash Available for Distribution, the Company could be
required to fund such distribution through borrowings under available lines of
credit (if any) or reduce the amount of such distribution. The Company has
adopted a policy pursuant to which it intends to limit distributions to no more
than 94.0% of its Cash Available for Distribution for periods subsequent to
March 31, 1999. Distribution amounts could change if actual results from
operations, economic conditions or other factors differ significantly from the
assumptions used by the Company in calculating estimated Cash Available for
Distribution. See "Risk Factors--Estimated Initial Cash Available for
Distribution May Not Be Sufficient to Make Distributions at Expected Levels".
The Company's intended annual distribution for the four quarters ending
March 31, 1999 is based on pro forma net income for the 12 months ending March
31, 1999, as adjusted for certain events and contractual commitments that are
not reflected in the Company's historical or pro forma financial statements, as
set forth in the table below. The calculation of adjustments to pro forma FFO
is being made solely for the purpose of estimating the distribution amount for
this period and is not intended to be a projection or prediction of the
Company's actual results of operations or of its liquidity, nor is the
methodology upon which such adjustments are made intended to be a basis for
determining future distributions. Future distributions by the Company will be
at the discretion of the Board of Directors. There can be no assurance that any
distributions will be made or that the expected level of distributions will be
maintained by the Company. The actual return that the Company will realize will
be affected by a number of factors, including the revenue received from its
properties, the operating expenses of the Company, the interest expense
incurred on its borrowings, the ability of tenants to meet their contractual
obligations, general leasing activity and unanticipated capital expenditures.
See "Risk Factors--The Company's Performance and Value Are Subject to Risks
Associated with the Real Estate Industry".
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<PAGE>
The following table illustrates the adjustments made by the Company to its
pro forma FFO for the 12 month period ended December 31, 1997 in order to
calculate estimated Cash Available for Distribution for the 12 month period
ending March 31, 1999:
<TABLE>
<CAPTION>
IN THOUSANDS
----------------
<S> <C>
Pro forma net income for the year ended December 31, 1997 ............................ $ 8,513 (1)
Plus: Pro forma real estate depreciation and amortization ............................ 2,836
Non-recurring items ............................................................... 139
-----------
Pro forma FFO for the 12 months ended December 31, 1997 .............................. 11,488
-----------
Adjustments:
Net increase in contractual rental income for months in effect ...................... 471 (2)
Net increase from new leases ........................................................ 1,657 (3)
Net effect of lease expirations, assuming no renewals ............................... (735)(4)
Net decrease in interest expense .................................................... 422 (5)
-----------
Estimated adjusted pro forma FFO for the 12 months ending March 31, 1999 ............. 13,303
Non-real estate amortization ......................................................... 179 (6)
-----------
Estimated adjusted pro forma cash flows from operating activities for the 12 months
ending March 31, 1999 .............................................................. 13,482
Estimated non-development related capital expenditures ............................... (100)(7)
Scheduled debt principal payments .................................................... (1,467)(8)
-----------
Estimated Cash Available for Distribution for the 12 months ending March 31, 1999 .... $ 11,915(9)
===========
Total estimated initial distributions ................................................ $ 10,902
===========
Estimated initial annual distributions per share ..................................... $ 1.00
===========
Payout ratio based on estimated Cash Available for Distribution ...................... 91.5 %
===========
</TABLE>
- ----------------
(1) See pro forma consolidated financial statements and related notes.
(2) This adjustment gives effect to the net increase in rental revenues for
contractual rental increases for the 12 month period ending March 31,
1999.
(3) Gives effect to the net increase in rental revenues attributable to leases
in effect on December 31, 1997, which were not in effect for the full 12
month period from January 1, 1997 to December 31, 1997 and from new fully
executed leases commencing on or after January 1, 1998.
(4) This adjustment gives effect to the net decrease in rental revenues for the
12 month period ending March 31, 1999 with respect to that portion of the
12 month period that such leases are no longer in effect and which are
attributable to leases expiring on or after December 31, 1997, assuming no
renewals.
(5) Represents the incremental increase in FFO attributable to a net decrease
in interest expense, calculated in accordance with GAAP, from the pro
forma 12 months ended December 31, 1997 to the 12 months ending March 31,
1999.
(6) Represents the amortization of financing costs for the 12 months ending
March 31, 1999.
(7) Assumes non-development related capital expenditures of approximately $0.05
per square foot of GLA.
(8) Calculations based on pro forma debt outstanding for the 12 months ending
March 31, 1999 and the principal payments related to such indebtedness.
(9) Does not include interest earned on proceeds of the Offering pending their
final application in connection with proposed acquisitions and development
and/or redevelopment activities. See "Risk Factors--Estimated Initial Cash
Available For Distribution May Not Be Sufficient to Make Distributions at
Expected Levels".
In order to qualify to be taxed as a REIT, the Company must make annual
distributions to stockholders of at least 95.0% of its REIT taxable income
(determined without regard to the dividends received deduction and by excluding
any net capital gains). See "Federal Income Tax Considerations--Taxation of the
Company--Annual Distribution Requirements". The Company anticipates that its
estimated Cash Available for Distribution will exceed its REIT taxable income
due to non-cash expenses, primarily depreciation and amortization, to be
incurred by the Company. It is possible, however, that the Company from time to
time, may not have sufficient cash or other liquid assets to meet these
distribution requirements due to timing differences between (i) the actual
receipt of income and actual payment of deductible expenses and (ii) the
inclusion of such income and deduction of such expenses in arriving at
33
<PAGE>
taxable income of the Company. In the event that such timing differences occur,
in order to meet the distribution requirements, the Company may find it
necessary to arrange for short-term, or possibly long-term, borrowings.
Distributions by the Company, to the extent of its current and accumulated
earnings and profits for federal income tax purposes, other than capital gain
dividends, will be taxable to stockholders as ordinary dividend income. Capital
gain distributions generally will be treated as gain from the sale of an asset
held for more than one year. On November 10, 1997, the IRS issued Notice 97-64,
in which it stated that temporary Treasury regulations will be issued providing
that a REIT that designates a dividend as a capital gain dividend also may
designate the dividend as a 20% rate gain distribution, an unrecaptured section
1250 gain distribution (taxable at a 25% rate) or a 28% rate gain distribution,
to the extent the net capital gain of the REIT consists of long-term capital
gains that, in the hands of the REIT, would be treated as falling in,
respectively, the 20% group, the 25% group or the 28% group of long-term
capital gains (and if no additional designation is made, the dividend is a 28%
rate gain distribution). Distributions in excess of earnings and profits
generally will be treated as non-taxable return of capital to the extent of
each stockholder's basis in his or her Common Stock and thereafter as taxable
gain. The non-taxable distributions will reduce each stockholders' tax basis in
the Common Stock and, therefore, the gain (or loss) recognized on the sale of
such Common Stock or upon liquidation of the Company will be increased (or
decreased) accordingly. For a discussion of the tax treatment of distributions
to holders of Common Stock, see "Federal Income Tax Considerations-Taxation of
U.S. Stockholders" and "--Taxation of Non-U.S. Stockholders".
Financing activities such as repayment or refinancing of loans also may
affect the Company's assets and liabilities and the amount of Cash Available
for Distribution for future periods. Management will seek to control the timing
and nature of investing and financing activities in order to maximize the
Company's return on invested capital.
Future distributions by the Company will be subject to the requirements of
the MGCL and the annual distribution requirements under the REIT provisions of
the Code (see "Federal Income Tax Considerations--Taxation of the
Company--Annual Distribution Requirements") and will depend on the actual cash
flow of the Company, its financial condition, its capital requirements, and
such other factors as the Board of Directors deems relevant. There can be no
assurance that any distributions will be made or that the expected level of
distributions will be maintained by the Company. See "Risk Factors--General
Risks Related to Real Estate Investments" and "--Estimated Initial Cash
Available for Distribution May Not Be Sufficient to Make Distributions at
Expected Levels ". If revenues generated by the Company's properties in future
periods decrease materially from current levels, the Company's ability to make
expected distributions would be materially adversely affected, which could
result in a decrease in the market price of the shares of Common Stock.
The Company may in the future implement a distribution reinvestment
program under which holders of shares of Common Stock may elect automatically
to reinvest distributions in additional shares of Common Stock. The Company
may, from time to time, repurchase shares of Common Stock in the open market
for purposes of fulfilling its obligations under this distribution reinvestment
program, if adopted, or may elect to issue additional shares of Common Stock.
There can be no assurance that the Company will adopt such a program.
DIVIDENDS
Since the Company's election of REIT status, the Company has paid cash
dividends to its stockholders in accordance with REIT distribution
requirements.
On March 24, 1998, the Board of Directors declared and paid a quarterly
distribution of $0.25 per share to all stockholders of record. The Company
anticipates that its Board of Directors will declare a distribution immediately
prior to the consummation of the Offering for stockholders of record with
respect to a prorata portion of the anticipated quarterly distribution of $0.25
per share based on the number of days between and including April 1, 1998 and
the day immediately preceding the closing date. The Company also anticipates
that the Board of Directors will declare a distribution
34
<PAGE>
for the period from and including the closing date to June 30, 1998, with
stockholders of record as of a record date established after the closing date
receiving the appropriate prorata portion of the anticipated quarterly
distribution of $0.25 per share. Finally, immediately prior to the consummation
of the Offering, the Company will effect the In-Kind Dividend.
During 1997, the Company paid cash dividends of $0.215 per share, $0.225
per share, $0.2625 per share and $0.25 per share on March 31, June 18,
September 16, and December 18, respectively, to all stockholders of record on
those dates. Gross dividends paid by the Company for the year ended December
31, 1997 were $6.3 million.
During 1996, the Company paid cash dividends of $0.375 per share, $0.20
per share and $0.225 per share on June 18, September 30, and December 31,
respectively, to all stockholders of record on those dates. Gross dividends
paid by the Company for the year ended December 31, 1996 were $4.2 million.
During 1995, the Company paid cash dividends of $0.25 per share, $0.125
per share and $0.25 per share on June 28, September 27, and December 28,
respectivley, to all stockholders of record on those dates. Gross dividends
paid by the Company for the year ended December 31, 1995 were $2.8 million.
The Company did not pay any dividends to its stockholders prior to January
1, 1995.
35
<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock as of December
31, 1997 was $51.3 million, or approximately $7.42 per share. Net tangible book
value per share is determined by dividing net tangible book value (tangible
assets less liabilities) of the Company by 6,908,130 shares of Common Stock
outstanding.
Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of Common Stock in
the Offering and the pro forma net tangible book value per share of Common
Stock immediately after consummation of the Offering. After giving effect to
the sale by the Company of 3,700,000 shares of Common Stock in the Offering at
an assumed initial public offering price of $13.50 per share, and the
application of the estimated net proceeds therefrom, the pro forma net tangible
book value of the Company as of December 31, 1997 would have been $95.4
million, or $8.75 per share. This would represent an immediate increase in net
tangible book value of $1.33 per share to the existing stockholders and an
immediate dilution in net tangible book value of $4.75 per share to purchasers
of Common Stock in the Offering, as illustrated in the following table.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Common Stock(1) ....... $ 13.50
Net tangible book value at December 31, 1997 ........................... $ 7.42
------
Increase per share attributable to new investors ....................... $ 1.33
------
Pro forma net tangible book value after the Offering(2) .................. $ 8.75
-------
Net tangible book dilution per share to new investors(2)(3)(4)(5) ........ $ 4.75
=======
</TABLE>
- ----------------
(1) Before deducting the underwriting discounts and commissions and estimated
expenses of the Offering.
(2) If the Underwriters exercise their over-allotment option in full, the pro
forma net tangible book value per share would be $9.01 and dilution of net
tangible book value per share to new investors would be $4.49.
(3) Does not give effect to the issuance of shares of Common Stock issuable
upon exercise of stock options granted under the Company's 1995 Plan,
pursuant to which options to purchase 664,000 shares of Common Stock at
exercise prices ranging from $8.25 to $12.375 per share have been issued
and are outstanding as of the date of this Prospectus. If exercised, these
options would result in a decrease in dilution to new investors of $0.18
per share. See "Management--Stock Option Plan".
(4) Does not give effect to the issuance of up to 1,012,694 shares of Common
Stock pursuant to exercise of the Series C Warrants at an exercise price
of $8.25 per share. If exercised, these warrants would result in
additional dilution to new investors of $0.04 per share.
(5) Does not give effect to the issuance of 580,288 shares of Common Stock at a
price of $12.84 per share reserved for issuance to an affiliate of the
Company pursuant to a stock purchase agreement. If purchased, these shares
would result in a decrease in dilution to new investors of $0.21 per
share. See "Certain Transactions".
The following table sets forth as of December 31, 1997 (assuming the
issuance of 293,430 shares of Common Stock to the Selling Stockholder upon
exercise of outstanding Series C Warrants), the difference between the existing
stockholders and the purchasers of shares in the Offering with respect to the
number of shares purchased from the Company, the total consideration paid and
the average price per share paid at the assumed initial offering price of
$13.50 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------------------------ ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------------------ --------------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders ......... 7,201,560(1)(2) 66.1%(3) $ 56,001 52.9% $ 7.78
New investors ................. 3,700,000 33.9 49,950 47.1 13.50
----------- -------- -------- -----
Total ....................... 10,901,560 100.0% $105,951 100.0%
============ ======== ======== =====
</TABLE>
- ----------------
(1) Sale of Common Stock by the Selling Stockholder in the Offering will cause
the number of shares held by existing stockholders to be reduced to
5,538,528 or 50.8% of the total number of shares of Common Stock
outstanding after the Offering and will increase the number of shares held
by new stockholders to 5,363,032 or 49.2% of the total number of shares
outstanding after the Offering. See "Principal and Selling Stockholders".
(2) Does not include (i) 804,455 shares of Common Stock reserved for issuance
upon exercise of the Underwriters' over-allotment option, (ii) 664,000
shares of Common Stock reserved for issuance upon the exercise of
outstanding options under the 1995 Plan, (iii) 336,000 shares of Common
Stock reserved for issuance upon the exercise of options available for
future grant under the 1995 Plan, (iv) 580,288 shares of Common Stock
reserved for issuance to an affiliate pursuant to a stock purchase
agreement, and (v) 1,012,694 shares of Common Stock reserved for issuance
upon exercise of the Series C Warrants. See "Management--Stock Option
Plan", "Certain Transactions", "Description of Capital Stock" and
"Underwriting" and Note 6 of Notes to Financial Statements.
(3) If the Underwriters exercise their over-allotment option in full, the
Company's existing stockholders will own 47.3% of the shares of Common
Stock outstanding upon consummation of the Offering. See "Principal
Stockholders".
36
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997 and as adjusted for the Pro Forma Adjustments, including the
sale of the 3,700,000 shares of Common Stock offered by the Company hereby (at
an assumed initial public offering price of $13.50 per share), the application
of the estimated net proceeds therefrom, and the In-Kind-Dividend. See "Use of
Proceeds".
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------
ACTUAL AS ADJUSTED(1)
---------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Mortgage notes payable ..................................................... $ 71,004 $54,079
-------- -------
Stockholders' equity:
Preferred stock, $0.01 par value per share; 5,000,000 shares authorized; no
shares issued and outstanding ........................................... -- --
Common Stock, $0.01 par value per share; 40,000,000 shares authorized;
6,908,130 shares issued and outstanding; 10,901,560 shares issued and
outstanding, as adjusted(2) ............................................. 69 109
Additional paid-in capital ................................................. 55,036 98,135
Notes receivable from stock sales .......................................... (1,525) --
Retained earnings (deficit) ................................................ -- (795)
-------- -------
Total stockholders' equity ............................................... $ 53,580 $97,449
======== =======
</TABLE>
- ----------------
(1) See pro forma consolidated financial statements and related notes.
(2) Does not include at December 31, 1997 (i) 804,455 shares of Common Stock
reserved for issuance upon exercise of the Underwriters' over-allotment
option, (ii) 664,000 shares of Common Stock reserved for issuance upon the
exercise of outstanding options under the 1995 Plan, (iii) 336,000 shares
of Common Stock reserved for issuance upon the exercise of options
available for future grant under the 1995 Plan, (iv) 580,288 shares of
Common Stock reserved for issuance to an affiliate pursuant to a stock
purchase agreement, and (v) 1,306,124 shares of Common Stock (1,012,694 as
adjusted) reserved for issuance upon exercise of the Series C Warrants.
See "Management--Stock Option Plan", "Certain Transactions", "Description
of Capital Stock" and "Underwriting".
37
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary consolidated financial data and balance sheet data set forth
below have been derived from the consolidated financial statements of the
Company, including the consolidated financial statements for the years ended
December 31, 1995, 1996 and 1997 contained elsewhere herein. The consolidated
financial statements as of and for the years ended December 31, 1993, 1994,
1995, 1996 and 1997 have been audited by Deloitte & Touche LLP, independent
auditors. The data set forth below should be read in conjunction with the
consolidated financial statements and related notes, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
The unaudited pro forma consolidated balance sheet data as of December 31,
1997 set forth below is presented as if the Pro Forma Adjustments had occurred
on December 31, 1997. The unaudited pro forma consolidated statement of
operations data for the year ended December 31, 1997 are presented as if the
Pro Forma Adjustments and the acquisitions of Sky Lake and Monument Pointe had
occurred on January 1, 1997. The pro forma consolidated financial data should
be read in conjunction with the Company's pro forma consolidated financial
statements and related notes and historical consolidated financial statements
and related notes included elsewhere in this Prospectus. The pro forma
consolidated financial data do not purport to represent the Company's actual
financial position as of December 31, 1997 had the Pro Forma Adjustments
occurred on December 31, 1997, or the actual results of operations for the year
ended December 31, 1997 had the Pro Forma Adjustments and the acquisitions of
Sky Lake and Monument Pointe occurred on January 1, 1997, or to project the
Company's financial position or results of operations as of any future date or
for any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
PRO FORMA HISTORICAL
----------- ----------------------------------------------------------------
1997 1997 1996 1995 1994 1993
----------- ------------ ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues .............................. $ 23,638 $ 20,545 $ 16,714 $ 11,348 $6,198 $ 2,070
Operating expenses .......................... 6,397 5,693 4,832 3,293 2,236 665
Depreciation and amortization ............... 2,850 2,392 2,067 1,496 996 298
Interest .................................... 5,147 5,681 5,380 3,498 2,099 734
General and administrative expenses ......... 731 581 515 549 504 324
-------- -------- -------- -------- ------ -------
Total expenses ............................ 15,125 14,347 12,794 8,836 5,835 2,021
-------- -------- -------- -------- ------ -------
Net income .................................. $ 8,513 $ 6,198 $ 3,920 $ 2,512 $ 233(2) $ 49
======== ======== ======== ======== ======== =======
Basic earnings per share(1) ................. $ 0.80 $ 0.96 $ 0.79 $ 0.56 $ 0.07 $ 0.03
======== ======== ======== ======== ======== =======
Diluted earnings per share(1) ............... $ 0.76 $ 0.87 $ 0.69 $ 0.47 $ 0.07 $ 0.03
======== ======== ======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------
PRO FORMA
1997 1997 1996 1995 1994 1993
---------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total rental properties, before
accumulated depreciation ......... $153,614 $126,441 $106,706 $92,770 $52,047 $22,491
Total assets ....................... 153,847 126,903 111,822 94,470 63,644 28,526
Mortgage notes payable ............. 54,079 71,004 66,831 60,583 32,690 15,543
Total liabilities .................. 56,398 73,323 68,727 64,331 33,846 15,922
Stockholders' equity ............... 97,449 53,580 43,095 29,139 28,798 12,604
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
PRO FORMA HISTORICAL
----------- --------------------------------------------------------------------
1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds From Operations(3) ............. $ 11,488 $ 8,220 $ 6,136 $ 3,973 $ 1,308 $ 347
Ratio of earnings to fixed
charges(4) ........................... 2.65 2.09 1.73 1.72 1.11 1.07
Cash flows from:
Operating activities(5) ............. 11,363 8,843 6,680 3,469 2,433 (289)
Investing activities(6) ............. (22,334) (6,173) (18,277) (37,211) (29,755) (20,414)
Financing activities(7) ............. (12,311) (2,023) 12,778 27,441 32,726 20,671
Gross leasable area (square feet)
(at end of period) ................. -- 2,004 1,807 1,670 1,003 583
Occupancy (at end of period) ......... -- 93% 91% 90% 80% 60%
</TABLE>
- ----------------
(1) Calculated in accordance with SFAS No. 128.
(2) Represents net income after income tax expense of $130.
(3) In March 1995, the National Association of Real Estate Investment Trusts
("NAREIT") adopted the NAREIT White Paper on Funds from Operations (the
"White Paper") which provided additional guidance on the calculation of
funds from operations. The White Paper defines funds from operations as
net income (loss) (computed in accordance with generally accepted
accounting principles ("GAAP")), excluding gains (or losses) from debt
restructuring and sales of property, plus real estate related depreciation
and amortization and after adjustments for unconsolidated partnerships and
joint ventures ("FFO"). Management believes FFO is helpful to investors as
a measure of the performance of an equity REIT because, along with cash
flows from operating activities, financing activities and investing
activities, it provides investors with an understanding of the ability of
the Company to incur and service debt and make capital expenditures. The
Company computes FFO in accordance with standards established by the White
Paper, which may differ from the methodology for calculating FFO utilized
by other equity REITs, and, accordingly, may not be comparable to such
other REITs. Further, FFO does not represent amounts available for
management's discretionary use because of needed capital replacement or
expansion, debt service obligations, or other commitments and
uncertainties. The Company believes that in order to facilitate a clear
understanding of the consolidated historical operating results of the
Company, FFO should be examined in conjunction with the income (loss) as
presented in the audited consolidated financial statements and information
included elsewhere in this Prospectus. FFO should not be considered as an
alternative to net income (determined in accordance with GAAP) as an
indication of the Company's financial performance or to cash flows from
operating activities (determined in accordance with GAAP) as a measure of
the Company's liquidity, nor is it indicative of funds available to fund
the Company's cash needs, including its ability to make distributions. See
"Distribution Policy". FFO is derived from pro forma and historical net
income (loss) as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
PRO FORMA HISTORICAL
----------- -------------------------------------------------------
1997 1997 1996 1995 1994 1993
----------- --------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) ................................... $ 8,513 $6,198 $3,920 $2,512 $ 233 $ 49
Add:
Real estate depreciation and amortization ......... 2,836 2,378 2,037 1,461 945 298
Non-recurring items(*) ............................ 139 (356) 179 -- 130 --
FFO ................................................. $11,488 $8,220 $6,136 $3,973 $1,308 $347
</TABLE>
- ----------------
(*) Reflects pre-payment penalties, write-offs of unamortized loan costs
related to repayment of debt, lease termination fees and income tax
expense as non-recurring.
(4) For the purposes of calculating the ratio of earnings to fixed charges,
earnings include pre-tax income plus interest expense, amortization of
interest previously capitalized, and amortization of financing costs.
Fixed charges include all interest costs consisting of interest expense,
interest capitalized, and amortization of financing costs.
(5) Pro forma cash flow from operating activities represents pro forma net
income plus depreciation and amortization. The pro forma amounts do not
include the results from changes in working capital resulting from changes
in current assets and current liabilities, or other changes.
(6) Pro forma cash flow used in investing activities represents estimated
capital expenditures for the four quarters subsequent to the Offering from
proceeds of the Offering.
(7) Pro forma cash flow used in financing activities represents estimated
mortgage loan principal payments and estimated dividends and distributions
(based upon an initial annual distribution of $1.00 per share) for the
four quarters subsequent to the Offering.
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's consolidated financial
statements, and the notes thereto, appearing elsewhere in this Prospectus.
The Company receives income primarily from rental revenue (including
recoveries from tenants) from the Existing Properties. As a result of the
Company's acquisition and redevelopment programs, the financial data shows
increases in total revenue from year to year, largely attributable to the
acquisitions of properties placed into operation during the year and the
benefit of a full period of rental and other revenue for properties acquired or
placed into operation in the preceding year.
The following table sets forth as of December 31, 1997, 1996 and 1995,
respectively, information regarding the nature and composition of the Company's
revenues and expenses expressed as a percentage of the Company's total revenues
which are set forth in the financial statements included elsewhere herein. For
purposes of the following table, "aggregate minimum rental revenue" is the
fixed base rental amount in effect throughout the relevant periods. "Percentage
rent" is additional rent paid by tenants based upon achievements of certain
specified levels of gross sales. "Recoveries from tenants" is the tenants'
share of real estate taxes, insurance and common area maintenance expenses. The
information set forth below presents an analysis of certain trends relating to
the components of the Company's revenues and expenses.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Aggregate minimum rental revenue ............ 73.36% 75.55% 73.44%
Percentage rent ............................. 0.84% 0.92% 1.15%
Recoveries from tenants ..................... 18.03% 18.34% 17.20%
Other income ................................ 7.77% 5.19% 8.21%
------ ------ ------
Total Revenues .............................. 100.00% 100.00% 100.00%
------ ------ ------
Operating expenses .......................... 27.71% 28.91% 29.02%
Depreciation and amortization ............... 11.64% 12.37% 13.18%
Interest .................................... 27.65% 32.19% 30.82%
General and administrative expenses ......... 2.83% 3.08% 4.84%
------ ------ ------
Total costs and expenses .................... 69.83% 76.55% 77.86%
------ ------ ------
Net income .................................. 30.17% 23.45% 22.14%
====== ====== ======
</TABLE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Total revenues increased by approximately $3.8 million, or 22.7%, to $20.5
million in 1997 from $16.7 million in 1996 primarily due to the first full year
of operations for West Lake, acquired by the Company in November 1996, and
Forest Edge, acquired in December 1996, and the acquisition of Monument Pointe
in January 1997 and Sky Lake in August 1997. Of such increase, approximately
$1.0 million, $532,000, $535,000 and $769,000 were attributable to West Lake,
Forest Edge, Monument Pointe and Sky Lake, respectively.
Operating expenses increased by approximately $861,000, or 17.9%, to $5.7
million in 1997 from $4.8 million in 1996, primarily as a result of a full year
of operations for West Lake and Forest Edge, as well as the Company's
acquisition of Monument Pointe and Sky Lake. However, for such periods,
operating expenses as a percent of revenues decreased to 27.7% from 28.9% due
to operating efficiencies based, in part, on owning more properties and in
concentrated areas.
40
<PAGE>
Depreciation and amortization expense increased by approximately $325,000,
or 15.5%, to $2.4 million in 1997 from $2.1 million in 1996 primarily as a
result of an increase in depreciable assets resulting from the Company's
purchase of West Lake, Forest Edge, Monument Pointe and Sky Lake.
Interest expense increased by approximately $301,000, or 5.5%, to $5.7
million in 1997 from $5.4 million in 1996 primarily as a result of increased
mortgage indebtedness incurred by the Company in connection with its purchase
of West Lake, Forest Edge, Monument Pointe and Sky Lake.
General and administrative expenses increased by approximately $66,000, or
12.8%, to $581,000 in 1997 from $515,000 in 1996, primarily as a result of the
increase in the Company's portfolio of Supermarket Centers. However, for such
periods, general and administrative expenses as a percent of revenues decreased
to approximately 2.8% from approximately 3.0% due to operating efficiencies
based in part on owning more properties in a concentrated area.
As a result of the foregoing, net income increased by $2.3 million, or
59.0%, to $6.2 million in 1997 from $3.9 million in 1996, and FFO increased by
$2.1 million, or 34.4%, to $8.2 million in 1997 from $6.1 million in 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Total revenues increased $5.4 million, or 46.5%, in 1996 to $16.7 million
from $11.3 million in 1995 primarily due to the first full year of operations
for Atlantic Village, Oak Hill, Lake Mary and Pointe Royale, and the
acquisition of West Lake in November 1996. Of such increase, approximately
$500,000, $600,000, $3.1 million, $900,000 and $200,000 were attributable to
Atlantic Village, Oak Hill, Lake Mary, Pointe Royale and West Lake,
respectively.
Operating expenses increased by approximately $1.5 million, or 45.5%, to
$4.8 million in 1996 from $3.3 million in 1995, primarily as a result of a full
year of operations for Atlantic Village, Oak Hill, Lake Mary and Pointe Royale,
as well as the Company's acquisition of West Lake. However, for such periods,
operating expenses as a percent of revenues remained essentially flat at 29.0%.
Depreciation and amortization expense increased by approximately $600,000,
or 42.9%, to $2.1 million in 1996 from $1.4 million in 1995, primarily due to
an increase in depreciable assets resulting from the Company's purchase of
Atlantic Village, Oak Hill, Lake Mary and Pointe Royale and from capital
expenditures incurred by the Company in connection with tenant improvements at
each of such properties.
Interest expense increased by approximately $1.9 million, or 54.3%, to
$5.4 million in 1996 from $3.5 million in 1995, primarily as a result of
increased mortgage indebtedness incurred by the Company in connection with the
purchase of Atlantic Village, Oak Hill, Lake Mary and Pointe Royale in 1995 and
the acquisition of the West Lake in November 1996.
General and administrative expenses decreased by approximately $34,000, or
6.2%, to $515,000 in 1996 from $549,000 in 1995, primarily as a result of a
decrease in legal and accounting fees incurred in connection with the Company's
REIT status election, which election was effective as of January 1, 1995.
However, for such periods, general and administrative expenses as a percent of
revenues decreased to approximately 3.1% from approximately 4.8% due to
operating efficiencies based in part on owning more properties in a
concentrated area.
As a result of the foregoing, net income increased by $1.4 million, or
56.0%, to $3.9 million in 1996 from $2.5 million in 1995, and FFO increased by
$2.1 million, or 52.5%, to $6.1 million in 1996 from $4.0 million in 1995.
41
<PAGE>
MORTGAGE INDEBTEDNESS
The following table sets forth certain information regarding mortgage
indebtedness of the Company related to the Existing Properties as of December
31, 1997:
<TABLE>
<CAPTION>
BALANCE
INTEREST PROJECTED ANNUAL DUE AT
RATE AMOUNT INTEREST PAYMENTS MATURITY DATE MATURITY(2)(3)
---------- ---------- ------------------- ------------------ ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SOUTH FLORIDA
Bird Ludlum ................... 7.68% $13,093 $1,006 February 2015 $ 0
Plaza Del Rey(1) .............. 8.125 2,903 236 September 2011 0
Pointe Royale ................. 7.95 5,673 451 July 2010 2,502
West Lake(1) .................. 7.875 5,822 458 June 2006 4,157
Sky Lake(1) ................... 7.00 7,000 490 February 1998(4) 7,000
CENTRAL FLORIDA
East Bay ...................... 8.25 908 75 August 2000 859
Eustis Square ................. 9.00 5,311 478 July 2002 4,322
Forest Edge(1) ................ 8.25 1,997 165 October 2002 1,597
Lake Mary ..................... 7.85 12,796 1,004 December 2010 5,569
NORTH FLORIDA
Atlantic Village(1) ........... 8.15 3,929 320 July 2002 3,294
Fort Caroline ................. 9.35 2,366 221 March 2002 2,078
Monument Pointe ............... 10.06 2,636 265 June 2001 2,564
Oak Hill ...................... 7.625 2,385 182 February 2006 1,703
Mandarin Mini-Storage ......... 6.375 1,211 77 May 1999 1,172
TEXAS
Four Corners(1) ............... 9.49 2,974 282 February 2003 2,785
</TABLE>
- ----------------
(1) The Company intends to retire the mortgages on each of these properties
from the net proceeds of the Offering immediately following consummation
of the Offering.
(2) With respect to the mortgage indebtedness to be repaid from the proceeds of
the Offering, the loan on Atlantic Village does not have any prepayment
penalty. Forest Edge and Four Corners loans have prepayment penalties of
1.0% and 2.0% of the outstanding principal, respectively. Plaza Del Rey
and West Lake each have prepayment penalties of 5.0% of the outstanding
principal. The prepayment penalty associated with Lake Mary mortgage
indebtedness is the greater of 1.0% of the outstanding principal balance
or the present value differences in interest rates at the time of
prepayment. The prepayment penalty associated with Bird Ludlum mortgage
indebtedness in the greater of 1.0% of the outstanding principal balance
or the present value differences in interest rates at the time of
prepayment.
(3) Does not include mortgage indebtedness of $4.4 million related to Lantana
Village, which property was acquired by the Company in January 1998. This
mortgage indebtedness accrues interest at an annual rate of 6.95% and is
due and payable in February 2008. Projected annual interest payments
respecting this mortgage indebtedness is $306,000. Also does not include
mortgage indebtedness of $3.3 million related to Commonwealth which was
incurred in February 1998. This mortgage indebtedness accrues interest at
an annual rate of 7.00% and is due and payable in February 2008. Projected
annual interest payments respecting this mortgage indebtedness is
$231,000.
(4) In February 1998, the Sky Lake mortgage was paid down to $5.0 million and
extended to August 1998.
The Company's mortgage indebtedness outstanding at December 31, 1997 and
expected to remain outstanding after the application of the net proceeds of the
Offering will require principal payments of approximately $1.2 million,
$860,000, $2.6 million, $6.4 million, $1.7 million and $8.1 million in 1999,
2000, 2001, 2002, 2006 and 2010, respectively. The Company may not have
sufficient funds on hand to repay these balloon amounts at maturity. Therefore,
the Company expects to refinance such debt either through additional debt
financings secured by individual properties or groups of properties, by
unsecured private or public debt offerings or by additional equity offerings.
See "Risk Factors--The Company's Use of Debt, Refinancing Needs, Increases in
Interest Rates and an Absence of a Limitation on Debt Could Adversely Affect
the Company" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources".
42
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, the principal sources of funding for the Company's
operations, including the renovation, expansion, development and acquisition of
shopping centers, have been operating cash flows, the issuance of equity
securities and mortgage loans.
From 1992 to the present, the Company raised proceeds from the private
placement of Common Stock and warrants and it used such proceeds to acquire the
Existing Properties, purchasing approximately $4.7 million of real property in
1992, approximately $17.2 million in 1993, approximately $29.0 million in 1994,
approximately $39.6 million in 1995, approximately $11.0 million in 1996 and
approximately $15.4 million in 1997. Management recently determined that in
seeking to significantly expand its investment portfolio, the Company would
have greater flexibility if it had access to both public and private capital
markets and, accordingly, decided to publicly offer the Common Stock pursuant
to the Offering.
As of December 31, 1997, the Company had total indebtedness of
approximately $71.0 million, all of which was fixed rate mortgage indebtedness
bearing interest at a weighted average annualized rate of 8.0% and
collateralized by 15 of the Existing Properties. As of such date, the
percentage of the net book value of the Company's rental properties that were
encumbered by debt was 59.5%. None of the existing mortgages is subject to
cross default provisions of mortgages on other properties or is cross
collateralized. However, in connection with the Company's acquisition of Lake
Mary, the Company has provided a $1.5 million letter of credit to secure
certain obligations, which letter of credit is collateralized by the Diana
Building. See "Risk Factors--Certain Indebtedness May Prohibit the Sale of
Shares of Common Stock" for a discussion of certain other restrictions.
The Company has received a commitment for the $35.0 million City National
Acquisition Line of Credit from City National Bank of Florida and Bank Atlantic
to be secured by certain of the Company's unencumbered Existing Properties
(including Existing Properties which will become unencumbered following the
application of the net proceeds from the Offering) and other properties to be
acquired by the Company. See "Use of Proceeds". Borrowings under the City
National Acquisition Line of Credit will bear interest at 225 basis points over
LIBOR and be due three years after the execution of a definitive loan document.
The City National Acquisition Line of Credit is expected to provide a revolving
line of credit for three years with interest due and payable monthly and
outstanding principal balance together with any accrued, unpaid interest due
upon maturity. In addition, the terms of the commitment for the City National
Acquisition Line of Credit allow the lender to cease funding and/or accelerate
the maturity date of the City National Acquisition Line of Credit if neither
Mr. Katzman nor Mr. Valero remains as the executives in control of the Company.
The Company expects that the City National Acquisition Line of Credit will be
subject to customary conditions, including, among other things, the payment of
commitment fees and the required delivery of various title, insurance, zoning
and environmental assurances on the secured properties, and will contain
various covenants, such as a prohibition on secondary financing on any of the
secured properties and a 70.0% loan to value requirement. The Company is also
negotiating a commitment with a certain financial institution for the Additional
Acquisition Line of Credit, a revolving line of credit of up to $100.0 million
to finance the acquisition, development and redevelopment of properties and for
general corporate purposes.
The Company has a line of credit from City National Bank of Florida in the
amount of $2.5 million which expires in May 1998 and is collateralized by the
Equity One Office Building. At December 31, 1997, no amount was outstanding
under this line of credit. The Company anticipates that this line of credit
will be terminated upon the effectiveness of the City National Acquisition Line
of Credit. Additionally, in connection with the Company's acquisition of Lake
Mary in 1995, the Company obtained a $1.5 million letter of credit from Barnett
Bank in order to guarantee certain development obligations. At December 31,
1997, no amount was drawn under this letter of credit.
The Company's principal demands for cash are expected to be acquisition,
development and redevelopment activities, maintenance, repair and tenant
improvements related to the Existing
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Properties, debt service and repayment obligations and distributions to its
stockholders. In particular, the Company intends to apply the proceeds of the
Offering to acquisitions, redevelopment and renovation as described under "Use
of Proceeds", and to continue the redevelopment of Sky Lake, and acquire and
develop Coral Way, primarily using available liquid assets, cash from
operations, then remaining proceeds of the Offering and borrowings under
available lines of credit.
The Company expects to meet certain long-term liquidity requirements such
as property acquisition and development, scheduled debt maturities,
renovations, expansions and other non-recurring capital improvements through
long-term secured and unsecured indebtedness and the issuance of debt or equity
securities. The Company also expects to use funds available under the
Acquisition Line of Credit to finance acquisition and development activities
and capital improvements on an as needed basis.
In order to qualify as a REIT for federal income tax purposes, the Company
is required to pay dividends to its stockholders of at least 95.0% of its net
taxable income. See "Federal Income Tax Considerations". The Company intends to
pay these dividends from operating cash flows which are expected to increase
due to future purchases and reduction in debt service resulting from the
repayment of certain of the Company's mortgage indebtedness with the proceeds
of the Offering, and anticipated future growth in rental revenues.
The Company anticipates that the cash reserves and the cash flow available
after the consummation of the Offering, together with the estimated net
proceeds from the Offering and drawings under the Acquisition Line of Credit,
will be adequate to meet the capital and liquidity needs of the Company for at
least 12 months. The Company's short-term liquidity will be enhanced by
Offering proceeds which initially will be temporarily invested and by the
income earned on such proceeds. For information with respect to Cash Available
for Distribution, see "Distribution Policy".
For a discussion of certain contingencies which could affect the Company's
liquidity and capital resources, see "Risk Factors--The Company Is Dependent
upon Certain Key Tenants", "--The Company Is Subject to Risks Associated with
the Real Estate Industry", "--Failure to Qualify as a REIT Would Cause the
Company to Be Taxed as a Regular Corporation", "--Costs of Compliance with Laws
Could Have an Adverse Effect on the Company" and "--The Company's Use of Debt,
Refinancing Needs, Increases in Interest Rates and an Absence of a Limitation
on Debt Could Adversely Affect the Company".
INFLATION
Most of the Company's leases contain provisions designed to mitigate the
adverse impact of inflation. Such provisions include clauses enabling the
Company to receive percentage rents based on a tenant's gross sales above
predetermined levels, which rents generally increase as prices rise, or
escalation clauses which are typically related to increases in the CPI or
similar inflation indices. Most of the Company's leases require the tenant to
pay its share of operating expenses, including common area maintenance, real
estate taxes and insurance, thereby reducing the Company's exposure to
increases in costs and operating expenses resulting from inflation.
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BUSINESS
GENERAL
The Company is a self-administered, self-managed REIT that principally
acquires, renovates, develops and manages Community and Neighborhood Shopping
Centers anchored by national and regional supermarket chains ("Supermarket
Centers"). The Company's portfolio consists of 15 Supermarket Centers, one drug
store anchored Neighborhood Shopping Center, one Community Shopping Center
which is being comprehensively redeveloped into a 300,000 square foot
Supermarket Center, two mixed-use (office/retail) properties, one office
building and one mini-warehouse facility (collectively, the "Existing
Properties"). The Existing Properties are located primarily in the Miami,
Orlando and Jacksonville metropolitan areas of Florida, and in Texas, and
contain an aggregate of 2.1 million square feet of GLA.
In January 1998, the Company acquired Lantana Village, a Performing
Supermarket Center, and has recently agreed to purchase Summerlin Square, a
Performing Supermarket Center consisting of 110,200 square feet of GLA located
in Fort Myers and Florida, and Beauclerc Village, a performing drug store
anchored neighborhood shopping center consisting of 67,930 square feet of GLA
located in Jacksonville, Florida.
The Company also owns an aggregate of approximately 6.25 acres of land
adjacent to certain of the Existing Properties and recently agreed to acquire
4.4 acres of vacant land located in Southwest Miami-Dade County, Florida, and
10.5 acres of vacant land as part of the acquisition of Summerlin Square,
substantially all of which is intended for retail development. The Company also
has an Option to purchase Coral Way, which property is commercially zoned and
has received county site plan approval for the development of a 100,000 square
foot Supermarket Center, and 6.7 acres of vacant land adjacent to certain of
the Existing Properties. The Option is exercisable by the Company for a period
of five years. See "Certain Transactions".
Supermarket Centers are anchored by national and regional supermarkets
such as Winn-Dixie (the fourth largest supermarket chain in the country),
Publix (the largest supermarket chain in Florida), Albertsons (the sixth
largest supermarket chain in the country) and Kroger (the largest supermarket
chain in the country). Other Anchor Tenants of the Company's Supermarket
Centers include national retailers such as K-Mart, Best Buy, Walgreens and
Eckerd. Non-Anchor Tenants of the Supermarket Centers include such well known
national and regional businesses as Einstein Bros. Bagels, Rainbow Shops,
Little Caesars, Boat US Marine, Video Avenue, General Nutrition Center, Radio
Shack, NationsBank, Play It Again Sports, Burger King and Chili's, as well as
local tenants such as Swim 'N Fun Pool Supply, Vision Works, Dollar General,
Rent A Center and United Consumer Club. The Company believes that supermarkets
and other Anchor Tenants offering daily necessity items generate regular
consumer traffic and enhance the performance and stability of a center. As of
December 31, 1997, the Company's supermarket Anchor Tenants, other Anchor
Tenants and other Non-Anchor Tenants contributed 22.9%, 22.3% and 54.8%,
respectively, of the Company's aggregate annualized minimum rents and accounted
for approximately 30.2%, 21.7% and 48.1%, respectively, of GLA.
The Company was organized in June 1992 under the laws of the State of
Maryland to acquire Supermarket Centers in high growth, densely populated areas
throughout the Southeast generating stable cash flows and long-term value. The
Company selects properties for acquisition or development which have, or are
suitable for, supermarket and other Anchor Tenants, and are adaptable over time
for expansion, renovation and redevelopment. In order to take advantage of
property management operating efficiencies and present attractive leasing
opportunities to tenants who seek multiple locations in an area, the Company
also targets properties proximate to its other properties. All properties must
be well located and have high visibility, open air designs, ease of entry and
exit and ample parking. The Company acquires both Performing Supermarket
Centers, which typically are substantially fully leased, appropriately tenanted
and well maintained, and Underperforming Supermarket Centers which meet the
Company's turnaround criteria. In acquiring Performing Supermarket Centers, the
Company
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requires attractive and sustainable rates of return, and in acquiring
Underperforming Centers, the Company seeks opportunities to increase revenues
primarily through renovation and retenanting.
The Company believes that its management team possesses the experience and
expertise necessary to identify, acquire, renovate, develop and manage
additional Supermarket Centers. The Company's principal senior executives and
property managers average 15 years experience in the real estate industry and
have acquired and managed all the Existing Properties. Management believes that
it has cultivated strong relationships with supermarkets and other Anchor
Tenants which, in combination with its in-depth knowledge of the Company's
primary markets, has contributed substantially to the Company's success in
identifying, acquiring and operating its properties.
Since its formation, the Company has experienced sustained growth in its
real estate portfolio, revenues and net income. From December 31, 1993 to
December 31, 1997, the Company increased total assets and GLA to $126.9 million
and 2.0 million square feet, respectively, from $28.5 million and 600,000
square feet, respectively. For the year ended December 31, 1997, total revenues
and net income increased to $20.5 million and $6.2 million, respectively, from
$2.1 million and $49,000, respectively, for the year ended December 31, 1993.
For a discussion of the growth in the Company's FFO see "Selected Consolidated
Financial Data".
BUSINESS AND GROWTH STRATEGIES
GENERAL. The Company intends to maximize total return to stockholders by
increasing cash flow per share and maximizing the value of its real estate
portfolio. The Company believes it can achieve this objective primarily through
the acquisition, renovation, development and management of Supermarket Centers
and other properties which meet the Company's investment criteria. The Company
also believes it has certain competitive advantages which enhance its ability
to capitalize on acquisition opportunities, including: (i) management's
significant local market experience and expertise; (ii) the Company's
long-standing relationships with real estate brokers, tenants and institutional
and other real estate owners in its current target markets; (iii) a streamlined
acquisition process; (iv) access to capital; and (v) the ability to offer cash
and tax advantaged structures to sellers.
The Company intends to maintain significant flexibility with respect to
the form of its acquisition transactions, using cash available from operations
or lines of credit for sellers who seek immediate liquidity, as well as
tax-advantaged partnership structures to attract tax-motivated sellers. Such
structures may include entering into joint ventures or other types of
co-ownership with the sellers, whether in the form of limited partnership,
limited liability companies, or otherwise, with the Company expected to acquire
the controlling interests in such ventures. The sellers may be offered
interests in the ventures which are convertible or exchangeable for shares of
Common Stock or otherwise allow the seller to participate in the financial
condition of the Company. The Company may in the future acquire all or
substantially all of the securities of other REITs or similar entities when
such investments would be consistent with the Company's investment objectives.
The Company's principal business and growth strategies are as follows:
ACQUISITION OF PERFORMING SUPERMARKET CENTERS. The Company intends to
acquire Performing Supermarket Centers throughout the Southeast that offer
attractive and sustainable rates of return having demographic characteristics
similar to those of its present markets. Examples of the Company's acquisitions
of Performing Supermarket Centers include (i) Lantana Village in 1998, (ii)
West Lake and Forest Edge in 1996, (iii) Lake Mary and Point Royale in 1995 and
(iv) Bird Ludlum in 1994. The Company will target Performing Supermarket
Centers which are adaptable to expansion, renovation and redevelopment, and, in
order to maximize property management efficiencies and present attractive
leasing opportunities to tenants who seek multiple locations in one area, are
located proximate to other Company owned Supermarket Centers or to one another.
The Company will seek Supermarket Centers which offer daily necessities and
value-oriented merchandise and have high visibility, open-air designs, ease of
entry and exit and ample parking. Given the Company's relationship with certain
Anchor
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Tenants, particularly supermarkets, and its operational expertise, the Company
anticipates that it will be able to enhance the performance of properties
satisfying its acquisition criteria.
The Company has recently entered into an agreement to acquire Summerlin
Square for approximately $10.0 million. Summerlin Square is a Performing
Supermarket Center located in Fort Myers, Florida, which contains 110,200
square feet of GLA, as well as two parcels containing an aggregate of 10.5
acres of adjacent vacant land, represents aggregate annualized minimum rental
revenues of approximately $1.1 million and is anchored by Winn-Dixie and
Rite-Aid. The vacant land adjacent to Summerlin Square is commercially zoned
and intended for retail development. The Company has also entered into an
agreement to acquire Beauclerc Village subject to the satisfaction of certain
conditions, for approximately $3.0 million. Beauclerc Village is a performing
drug store anchored neighborhood shopping center which contains 67,930 square
feet of GLA representing aggregate annualized minimum rental revenues of
approximately $300,000 and is anchored by a Walgreens. The Company anticipates
that both of these acquisitions will be consummated by May 1998; however, there
is no assurance that the acquisitions will be consummated.
The Company has developed an integrated methodology for sourcing and
completing acquisitions, with legal and operational analyses efficiently
coordinated by in-house employees. The Company believes it has favorable access
to potential acquisition opportunities by virtue of its relationships with
brokers, tenants, financial institutions, development agencies, contractors,
and others involved in the real estate market. Additionally, the Company
believes that as institutional investors in real estate become less willing to
own and manage significant real estate assets and more comfortable with
indirect investments, such institutions will become significant sellers of
properties and the Company will be an attractive purchaser in its target
markets. The Company conducts its review procedures with the full participation
of the Company's senior officers, which, combined with the Company's access to
capital and knowledge of existing markets, allows the Company to make expedited
determinations and consummate transactions quickly.
When evaluating potential acquisitions and development projects, the
Company considers such factors as (i) economic, demographic, and regulatory and
zoning conditions in the property's local and regional market; (ii) the
location, construction quality, and design of the property; (iii) the current
and projected cash flow of the property and the potential to increase cash
flow; (iv) Anchor Tenants' and other tenants' gross sales per square foot
measured against industry standards; (v) the potential for capital appreciation
of the property; (vi) the terms of tenant leases, including the relationship
between the property's current rents and market rents and the ability to
increase rents upon lease rollover; (vii) the occupancy and demand by tenants
for properties of a similar type in the market area; (viii) the potential to
complete a strategic renovation, expansion, or retenanting of the property;
(ix) the property's current expense structure and the potential to increase
operating margins; (x) the ability of the Company to subsequently sell or
refinance the property; and (xi) competition from comparable retail properties
in the market area.
ACQUISITION OF UNDERPERFORMING SUPERMARKET CENTERS. The Company intends to
acquire Underperforming Supermarket Centers that meet the Company's turnaround
criteria, which includes having the potential to increase revenues and
operating cash flows through renovation and retenanting. Underperforming
Supermarket Centers are typically undercapitalized, poorly managed and/or
poorly maintained and may require significant capital improvements. The Company
also requires favorable location and market demographics, availability on
attractive terms, and willingness of supermarket and other Anchor Tenants to
commit to lease space. The Company believes that its market knowledge, its
strong relationships with supermarkets and other Anchor Tenants and its
capabilities in renovation and redevelopment, are particularly integral to its
ability to acquire and reposition Underperforming Supermarket Centers.
When evaluating such acquisitions, the Company considers factors similar
to those applied in the acquisition of Performing Supermarket Centers, and will
complete such acquisitions only after a careful due diligence process,
including an in-depth study of the reasons for the center's failure to perform,
the
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community demographics, the costs of renovation or redevelopment, and the
willingness of acceptable Anchor Tenants and other tenants to commit to the
site. Similarly, the Company believes that its competitive advantage is
enhanced by its ability to conduct an efficient due diligence investigation and
to commit to and fund an acquisition that is structured so as to meet the
requirements of a seller with respect to receiving cash or tax deferred
benefits. In addition, the Company's relationships with Anchor Tenants, who are
familiar with the Company's commitment to quality construction, maintenance and
operations, aids it in obtaining preleasing expressions of interest before the
decision to acquire the property is made.
Examples of the Company's ability to enhance Underperforming Supermarket
Centers include East Bay, Four Corners and Parker Towne. East Bay, which was
acquired in July 1993 at a 48.0% occupancy rate, was 88.0% occupied at December
31, 1997; Four Corners, which was acquired in January 1993 at a 76.0% occupancy
rate, was 93.3% occupied at December 31, 1997; and Parker Towne, which was
acquired in December 1993 at a 40.0% occupancy rate, was 65.7% occupied at
December 31, 1997. While the Company has increased occupancy at Parker Towne by
64.2% and redeveloped space since its acquisition, the retenanting of Parker
Towne is proceeding at a slower pace than anticipated.
In addition, the acquisition of Underperforming Supermarket Centers
frequently provides the Company with an opportunity to buy adjacent undeveloped
land whose value is depressed by proximity to the Underperforming Supermarket
Center and can be enhanced by the Company's rehabilitation program.
REDEVELOPMENT AND DEVELOPMENT OF SUPERMARKET CENTERS. The Company will
redevelop existing and develop new Supermarket Centers with characteristics
similar to those of the Existing Properties. The Company will consider
development only if the overall economics of developing a property appear to be
more favorable than acquiring and/or redeveloping an existing property. For
example, the Company acquired Sky Lake, which is being comprehensively
redeveloped into a 300,000 square foot Supermarket Center. The redevelopment is
expected to cost $18.4 million and to be completed by September 1999. In
addition, the Company owns 6.25 acres of land adjacent to certain of the
Existing Properties, substantially all of which is intended for retail
development. The Company also has agreed to acquire 4.4 acres of vacant land
located in Southwest Miami-Dade County, Florida for future development,
contingent upon, among other things, the rezoning of such property for
commercial use. Additionally, the Company has agreed to acquire an aggregate of
10.5 acres of vacant land intended for future development in connection with its
purchase of Summerlin Square, and has an Option to purchase Coral Way, which has
received site plan approval for development of a 100,000 square foot Supermarket
Center. Although the Company intends to complete pending property acquisitions
upon satisfaction of conditions and to exercise the Option for Coral Way, there
is no assurance the pending property acquisitions will be consummated or the
Option will be exercised.
The Company has not previously developed shopping centers and has not had
extensive experience in redeveloping properties, although it has done so on
both a whole property basis, such as the redevelopment of the Diana Building,
as well as on an individual basis in order to meet specific tenant needs
including at Parker Towne, where more than 100,000 square feet have been
redeveloped as leased. In addition, members of management cumulatively have
extensive experience in development and redevelopment activities.
Although the Company previously has concentrated on the acquisition of
existing Supermarket Centers, the Company believes that, as a result of
changing market conditions, development and redevelopment will provide
significant growth opportunities in the future. Accordingly, it may acquire or
option parcels of land in its target markets which are likely to be subject to
increased development. In connection with its development activities, the
Company has recently hired a licensed architect and general contractor to head
its development department and is in the process of retaining at least one
additional full-time employee to support its development and redevelopment
operations. See "Risk Factors--The Company Is Subject to Risks Associated with
Construction and Development Activities" and "Management".
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INCREASING REVENUES AND IMPROVING OPERATING MARGINS. The Company will
continue to seek to improve the financial performance of its portfolio by
increasing revenues (through increased occupancy and/or rental rates),
maintaining high tenant retention rates (i.e., the percentage of tenants who
renew their leases upon expiration), replacing certain existing tenants when
necessary with more creditworthy tenants, and aggressively managing operating
expenses. Increased competition, changes in economic conditions and declines in
tenant retention levels could adversely affect the Company's ability to improve
the financial performance of its property portfolio. Most of the Company's
lease agreements provide for percentage rents, indexed rent increases (based on
CPI or other criteria) and/or have scheduled rent escalations. While the
Company believes that substantially all its properties are in desirable
locations that are experiencing rising rents, low vacancy rates, and increased
demand, allowing the Company to renew leases, or relet space under expired
leases, at favorable rents, any significant increases in vacancy rates and/or
decreases in demand could adversely affect the Company's ability to renew such
leases, or relet space under expired leases, at favorable rates. There is no
assurance that such trends will continue.
The Company has developed strong relationships with its Anchor Tenants by
continually striving to promote tenant satisfaction by anticipating and
responding to their requirements. A number of the Company's Anchor Tenants have
evidenced this satisfaction by expanding their leased space within the
Company's properties. For example, at Commonwealth, the Company has invested
$1.3 million to expand Winn-Dixie's space by 12,000 square feet, and in return
Winn-Dixie (i) will increase its annual minimum rent by approximately $144,000,
starting March 1998 and (ii) extend its lease for an additional 20-year period.
See "Use of Proceeds". In addition, the Company seeks to increase operating
results through the strategic renovation and/or expansion of properties which
are typically adaptable for varied tenant layouts and can be reconfigured to
accommodate new tenants or the changing space needs of existing tenants.
In three instances, drug store Anchor Tenants have vacated their leased
space, although they continue to be bound by the terms of their leases and make
lease payments to the Company. The Company may seek to obtain replacement
tenants with respect to these leased spaces with rental rates at least equal to
or exceeding those currently being paid by such drug store Anchor Tenants. In
the event any of such drug store Anchor Tenants terminates its lease with the
Company, the Company believes that it could relet the revelant space on terms
substantially similar or more favorable than the existing leases. See "Risk
Factors--The Company is Subject to Risks Involving Litigation with Albertsons"
and "Legal Proceedings".
OTHER ACQUISITIONS. The Company may from time to time acquire or develop,
on a highly selective basis, other types of income-producing commercial
properties in markets in which the Company has significant expertise and which
present superior opportunities for a return on its investment. An example of
such opportunistic acquisitions is the Equity One Office Building in Miami
Beach, Florida. The office building was purchased in April 1992 when it was
unoccupied and as of December 31, 1997 was 100% occupied and generating
annualized revenue of approximately $480,000, as well as providing the
Company's 3,000 square foot executive offices rent free. See "Redevelopment and
Development Properties".
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MARKET DATA
GENERAL
The Company retained Lesser, nationally recognized experts in real estate
consulting and urban economics, to assess the economic and demographic
characteristics of the State of Florida, as well as the three metropolitan
areas in Florida (Miami, Jacksonville and Orlando) in which 19 of the 21
Existing Properties are located. The discussion of these markets set forth
below is derived from the findings set forth in the Lesser Market Overview. The
selected economic and demographic characteristics (population, employment,
retail sales and food store sales) are key factors which indicate the strength
of a market for owning and operating Supermarket Centers. While the Company
believes that Lesser's views of economic and demographic trends in these areas
are reasonable, there can be no assurance that these trends will in fact
continue.
POPULATION
Florida represented approximately 5.4% of the total population of the
United States or 14.6 million people, ranking it as the fourth largest state in
the nation. For the period 1990 to 1997, the total population of Florida
increased by approximately 1.7% annually, as compared to an approximately 1.0%
increase nationwide and a 1.4% increase throughout the Southeastern United
States. Orlando, Jacksonville and Miami, which are the Company's key
sub-markets in Florida, have experienced annual population growth rates of
2.3%, 1.7% and 1.1%, respectively, each of which is higher than the national
average. Orlando was the sixth fastest growing major metropolitan area in the
United States between 1990 and 1997. For the period 1997 to 2002, population in
Florida is expected to increase annually by 1.4%. In the submarkets of Orlando,
Jacksonville and Miami population is expected to experience annual population
growth rates of 2.0%, 1.8% and 1.1%, respectively, as compared to an annual
population growth rate nationwide of 0.9% and an annual growth rate of 1.2%
throughout the Southeast.
TOTAL POLULATION AND ANNUAL GROWTH RATES
UNITED STATES
1990 248.7 248,709,872
1997 267.2 267,240,272 1.0%
2002 279.3 279,315,904 0.9%
SE STATES (1)
1990 53.8 53,780,528
1997 59.2 59,186,764 1.4%
2002 62.8 62,828,952 1.2%
FLORIDA
1990 12.9 12,937,926
1997 14.6 14,564,508 1.7%
2002 15.6 15,644,470 1.4%
JACKSONVILLE
1990 0.9 906,727
1997 1.0 1,021,984 1.7%
2002 1.1 1,117,149 1.8%
MIAMI
1990 1.9 1,937,094
1997 2.1 2,O92,559 1.1%
2002 2.2 2,208,164 1.1%
ORLANDO
1990 1.2 1,224,852
1997 1.4 1,438,297 2.3%
2002 1.6 1,585,255 2.0%
SOURCE: Claritas Inc.; Robert Charles Lesser & Co.
(1) Southeast states include VA, NC, SC, GA, FL, AL, TN, MS, AR, AND LA.
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EMPLOYMENT
For the period 1990 to 1997, employment in Florida increased annually by
2.5%, as compared to an annual growth rate of 1.6% nationwide and an annual
growth rate of 2.2% throughout the Southeastern United States. In the
submarkets of Orlando, Jacksonville and Miami, employment increased annually by
3.7%, 2.8% and 1.3%, respectively. For the period 1997 to 2002, employment in
Florida is expected to increase annually by 1.9%, as compared to an annual
employment growth rate nationwide of 1.3% and an annual employment growth rate
of 1.4% throughout the Southeast. In the submarkets of Orlando, Jacksonville
and Miami, employment is expected to increase annually by 2.2%, 1.3% and 1.5%,
respectively.
TOTAL EMPLOYMENT AND ANNUAL GROWTH RATES
UNITED STATES
1990 109.4 109,400,000
1997 122.1 122,090,000 1.6%
2002 130.4 130,370,000 1.3%
SE STATES (1)
1990 23.2 23,216,400
1997 27.0 26,992,220 2.2%
2002 29.0 28,985,100 1.4%
FLORIDA
1990 5.4 5,387,290
1997 6.4 6,393,380 2.5%
2002 7.0 7,023,440 1.9%
JACKSONVILLE
1990 0.4 423,760
1997 0.5 514,800 2.8%
2002 0.5 548,980 1.3%
MIAMI
1990 0.9 881,170
1997 1.0 963,990 1.3%
2002 1.0 1,036,750 1.5%
ORLANDO
1990 0.6 610,180
1997 0.8 787,170 3.7%
2002 0.9 875,630 2.2%
SOURCE: Regional Financial Associates; Robert Charles Lesser & Co.
(1) Southeast states include VA, NC, SC, GA, FL, AL, TN, MS, AR, AND LA.
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RETAIL SALES
For the period 1990 to 1997, retail sales in Florida increased annually by
6.2%, as compared to an annual growth rate of 4.8% nationwide and an annual
growth rate of 5.8% throughout the Southeastern United States. In the
submarkets of Orlando, Jacksonville and Miami, retail sales increased annually
by 7.1%, 5.8% and 5.3%, respectively, each of which is higher than the national
average. For the period 1997 to 2002, retail sales in Florida are expected to
increase annually by 6.4%, as compared to 5.5% nationwide and 5.7% throughout
the Southeast. In the submarkets of Orlando, Jacksonville and Miami, retail
sales are expected to increase annually by 6.7%, 5.1% and 5.0%, respectively.
RETAIL SALES AND ANNUAL GROWTH RATES
UNITED STATES
1990 $1,845 1,845.1
1997 $2,560 2,559.9 4.8%
2002 $3,353 3,352.6 5.5%
SE STATES (1)
1990 $398 397.8
1997 $592 592.2 5.8%
2002 $780 780.5 5.7%
FLORIDA
1990 $112 111.6
1997 $170 169.8 6.2%
2002 $232 231.5 6.4%
JACKSONVILLE
1990 $7 7.4
1997 $11 11.0 5.8%
2002 $14 14.2 5.1%
MIAMI
1990 $16 16.5
1997 $24 23.6 5.3%
2002 $30 30.1 5.0%
ORLANDO
1990 $12 11.5
1997 $19 18.6 7.1%
2002 $26 25.8 6.7%
SOURCE: Regional Financial Associates; Robert Charles Lesser & Co.
(1) Southeast states include VA, NC, SC, GA, FL, AL, TN, MS, AR, AND LA.
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FOOD STORE SALES
For the period 1990 to 1997, food store sales in Florida increased
annually by 3.4%, as compared to an annual growth rate of 2.3% nationwide and
3.5% throughout the Southeastern United States. In the submarkets of Orlando,
Jacksonville and Miami, food store sales increased annually by 6.6%, 4.1% and
2.5%, respectively.
FOOD STORE SALES AND ANNUAL GROWTH RATES
IN MILLIONS 1,000,000
UNITED STATES
1990 362,667 362,667
1997 424,091 424,091 2.3%
2002
SE STATES (1)
1990 78,041 78,041
1997 99,107 99,107 3.5%
2002
FLORIDA
1990 20,231 20,231
1997 25,542 25,542 3.4%
2002
JACKSONVILLE
1990 1,303 1,303
1997 1,724 1,724 4.1%
2002
MIAMI
1990 2,705 2,705
1997 3,214 3,214 2.5%
2002
ORLANDO
1990 1,701 1,701
1997 2,666 2,666 6.6%
2002
SOURCE: Sales and Marketing Management; Robert Charles Lesser & Co.
(1) Southeast states include VA, NC, SC, GA, FL, AL, TN, MS, AR, AND LA.
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THE PROPERTIES
The Existing Properties consist primarily of Supermarket Centers and
contain an aggregate of approximately 2.1 million square feet of GLA. As of
December 31, 1997, the Existing Properties (excluding Lantana Village, which
was acquired by the Company in January 1998) were 93.0% leased to approximately
376 tenants (not including 505 tenants of the Company's mini-warehouse
facility). All the Supermarket Centers were developed after 1982. See "--Lease
Expirations", "--Competition" and "Policies with Respect to Certain
Activities--Investment Policies". See also "--Additional Information Concerning
the Existing Properties" and "Use of Proceeds" for a discussion of renovations
and improvements contemplated for certain of the Existing Properties.
The following table sets forth certain information relating to the
Existing Properties as of December 31, 1997. All references to net rent per
square foot are calculated without giving effect to vacant space, unless
otherwise specified.
<TABLE>
<CAPTION>
NET
OPERATING
INCOME
NUMBER FOR THE
OF YEAR ENDED
DATE TENANTS DECEMBER 31,
PROPERTY(1) ACQUIRED GLA (UNITS) 1997
- -------------------- -------------- --------------- --------- -----------------
<S> <C> <C> <C> <C>
SOUTH FLORIDA
Bird Ludlum August 11, 192,327 48 $2,326,820
Shopping Center 1994
Miami, FL
Plaza Del Rey December 50,146 20 $ 576,998
Shopping Center 1992
Miami, FL
Pointe Royale July 27, 199,068 21 $1,013,789
Shopping Center(2) 1995
Miami, FL
Pointe Royale July 27, 18,000(3) -- --
Office Building 1995
Miami, FL
West Lake Plaza November 6, 100,747 26 $ 860,461
Shopping Center(2) 1996
Miami, FL
Diana Building February 15, 18,707 4 $ 75,683
W. Palm 1995
Beach, FL
Equity One April 10, 28,980(4) 10 $ 286,812
Office Building 1992
Miami Beach, FL
Sky Lake August 19, 60,839(5) 18 $ 266,956(6)
N. Miami 1997
Beach, FL
CENTRAL FLORIDA
East Bay Plaza July 23, 81,826 18 $ 336,705
Largo, FL 1993
Eustis Square October 22, 126,791 21 $ 722,057
Shopping Center 1993
Eustis, FL
Forest Edge December 31, 68,631 13 $ 374,901
Shopping Center 1996
Orlando, FL
<CAPTION>
AVERAGE AVERAGE
MINIMUM MINIMUM
BASE BASE INITIAL
RENT PER RENT PER ACQUISITION &
SQ. FT. SQ. FT. REDEVELOPMENT PERCENT CERTAIN TENANTS
PROPERTY(1) (ANCHORS) (LOCALS) COSTS LEASED LEASE EXPIRATION DATES
- -------------------- ----------- ---------- --------------- --------- -------------------------------
<S> <C> <C> <C> <C> <C>
SOUTH FLORIDA
Bird Ludlum $ 11.55 $ 13.56 $20,397,500 100% Winn-Dixie (2007),
Shopping Center Eckerd (2007), Blockbuster
Miami, FL Video (2003), Vision
Works (2008), Rainbow
Shops (2003), GNC (2001),
Radio Shack (2000), Boat
U.S. Marine (1998), Barnett
Bank (1998)
Plaza Del Rey $ 9.59 $ 12.82 $ 3,831,000 98% Navarro (2001),
Shopping Center Rent A Center (2000)
Miami, FL
Pointe Royale $ 4.14 $ 9.78 $ 8,725,000 100% Best Buy (2010),
Shopping Center(2) Winn-Dixie (2011),
Miami, FL Dollar Bills (2004)
Household Finance
Company (2001)
Pointe Royale -- -- -- -- --
Office Building
Miami, FL
West Lake Plaza $ 8.41 $ 11.97 $ 7,930,000 100% Winn-Dixie (2016),
Shopping Center(2) Burger King (2007),
Miami, FL United Consumer
Club (1998)
Diana Building $ 14.76 $ 14.06 $ 1,514,000 55% Fat Tuesday's (2001)
W. Palm
Beach, FL
Equity One -- $ 12.29 $ 1,748,000 100% City of Miami Beach
Office Building Parking Department (1998)
Miami Beach, FL
Sky Lake $ 18.23 $ 11.85 $11,722,000 100% Humana (1998)
N. Miami First Union (2001)
Beach, FL McDonalds (2016)
CENTRAL FLORIDA
East Bay Plaza $ 6.88 $ 7.94 $ 1,610,000 88% Scottys (2001), Albertsons(7),
Largo, FL Hollywood Video (2007)
Eustis Square $ 5.73 $ 10.48 $ 7,249,000 91% Publix (2004), Bealls (2005),
Shopping Center Walgreens (2024)(3),
Eustis, FL US Pak N Ship (1999)
Forest Edge $ 5.78 $ 9.99 $ 3,100,000 100% Winn-Dixie (2007),
Shopping Center AutoZone (2006)
Orlando, FL
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
NET
OPERATING AVERAGE
INCOME MINIMUM
NUMBER FOR THE BASE
OF YEAR ENDED RENT PER
DATE TENANTS DECEMBER 31, SQ. FT.
PROPERTY(1) ACQUIRED GLA (UNITS) 1997 (ANCHORS)
- ----------------------- -------------- ------------ --------- ------------------- -----------
<S> <C> <C> <C> <C> <C>
Lake Mary November 9, 288,450 51 $3,005,855 $ 9.71
Shopping Centre 1995
Lake Mary, FL
NORTH FLORIDA
Atlantic Village June 30, 100,559 24 $ 775,619 $ 5.15
Shopping Center(8)(9) 1995
Atlantic Beach, FL
Commonwealth February 28, 71,021 14 $ 419,744 $ 6.10
Shopping Center 1994
Jacksonville, FL
Fort Caroline January 21, 74,546 9 $ 464,683 $ 6.69
Trading Post(10) 1994
Jacksonville, FL
Monument Pointe January 31, 75,328 15 $ 385,283(11) $ 4.90
Shopping Center 1997
Jacksonville, FL
Oak Hill Village December 7, 78,492 19 $ 465,989 $ 5.15
Shopping Center 1995
Jacksonville, FL
Mandarin Mini-Storage May 10, 52,880 505 $ 215,412 --
Jacksonville, FL 1994
TEXAS
Four Corners January 22, 115,178 24 $ 852,353 $ 8.39
Shopping Center 1993
Tomball, TX
Parker Tower Centre December 9, 201,927 21 $ 467,077 $ 4.22
Plano, TX 1993
Total/Weighted
Average 2,004,443 881 $13,893,197 $ 6.91
========= === ============= ======
RECENTLY ACQUIRED/
PROPOSED ACQUISITION
PROPERTIES
Lantana Village January 1998 85,300 26 $ 683,030 $ 7.75
Shopping Center
Lantana, FL
Summerlin Square(12) (12) 97,806 25 $ 969,819 $ 6.12
Shopping Center
Fort Myers, FL
Beauclerc Village(12) (12) 66,575 10 $ 386,371 $ 5.33
Shopping Center
Jacksonville, FL
<CAPTION>
AVERAGE
MINIMUM
BASE INITIAL
RENT PER ACQUISITION &
SQ. FT. REDEVELOPMENT PERCENT CERTAIN TENANTS
PROPERTY(1) (LOCALS) COSTS LEASED LEASE EXPIRATION DATES
- ----------------------- ---------- --------------- --------------- ---------------------------------
<S> <C> <C> <C> <C>
Lake Mary $ 13.27 $ 20,850,000 99% K-Mart (2013),
Shopping Centre Albertsons (2012),
Lake Mary, FL General Cinema (2010),
Play It Again Sports (1998),
Chili's (2010), Einstein Bros.
Bagels (2001), NationsBank
(2008), Swim N Fun (2001)
NORTH FLORIDA
Atlantic Village $ 11.12 $ 5,950,000 94% Publix (2004), Blockbuster
Shopping Center(8)(9) Music (2001), Village Shoe
Atlantic Beach, FL Box (1999)
Commonwealth $ 7.81 $ 3,650,000 95% Winn-Dixie (2017), Subway
Shopping Center (1998)
Jacksonville, FL
Fort Caroline $ 8.57 $ 3,705,000 92% Winn-Dixie (2015),
Trading Post(10) Eckerd (2004),
Jacksonville, FL McDonalds (2018)
Monument Pointe $ 10.56 $ 3,731,000 98% Winn-Dixie (2005), Eckerd
Shopping Center (2005), First Union (1998),
Jacksonville, FL
Oak Hill Village $ 9.41 $ 3,450,000 100% Publix (2005),
Shopping Center Walgreens (2019)(9),
Jacksonville, FL BlockbusterVideo (1999),
Little Caesars (2000)
Mandarin Mini-Storage $ 5.58 $ 1,810,000 95% --
Jacksonville, FL
TEXAS
Four Corners $ 9.80 $ 4,750,000 93% Kroger (2005), Eckerd
Shopping Center (2004),
Tomball, TX Wendy's (2010), Mailboxes
Etc. (2007),
Rent A Center (1999)
Parker Tower Centre $ 6.56 $ 4,157,000 66% Minyards (2011),
Plano, TX Blockbuster Video (2002),
Dollar General (2000)
Total/Weighted
Average $ 10.73 $119,879,500 93%
======= ============ ===
RECENTLY ACQUIRED/
PROPOSED ACQUISITION
PROPERTIES
Lantana Village $ 12.77 $ 6,750,000 100% Winn-Dixie (2011), Rite-Aid
Shopping Center (2015), Denny's (2004)
Lantana, FL
Summerlin Square(12) $ 20.36 $ 10,000,000 96%(13) Winn-Dixie (2006), Eckerd
Shopping Center (2006)
Fort Myers, FL
Beauclerc Village(12) $ 10.51 $ 3,000,000 100%(13) Walgreens (2003), Old
Shopping Center America (2009),
Jacksonville, FL Big Lots (1999)
</TABLE>
- --------------
(1) Does not include any redevelopment and development properties other than
Sky Lake.
(2) Eckerd has vacated these sites, but continues to make lease payments.
(3) Represents GLA following redevelopment. See "Use of Proceeds".
(4) Includes 3,000 square feet of GLA occupied by the Company.
(5) Does not include 240,000 square feet of vacant GLA which is to be
redeveloped. See "--Redevelopment and Development Properties" and "Use of
Proceeds".
(6) Represents net operating income for the four and one half months ended
December 31, 1997.
(7) Albertsons is located on property contiguous to the Company's property not
owned by the Company. Accordingly, Albertsons does not pay base rent or
make payments to the Company for common area maintenance and similar
charges at this location.
(8) Walgreens has vacated this site, but continues to make lease payments.
(9) Pursuant to its lease agreement, Walgreens may terminate the lease in
2004.
(10) Since its acquisition in 1994, Winn-Dixie's space has been increased by an
aggregate of 7,200 square feet.
(11) Represents NOI for the eleven months ended December 31, 1997.
(12) Under contract to purchase.
(13) Represents percent leased as of the date of contract.
55
<PAGE>
REDEVELOPMENT AND DEVELOPMENT PROPERTIES
EXISTING PROPERTY
SKY LAKE. In August 1997 the Company acquired Sky Lake, an existing
Community Shopping Center, for $11.8 million. Sky Lake is located in the North
Miami Beach, Florida area. Approximately 150,000 residents with household
incomes averaging $51,000 are located within a three mile radius of Sky Lake.
The Company is conducting a comprehensive redevelopment program at Sky Lake to
create a Supermarket Center containing 300,000 square feet of GLA. The Company
expects that the redevelopment will cost approximately $18.4 million and will
occur in several phases which are expected to be completed by September 1999.
The Company has entered into an agreement with Publix for the lease of 51,000
square feet of redeveloped GLA at Sky Lake. During the redevelopment, the
Company expects to receive certain rental revenue from tenants who will
continue operations during the redevelopment process. As of December 31, 1997,
61,000 square feet of such GLA, representing approximately $738,000 of
aggregate annualized minimum rental revenue, had been leased, substantially all
of which related to out-parcels located on the property.
LAND FOR DEVELOPMENT. The Company owns 6.25 acres of vacant land adjacent
to certain of the Existing Properties, substantially all of which the Company
intends to develop as retail space. The Company expects to commence
construction on 5.0 acres adjacent to Lake Mary and 0.5 acres adjacent to
Commonwealth within three months following the Offering. The Company expects to
complete these projects by December 1998, at a cost of approximately $3.0
million and $450,000, respectively, using proceeds of the Offering. In
addition, the Company has agreed to acquire (i) 4.4 acres of land located in
Southwest Miami-Dade County, Florida for future development contingent upon,
among other things, the rezoning of such property for commercial use and (ii)
an aggregate of 10.5 acres of vacant land located in Fort Myers, Florida for
future development as part of its acquisition of Summerlin Square.
OPTION PROPERTY
CORAL WAY. The Company has an Option, exercisable for a period of five
years from the consummation of the Offering, to acquire 10.0 acres of vacant
land at Coral Way for $2.0 million. Coral Way is commercially zoned and has
received county site plan approval for the development of a 100,000 square foot
Supermarket Center. Coral Way is located in a newly rezoned high growth area of
Southwest Miami-Dade County, Florida. The Company intends to exercise this
Option and develop this property as a Supermarket Center to be completed by
December 1999. The acquisition and development costs of Coral Way are
anticipated to be $12.0 million. See "Certain Transactions".
LAND FOR DEVELOPMENT. The Company also has an Option, exercisable for a
period of five years from the consummation of the Offering, to purchase 0.50
acres of vacant land adjacent to the Equity One Office Building, which property
is commercially zoned, and 6.20 acres of vacant land adjacent to Bird Ludlum,
which property is residentially zoned, for a purchase price of $1.7 million and
$1.1 million, respectively.
56
<PAGE>
The following table provides additional information with respect to
properties held for redevelopment and development and properties under Option.
<TABLE>
<CAPTION>
NUMBER OF DEVELOPABLE CURRENT
PROPERTY LOCATION ACREAGE PARCELS SQUARE FEET ZONING
- ----------------------------------------------------- ------------------ --------- ----------- --------------- ------------
<S> <C> <C> <C> <C> <C>
REDEVELOPMENT/ DEVELOPMENT
PROPERTIES
Sky Lake(1) ......................................... Miami-Dade, FL 24.00 1 285,000 Retail
Sky Lake(1) ......................................... Miami-Dade, FL 1.50 2 15,000 Retail
Adjacent to Commonwealth ............................ Jacksonville, FL 0.50 1 6,000 Retail
Adjacent to Fort Caroline ........................... Jacksonville, FL 0.50 1 7,000 Retail
Adjacent to Oak Hill ................................ Jacksonville, FL 0.25 1 6,000 Retail
Adjacent to Lake Mary ............................... Lake Mary, FL 5.00 1 70,000 Retail
Adjacent to Lantana Village ......................... Lantana, FL 0.50 1 6,000 Retail
Vacant Land(2) ...................................... Miami-Dade, FL 4.40 2 40,000 Retail
Vacant Land(3) ...................................... Fort Myers, FL 10.00 1 90,000 Retail
Vacant Land(3) ...................................... Fort Myers, FL 0.50 1 5,000 Retail
----- - -------
Total--Redevelopment/Development Properties ......... 47.15 12 435,000
----- -- -------
OPTION PROPERTIES
Coral Way (4) ....................................... Miami-Dade, FL 10.00 1 100,000 Retail
Adjacent to Bird Ludlum ............................. Miami, FL 6.20 1 150 Units Residential
Adjacent to Equity One Office Building .............. Miami Beach, FL 0.50 2 50,000 Office
----- -- ---------
Total--Option Properties ............................ 16.70 4 150,000
----- -- ---------
Total ............................................... 63.85 16
===== ==
</TABLE>
- ----------------
(1) See "Additional Information Concerning the Existing Properties".
(2) Under contract to purchase.
(3) Represents commercially zoned vacant land adjacent to Summerlin Square,
which is currently under a contract to purchase.
(4) The Company intends to exercise the Option to purchase this property and
expects that development of this property will be completed by December
1999.
There can be no assurance that Sky Lake, Coral Way or any other
acquisition, redevelopment or development project will be completed or, if
completed, will be successful. See "Policies with Respect to Certain
Activities--Development Policies" and "Use of Proceeds".
OTHER PROPERTY
The Company has entered into an agreement to acquire a restaurant property
for $1.2 million in Miami Beach, Florida, for one of the Company's tenants,
which will lease the facility pursuant to a long-term operating lease. The
Company will consider such investment opportunities from time to time when
economically merited, although it expects such instances to be uncommon. See
"Use of Proceeds".
MAJOR TENANTS
The following table sets forth the GLA of the Existing Properties leased
to Supermarket Anchor Tenants, other Anchor Tenants and non-Anchor Tenants as
of December 31, 1997.
<TABLE>
<CAPTION>
SUPERMARKET OTHER NON-ANCHOR
ANCHOR TENANTS ANCHOR TENANTS TENANTS TOTAL
---------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Existing Properties (sq. ft.) .......... 606,191 435,503 811,731 1,853,425
Percentage of Total Leased GLA ......... 32.7% 23.5% 43.8% 100.00%
</TABLE>
57
<PAGE>
The following table sets forth as of December 31, 1997, information
regarding the leases with the Company's largest tenants based upon annualized
minimum rents of at least $250,000:
<TABLE>
<CAPTION>
PERCENT OF
GLA NUMBER ANNUALIZED AGGREGATE ANNUALIZED
TENANT (SQ. FT.) OF STORES MINIMUM RENTS MINIMUM RENTS
- --------------------------- ----------- ----------- --------------- ---------------------
<S> <C> <C> <C> <C>
Winn-Dixie(1) ............. 308,864 7 $1,886,286 11.86%
General Cinemas ........... 35,712 1 633,888 3.98
Albertsons ................ 63,139 1 568,251 3.57
Eckerd(2) ................. 59,700 6 532,418 3.35
K-Mart .................... 86,479 1 497,254 3.13
Publix(3) ................. 118,110 3 567,080 3.56
Kroger .................... 45,528 1 373,332 2.35
Best Buy .................. 91,472 1 365,888 2.30
Blockbuster Video ......... 23,609 4 309,503 1.95
Walgreens(4) .............. 34,996 3 265,720 1.67
Minyard's ................. 70,550 1 253,980 1.60
------- - ---------- -----
Total ................... 938,159 29 $6,253,600 39.32%
======= == ========== =====
</TABLE>
- ----------------
(1) Does not include Winn-Dixie at Lantana Village which occupies 39,473 square
feet of GLA and represents approximately $293,000 of annualized minimum
rents, 12,000 square feet of additional GLA to be leased by Winn-Dixie at
Commonwealth representing $144,000 of annualized minimum rents, or 45,500
square feet of GLA leased by Winn-Dixie at Summerlin Square, which the
Company has under contract, representing $262,000 of annualized minimum
rents.
(2) Includes two stores which Eckerd has vacated but for which it continues to
pay rent. Does not include the Eckerd lease at Summerlin Square, which the
Company has agreed to purchase.
(3) Does not include Publix to be developed at Sky Lake which will occupy
51,000 square feet of GLA and will represent approximately $635,000 of
annualized minimum rents.
(4) Includes a store which Walgreens has vacated but for which it continues to
pay rent. Does not include the Walgreens lease at Beauclerc Village, which
the Company has agreed to purchase.
LEASE EXPIRATIONS
The following table sets forth the anticipated expirations of the
Company's leases at December 31, 1997 (excluding renewal options,
month-to-month and the Company's mini-storage facility) for each year from 1998
through 2007 and thereafter.
<TABLE>
<CAPTION>
PERCENT OF AVERAGE
PERCENT OF AGGREGATE ANNUAL
NUMBER OF GLA TOTAL ANNUALIZED ANNUALIZED MINIMUM RENT
DECEMBER 31, LEASES (SQ. FT.) OCCUPIED GLA MINIMUM RENT MINIMUM RENT PER SQ. FT.
- -------------------------- ----------- ----------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1998 ..................... 77 188,624 10.64% $ 2,043,484 13.31% $ 10.83
1999 ..................... 73 118,641 6.69 1,440,654 9.38 12.14
2000 ..................... 82 181,613 10.24 1,846,792 12.03 10.17
2001 ..................... 44 134,208 7.57 1,340,368 8.73 9.99
2002 ..................... 33 80,072 4.52 932,427 6.07 11.64
2003 ..................... 11 32,276 1.82 330,683 2.15 10.25
2004(1) .................. 9 158,064 8.92 932,094 6.07 5.90
2005 ..................... 7 182,051 10.27 1,067,712 6.95 5.86
2006 ..................... 3 19,340 1.09 147,914 0.96 7.65
2007 ..................... 10 87,199 4.92 1,158,744 7.55 13.29
Thereafter ............... 18 590,880 33.33 4,116,244 26.80 6.97
-- ------- ------ ----------- ------ --------
Total/Average(2) ......... 367 1,772,968 100.00% $15,357,116 100.00% $ 8.66
=== ========= ====== =========== ====== ========
</TABLE>
- ----------------
(1) Does not include three lease agreements with Walgreens expiring in the
years 2019, 2019 and 2024, respectively, which Walgreens may terminate in
2004.
(2) The table does not include leases at Lantana Village, the lease with Publix
at Sky Lake, the expansion of Winn-Dixie's lease at Commonwealth, or any
leases at Summerlin Square or Beauclerc Village.
Historically, the Company has not incurred substantial costs associated
with Tenant Improvements relating to lease expirations or renewals. However,
the Company recently incurred an expense of $1.3
58
<PAGE>
million in connection with the expansion of Winn-Dixie's space at Commonwealth.
Additionally, because leasing activities are performed in-house, the Company
has not historically incurred substantial costs associated with Leasing
Commissions. No assurance can be given that such expenses will not increase in
the future.
ADDITIONAL INFORMATION CONCERNING THE EXISTING PROPERTIES
As of December 31, 1997, two of the Supermarket Centers, Bird Ludlum and
Lake Mary, had either a book value equal to or greater than 10.0% of the total
assets of the Company or gross revenues which accounted for more than 10.0% of
the Company's aggregate gross revenues. Set forth below is additional
information with respect to each of such properties.
BIRD LUDLUM. Bird Ludlum is a 192,327 square foot Supermarket Center
occupied by 48 tenants which is located at the intersection of Bird Road and
Ludlum Road in Miami, Florida. Traffic count at the Bird Ludlum center averages
approximately 85,000 vehicles per day. The property is located approximately
one mile east of the Palmetto Expressway, a major Miami roadway. Bird Ludlum is
located in a densely populated trade area of Miami with a population of over
155,000 within a three mile radius and an average household income of $51,000
per year. This property includes five out-parcel buildings, and has attracted a
full range of national and regional chain store tenants including Winn-Dixie,
Eckerd, Blockbuster, Radio Shack and Little Caesars. Outparcel buildings are
occupied by Visionworks, McDonalds, Dairy Queen, Jiffy Lube and Barnett Bank.
For a discussion of competition, see "--Competition".
In 1996, the Company purchased 7.4 acres of vacant land adjacent to Bird
Ludlum for a purchase price of $1.1 million. During early 1997, the Company
utilized approximately 1.2 acres of this land to build a parking lot for 150
automobiles. The remaining 6.2 acres of vacant land will be transferred to the
Partnership (as defined herein) immediately prior to the consumamtion of the
Offering and will be subject to the Option. See "Certain Transactions".
Winn-Dixie, the only tenant which occupies more than 10.0% of the GLA at
Bird Ludlum, occupies 44,400 square feet of GLA under a lease which expires in
December 2007 and contains five renewal options of five years each. The annual
minimum rent payable by Winn-Dixie under this lease is $399,600. For the years
ended June 30, 1995, 1996 and 1997, Winn-Dixie reported sales of $22.3 million,
$23.6 million and $23.3 million, respectively.
The following table sets forth a schedule of lease expirations and other
information concerning leases at Bird Ludlum, assuming none of the tenants
exercise renewal options.
<TABLE>
<CAPTION>
PERCENT OF AVERAGE
AGGREGATE ANNUAL
NUMBER OF GLA PERCENT OF ANNUALIZED ANNUALIZED MINIMUM RENT
YEAR LEASES (SQ. FT.) TOTAL GLA MINIMUM RENT MINIMUM RENT PER SQ. FT.
- ----------------------- ----------- ----------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1998 .................. 10 40,060 20.83% $ 552,828 22.32% $ 13.80
1999 .................. 7 9,233 4.80 115,320 4.66 12.49
2000 .................. 8 25,390 13.20 313,820 12.67 12.36
2001 .................. 7 15,700 8.16 199,233 8.05 12.69
2002 .................. 6 12,875 6.69 210,506 8.50 16.35
2003 .................. 5 17,617 9.16 201,362 8.13 11.43
2004 .................. 0 0 0.00 0 0.00 0.00
2005 .................. 0 0 0.00 0 0.00 0.00
2006 .................. 0 0 0.00 0 0.00 0.00
2007 .................. 4 63,952 33.25 732,250 29.57 11.45
Thereafter ............ 1 7,500 3.90 151,162 6.10 20.15
-- ------ ------ ---------- ------ --------
Total/Average ......... 48 192,327 100.00% $2,476,481 100.00% $ 12.88
== ======= ====== ========== ====== ========
</TABLE>
The average annual rental income per square foot of GLA at Bird Ludlum for
the years ended December 31, 1994, 1995, 1996 and 1997 was $18.61, $17.31,
$16.89 and $17.00, respectively.
59
<PAGE>
At the time of its acquisition by the Company, Bird Ludlum was 96.0%
leased. For the years ended December 31, 1994, 1995, 1996 and 1997, the
percentage of Bird Ludlum that was leased was 100.0%, 99.0%, 100.0%, 100.0% and
100.0%, respectively.
Depreciation (for tax purposes) on Bird Ludlum is taken as follows: (i)
approximately $14.2 million of the basis is being depreciated on a straight
line basis over 40 years, and (ii) approximately $1.3 million of the basis uses
a 15-year Accelerated Cost Recovery System ("ACRS") depreciation. Depreciation
for book purposes is calculated on a straight-line basis over 40 years.
LAKE MARY. Lake Mary is a 288,450 square foot Supermarket Center occupied
by 51 tenants which is located at the southeast corner of Lake Mary Boulevard
and Lake Emma Road in Lake Mary, Seminole County, Florida, in the Orlando
metropolitan area. The property was originally constructed during 1987 and
1988. Certain improvements and additions were made to Lake Mary in 1990. Lake
Mary, which is situated on a 47.0 acre parcel, has attracted a full range of
national and regional chain store tenants including K-Mart, Albertsons, General
Cinema, Chili's, Burger King, Einstein Bros. Bagels, Carvel Ice Cream, Radio
Shack, Little Caesars and H&R Block. For a discussion of competition, see
"--Competition". See also "Risk Factors--The Company is Subject to Risks
Involving Litigation with Albertsons".
Three tenants, K-Mart, Albertsons and General Cinemas, each occupy in
excess of 10.0% of the GLA at Lake Mary. K-Mart occupies 86,479 square feet of
GLA under a lease which expires in August, 2013. The annual minimum rent is
$497,254. For the years ended August 31, 1994, 1995, 1996 and 1997, K-Mart
reported sales of $7.5 million, $7.7 million, $8.2 million and $9.8 million,
respectively. The Company believes that this K-Mart is an underperforming
store. The prior owner (and current lender on the property) has agreed to
guarantee the rent due from K-Mart (including recoveries) at any time K-Mart
ceases making rental payments during the three years following the Company's
purchase of Lake Mary for a period of three years subsequent to such breach.
Albertsons occupies 63,139 square feet of GLA under a lease which expires in
June 2012 and has four renewal options of five years each. The annual minimum
rent under the Albertsons lease is $568,251, increasing to $599,820 in June
2002 and $631,390 in June 2007. For the years ended May 31, 1994, 1995, 1996
and 1997, Albertsons reported sales of $23.8 million, $25.6 million, $27.5
million and $28.3 million, respectively. General Cinemas occupies 35,712 square
feet of GLA under a lease which expires in June 2010. The annual minimum rent
is $633,888. The Company plans to allocate $3.0 million from the proceeds of
the Offering to develop 50,000 square feet of additional space at Lake Mary.
The following table sets forth a schedule of lease expirations and other
information concerning leases at Lake Mary, assuming none of the tenants
exercise renewal options:
<TABLE>
<CAPTION>
PERCENT OF AVERAGE
AGGREGATE ANNUAL
NUMBER OF GLA PERCENT OF ANNUALIZED ANNUALIZED MINIMUM RENT
YEAR LEASES (SQ. FT.) TOTAL GLA MINIMUM RENT MINIMUM RENT PER SQ. FT.
- ----------------------- ----------- ----------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1998 .................. 7 9,228 3.30% $ 147,002 4.73% $ 15.93
1999 .................. 11 17,156 6.14 246,703 7.94 14.38
2000 .................. 9 16,110 5.77 182,043 5.86 11.30
2001 .................. 9 20,648 7.39 257,687 8.29 12.48
2002 .................. 6 12,938 4.63 198,598 6.39 15.35
2003 .................. 2 2,082 0.75 30,397 0.98 14.60
2004 .................. 1 2,000 0.72 21,000 0.68 10.50
2005 .................. 0 0 0.00 0 0.00 0.00
2006 .................. 0 0 0.00 0 0.00 0.00
2007 .................. 1 3,909 1.40 137,988 4.44 35.30
Thereafter ............ 5 195,229 69.90 1,886,479 60.70 9.66
-- ------- ------ ---------- ------ --------
Total/Average ......... 51 279,300 100.00% $3,107,897 100.00% $ 11.13
== ======= ====== ========== ====== ========
</TABLE>
The average rental income per square foot of GLA at Lake Mary for the
years ended December 31, 1995, 1996 and 1997 was $12.30, $12.30 and $12.95,
respectively.
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At the time of its acquisition by the Company, Lake Mary was 97.0% leased.
For the years ended December 31, 1995, 1996 and 1997, the percentage of Lake
Mary that was leased was 97.0%, 100.0%, 100.0% and 99.8%, respectively.
Depreciation (for tax purposes) on Lake Mary is taken as follows: (i)
approximately $11.3 million of the basis is being depreciated on a straight
line basis over 40 years, and (ii) $2.0 million of the basis uses a 15-year
ACRS depreciation. Depreciation for book purposes is calculated on a
straight-line basis over 40 years.
Set forth below is additional information with respect to each of the
Company's other Existing Properties:
ATLANTIC VILLAGE. Atlantic Village is a 100,559 square foot Supermarket
Center occupied by 24 tenants which is located in Atlantic Beach, Florida (in
the Jacksonville metropolitan area). Atlantic Village is situated on 14.0 acres
and is anchored by a Publix. For the year ended December 31, 1997, Publix
reported sales of $20.6 million. The Company will invest $850,000 to remodel
the property and in return, Publix will renew its lease for another 10 years
starting August 1998. Walgreens has vacated this site, but continues to make
lease payments.
COMMONWEALTH. Commonwealth is a 71,021 square foot Supermarket Center
occupied by 14 tenants which is located in Jacksonville, Florida. Commonwealth
is situated on 12.8 acres and is anchored by a Winn-Dixie. For the year ended
June 30, 1997, Winn-Dixie reported sales of $12.5 million. In February 1998,
the Company invested $1.3 million to expand Winn-Dixie's space by 12,000 square
feet and in return Winn-Dixie (i) increased its monthly minimum rent by
approximately $12,000, starting March 1998 and (ii) extended its lease for an
additional 20-year period. Additionally, the Company intends to build 6,000
square feet of retail space on an existing out-parcel to accommodate an
existing tenant at a cost of approximately $450,000.
FORT CAROLINE. Fort Caroline is a 74,546 square foot Supermarket Center
occupied by 9 tenants which is located in Jacksonville, Florida. Fort Caroline
is situated on 9.6 acres and is anchored by a Winn-Dixie and Eckerd. For the
year ended June 30, 1997, Winn-Dixie reported sales of $15.3 million. During
1994 and 1995 the Company expanded Winn-Dixie's occupied space by an aggregate
of approximately 7,200 square feet, and Winn-Dixie agreed to extend its lease
for an additional 20-year period.
MONUMENT POINTE. Monument Pointe is a 75,328 square foot Supermarket
Center occupied by 15 tenants located in Jacksonville, Florida. Monument Pointe
is situated on 7.3 acres and is anchored by a Winn-Dixie and Eckerd. For the
year ended June 30, 1997, Winn-Dixie reported sales of $17.6 million.
OAK HILL. Oak Hill is a 78,492 square foot Supermarket Center occupied by
19 tenants located in Jacksonville, Florida. Oak Hill is situated on 11.7 acres
and is anchored by a Publix and Walgreens. For the year ended December 31,
1997, Publix reported sales of $13.5 million.
EAST BAY. East Bay is a 81,826 square foot Supermarket Center occupied by
18 tenants located in Largo, Florida (in the Tampa metropolitan area). East Bay
is situated on 10.3 acres and is anchored by an Albertsons, Scotty's and
Hollywood Video. Albertsons is located on property contiguous to the Company's
property which is not owned by the Company.
EUSTIS SQUARE. Eustis Square is a 126,791 square foot Supermarket Center
occupied by 21 tenants located in Eustis, Florida. Eustis Square is situated on
13.5 acres and is anchored by a Publix, Beall's and Walgreens. For the year
ended December 31, 1997, Publix reported sales of $11.2 million.
FOREST EDGE. Forest Edge is a 68,631 square foot Supermarket Center
occupied by 13 tenants located in Orlando, Florida. Forest Edge is situated on
8.2 acres and is anchored by a Winn-Dixie and AutoZone. For the year ended June
30, 1997, Winn-Dixie reported sales of $11.8 million.
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PLAZA DEL REY. Plaza Del Rey is a 50,146 square foot shopping center
occupied by 20 tenants located in Miami-Dade County, Florida. Plaza Del Rey is
situated on 4.6 acres and is anchored by a Navarro's. For the year ended
December 31, 1997, Navarro's reported sales of $10.1 million.
POINTE ROYALE. Pointe Royale is a 199,068 square foot Supermarket Center
occupied by 21 tenants located in Cutler Ridge, Miami-Dade County, Florida.
Pointe Royale is situated on 14.5 acres and is anchored by a Best Buy and
Winn-Dixie. For the year ended June 30, 1997, Winn-Dixie reported sales of
$16.3 million. The Company intends to invest $800,000 during 1998 to renovate a
currently vacant 18,000 square foot office building situated on the property.
Eckerd has vacated its leased space but has, to date, continued to pay rent
pursuant to its lease with the Company.
WEST LAKE. West Lake is a 100,747 square foot Supermarket Center occupied
by 26 tenants located in Kendall Lakes, Miami-Dade County, Florida. West Lake
is situated on 8.8 acres and is anchored by a Winn-Dixie and Burger King. For
the year ended June 30, 1997, Winn-Dixie reported sales of $12.2 million.
Eckerd has vacated this site, but continues to make lease payments.
SKY LAKE. Sky Lake is a Community Shopping Center which is being
comprehensively redeveloped into a 300,000 square foot Supermarket Center. Sky
Lake is situated on 25.5 acres and is to be anchored by a Publix occupying
51,000 square feet of GLA. As of December 31, 1997, 61,000 square feet of GLA
were leased (other than to Publix), substantially all of which related to
out-parcels located on the property. As of December 31, 1997, the Company had
invested $2.1 million towards the redevelopment of this property. See "--Legal
Proceedings".
LANTANA VILLAGE. Lantana Village is an 85,300 square foot Supermarket
Center occupied by 26 tenants located in Lantana, Florida. Lantana Village is
situated on 8.5 acres and is anchored by Winn-Dixie and Rite-Aid. For the year
ended June 30, 1997, Winn-Dixie reported sales of $16.0 million.
FOUR CORNERS. Four Corners is a 115,178 square foot Supermarket Center
occupied by 24 tenants located in Tomball, Texas (Houston metropolitan area).
Four Corners is situated on 12.0 acres and is anchored by a Kroger and Eckerd.
For the year ended October 31, 1997, Kroger reported sales of $22.5 million.
PARKER TOWNE. Parker Towne is a 201,927 square foot Supermarket Center
occupied by 21 tenants located in Plano, Texas (Dallas metropolitan area).
Parker Towne is situated on 19.2 acres and is anchored by a Minyard's. For the
year ended December 31, 1997, Minyard's reported sales of $23.3 million.
EQUITY ONE OFFICE BUILDING. The Equity One Office Building is a 28,980
square foot mixed use (office/retail) property occupied by 10 tenants,
including the Company's corporate offices, located in Miami Beach, Florida. The
property is comprised of three parcels, which, in the aggregate, total 0.7
acres. Purchased in 1992, this property was completely redeveloped by the
Company. The property is adjacent to the Miami Beach City Hall and proximate to
the Miami Beach Convention Center. The property adjacent to the Equity One
Office Building, consisting of 0.5 acres of vacant land, will be transferred to
the Partnership immediately prior to the consummation of the Offering and will
be subject to the Option. See "Certain Transactions".
DIANA BUILDING. The Diana building is a 18,707 square foot mixed use
(office/retail) property currently occupied by four tenants located in West
Palm Beach, Florida. This property was purchased in 1995 and was completely
redeveloped by the Company.
MANDARIN MINI-STORAGE. Mandarin is a 52,880 square foot mini-storage
warehouse occupied by 505 tenants located in Jacksonville, Florida. The
property is situated on 2.8 acres.
PROPERTY MANAGEMENT, LEASING AND RELATED SERVICE BUSINESS
The Company's property management and substantially all of its leasing
activities and operating and administrative functions (including leasing,
legal, construction, data processing, finance and
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accounting) are administered or coordinated by Company personnel. On-site
functions such as maintenance, landscaping, sweeping, plumbing and electrical
are subcontracted out at each location and, to the extent permitted by their
respective leases, the cost of these functions is passed on to the tenants.
Personnel from the Company's corporate headquarters conduct regular inspections
of each property and maintain frequent contact with major tenants.
The Company maintains an active leasing and maintenance program that,
combined with the quality and locations of the properties, has made the
Existing Properties attractive to tenants. The Company intends to continue to
hold the properties for long-term investment and, accordingly, places a strong
emphasis on quality construction and an on-going program of regular
maintenance. The properties are designed to require minimal capital
improvements.
The Company's management information systems provide operating data
necessary to make informed business decisions on a timely basis. These systems
allow instant access to store availability, lease data, tenants' sales history,
cash flow budgets and forecasts and enable the Company to maximize cash flow
from operations and closely monitor corporate expenses.
In addition to managing the Existing Properties, the Company provides
management and leasing services to certain third party owned properties.
Services are provided to third-party owners pursuant to contracts that are of
varying lengths of time and which generally provide for management fees of up
to 4.0% of monthly base rent property receipts. The management contracts are
typically cancelable upon 30 days' notice or upon certain events, including the
sale of the property. Leasing fees typically range from $2 to $3 per square
foot. During the years ended December 31, 1996 and 1997, the Company earned
management fees of $229,995 and $247,782, respectively, in connection with its
management of third party owned properties. At present, the Company has no
plans to expand these activities.
COMPETITION
There are numerous commercial developers, real estate companies, including
REITs such as Regency Realty Corp. and Excel Realty Trust, and other owners of
real estate in the areas in which the Existing Properties are located that
compete with the Company in seeking land for development, properties for
acquisition, financing and tenants. Many of such competitors have substantially
greater resources than the Company. All of the Company's Supermarket Centers
are located in developed areas that include other Supermarket Centers. The
number of retail properties in a particular area could materially adversely
affect the Company's ability to lease vacant space and maintain the rents
charged at the Supermarket Centers or at any newly acquired property or
properties. One shopping center constructed less than two years ago stands
within a two-mile radius of Bird Ludlum. In addition, several smaller and older
strip centers are located along Bird Road in Miami. Lake Mary is located on a
retail thoroughfare which includes direct and proximate competition from a
free-standing Home Depot, a Target store and two shopping centers anchored by
Winn-Dixie and Publix, respectively. West Lake and Four Corners each competes
with nearby shopping centers anchored by supermarkets. Pointe Royale is
proximate to Cutler Ridge Mall and a Publix-anchored shopping center.
Free-standing retailers such as Circuit City and Toys R' Us within one mile of
Pointe Royale compete directly with tenants in such Supermarket Center. In
addition, there are several strip shopping centers in the vicinity. When
completed, Sky Lake will compete with a nearby Publix anchored shopping center.
The Company's other properties are subject to similar competition. Certain of
the Company's competitors may possess greater resources than the Company and
may have management with more experience than the Company's management. See
"Risk Factors--The Company Is Subject to Risks Associated with the Real Estate
Industry".
REGULATIONS AND INSURANCE
REGULATIONS. Retail properties are subject to various laws, ordinances and
regulations. The Company believes that each of the Existing Properties
maintains all material operating permits and approvals necessary to be
maintained by the Company. For a discussion of the ADA and governmental
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<PAGE>
approvals regarding land use, levels of density, and utility services, among
others, see "Risk Factors--Costs of Compliance Could Have an Adverse Effect on
the Company" and "--The Company Could be Affected by Damage to Property Not
Covered by Insurance".
INSURANCE. Under their leases, the Company's tenants are generally
responsible for providing adequate insurance on the property they lease. The
Company believes the Existing Properties are covered by adequate fire, flood
and property insurance provided by reputable companies. However, certain of the
Existing Properties are not covered by disaster insurance with respect to
certain hazards (such as hurricanes) for which coverage is not available or
available only at rates which, in the opinion of the Company, are not
economically justifiable.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations,
including, without limitation, CERCLA, Chapter 403 of the Florida Statutes, the
Florida Dry Cleaning Contamination Clean-Up Act and the Miami-Dade County
(Florida) Pollution Protection Ordinance, an owner or operator of real estate
may be required to investigate and clean up hazardous or toxic substances or
petroleum product releases at such property and may be held liable to a
governmental entity or to third parties for property damage and for
investigation and clean-up costs incurred by such parties in connection with
contamination. Many such laws, including CERCLA, typically impose such
liability without regard for whether the owner knew of, or was responsible for,
the presence of such hazardous or toxic substances and the liability under such
laws has been interpreted to be joint and several unless divisible and there is
a reasonable basis for allocation of responsibility. The cost of investigation,
remediation or removal of such substances may be substantial, and the presence
of such substances, or the failure to properly remediate such substances, may
adversely affect the owner's ability to sell or rent such property or to borrow
using such property as collateral. Persons who arrange for the disposal or
treatment of hazardous or toxic substances may also be liable for the costs of
removal or remediation of such substances at a disposal or treatment facility,
whether or not such facility is owned or operated by such person. Some
environmental laws create a lien on a contaminated site in favor of the
government for damages and costs it incurs in connection with the
contamination. The owner of a contaminated site also may be subject to common
law claims by third parties based on damages and costs resulting from
environmental contamination emanating from such site. In connection with the
ownership (direct or indirect), operation, management and development of real
properties, the Company is generally considered an owner or operator of such
properties or as having arranged for the disposal or treatment of hazardous or
toxic substances and, therefore, potentially liable for removal or remediation
costs, as well as certain other related costs, including governmental fines and
injuries to persons and property.
Certain federal, state and local laws, regulations and ordinances also
govern the removal, encapsulation or disturbance of asbestos-containing
materials ("ACMs") when such materials are in poor condition or in the event of
construction, remodeling, renovation or demolition of a building. Such laws may
impose liability for release of ACMs and may permit third parties to seek
recovery from owners or operators of such properties for personal injury
associated with ACMs. Some of the environmental site assessments conducted at
the Existing Properties to date indicate that a number of the Existing
Properties contain ACMs. The Company is not aware, however, of any ACMs at the
properties that are friable or in otherwise poor condition. Assessments for
these properties are being conducted at this time.
The Company believes that the environmental studies conducted to date have
not revealed any significant environmental liability that would have a material
adverse effect on the Company's financial condition, results of operations,
liquidity and FFO; however, no assurance can be given that environmental
studies obtained by the Company reveal all environmental liabilities, that any
prior owner of land or a property owned or acquired by the Company did not
create any material environmental condition now known to the Company, or that a
material environmental condition does not otherwise exist (or may not exist in
the future). Tenants at the Existing Properties include plant-on-premises dry
cleaners, gasoline service stations and tire centers, photo development firms
and other
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retailers which use hazardous substances in their businesses. Although leases
with such tenants contain provisions intended to minimize environmental risks
and to shift the financial risks to the tenants, there is no assurance that the
Company will not incur liability in this regard.
A limited monitoring program with respect to groundwater testing has been
implemented at Plaza Del Rey based on questions raised by environmental studies
conducted at the time of purchase. Groundwater impacts have also been detected
at Atlantic Village, which is located in an area where a former municipal
landfill was operated. Buried refuse consistent with known landfill parameters
has been identified by the Company's consultants on the Atlantic Village site.
While these sites are not regarded by management as significant environmental
risks, if a material environmental condition does in fact exist (or exists in
the future) at these or other properties, it could have a significant adverse
impact upon the Company's financial condition, results of operations, liquidity
and FFO. No assurance can be given that the environmental studies that were
performed at the properties would disclose all environmental liabilities
thereon, that any prior owner thereof did not create a material environmental
condition not known to the Company or that a material environmental condition
does not otherwise exist as to any of the Existing Properties.
As noted, tenants at the shopping centers include plant-on-premises dry
cleaners. As a result of environmental site assesments conducted in the past
few months, low levels of perchloroethylene have been detected in soils at the
Company's Commonwealth, Fort Caroline and Eustis Square properties. The Company
understands that the owners of these cleaners are applying to participate in
state funded dry cleaner's programs. In connection with the Company's
acquisition of Sky Lake, a Phase II Environmental Site Assessment dated July
15, 1997 has revealed the existence of perchloroethylene at levels above
regulatory limits caused by a dry cleaning business operated on the premises.
The Company has learned that the site is included in the Florida Dry Cleaners
State Program, and as a condition to the Company's purchase of the property,
the seller agreed to pay all remediation costs, which environmental consultants
have estimated to be approximately $250,000. In addition, $500,000 has been
placed into an escrow account at closing to pay for the remediation. Based on
the remediation cost estimates, guarantees by the seller to pay for the
clean-up and the establishment of the escrow account, the Company has concluded
that the property does not pose a material environmental liability.
EMPLOYEES
At December 31, 1997, the Company had 24 full-time employees. The
Company's employees are not represented by a collective bargaining group, and
the Company considers its relations with its employees to be good.
LEGAL PROCEEDINGS
On February 26, 1998, Albertsons commenced an action against a subsidiary
of the Company (the "Subsidiary") in the Circuit Court for the Eleventh
Judicial District in and for Miami-Dade County, Florida, alleging breach of a
letter agreement and seeking injunctive relief and the payment of damages in
excess of $10,000,000 representing lost profits and other damages. This action
was commenced in response to the Subsidiary's entering into a lease agreement
with Publix respecting Publix's lease of anchor space at Sky Lake. The
complaint alleges that Albertsons and the Subsidiary entered into a letter
agreement which the parties intended to be memorialized into a formal lease
agreement and as to which the parties intended to be bound. The complaint
further alleges that representatives of the Subsidiary had on several occasions
verbally assured Albertsons that they had an agreement with respect to the
lease of space at Sky Lake and that the Subsidiary was not negotiating with any
other prospective tenant for the lease of the space to be occupied by
Albertsons. The complaint also alleges that Albertsons incurred considerable
expenses in connection with, among other things, the preparation of site
evaluations, construction plans and surveys of the subject property. On March
18, 1998, the Company filed a motion to dismiss the complaint based upon
various procedural grounds (the "Motion"). As set forth in the Motion, the
subsidiary has asserted that it did not execute any lease agreement and that
although the parties engaged in a series of negotiations, there was never an
offer
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<PAGE>
and acceptance or a "meeting of the minds" respecting the lease of space at Sky
Lake. At a hearing on the Motion held on March 26, 1998, the court dismissed
with prejudice Albertsons' claim for specific performance upon finding that no
written lease existed which could be specifically enforced. Resolution of the
remaining issues raised in the Motion was deferred until a future date. In the
event that the remaining portions of the Motion are denied, the Company intends
to defend the action fully and vigorously. Although, the Company believes that
it has meritorious defenses to this action, an unfavorable result in this action
could adversely affect the Company's financial condition, results of operations,
liquidity, FFO and ability to make expected distributions to stockholders.
Except as described above, neither the Company nor the Existing Properties
are subject to any material litigation. Further, to the Company's knowledge,
except as described above, there is no litigation threatened against the
Company or the Existing Properties, other than routine litigation and
administrative proceedings arising in the ordinary course of business, which
collectively are not expected to have a material adverse effect on the
business, financial condition, results of operations or cash flows of the
Company. For information concerning recently settled litigation concerning
control of the Company, see "Certain Transactions".
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Upon completion of the Offering, the Company's Board of Directors will
consist of seven members, including Messrs. Katzman and Valero, who are current
directors and the Company's principal executive officers, four other current
independent directors, and a fifth independent director nominee who will be
appointed. Messrs. Makavy and Wulkan, current directors of the Company, will,
pursuant to the terms of the Settlement Agreement, resign from the Board of
Directors immediately prior to the consummation of the Offering. Shulamit
Rozen-Katzman, a current director of the Company and the wife of Chaim Katzman,
will also resign at such time.
Pursuant to the Company's Bylaws, the Board of Directors is divided into
three classes of directors with one class, consisting of approximately
one-third of the members of the Board of Directors, elected annually by
stockholders. The Company believes that classification of the Board of
Directors will help to assure the continuity and stability of the Company's
business strategies and policies as determined by the Board of Directors.
Holders of shares of Common Stock will have no right to cumulative voting in
the election of directors. At each annual meeting of stockholders, a majority
of the votes cast in such election will be able to elect all of the directors
whose terms expire at that meeting. Under the Company's Charter, the
affirmative vote of a majority of the entire Board of Directors is required to
approve any matter. Subject to rights granted pursuant to any employment
agreements, officers of the Company serve at the pleasure of the Board of
Directors.
Upon consummation of the Offering, certain stockholders of the Company
will be parties to agreements to control the Company. Such stockholders will
directly and indirectly own and/or control an aggregate of 48.6% of the
outstanding shares of Common Stock (45.3% if the over-allotment option granted
to the Underwriters is exercised in full). Pursuant to an Irrevocable Proxy,
Globe Reit, an affiliate of Mr. Katzman, will have the power to vote all of the
shares of the Common Stock of the stockholders who are parties to the
agreements for the election of directors through May 2001. As a result of these
agreements, the parties to the agreement may be deemed a "group" within the
meaning of Section 13(d) of the Exchange Act and may direct the business and
affairs of the Company. See "Principal and Selling Stockholders" and "Certain
Transactions".
The following table sets forth certain information with respect to the
directors and executive officers of the Company upon the consummation of the
Offering:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION WITH THE COMPANY TERM EXPIRES
- -------------------------- ----- ------------------------------------------------------- -------------
<S> <C> <C> <C>
Chaim Katzman ............ 48 Chairman of the Board, President, 2000
Chief Executive Officer and Director
Doron Valero ............. 40 Executive Vice President, 2000
Chief Operating Officer and Director
David Bookman ............ 41 Vice President, Chief Financial Officer and Treasurer N/A
Alan J. Marcus ........... 41 Vice President, General Counsel and Secretary N/A
Noam Ben-Ozer ............ 33 Director 2001
Shaiy Pilpel ............. 47 Director 1999
Yuval Yanai .............. 45 Director 1999
Robert L. Cooney ......... 63 Director 2001
Ronald Chase ............. 52 Director Nominee 2000
</TABLE>
MANAGEMENT AND KEY EMPLOYEES
CHAIM KATZMAN has served as President, Chairman of the Board and Chief
Executive Officer and a director of the Company since its formation in 1992,
and has been involved in the purchase, development and management of commercial
and residential real estate in the southeastern United States since 1980. Mr.
Katzman received an L.L.B. from Tel Aviv University Law School in 1973. In
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1991, Mr. Katzman purchased the controlling interest of Gazit. Mr. Katzman has
served as Chairman of the Board and Chief Executive Officer of Gazit since May
1991 and remains its largest stockholder and has served as a director of Globe
Reit since 1994. A licensed real estate broker in Florida, Mr. Katzman is a
member of NAREIT and the ICSC.
DORON VALERO has served as Executive Vice President, Chief Operating
Officer and a director of the Company since 1994. Mr. Valero manages the
Company's portfolio of properties and is responsible for, among other things,
acquisitions and leasing properties. Prior to joining the Company, from 1990 to
1993, Mr. Valero served as President and Chief Executive Officer of Global Fund
Investment, Inc., a real estate investment and management company. A licensed
mortgage broker in Florida, Mr. Valero is a member of NAREIT and ICSC. Mr.
Valero received a B.S.E. from Nova University in 1986.
DAVID N. BOOKMAN has served as the Company's Chief Financial Officer, Vice
President and Treasurer since July 1997. From December 1995 to July 1997, Mr.
Bookman served as the Company's Controller. From 1987 to 1995, Mr. Bookman was
a manager with Kenneth Leventhal & Co., certified public accountants. Mr.
Bookman has been a licensed certified public accountant in the States of New
York and Florida since 1985. Mr. Bookman received his B.B.A. from Pace
University in 1982.
ALAN J. MARCUS has served as the Company's Secretary since August 1997 and
will become Vice President and General Counsel of the Company upon consummation
of the Offering. Mr. Marcus has been a member of the Florida Bar since 1984 and
has maintained a private practice in Miami-Dade County, Florida since 1986. Mr.
Marcus' practice has concentrated on real estate and corporate matters. He is
also an adjunct professor at Florida International University. Mr. Marcus has
represented Global Realty & Management, Inc., the property management
subsidiary of the Company, since 1990 and the Company since 1993. Mr. Marcus
received a B.S. from the University of Miami in 1978 and a J.D. and LL.M.
(Taxation) from the University of Miami in 1983 and 1984, respectively.
NOAM BEN-OZER has been a director of this Company since 1996. Mr. Ben-Ozer
obtained an M.B.A. from Harvard University in 1994, and has served as a
consultant for Bain & Company since 1994. From 1993 to 1994 Mr. Ben-Ozer served
as an outside consultant to Lemout & Hauspie Speech Products. Mr. Ben-Ozer is a
certified public accountant in Israel.
DR. SHAIY PILPEL has served as a director of the Company since 1996. Dr.
Pilpel heads the trading operation at Wexford Management, an investment firm.
From 1995 to 1996, Dr. Pilpel was a managing director of Canadian Imperial Bank
of Commerce where he headed the Mortgage Arbitrage and Quantitative Strategies
proprietary trading group, and prior thereto, a portfolio manager for
Steinhardt Partners. Dr. Pilpel received a B.S. in mathematics and B.A. in
philosophy from Tel Aviv University, a M.Sc. in mathematics from the Hebrew
University in Jerusalem, a Ph.D. in Statistics from the University of
California at Berkeley and a M.B.A. from Columbia University.
YUVAL YANAI has served as a director of the Company since 1996 and has
been the Vice President, Finance and Chief Financial Officer of Elscint Ltd.
(Israel) since August 1991. Previously, he was senior consultant and head of
the economics department of Control Data Corporation (Israel), Tel Aviv. Mr.
Yanai is Chairman of the Board of Elscint Espan-a S.A. (Spain) and Productos
Medico Hospitalares Elscint Ltd. (Brazil). Mr. Yanai is a director of Elscint
Inc. (USA), Elscint France S.A. (France), Elscint GmbH (Germany) and Elgems
Ltd. (Israel). Mr. Yanai holds a B.A. in accounting and economics from Tel Aviv
University.
ROBERT L. COONEY was elected as a director in November 1997. Mr. Cooney
served as a Managing Director of Equity Capital Markets of Credit Suisse First
Boston Corporation from 1978 to 1996. Mr. Cooney obtained an M.B.A. from
Harvard University in 1962 and a B.S. from College of the Holy Cross in 1956.
Mr. Cooney has over 35 years experience in capital markets and investment
banking.
RONALD S. CHASE will become a director of the Company immediately upon
consummation of the Offering. Mr. Chase has been the President and owner of
Chase Holdings & Advisory Services, Inc.,
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which provides financial advisory services to corporations and litigation
attorneys, since June 1991. In addition, Mr. Chase is the owner and has served
as President of each of RSC Development, Inc., a residential developer, and
CFAT H20, Inc., a water treatment facility, both of which are located in Ocala,
Florida, since approximately November 1993. Mr. Chase is a certified public
accountant who formerly served as Managing Partner of Deloitte & Touche, LLP.
Mr. Chase has served as a director of Capital Factors Holding, Inc., a publicly
traded company, and Capital Factors, Inc., since September 1992, and as a
director of Union Planters Bank of Florida, formerly Capital Bank, since July
1993. Mr. Chase received his B.S. in Business Administration from the
University of California in 1965.
RAFAEL EGUILIOR, 44, was recently hired to serve as the Company's head of
development. Mr. Eguilior has served as the President of CCS Design Group,
Inc., an architectural design firm in Miami, Florida since 1996. From 1994 to
1996, Mr. Eguilior was the principal architect in the design firm bearing his
name. From 1992 to 1994, Mr. Eguilior was a principal architect with the
Nichols Partnership, Inc., of Coral Gables, Florida. Mr. Eguilior has worked
with the Company in connection with the construction and remodeling of West
Lake, and has performed site plan analyses for the Company with respect to
various properties. Mr. Eguilior has been a licensed architect and certified
general contractor in the State of Florida since 1982 and 1987, respectively.
Mr. Eguilior received a B.A. in Architecture from the University of Miami in
1979.
DIRECTORS' COMPENSATION
Non-employee directors receive, upon election to the Board of Directors
and annually thereafter, options to purchase 6,000 shares of Common Stock.
These options become exercisable over two years. In addition, non-employee
directors will receive a fee of $1,000 for each Board of Directors meeting or
committee meeting attended in person, plus reimbursement for reasonable
expenses incurred in attending the meetings. Non-employee directors will
receive an additional fee of $250 for each telephonic meeting attended.
Officers of the Company who are directors, and the two current directors who
receive consulting fees, will not be paid any directors' fees.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has maintained an Executive Committee and Audit and
Review Committee since 1996 and a Compensation Committee since 1997. The
Executive Committee is authorized to perform all functions which may be
lawfully delegated by the Board of Directors, provided, however, that the
Executive Committee can only act based on a unanimous vote and that the
Executive Committee may only approve acquisitions of property similar to that
in the Company's portfolio requiring an initial equity investment of up to
$15.0 million and acquisitions of vacant land having an initial equity
investment of up to $5.0 million in the aggregate. The Executive Committee is
comprised of Chaim Katzman, Eli Makavy and Doron Valero. Upon Mr. Makavy's
resignation, which will occur immediately prior to the consummation of the
Offering, an independent director will be appointed to the Executive Committee.
See "Certain Transactions". The Audit and Review Committee is comprised of
Shaiy Pilpel, Noam Ben-Ozer and Yuval Yanai, each of whom is a non-employee
director of the Company. The Audit and Review Committee's functions include
recommending to the Board the engagement of the Company's independent certified
public accountants, reviewing with such accountants the plan and results of
their audit of the Company's financial statements and determining the
independence of such accountants. The Compensation Committee, whose members
include Messrs. Pilpel, Ben-Ozer and Yanai, makes recommendations with respect
to compensation of officers and key employees, including the granting of
options under the 1995 Plan.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company, for
services rendered during the year ended December 31, 1997, to the Company's
Chief Executive Officer and to each other executive officer whose total salary
and bonus exceeded $100,000 during such year (collectively, the "Named
Officers"). No other employee of the Company received compensation equal to or
exceeding $100,000 during such year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------- -------------------
OTHER ANNUAL SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION UNDERLYING OPTIONS
- ---------------------------------------- ------ ----------- ---------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
Chaim Katzman .......................... 1997 $254,400 -- (1) --
Chairman of the Board, President, 1996 $240,000 -- (1) 200,000(2)
and Chief Executive Officer
Doron Valero ........................... 1997 $190,800 -- (1) 30,000(2)
Executive Vice President and 1996 $180,000 $50,000 (1) 198,000(2)
Chief Operating Officer
David Bookman .......................... 1997 $ 90,000 $41,000 (1) 20,000(2)
Vice President, Chief Financial Officer 1996 $ 72,364 -- (1) --
and Treasurer
</TABLE>
- ----------------
(1) The aggregate amount of perquisites and other personal benefits provided to
such Named Officer is less than 10% of the total annual salary and bonus
of such officer.
(2) Represents options granted under the 1995 Plan.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Chaim Katzman,
Chairman of the Board, President and Chief Executive Officer of the Company,
and Doron Valero, Executive Vice President and Chief Operating Officer, each of
which expires on December 31, 2003 (the "Employment Agreements"). Each of the
Employment Agreements is automatically renewable for an additional seven year
term unless either party gives written notice of an intent not to renew.
Pursuant to the Employment Agreements, Messrs. Katzman and Valero receive
annual base salaries of $240,000 and $180,000, respectively, which base salary
is increased annually by the greater of 6% or the rate of increase of the CPI
for the year immediately preceding each anniversary of the agreements. In
addition, the Employment Agreements provide that Messrs. Katzman and Valero may
receive a bonus as determined by the Company's Board of Directors, in its sole
discretion. Pursuant to Mr. Katzman's Employment Agreement, Mr. Katzman is only
required to devote so much of his time, attention, skill and efforts as shall
be required for the faithful performance of his duties. Pursuant to the
Employment Agreements, in the event the executives are terminated by the
Company without Cause (as defined in the Employment Agreements), the executives
shall receive all base compensation due for the remaining term of such
agreements. Mr. Katzman's Employment Agreement provides that upon termination
without Cause (as defined) or upon the occurrence of a change in control, Mr.
Katzman shall receive (i) all compensation due for the balance of the term of
his employment agreement, (ii) a severance payment equal to two years of his
current salary, (iii) vesting of all stock options granted to him, (iv) payment
of legal fees and expenses incurred as a result of termination or change in
control, and (v) a "put" option to tender all of his shares of stock in the
Company at a specified price. If the "put" option is exercised, the Company
must purchase all his shares of Common Stock at a price per share equal to (i)
if the Common Stock is then listed and traded on a securities exchange, the
average closing price over the forty-five trading days immediately preceding
the date the stock is tendered or (ii) if the Common Stock is not then listed
and traded on a securities exchange, the price per share used in a
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similar third party arms' length sale of Common Stock during the six-month
period immediately preceding the tender. If the purchase price cannot be
determined in accordance with (i) and (ii) above, the price per share shall be
determined by an acceptable arbitrator in accordance with the rules of
commercial arbitration, or in the event the parties cannot agree on an
arbitrator, an arbitrator appointed by the American Arbitration Association.
The executive officers each hold options to purchase Common Stock granted
under the Company's 1995 Plan. The Employment Agreements provide that, to the
extent not already exercisable, such options will become immediately
exercisable if the executive's employment is terminated for any reason other
than Cause or voluntary resignation. Each of the executives is prohibited from
competing with the Company for the duration of their respective Employment
Agreements and, if terminated for Cause or upon voluntary resignation, for a
period of one year thereafter, without the prior written consent of the
Company's Board of Directors. During the term of Mr. Katzman's Employment
Agreement and thereafter, Mr. Katzman is authorized to engage in any other
business or businesses not in competition with the Company in the United
States, which may include non-commercial real estate acquisitions, development
and management, provided that his involvement in such business does not
adversely affect the performance of his duties under the Employment Agreement
or detrimentally affect the Company's business and affairs. Mr. Katzman may
engage in any business outside the United States, including the development of
commercial real property. Mr. Katzman and companies affiliated with Mr. Katzman
currently invest in commercial and retail properties in Canada and Israel.
Pursuant to the terms of each of Messrs. Katzman's and Valero's Employment
Agreements, such executives were granted registration rights with respect to
the shares of Common Stock issuable to such executives under options granted
pursuant to such employment agreements. Each of the executives has waived such
registration rights in connection with the Offering. See "Certain
Transactions".
INSURANCE
The Company has obtained a directors and officers liability insurance
policy, effective upon consummation of the Offering, which provides insurance
in the amount of $7.5 million per director and/or officer per occurrence.
Subject to typical exclusions, the policy insures (i) the officers and
directors of the Company from any claim arising out of an alleged wrongful act
by the directors and/or officers in their respective capacities and (ii) the
Company to the extent that the Company has indemnified its directors and/or
officers for such losses.
STOCK OPTION PLAN
In December 1995, the Company adopted the 1995 Stock Option Plan (the
"1995 Plan"), pursuant to which 1,000,000 shares of Common Stock are currently
reserved for issuance upon exercise of options. The 1995 Plan is designed as a
means to retain and motivate key employees, officers and directors. The
Company's Compensation Committee, or in the absence thereof, the Board of
Directors, administers and interprets the 1995 Plan and is authorized to grant
options thereunder to all eligible employees of the Company, including
executive officers and directors (whether or not they are employees) of the
Company or affiliated companies. Options granted under the 1995 Plan are on
such terms and at such prices as determined by the Compensation Committee,
except that the per share exercise price of incentive stock options cannot be
less than the fair market value of the Common Stock on the date of grant. Each
option is exercisable after the period or periods specified in the option
agreement but no option may be exercisable after the expiration of ten years
from the date of grant, as provided under the 1995 Plan. The 1995 Plan will
terminate on December 31, 2005, unless sooner terminated by the Company's Board
of Directors. Options granted to an individual who owns (or is deemed to own)
at least 10% of the total combined voting power of all classes of stock of the
Company or its subsidiary and which is intended to be an incentive stock option
must have an exercise price of at least 110% of the fair market value of the
Common Stock on the date of grant, and a term of no more than five years. The
1995 Plan also authorizes the Company to make or guarantee loans to optionees
to enable them to exercise their options. Such loans must (i) provide for
recourse to the optionee, (ii) bear
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<PAGE>
interest at a rate not less than the prime rate of interest, and (iii) be
secured by the shares of Common Stock purchased. The Board of Directors has the
authority to amend or terminate the 1995 Plan, provided that no such amendment
may impair the rights of the holder of any outstanding option without the
written consent of such holder, and provided further that certain amendments of
the 1995 Plan are subject to stockholder approval. At the date of consummation
of the Offering, options to purchase an aggregate of 664,000 shares of Common
Stock will be outstanding under the 1995 Plan at an exercise price ranging from
$8.25 to $12.375 per share, of which options to purchase an aggregate of
160,500 shares are currently exercisable, options to purchase an aggregate of
310,750 shares are exercisable as of December 31, 1998, options to purchase an
aggregate of 466,000 shares are exercisable as of December 31, 1999, options to
purchase an aggregate of 621,250 shares are exercisable as of December 31,
2000, options to purchase an aggregate of 659,000 shares are exercisable as of
December 31, 2001 and options to purchase an aggregate of 664,000 shares are
exercisable as of December 31, 2002. The exercise price of all options granted
under the 1995 Plan were determined by the Company's Board of Directors and
were equal to the fair market value of the Common Stock as of the date of
grant. At the date of consummation of the Offering, 336,000 shares of Common
Stock will be available for future grants under the 1995 Plan.
The following table sets forth certain information with respect to options
granted under the 1995 Plan to the Named Officers for the years ended December
31, 1997 and 1996, and represents all options granted by the Company to such
Named Officers for the periods. In accordance with rules of the Commission, the
table also describes the hypothetical gains that would exist for the respective
options based on assumed rates of annual compounded stock appreciation of 5%
and 10% from the date of grant to the end of the option term. These
hypothetical gains are based on assumed rates of appreciation and, therefore,
the actual gains, if any, on stock option exercises are dependent on, among
other things, the future performance of the Common Stock, overall stock market
conditions, and the Named Officer's ability to exercise the option(s). As a
result, the amounts reflected in this table may not necessarily be achieved.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION
NAME YEAR GRANTED (#) FISCAL YEAR ($/SH) DATE
- ------------------------- ------ ------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Chaim Katzman ........... 1997 -- -- -- --
Chairman of the Board, 1996 200,000 40.2% $ 12.375(1) 12/31/06
President and Chief
Executive Officer
Doron Valero ............ 1997 30,000 20.5% $ 12.375 12/31/06
Executive Vice President 1996 198,000 39.8% (3) (4)
and Chief Operating
Officer
David Bookman ........... 1997 20,000 13.7% 12.375 12/31/06
Vice President, Chief 1996 -- -- -- --
Financial Officer
and Treasurer
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATE OF
STOCK PRICE APPRECIATION
FOR OPTION TERM
---------------------------------------
NAME 5%($) 10%
- ------------------------- ------------------- -------------------
<S> <C> <C>
Chaim Katzman ........... -- --
Chairman of the Board, $ 1,601,349(2) $ 4,224,928(2)
President and Chief
Executive Officer
Doron Valero ............ $ 233,475 $ 591,677
Executive Vice President $ 1,201,011(2) $ 3,168,696(2)
and Chief Operating
Officer
David Bookman ........... $ 155,650 $ 394,451
Vice President, Chief -- --
Financial Officer
and Treasurer
</TABLE>
- ----------------
(1) Pursuant to the terms of each of Mr. Katzman's and Mr. Valero's Employment
Agreements, the option exercise price is subject to downward adjustment to
the extent that dividends declared and paid by the Company in each year
subsequent to 1995 exceed dividends declared and paid by the Company in
the year ended December 31, 1995.
(2) Does not take into account the effect of the downward adjustment to the
option exercise price described in note (1) above.
(3) Of such options, (i) 150,000 have an exercise price of $12.375, subject to
the downward adjustment described in note (1) above, and (ii) 48,000 have
an exercise price of $8.25.
(4) Of such options, (i) 150,000 expire on December 31, 2006 and (ii) 48,000
expire on December 31, 1999.
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<PAGE>
CERTAIN TRANSACTIONS
SETTLEMENT OF DISPUTE AMONG THE COMPANY AND CERTAIN AFFILIATES
In January 1998, the Company, together with Gazit and Gazit (1995),
commenced an action (the "Company Action") in the Eleventh Judicial Circuit,
Miami-Dade County, Florida against Dan Overseas, Danbar Resources and Eli
Makavy and David Wulkan, directors of the Company who will resign immediately
prior to the consummation of the Offering (collectively, the "Dan Group"), in
connection with a dispute regarding the future course of the Company's business
operations, as well as amendments to the Company's bylaws effected in October
1997 in anticipation of the Offering, which amendments had been unanimously
approved by the Company's Board of Directors. The Company commenced the Company
Action in response to communications received by the Company from the Dan Group
which: (i) questioned the validity of Bylaw amendments which reduced
supermajority approval requirements for certain corporate action; (ii)
contended that the Company had breached the terms of an Investment Agreement,
dated as of May 21, 1996, among the Company, Globe Reit, Gazit (1995), as
successor-in-interest to Gazit Holdings Inc., and Dan Overseas; and (iii)
contended that any action by the Company's Board of Directors under the amended
bylaws would be ULTRA VIRES. In the Company Action, the Company sought, among
other things, a declaratory judgment as to the propriety of the Company's
conduct in amending the bylaws and the effectiveness of the amended bylaws.
Following the commencement of the Company Action, the Dan Group commenced an
action in Tel Aviv, Israel against the Company, Gazit Holdings, Inc. and Chaim
Katzman (the "Dan Action," and together with the Company Action, the
"Actions"). In the Dan Action, the Danbar Group renewed the allegations set
forth in the communications to the Company, and requested the Israeli court to
(i) declare Mr. Makavy's and Mr. Wulkan's assent to the Bylaws void due to
fraud, misrepresenation or mistake, and (ii) rescind the amendments to the
Company's Bylaws.
As a result of negotiations among the parties to the Actions, Gazit, two
Dan Group entities and certain individuals (including Messrs. Katzman, Makavy
and Wulkan) entered into a Settlement Agreement, dated March 6, 1998 (the
"Settlement Agreement"), resolving the issues raised in the Actions. In
general, the Settlement Agreement provides that: (i) the Actions would be
terminated and dismissed, without prejudice, which occurred in March 1998, (ii)
Dan Overseas would be afforded the opportunity to sell all of its shares of
Common Stock in the Offering (including shares of Common Stock issuable to Dan
Overseas upon the exercise of its Series C Warrants); (iii) upon consummation
of the Offering, Gazit would purchase certain capital stock of Globe Reit owned
by Danbar Resources (effectively providing Gazit with control of Globe Reit)
and would undertake to purchase the remaining capital stock of Globe Reit owned
by Danbar Resources within seven months after the consummation of the Offering;
(iv) each of Messrs. Makavy and Wulkan would resign from the Company's Board of
Directors immediately prior to the consummation of the Offering; (v) the
consulting agreements between the Company and each of Messrs. Makavy and Wulkan
would be terminated immediately prior to the consummation of the Offering; (vi)
the Shareholders Agreement would be terminated immediately prior to the
consummation of the Offering; (vii) Gazit would assume obligations of Dan
Overseas under the Investment Contract; (viii) prior to the consummation of the
Offering, the Company would effect the In-Kind Dividend and Gazit would
purchase the assets received by Dan Overseas in connection therewith for $1.2
million; (ix) Gazit would undertake to purchase or cause the purchase of all of
the capital stock of Globe Reit owned by certain individuals including Messrs.
Makavy and Wulkan for an aggregate price of $2.1 million; (x) the Bylaw
amendments would be affirmed; and (xi) upon consummation of the Offering the
parties would forever release and discharge the others from any and all claims,
demands and/or causes of action against one another and against the Company.
The Settlement Agreement further provides that if the Underwriters are
unable to sell all of the shares of Common Stock owned by Dan Overseas in the
Offering, then Gazit shall have the option to purchase all of such unsold
shares of Common Stock at the Offering price per share less underwriting fees.
In the event that Gazit determines not to exercise this option, the Settlement
Agreement would be terminated and of no further force and effect, in which case
the Offering would not be consummated. In
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<PAGE>
connection with the second phase of Gazit's purchase of the capital stock of
Globe Reit owned by Danbar Resources, Gazit has the option either to pay such
purchase price (i) in cash or (ii) by a combination of cash and the transfer of
a number of shares of Company Common Stock and Series C Warrants, along with
applicable demand registration rights, owned by Gazit. In the event that Gazit
selects the alternative of transferring cash and shares of Common Stock and
Series C Warrants to Danbar Resources, Gazit would effectively transfer a
maximum of 605,673 shares of Common Stock and a number of Series C warrants
entitling Danbar Resources to purchase an additional 96,900 shares of Common
Stock (all of which shares would constitute approximately 6.4% of the issued
and outstanding Common Stock after the Offering).
The parties have placed in escrow certain funds, securities and agreements
necessary to perform the Settlement Agreement through the consummation of the
Offering, and Gazit has deposited additional collateral of a value of at least
$1.0 million in escrow as partial security for the performance of the agreement
to purchase the second installment of Globe Reit shares. Certain provisions of
the Settlement Agreement (principally the purchase by Gazit of the balance of
the stock of Globe Reit owned by Danbar Resources for approximately $9.5
million) are required to be performed after the consummation of the Offering. No
assurance can be given that such performance will occur, or of the effect of
non-performance on the Company or control of the Company. The Company believes
that consummation of the Settlement Agreement is in the best interests of its
stockholders.
TRANSFER OF ASSETS AND RELATED IN-KIND DIVIDEND
Prior to the consummation of the Offering the Company will transfer
certain assets to a newly-formed limited partnership (the "Partnership") in
exchange for limited partnership interests (the "Partnership Interests"). A
limited liability company of which Globe Reit and Gazit will be members, will
be the general partner of the Partnership and will make an appropriate
contribution to the Partnership in return for its general partnership interest.
Included in the assets transferred to the Partnership will be Coral Way, 0.50
acres of vacant land adjacent to the Equity One Office Building and an
aggregate of 6.20 acres of vacant land adjacent to Bird Ludlum. See
"Business--Redevelopment and Development Properties". Additionally, the Company
will assign to the Partnership a promissory note from Chaim Katzman, the
Company's Chairman of the Board, President and Chief Executive Officer, in the
principal amount of $1.1 million, and a promissory note from Doron Valero, the
Company's Executive Vice President and Chief Operating Officer, in the
principal amount of $396,000, together with the rights to Common Stock securing
such notes. See "--Loans to Executive Officers". As part of this transaction,
the Partnership will grant the Company an Option, exercisable within five years
from the consummation of the Offering, to purchase Coral Way for $2.0 million,
the vacant land adjacent to the Equity One Office Building for $1.7 million and
the vacant land adjacent to Bird Ludlum for $1.1 million. Immediately prior to
the consummation of the Offering, the Company will distribute all of the
Partnership Interests to its stockholders pro rata in proportion to their
ownership of Common Stock (the "In-Kind Dividend").
INVESTMENT AGREEMENT
During 1996, the Company entered into an agreement with Globe Reit,
pursuant to which Globe Reit, through its wholly owned subsidiary M.G.N.,
agreed to purchase an aggregate of 2,000,000 shares of Common Stock at a
formula price over a period of time. As set forth in the agreement, the per
share purchase price of $12.375 increases at an annual rate of 9.7% and
decreases by amounts paid as dividends by the Company. The agreement also
provides for the purchase by Globe Reit of 400,000 Series C Warrants for the
purchase price of $1.8 million. See "Description of Capital Stock--Warrants".
Upon consummation of the Offering, Chaim Katzman, the Company's Chairman of the
Board, President and Chief Executive Officer, directly and indirectly will have
the power to control Globe Reit. See "Management--Directors and Executive
Officers" and "Principal and Selling Stockholders". As of the date of this
Prospectus, Globe Reit, through its wholly-owned subsidiary M.G.N., had
purchased an aggregate of 1,419,712 shares of Common Stock and 400,000 Series C
Warrants and is required to purchase the additional 580,288 shares of Common
Stock by November 1999. The Company believes
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<PAGE>
that such sales of Common Stock and warrants were made at full market value at
the date of the agreement and on substantially the same terms as the Company
could have negotiated with other unaffiliated third parties.
Further, pursuant to the agreement each of the Company, Globe Reit, Dan
Overseas and Gazit is also required to grant each other loans for amounts up to
$3.0 million, which amounts must be repaid within six months. Interest on such
loans shall be payable at the prevailing rate of interest at Bank Leumi
le-Israel B.M. at such time. Certain of the shares of the stock of the Company
owned by a borrower under such loan shall be pledged as collateral for the
repayment of any loan under the agreement. During December 1995, the Company
borrowed $2.2 million from Gazit, Globe Reit and Dan Overseas for the purposes
of making distributions, which amount was repaid in full in June 1996. No loan
amount is outstanding as of the date of the Offering. This borrowing
arrangement will be terminated upon consummation of the Offering.
Pursuant to the Settlement Agreement, upon consummation of the Offering,
Gazit will assume obligations of Dan Overseas under this agreement.
ACQUISITION OF GLOBAL REALTY & MANAGEMENT, INC.
In January 1994, the Company acquired all of the outstanding capital stock
of Global Management from Doron Valero, the Company's Executive Vice President
and Chief Operating Officer, in exchange for 144,000 shares of Common Stock and
warrants to purchase an aggregate of 48,000 shares of Common Stock at an
exercise price of $8.25 per share. Such warrants were exercised by Mr. Valero
in December 1996.
LOANS TO EXECUTIVE OFFICERS
In June 1996, the Company made a loan to Chaim Katzman, the Company's
Chairman of the Board, President and Chief Executive Officer, in the principal
amount of $1.1 million, bearing interest at an annual rate of 6.86%. The funds
advanced to Mr. Katzman were used to exercise certain warrants to purchase an
aggregate of 215,000 shares of Common Stock. Interest on the loan is payable
annually on January 5. This loan is secured by the shares of Common Stock
acquired by Mr. Katzman through exercise of the warrants and matures on June
16, 2003, at which time the entire principal balance is due and payable. At
December 31, 1997, $1.1 million was outstanding under this loan. In the opinion
of the Company, the foregoing loan was made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other unaffiliated third parties. In the In-Kind
Dividend, Mr. Katzman's promissory note and related security interests will be
transferred to the Partnership.
In December 1996, the Company made a loan to Doron Valero, the Company's
Executive Vice President and Chief Operating Officer, in the principal amount
of $396,000, bearing interest at an annual rate of 5.25%. The funds advanced to
Mr. Valero were used to exercise certain warrants to purchase an aggregate of
48,000 shares of Common Stock. Interest on the loan is payable annually on
January 5. The loan is secured by the shares of Common Stock acquired by Mr.
Valero through exercise of the warrants and matures on June 16, 2003, at which
time the entire principal balance is due and payable. At December 31, 1997,
$396,000 was outstanding under this loan. In the In-Kind-Dividend, Mr. Valero's
promissory note and related security interests will be transferred to the
Partnership.
CONSULTING AGREEMENTS
In January 1996, the Company entered into consulting agreements with each
of Eli Makavy and David Wulkan, directors of the Company who will resign
immediately prior to the consummation of the Offering, pursuant to which
Messrs. Makavy and Wulkan provided the Company with financial and other advice,
assistance and support on an as-needed basis. In consideration for services
rendered under the consulting agreements, Messrs. Makavy and Wulkan received a
quarterly consulting fee of $7,500
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and were eligible to receive options under the 1995 Plan. To date, the Company
has paid an aggregate of $61,800 to each of Messrs. Makavy and Wulkan and has
issued an aggregate of 50,000 options to purchase Common Stock to each of such
individuals at an exercise price of $12.375 per share. Pursuant to the terms of
each of the consulting agreements, the option price is subject to downward
adjustment to the extent that dividends declared and paid by the Company in
each year subsequent to 1995 exceed dividends declared and paid by the Company
in the year ended December 31, 1995. Pursuant to the Settlement Agreement, upon
consummation of the Offering the consulting agreements will be terminated.
MANAGED PROPERTIES
Several apartment properties in which Mr. Valero has an ownership interest
or which are owned by corporations on which he serves as an officer or director
are managed by the Company. Each of these management agreements represents
arms-length contractual agreements, and generate an average of $4,800 in
management fees per year per property. Mr. Valero receives no additional
compensation in connection with these management agreements.
REGISTRATION RIGHTS
Pursuant to the terms of each of Messrs. Katzman's and Valero's Employment
Agreements, such executives were granted registration rights with respect to
the shares of Common Stock issuable to such executives under options granted
pursuant to such employment agreements. Each of the executives has waived such
registration rights in connection with the Offering.
Pursuant to the terms of the Series C Warrants, the holders of the Series
C Warrants were granted registration rights for the shares of Common Stock
issuable upon the exercise of such warrants. Except for Dan Overseas, which is
exercising its registration rights pursuant to the Settlement Agreement, the
holders of the Series C Warrants have waived such registration rights in
connection with the Offering.
Pursuant to a Registration Rights Agreement, the Company has granted both
demand and piggyback Registration Rights to each of Chaim Katzman, Gazit
(1995), Dan Overseas, Globe Reit, and Doron Valero with respect to the shares
of Common Stock owned by them (the "Registration Rights Agreement"). Except for
Dan Overseas, which is exercising registration rights pursuant to the
Settlement Agreement, each of the parties to the Registration Rights Agreement
has waived its registration rights in connection with the Offering.
BENEFITS OF OFFERING TO EXISTING STOCKHOLDERS, INCLUDING MANAGEMENT
The Selling Stockholder will sell all of its shares of Common Stock in
connection with the Offering. Additionally, the Company's existing
stockholders, including certain members of management, are expected to benefit
from the Offering due to the anticipated improved liquidity of their shares of
Common Stock, an increase in the net tangible book value of their shares of
Common Stock and the potential increase in the value of any options or warrants
which they hold to purchase additional shares of Common Stock.
USE AGREEMENT
In 1994 and 1995, the Company paid Gazit a user fee of $172,500 and
$150,000, respectively, for the use of Gazit's facilities and equipment for the
conduct of the Company's business affairs, as well as for Mr. Katzman's
services to the Company.
SERVICE AGREEMENT
On January 1, 1996, the Company and Gazit entered into an agreement
whereby Chaim Katzman, or any employee of Gazit or its affiliates, may use the
Company's facilities, equipment, supplies and
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personnel to conduct Gazit's and Mr. Katzman's business affairs for a quarterly
user fee of $2,500. Since the commencent of this agreement an aggregate of
$17,500 has been paid by Gazit to the Company.
OTHER
The Company paid legal fees in the approximate amount of $95,160, $84,340
and $49,678 during the years ended December 31, 1995, 1996 and 1997,
respectively, to the Law Office of Alan J. Marcus. Mr. Marcus, the Secretary of
the Company, will become Vice President and General Counsel following
consummation of the Offering.
Robert L. Cooney, a director, served as a Managing Director of Equity
Capital Markets of Credit Suisse First Boston from 1978 to 1996. See
"Management--Management and Key Employees" and "Underwriting".
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of certain investment, financing, conflicts
of interest, redevelopment and development and other policies of the Company.
These policies have been determined by the Company's Board of Directors and
generally may be amended or revised from time to time by the Board of Directors
without a vote of the stockholders.
INVESTMENT POLICIES
INVESTMENTS IN REAL ESTATE. The Company's investment objective is to
maximize total return to stockholders by increasing cash flow per share and
maximizing the value of its properties primarily through the acquisition,
development, renovation and management of Supermarket Centers. See
"Business--Business and Growth Strategies".
Although the Company intends to principally acquire or develop Supermarket
Centers, it may acquire or develop other types of properties such as office
buildings or multifamily residential projects. In addition, although the
Company presently intends to acquire and develop properties in various
locations in the Southeast with demographic characteristics similar to its
present markets, its future acquisitions and development activities may not be
limited to any geographic area. There is also no limit on the percentage of the
Company's assets which may be invested in one property or in any area.
Pending disbursements for investment as described herein, the Company may
invest its funds in deposits at commercial banks, money market accounts,
certificates of deposit, government securities, investment grade preferred
stock of other publicly held REITs or other liquid investments (including GNMA,
FNMA, and FHLMC mortgage-backed securities) as the Board of Directors deems
appropriate. The Company intends to continue to make investments in such a way
that it will continue to qualify as a REIT and not be treated as an investment
company under the Investment Company Act of 1940.
While to date the Company has emphasized equity real estate investments,
it may, in its discretion, invest in mortgages and other real estate and
related interests. Subject to the percentage ownership limitations and gross
income tests necessary for REIT qualification, the Company also may invest in
securities of entities engaged in real estate activities or securities of other
issuers, including for the purpose of exercising control over such entities.
See "Federal Income Tax Considerations--Taxation of the Company". The Company
may acquire all or substantially all of the securities or assets of other REITs
or similar entities where such investments would be consistent with the
Company's investment policies.
INVESTMENTS IN REAL ESTATE THROUGH OTHER ENTITIES. The Company also may
participate with other entities in property ownership, through joint ventures
or other types of co-ownership. Although the
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Company would likely seek to acquire the controlling interest in such entities,
it is not required to do so. To date, the Company has not participated in
property ownership with other entities. The Company will not enter into a joint
venture or partnership to make an investment that would not otherwise meet its
investment policies.
FINANCING POLICIES
The Company intends to finance future acquisitions with the most
advantageous sources of capital available at the time, which may include
additional equity offerings, debt financing, retention of cash flow subject to
provisions in the Code or a combination of these methods.
The Company's policy is to maintain a ratio of total indebtedness to total
market capitalization of approximately 50.0% or less. Upon completion of the
Offering, assuming an initial offering price of $13.50, and use of the net
proceeds contemplated hereby, the ratio of the Company's total indebtedness to
total market capitalization will be approximately 27.0%. The Company may, from
time to time re-evaluate its borrowing policies in light of then current
economic conditions, relative costs of debt and equity capital, the market
value of its properties, growth and acquisition opportunities and other
factors. Because there is no limit on the Company's ratio of debt-to-total
market capitalization, the Company may modify its borrowing policy and may
increase or decrease its ratio of debt-to-total market capitalization as, when
and if the Company deems it appropriate. Borrowings may be unsecured or may be
secured by any or all of the Existing Properties or additional properties and
may have full or limited recourse to all or any assets of the Company and may
contain cross-default or cross-collateralization provisions.
The Company may acquire properties subject to seller financing, existing
loans secured by mortgages, deeds of trust or similar liens. The Company does
not have a policy limiting the number or amount of mortgages that may be placed
on any particular property, but mortgage financing instruments usually limit
additional liens on such properties.
The Company may incur indebtedness for purposes other than the acquisition
or development of properties when it deems it advisable to do so. For example,
the Company may borrow for working capital purposes or to make capital
improvements. In addition, the Company may borrow to meet the REIT taxable
income distribution requirements under the Code if the Company has taxable
income without receipt of cash sufficient to meet these distribution
requirements.
CONFLICTS OF INTEREST POLICIES
The Company has adopted certain policies designed to reduce potential
conflicts of interest. In general, the Company will not engage in any
transaction with any director, officer or affiliate thereof involving the
purchase or sale of property unless such transaction is approved by a majority
vote (or in certain cases by a unanimous vote) of the disinterested directors
(including a majority of independent directors) as being fair, competitive, and
commercially reasonable and no less favorable to the Company than similar
transactions between unaffiliated parties under the same circumstances.
Chaim Katzman, the Company's Chairman of the Board, President and Chief
Executive Officer, and Doron Valero, the Company's Executive Vice President and
Chief Operating Officer, are subject to certain conflict of interest
restrictions as set forth in their employment agreements with the Company. See
"Management--Employment Agreements". Each of Messrs. Katzman and Valero are
involved in other business activities, including real estate activities.
Certain of the Company's independent directors generally may engage in real
estate transactions which may be of the type conducted by the Company, but it
is not anticipated that such transactions will have any material effect upon
the Company's operations.
REDEVELOPMENT AND DEVELOPMENT POLICIES
The Company may invest in properties under development or vacant land upon
which development will occur and may redevelop existing properties. See
"Business-Business and Growth
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Strategies". Although historically the Company has not commenced construction
in any redevelopment or development projects without obtaining a commitment
from an Anchor Tenant, it is not obligated to do so.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company has authority to offer shares of Common Stock and preferred
stock or other securities and to repurchase or otherwise reacquire its shares
of Common Stock and preferred stock or any other securities and may engage in
such activities in the future.
The Company has no outstanding loans to other entities or persons,
including its officers and directors, except for outstanding loans to Chaim
Katzman and Doron Valero in connection with their acquisition of Common Stock.
The Company may in the future make loans to other persons with the approval of
the independent directors.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements which have been certified by its
independent public accountants, and quarterly reports containing unaudited
summary financial information for each of the first three quarters of each
fiscal year.
The Company's policies with respect to all of the above activities may be
reviewed and modified from time to time by the Company's Board of Directors
without a vote of the stockholders.
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PRINCIPAL AND SELLING STOCKHOLDERS
Certain stockholders of the Company have entered into agreements to
control the Company. In particular, pursuant to an Investment Contract, dated
as of May 21, 1996, among Dan Overseas, Gazit (1995), as successor-in-interest
to Gazit Holdings Inc., Globe Reit and the Company (the "Investment Contract"),
and a Shareholders Agreement, dated May 21, 1996, between Gazit and Danbar
Resources (the "Shareholders Agreement," and together with the Investment
Contract and Irrevocable Proxy, the "Control Agreements"), Globe Reit has been
granted an Irrevocable Proxy to vote all the shares of Common Stock owned by
the stockholders who are parties to the Control Agreements (collectively with
Mr. Katzman, the "Affiliated Group") for the election of directors of the
Company through May 2001. With respect to all other matters, the Control
Agreements provide that the parties to the Affiliated Group will vote all of
their shares as they may agree, or if they cannot agree, will vote against any
such proposal. Mr. Katzman, the Company's Chairman of the Board, President and
Chief Executive Officer, has agreed that his shares of Common Stock would be
bound by the terms of the Control Agreements. Each member of the Affiliated
Group may be deemed to own all of the shares of Common Stock owned by the
Affiliated Group by virtue of the shared power to vote such shares of Common
Stock; the table set forth below does not give effect to this shared power.
Pursuant to the Control Agreements, the Affiliated Group may be deemed to
beneficially own, for purposes of the Exchange Act, all shares of Common Stock
beneficially owned by any member of the Affiliated Group (including shares of
Common Stock which may be acquired within 60 days upon the exercise of options
or warrants or pursuant to contract) or 8,673,958 shares of Common Stock at
December 31, 1997, constituting 96.6% of the outstanding Common Stock. Upon
consummation of the Offering, the members of the Dan Group will cease to be
parties to the Control Agreements and Dan Overseas will sell all of its shares
of Common Stock (including shares of Common Stock issuable upon exercise of its
Series C Warrants) in the Offering, free of the Irrevocable Proxy, and the
Shareholders Agreement will be terminated. As a result of the foregoing, after
giving effect to the Offering and the sale of Common Stock by Dan Overseas, the
remaining members of the Affiliated Group will beneficially own 6,985,926
shares of Common Stock (including shares of Common Stock which may be acquired
within 60 days upon the exercise of options or warrants or pursuant to
contract) at December 31, 1997, constituting 55.5% of the outstanding Common
Stock,
By virtue of his offices, direct and indirect share ownership and voting
arrangement regarding Gazit, Mr. Katzman may be deemed to control Gazit (and
Gazit to control Globe Reit and the Company). Additionally, each of Messrs.
Makavy and Wulkan, by virtue of his office and indirect share ownership of
Danbar, may be deemed to control Danbar (and Danbar to control Danbar
Resources, Globe Reit and the Company). As a result, Mr. Katzman may be deemed
to beneficially own the Common Stock owned by Gazit (1995) and Globe Reit, and
each of Messrs. Makavy and Wulkan to beneficially own the Common Stock owned by
Dan Overseas and Globe Reit. In connection with the Settlement Agreement,
Messrs. Makavy and Wulkan will sell to Gazit all of the shares of capital stock
of Globe Reit beneficially owned by them and as a result thereof, Mr. Katzman
will effectively control Gazit and Globe Reit. The table set forth below does
not give effect to such beneficial ownership of Gazit and Danbar Resources of
Globe Reit.
Subject to the foregoing, the following table sets forth certain
information concerning the beneficial ownership of the Common Stock as of
December 31, 1997, and as adjusted to reflect the sale of 3,700,000 shares of
Common Stock by the Company and the sale of 1,663,032 shares of Common Stock by
the Selling Stockholder, by (i) each person known by the Company to be the
beneficial owner of more than 5.0% of the outstanding Common Stock, (ii) each
director and director nominee of the Company, (iii) each of the Named Officers,
(iv) the Selling Stockholder and (v) all executive officers and directors of
the Company as a group. Unless otherwise indicated, the address of each named
person is c/o Equity One, Inc., 777 17th Street, Penthouse, Miami Beach,
Florida 33139.
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<TABLE>
<CAPTION>
SHARES SHARES TO BE
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING
----------------------- ------------------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
- ------------------------------------------- ----------- --------- --------------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
Affiliated Group(2) ....................... 8,673,958 96.6% -- 6,985,926 55.5%
Globe Reit Investments, Ltd.(3) ........... 3,460,000 43.9% -- 3,460,000 29.1%
Gazit (1995), Inc.(4) ..................... 3,072,592 41.2% -- 3,072,592 26.8%
Dan Overseas, Ltd.(5) ..................... 1,663,032 23.1% 1,663,032 -- --
M.G.N. (USA), Inc.(6) ..................... 2,400,000 30.4% -- 2,400,000 20.2%
Chaim Katzman(7) .......................... 3,525,926 46.3% -- 3,525,926 30.4%
Doron Valero(8) ........................... 322,500 4.6% -- 322,500 2.9%
David Bookman(9) .......................... 5,004 * -- 5,004 *
Eli Makavy(10) ............................ 1,688,032 23.1% (11) 25,000(12) *
David Wulkan(13) .......................... 1,688,032 23.1% (14) 25,000(12) *
Shaiy Pilpel .............................. -- -- -- -- --
Noam Ben Ozer ............................. -- -- -- -- --
Yuval Yanai ............................... -- -- -- -- --
Shulamit Rozen-Katzman(15) ................ -- -- -- -- --
Robert Cooney ............................. -- -- -- -- --
Ronald Chase .............................. -- -- -- -- --
All executive officers and directors of the
Company as a group (11 persons before
the Offering and 9 persons after the
Offering)(15) ........................... 5,566,464 68.8% -- 3,853,430 32.8%
</TABLE>
- ----------------
* Less than 1%.
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such persons within 60 days from the date of this Prospectus
upon the exercise of options and warrants or purchasable pursuant to an
executory contract to acquire Common Stock. Each beneficial owner's
percentage ownership is determined by assuming that options and warrants
and shares purchasable under an executory contract that are held by such
person (but not those held by any other person) and that are exercisable
or purchasable within 60 days from the date of this Prospectus have been
exercised or purchased. For purposes of this table, a beneficial owner of
securities includes any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise has or
shares (i) voting power which includes the power to vote, or direct the
voting of, such security and/or (ii) investment power which includes the
power to dispose, or to direct the disposition of, such security.
(2) See Notes (3), (4), (5), (6), (7), (10), (11), (13) and (14) below.
(3) Includes (i) 1,060,000 shares of Common Stock owned by Globe Reit, (ii)
580,288 shares of Common Stock purchasable by M.G.N. under an executory
agreement to purchase Common Stock, (iii) 1,420,952 shares of Common Stock
owned by M.G.N. and (iv) 398,760 shares of Common Stock issuable upon the
exercise of presently exercisable warrants to purchase Common Stock owned
by M.G.N. Does not give effect to the Control Agreements.
(4) Includes (i) 2,530,456 shares of Common Stock owned by Gazit (1995) and
(ii) 542,136 shares of Common Stock issuable upon the exercise of
presently exercisable warrants to purchase Common Stock. Does not give
effect to the Control Agreements.
(5) Does not give effect to the Control Agreements. Prior to consummation of
the Offering, such shares may be transferred by Dan Overseas to Assumpsit
Holdings, L.P., a limited partnership of which Dan Overseas will be the
limited partner with a 75% interest and an affiliate will be the general
partners with a 25% interest, and Assumpsit Holdings, L.P. would be the
"Selling Stockholder".
(6) Includes (i) 1,420,952 shares of Common Stock owned by M.G.N., (ii)
398,760 shares of Common Stock issuable upon the exercise of presently
exercisable warrants to purchase Common Stock and (iii) 580,288 shares of
Common Stock purchasable under an executory agreement to purchase Common
Stock. Does not give effect to the Control Agreements.
(7) Includes (i) 2,530,456 shares of Common Stock owned by Gazit (1995) which
Mr. Katzman may be deemed to control, (ii) 542,136 shares of Common Stock
issuable upon the exercise of presently exercisable warrants to purchase
Common Stock owned by Gazit (1995), (iii) 290,990 shares of Common Stock
owned by Mr. Katzman, (iv) 100,000 shares of Common Stock issuable upon
the exercise of options granted to Mr. Katzman under the 1995 Plan, which
options are currently exercisable and (iv) 62,344 shares of Common Stock
issuable to Mr. Katzman as custodian for his minor children upon the
exercise of presently exercisable warrants to purchase Common Stock. Does
not include 100,000 shares of Common Stock issuable upon exercise of
options granted to Mr. Katzman under the 1995 Plan, which options are not
currently exercisable. Does not give effect to the Control Agreements.
(8) Includes (i) 192,000 shares of Common Stock owned by Mr. Valero, (ii)
130,500 shares of Common Stock issuable upon the exercise of options
granted to Mr. Valero under the 1995 Plan, which options are currently
exercisable. Does not include 97,500 shares of Common Stock issuable upon
the exercise of options granted to Mr. Valero under the 1995 Plan, which
options are not currently exercisable.
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(9) Includes 5,000 shares of Common Stock issuable upon the exercise of
options granted to Mr. Bookman under the 1995 Plan, which options are
currently exercisable. Does not include 35,000 shares of Common Stock
issuable upon exercise of options granted to Mr. Bookman under the 1995
Plan, which options are not currently exercisable.
(10) Includes (i) 1,369,602 shares of Common Stock owned by Dan Overseas which
Mr. Makavy may be deemed to control, (ii) 293,430 shares of Common Stock
issuable upon the exercise of presently exercisable warrants to purchase
Common Stock owned by Dan Overseas and (iii) 25,000 shares of Common Stock
issuable upon the exercise of options granted to Mr. Makavy under the 1995
Plan, which options are currently exercisable. Does not include 25,000
shares of Common Stock issuable upon the exercise of options granted to
Mr. Makavy under the 1995 Plan, which options are not currently
exercisable. Does not give effect to the Control Agreements.
(11) All of the shares of Common Stock owned by Dan Overseas, which Mr. Makavy
may be deemed to control, are being sold in the Offering. See footnote
(5).
(12) Pursuant to the Settlement Agreement, Danbar Resources may receive an
aggregate of 605,623 shares of Common Stock and Series C Warrants to
purchase an aggregate of 96,900 shares of Common Stock from Gazit. Such
shares would represent approximately 6.4% of the total issued and
outstanding Common Stock following consummation of the Offering. Each of
Messrs. Makavy and Wulkan, by virtue of their ownership of the capital
stock of Danbar Resources, may be deemed to control Danbar Resources. See
"Certain Transactions".
(13) Includes (i) 1,369,602 shares of Common Stock owned by Dan Overseas which
Mr. Wulkan may be deemed to control, (ii) 293,430 shares of Common Stock
issuable upon the exercise of presently exercisable warrants to purchase
Common Stock owned by Dan Overseas and (iii) 25,000 shares of Common Stock
issuable upon the exercise of options granted to Mr. Wulkan under the 1995
Plan, which options are currently exercisable. Does not include 25,000
shares of Common Stock issuable upon the exercise of options granted to
Mr. Wulkan under the 1995 Plan, which options are not currently
exercisable. Does not give effect to the Control Agreements.
(14) All of the shares of Common Stock owned by Dan Overseas, which Mr. Wulkan
may be deemed to control, are being sold in the Offering. See footnote
(5).
(15) Shulamit Rozen-Katzman is the wife of Chaim Katzman, the Company's
Chairman of the Board, President and Chief Executive Officer. Does not
include shares of Common Stock owned by Chaim Katzman. See note (7) above.
(16) See footnotes (7)-(11), (13) and (14) above. Also includes 2 shares of
Common Stock owned by Alan J. Marcus.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized stock consists of 40,000,000 shares of Common
Stock, $0.01 par value per share, and 5,000,000 shares of preferred stock,
$0.01 par value per share. As of December 31, 1997, 6,908,130 shares of Common
Stock and no shares of preferred stock were issued and outstanding. Under
Maryland law, stockholders generally are not liable for the corporation's debts
or obligations. The following summary of the terms of the stock of the Company
does not purport to be complete and is subject to and qualified in its entirety
by reference to the MGCL and to the Company's Charter and Bylaws, copies of
which are exhibits to the Registration Statement of which this Prospectus is a
part. See "Additional Information".
COMMON STOCK
Each outstanding share of Common Stock entitles the holder to one vote on
all matters presented to stockholders for a vote, including the election of
directors. Except as provided in the terms of any other class or series of
stock, the holders of Common Stock possess the exclusive voting power, subject
to the provisions of the Company's Charter regarding the ownership of shares of
Common Stock in excess of the Aggregate Stock Ownership Limit, or such other
limit as provided in the Company's Charter or as otherwise permitted by the
Board of Directors as described below.
Holders of shares of Common Stock have no preference, conversion,
exchange, sinking fund or redemption and have no preemptive rights to subscribe
for any securities of the Company or cumulative voting rights in the election
of directors. All shares of Common Stock to be issued and outstanding following
the consummation of the Offering will be duly authorized, validly issued, fully
paid, nonassessable and free of preemptive rights. Subject to the preferential
rights of any other shares or series of stock and to the provisions of the
Charter regarding ownership of shares of Common Stock in excess of the
Aggregate Stock Ownership Limit, or such other limit as provided by the
Company's Charter or as otherwise permitted by the Board of Directors described
below, distributions may be paid to the holders of shares of Common Stock if
and when authorized and declared by the Board of Directors of the Company out
of assets legally available therefor. The Company intends to make quarterly
distributions. See "Distribution Policy".
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Subject to the right of any holders of preferred stock to receive
preferential distributions, if the Company is liquidated each outstanding share
of Common Stock will be entitled to participate pro rata in the assets
remaining after payment of, or adequate provision for, all known debts and
liabilities of the Company.
Subject to the provisions of the Charter regarding the ownership of shares
of Common Stock in excess of the Aggregate Stock Ownership Limit, or such other
limit as provided in the Company's Charter or as otherwise permitted by the
Board of Directors described below, all shares of Common Stock will have equal
distribution, liquidation and voting rights, and will have no preferences or
exchange rights. See "--Restrictions on Ownership and Transfer of Common
Stock".
Under the MGCL, a Maryland corporation generally cannot dissolve, amend
its charter, merge, sell all or substantially all of its assets, engage in a
share exchange or engage in similar transactions outside of the ordinary course
of business unless approved by the affirmative vote of stockholders holding at
least two-thirds of the shares entitled to vote on the matter unless a greater
or lesser percentage (but no less than a majority of all of the votes entitled
to be cast on the matter) is set forth in the corporation's charter. The
Charter contains a provision decreasing the two-thirds vote requirement to a
majority requirement. The phrase "substantially all of the assets" is not
defined in the MGCL and is, therefore, subject to interpretation by courts
applying Maryland law in the context of the facts and circumstances of a
particular case.
The Charter authorizes issuances of additional shares of stock and the
classification or reclassification of unissued shares of either Common Stock or
preferred stock into other classes or series of classes of stock with
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption for each such class or series.
PREFERRED STOCK
The Charter authorizes the Board of Directors to classify any unissued
shares of preferred stock and to reclassify any previously classified but
unissued shares of any series. Prior to issuance of shares of each series, the
Board is required by the MGCL and the Charter to set, subject to the provisions
of the Charter regarding the restrictions on transfer of stock, the terms,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption for each such series. Thus, the Board of Directors
could authorize the issuance of shares of preferred stock with terms and
conditions which could have the effect of delaying, deferring or preventing a
transaction or a change in control of the Company that might involve a premium
price for holders of Common Stock or otherwise be in their best interest. As of
the date hereof, no shares of preferred stock are outstanding and the Company
has no present plans to issue any preferred stock.
WARRANTS
As of December 31, 1997, Series C Warrants to purchase an aggregate of
1,306,124 shares of Common Stock at an exercise price of $8.25 per share,
subject to adjustments, were issued and outstanding. These warrants are freely
transferable and are exercisable by the holders thereof through the close of
business on December 31, 1999. Series C Warrants to purchase 1,296,670 shares
of Common Stock have been issued to Gazit (1995), Dan Overseas, M.G.N. and
Chaim Katzman, as custodian for his minor children. The Series C Warrants
provide for certain registration rights. Dan Overseas has notified the Company
that it will exercise all of its Series C Warrants immediately prior to the
consummation of the Offering.
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF COMMON STOCK
For the Company to qualify as a REIT under the Code, not more than 50.0%
in value of the issued and outstanding stock may be owned, actually or
constructively, by five or fewer individuals (as defined
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in the Code to include certain entities) during the last half of a taxable year
and the capital stock must be beneficially owned by 100 or more persons during
at least 335 days of a taxable year of 12 months (or during a proportionate
part of a shorter taxable year). In addition, rent from Related Party Tenants
(as defined below under "Federal Income Tax Considerations Taxation of the
Company--Income Tests") is not qualifying income for purposes of the gross
income tests of the Code. See "Federal Income Tax Considerations-Taxation of
the Company--Requirements for Qualification".
Because the Board of Directors believes it is essential for the Company to
qualify as a REIT, the Board of Directors has adopted provisions in the
Company's Charter restricting the acquisition and ownership of shares of the
Company's stock. Subject to certain exceptions specified in the Company's
Charter, no holder may own, either actually or constructively under the
applicable attribution rules of the Code, more than the Aggregate Stock
Ownership Limit or more than the Common Stock Ownership Limit.
If, as a result of a purported acquisition (actual or constructive) of
stock, any person (a "Prohibited Transferee") would acquire, either actually or
constructively under the applicable attribution rules of the Code, shares of
stock in excess of an applicable ownership restriction, such shares will be
automatically transferred to a trust for the benefit of a charitable
beneficiary, and the Prohibited Transferee shall not acquire any rights in such
shares. Such automatic transfer shall be deemed to be effective as of the close
of business on the business day prior to the purported acquisition by the
Prohibited Transferee. The Prohibited Transferee shall not benefit economically
from ownership of any shares of stock held in trust, shall have no rights to
dividends and shall not possess any rights to vote or other rights attributable
to the shares of stock held in trust. While such stock is held in trust, the
trustee shall have all voting rights with respect to the shares, and all
dividends or distributions paid on such stock will be paid to the trustee of
the trust for the benefit of the charitable beneficiary (any dividend or
distribution paid on shares of capital stock prior to the discovery by the
Company that such shares have been automatically transferred to the trust
shall, upon demand, be paid over by the recipient of such dividend or
distribution to the trustee for the benefit of the charitable beneficiary and
any dividends or other distributions authorized but unpaid shall be paid when
due to the Trustee). The Prohibited Transferee shall have no voting rights with
respect to shares of stock held in the trust and, subject to Maryland law,
effective as of the date that such shares of stock have been transferred to the
trust, the trustee shall have the authority (at the trustee's sole discretion)
(i) to rescind as void any vote cast by a Prohibited Transferee prior to the
discovery by the Company that such shares have been transferred to the Trust
and (ii) to recast such vote in accordance with the desires of the trustee
acting for the benefit of the charitable beneficiary. However, if the Company
has already taken irreversible corporate action, then the trustee shall not
have the authority to rescind and recast such vote. Within 20 days of receiving
notice from the Company of the transfer of shares to the trust, the trustee of
the trust is required to sell the shares held in the trust to a person
designated by the trustee who may own such shares without violating the
ownership restrictions (a "Permitted Holder"). Upon such sale, the interest of
the charitable beneficiary in the shares sold shall terminate and the price
paid for the shares by the Permitted Holder shall be distributed to the
Prohibited Transferee to the extent of the lesser of (i) the price paid by the
Prohibited Transferee for the shares or if the Prohibited Transferee did not
give value for the shares in connection with the event causing the shares to be
held in trust (e.g. a gift, devise or other such transaction), the fair market
value, on the date of transfer to the trust, of the shares so transferred and
(ii) the price per share recieved by the trustee from the sale or other
disposition of the shares held in the trust. Any proceeds in excess of this
amount shall be paid to the charitable beneficiary. If, prior to the discovery
by the Company that shares of stock have been transferred to the trust, such
shares are sold by a Prohibited Transferee, then (i) such shares shall be
deemed to have been sold on behalf of the trust and (ii) to the extent that the
Prohibited Transferee received an amount for such shares that exceeds the
amount that such Prohibited Transferee was entitled to receive pursuant to the
aforementioned requirement, such excess shall be paid to the Trustee upon
demand.
Shares of stock transferred to the trustee shall be deemed to be offered
for sale to the Company, or its designee, at a price per share equal to the
lesser of (i) the price per share in the transaction that resulted in such
transfer to the trust (or, in case of a devise or gift, the fair market value
on the date of
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such devise or gift) or (ii) the fair market value on the date the Company, or
its designee, accepts such offer. The Company shall have the right to accept
such offer until the Trustee has sold the shares of stock held in the Trust.
Upon such a sale to the Company, the interest of the charitable beneficiary in
the shares sold shall terminate and the Trustee shall distribute the net
proceeds of the sale to the Prohibited Transferee.
If shares of capital stock which would cause the Company to be
beneficially owned by less than 100 persons are issued or transferred to any
person, such issuance or transfer shall be null and void to the intended
transferee, and the intended transferee would acquire no rights to such stock.
In addition to any of the foregoing ownership limits, the Company's
Charter provides that no holder may own, either actually or constructively
under the applicable attribution rules of the Code, any shares of any class of
the Company's stock if such ownership or acquisition (i) would cause more than
50.0% in value of the Company's outstanding stock to be owned, either actually
or constructively under the applicable attribution rules of the Code, by five
or fewer individuals (as defined in the Code to include certain entities), (ii)
would result in the Company's stock being beneficially owned by less than 100
persons (determined without reference to any rules of attribution), or (iii)
would otherwise result in the Company failing to qualify as a REIT. Acquisition
or ownership (actual or constructive) of the Company's stock in violation of
these restrictions will result in automatic transfer of such stock to a trust
for the benefit of a charitable beneficiary, automatic repurchase of the
violative shares by the Company, or the violative transfer will be deemed void
AB INITIO, as described above.
The Board of Directors may, but in no event will be required to, exempt a
stockholder from the Aggregate Stock Ownership Limit and the Common Stock
Ownership Limit, as the case may be, if it determines that such ownership will
not jeopardize the Company's status as a REIT and the Board of Directors
otherwise decides such action would be in the best interests of the Company. As
a condition to such waiver, the Board of Directors may require an opinion of
counsel satisfactory to it and/or undertakings or representations from the
applicant with respect to preserving the REIT status of the Company. The
Company has exempted Gazit (1995), Globe Reit and M.G.N. from the Common Stock
Ownership Limit and the Aggregate Stock Ownership Limit.
If the Board of Directors shall at any time determine in good faith that a
person intends to acquire or own, has attempted to acquire or own, or may
acquire or own stock of the Company in violation of the above described limits,
the Board of Directors shall take such action as it deems advisable to refuse
to give effect or to prevent such ownership or acquisition, including but not
limited to causing the Company to repurchase stock, refusing to give effect to
such ownership or acquisition on the books of the Company, or instituting
proceedings to enjoin such ownership or acquisition.
The constructive ownership rules are complex and may cause Common Stock
owned actually or constructively by a group of related individuals and/or
entities to be constructively owned by one individual or entity. As a result,
the acquisition of less than 9.9% of the outstanding Common Stock by an
individual or entity could cause that individual or entity (or another
individual or entity) to constructively own Common Stock in excess of the
limits described above, and thus subject such stock to the Common Stock
Ownership Limit, or the Aggregate Stock Ownership Limit.
All certificates representing shares of the Company's Stock will bear a
legend referring to the restrictions described above.
All persons who own more than 9.9% (or such lower percentage as required
by the Code or the Treasury Regulations promulgated thereunder) of all classes
or series of the Company's stock, including the Company's Common Stock, must
file within 30 days after the end of each taxable year with the Company a
report containing information regarding their ownership of such shares, as set
forth in the Treasury Regulations. Each such owner shall provide to the Company
such additional information as the Company may request in order to determine
the effect, if any, of such beneficial ownership or the Company's status as a
REIT and to ensure compliance with the Aggregate Stock Ownership Limit. In
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addition, each stockholder shall upon demand be required to disclose to the
Company in writing such information with respect to the actual and constructive
ownership of shares as the Board of Directors deems necessary to comply with
the provisions of the Code applicable to a REIT or to comply with the
requirements of any taxing authority or governmental agency.
These ownership limitations could have the effect of delaying, deferring
or preventing a change of control or other transaction in which holders of
some, or a majority, of shares of Common Stock might receive a premium for
their shares over the then prevailing market price or which such holders might
believe to be otherwise in their best interest.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF MARYLAND LAW, AND THE COMPANY'S
CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of the MGCL and the
Company's Charter and Bylaws. The summary does not purport to be complete and
is subject to and qualified in its entirety by reference to Maryland law and to
the Company's Charter and Bylaws, copies of which have been filed as exhibits
to the Registration Statement of which this Prospectus is a part. See
"Additional Information".
PROVISIONS OF MARYLAND LAW; CHARTER PROVISIONS
Certain provisions of the MGCL and of the Company's Charter and Bylaws may
have the effect of delaying, deferring or preventing a change in control of the
Company or the removal of existing management and, as a result, may prevent the
stockholders of the Company from receiving a substantial premium for their
shares over then-current market prices.
BUSINESS COMBINATIONS. Under the MGCL, certain "business combinations"
(including a merger, consolidation, share exchange, or, in certain
circumstances, an asset transfer or issuance or reclassification of equity
securities) between a Maryland corporation and an interested stockholder or an
affiliate thereof is prohibited for five years after the most recent date on
which the Interested Stockholder became an Interested Stockholder. Thereafter,
any such business combination must be recommended by the board of directors of
such corporation and approved by the affirmative vote of at least (a) 80% of
the votes entitled to be cast by holders of outstanding shares of voting stock
of the corporation and (b) two-thirds of the votes entitled to be cast by
holders of voting stock of the corporation other than shares held by the
Interested Stockholder with whom (or with whose affiliate) the business
combination is to be effected, unless, among other conditions, the holders of
Common Stock receive a minimum price (as defined in the MGCL) for their shares
of Common Stock and the consideration is received in cash or in the same form
as previously paid by the Interested Stockholder for its Common Stock. These
provisions of the MGCL do not apply, however, to business combinations that are
approved or exempted by the board of directors of the corporation prior to the
time that the Interested Stockholder becomes an Interested Stockholder. The
Board of Directors has previously exempted from such provisions of the MGCL any
business combination with an officer or director of the Company or any
affiliate of any officer or director of the Company.
CONTROL SHARE ACQUISITIONS. The MGCL provides that "control shares" of a
Maryland corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares of stock owned by the
acquiror, by officers or by directors who are employees of the corporation.
"Control shares" are voting shares of stock which, if aggregated with all other
such shares of stock previously acquired by such person, or in respect of which
such person is able to exercise or direct the exercise of voting power (except
solely by virtue of a revocable proxy), would entitle the acquiror to exercise
voting power in electing directors within one of the following ranges of voting
power: (i) one-fifth or more but less than one-third, (ii) one-third or more
but less than a majority, or (iii) a majority of all voting power. Control
shares do not include shares the acquiring person is then entitled to vote as a
result of having previously obtained stockholder approval. A "control share
acquisition" means the acquisition of control shares subject to certain
exceptions.
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If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the
statute, then, subject to certain conditions and limitations, the corporation
may redeem any or all of the control shares (except those for which voting
rights previously have been approved) for fair value determined, without regard
to the absence of voting rights for control shares, as of the date of the last
control share acquisition by the acquiror or of any meeting of stockholders at
which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a stockholders meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote,
all other stockholders may exercise appraisal rights. The fair value of the
shares as determined for purposes of such appraisal rights may not be less than
the highest price per share paid by the acquiror in the control share
acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction or to acquisitions approved or exempted by the charter or bylaws of
a corporation.
The Bylaws of the Company contain a provision exempting from the control
share acquisition statute any and all acquisitions by any person of the
Company's shares of Common Stock. Such provision of the Bylaws may be amended
without stockholder approval. There can be no assurance that such provision
will not be amended or eliminated at any time in the future. As a result of the
Company's decision to opt out of the control share acquisition statute,
stockholders who acquire a substantial block of Common Stock are not precluded
from exercising full voting rights with respect to their shares on all matters
without first obtaining the approval of other stockholders entitled to vote.
This may have the effect of making it easier for any such control share
stockholder to effect a business combination with the Company. However, no
assurance can be given that any such business combination would be consummated
or, if consummated, would result in a purchase of shares of Common Stock from
any stockholder at a premium.
In addition, certain provisions of the Company's Charter and Bylaws
summarized in the following paragraphs may be deemed to have an anti-takeover
effect and may delay, defer or prevent a change in control, or other
transaction that a stockholder might consider in its best interest or might
result in a premium over the market price for the shares held by stockholders.
CLASSIFICATION OF THE BOARD OF DIRECTORS. The Company's Charter provides
that the number of directors of the Company may be established by the Bylaws
but may not be fewer than the minimum number required by the MGCL (which under
most circumstances is three directors). Any vacancy may be filled, at any
regular meeting or at any special meeting called for that purpose, by the
affirmative vote of a majority of the remaining directors. Pursuant to the
Bylaws, the Company's Board of Directors are divided into three classes. As the
term of each class expires, the directors in that class will be elected for a
term of three years. The affirmative vote of a majority of the votes
represented at a meeting of stockholders duly called shall be required to elect
a director. The Company believes that the classification of the Board of
Directors will help to assure the continuity and stability of the Company's
business strategies and policies as determined by the Board of Directors.
Holders of Common Stock will have no right to cumulative voting in the election
of directors. Consequently, at each annual meeting of stockholders, the holders
of a majority of shares of Common Stock will be able to elect all of the
successors of the class of directors whose terms expire at that meeting.
The classified director provision could have the effect of making the
replacement of incumbent directors more time consuming and difficult, and could
delay, defer or prevent a third-party from making a tender offer or otherwise
attempting to obtain control of the Company, even though such an attempt might
be beneficial to the Company and its stockholders. Elections of directors at
two annual meetings would be necessary to effect a change in control of the
Board of Directors. Thus, the classified board provision could increase the
likelihood that incumbent directors will retain their positions.
REMOVAL OF DIRECTORS. The Charter provides that one or more directors may
be removed only for Cause (as defined in the Charter) and by the affirmative
vote of two-thirds of all votes entitled to be
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cast at an annual or special meeting of stockholders. This provision, when
coupled with the provision in the Bylaws authorizing the Board of Directors to
fill vacant directorships, precludes stockholders from removing incumbent
directors except upon the existence of cause of removal and a substanital
affirmative vote and filing the vacancies created by such removal with their
own nominees.
SPECIAL MEETINGS. The Bylaws provide that special meetings of stockholders
may be called only by the President, Chief Executive Officer, or Chairman of
the Board of Directors and must be called upon the written demand of the
holders of not less than a majority of all of the votes entitled to be cast at
a the meeting.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
Common Stock and preferred stock are available for future issuance without
stockholder approval. If issued, these additional shares may be utilized for a
variety of corporate purposes, including future public offerings to raise
additional capital, corporate acquisitions and employee benefit plans. The
existence of authorized but unissued Common Stock and preferred stock may
enable the Board of Directors to issue shares to persons friendly to current
management which could delay, defer or prevent an attempt to obtain control of
the Company by means of a proxy contest, tender offer, merger or otherwise, and
thereby protect the continuity of the Company's management.
House Bill 360, which has been introduced and is pending in the Maryland
General Assembly, provides that a corporation may include a provision in its
charter permitting its board of directors, without any action by the
stockholders of the corporation, to amend the charter to increase or decrease
the aggregate number of shares of stock or the number of shares of stock of any
class or series that the corporation has authority to issue. If passed, House
Bill 360 would become effective October 1, 1998.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (a) with respect to an annual
meeting of stockholders, nominations of persons for election to the Board of
Directors and the proposal of business to be considered by stockholders may be
made only (i) pursuant to the Company's notice of the meeting, (ii) by the
Board of Directors or (iii) by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice procedures set forth in the
Bylaws and (b) with respect to special meetings of stockholders, only the
business specified in the Company's notice of meeting may be brought before the
meeting of stockholders and nominations of persons for election to the Board of
Directors may be made only (i) pursuant to the Company's notice of the meeting,
(ii) by the Board of Directors or (iii) provided that the Board of Directors
has determined that directors shall be elected at such meeting, by a
stockholder who is entitled to vote at the meeting and has complied with the
advance notice provisions set forth in the Bylaws.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's Charter does not) to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of any
proceeding to which he is made a party by reason of his service in that
capacity. The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their
service in those or other capacities unless it is established that (a) the act
or omission of the director or officer was material to the matter giving rise
to the proceeding and (i) was committed in bad faith or (ii) was the result of
active and deliberate dishonesty, (b) the director or officer actually received
an improper personal benefit in money, property or services or (c) in the case
of any criminal proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. However, under the MGCL, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation, or for a judgment of liability on the basis
that a personal benefit was improperly received, unless in either case, a court
orders indemnification and then only for expenses. In
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addition, the MGCL permits a corporation to advance reasonable expenses to a
director or officer upon the corporation's receipt of (a) a written affirmation
by the director or officer of his good faith belief that he has met the
standard of conduct necessary for indemnification by the corporation and (b) a
written undertaking by or on his behalf to repay the amount paid or reimbursed
by the corporation if it shall ultimately be determined that the standard of
conduct was not met. The termination of any proceeding by conviction, or upon a
plea of nolo contendere or its equivalent, or an entry of any order of
probation prior to judgment, creates a rebuttable presumption that the director
or officer did not meet the requisite standard of conduct required for
indemnification to be permitted.
The MGCL permits a Maryland coporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates such liability to the maximum extent
permitted by Maryland law. However, this provision does not limit the ability
of the Company or its stockholders to obtain other relief, such as an
injunction or recission.
The Charter of the Company authorizes it, to the maximum extent permitted
by Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former director or officer of the Company or (b) any individual who,
while a director of the Company and at the request of the Company, serves or
has served another corporation, real estate investment trust, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
director, officer, managing member, partner or trustee of such corporation,
real estate investment trust, partnership, joint venture, trust, employee
benefit plan or other enterprise from and against any claim or liability to
which such person may become subject or which such person may incur by reason
of his or her status as a present or former director or officer of the Company.
The Bylaws of the Company obligate it, to the maximum extent permitted by
Maryland law, to indemnify and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any present or former
director or officer who is made a party to the proceeding by reason of his
service in that capacity or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner
or trustee of such corporation, real estate investment trust, partnership,
joint venture, trust, employee benefit plan or other enterprise and who is made
a party to the proceeding by reason of his service in that capacity. The
Charter and Bylaws also permit the Company to indemnify and advance expenses to
any person who served a predecessor of the Company in any of the capacities
described above and to any employee or agent of the Company or a predecessor of
the Company.
The Bylaws of the Company obligate it, to the maximum extent permitted by
Maryland law, to indemnify and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any present or former
director or officer who is made a party to the proceeding by reason of his
service in that capacity or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner
or trustee of such corporation, real estate investment trust, partnership,
joint venture, trust, employee benefit plan or other enterprise and who is made
a party to the proceeding by reason of his service in that capacity. The
Charter and Bylaws also permit the Company to indemnify and advance expenses to
any person who served a predecessor of the Company in any of the capacities
described above and to any employee or agent of the Company or a predecessor of
the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar of the Common Stock will be American
Stock Transfer & Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have 10,901,560 shares
of Common Stock outstanding (11,706,015 shares if the over-allotment option is
exercised in full). Of those shares, the 5,363,032 shares sold in the Offering
(6,167,487 shares if the over-allotment option is exercised in full) will be
freely transferable without restriction or registration under the Act, unless
purchased by persons deemed to be "affiliates" of the Company (as that term is
defined under the Act). The remaining 5,538,528 shares of Common Stock to be
outstanding immediately following the Offering ("restricted shares") may only
be sold in the public market if such shares are registered under the Act or
sold in accordance with Rule 144 promulgated under the Act.
In general, under Rule 144 a person (or persons whose shares are
aggregated) including an affiliate, who has beneficially owned his shares for
one year, may sell in the open market within any three-month period a number of
shares that does not exceed the greater of (i) 1% of the then outstanding
shares of the Company's Common Stock (approximately 109,016 shares immediately
after the Offering, 117,060 if the over-allotment option is exercised in full)
or (ii) the average weekly trading volume in the Common Stock on all exchanges
and reported through the automated quotation system of a registered securities
association during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain limitations on the manner of sale, notice
requirements and availability of current public information about the Company.
A person (or persons whose shares are aggregated) who is deemed not to have
been an "affiliate" of the Company at any time during the 90 days preceding a
sale by such person and who has beneficially owned his shares for at least two
years, may sell such shares in the public market under Rule 144(k) without
regard to the volume limitations, manner of sale provisions, notice
requirements or availability of current information referred to above.
Restricted shares properly sold in reliance upon Rule 144 are thereafter freely
tradeable without restrictions or registration under the Act, unless thereafter
held by an "affiliate" of the Company.
The Company and the holders of substantially all of the outstanding Common
Stock have agreed not to sell any shares of Common Stock for 180 days from the
date of this Prospectus without the prior written consent of Credit Suisse
First Boston. See "Underwriting". Following such 180-day period, approximately
5,538,528 shares held by current stockholders will be available for sale under
Rule 144 of the Act. Additionally, shares of Common Stock have been reserved
for issuance under the Company's 1995 Plan, under which options to purchase
664,000 shares of Common Stock are issued and outstanding. The Company intends
to register under the Act all 1,000,000 eligible shares issued or reserved for
issuance under the 1995 Plan. See "Management--Stock Option Plan". Shares
covered by such registration will, when issued, be eligible for resale in the
public market, subject to Rule 144 limitations applicable to affiliates.
Pursuant to certain registration rights agreements among the Company and
certain current stockholders, the Company has granted various registration
rights to such stockholders. See "Certain Transactions".
Prior to the Offering, there has been no trading market for the Common
Stock. No prediction can be made as to the effect, if any, that future sales of
shares pursuant to Rule 144 or otherwise will have on the market price
prevailing from time to time. Sales of substantial amounts of the Common Stock
in the public market following the Offering could adversely affect the then
prevailing market price.
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FEDERAL INCOME TAX CONSIDERATIONS
The following summary discusses the material federal income tax
considerations to prospective purchasers of the Common Stock, other than
existing stockholders, with respect to the acquisition, ownership and
disposition of Common Stock. This summary includes a discussion of tax matters
regarding the Company. This summary is based on current law, which is subject
to change, possibly retroactively. The statements set forth below, insofar as
they purport to describe matters of law, are, in the opinion of Greenberg
Traurig Hoffman Lipoff Rosen & Quentel, P.A., tax counsel to the Company
("Greenberg Traurig"), the material federal tax considerations relevant to
purchasers of Common Stock, other than existing stockholders of the Company. A
copy of that tax opinion has been filed as an exhibit to the Company's
registration statement of which this Prospectus forms a part.
THIS DISCUSSION DOES NOT PURPORT TO DEAL WITH TAX CONSIDERATIONS RELEVANT
TO AN EXISTING STOCKHOLDER OF THE COMPANY OR ALL ASPECTS OF TAXATION THAT MAY
BE RELEVANT TO ANY OTHER PARTICULAR PURCHASER IN LIGHT OF HIS OR HER PERSONAL
INVESTMENT OR TAX CIRCUMSTANCES, OR TO CERTAIN TYPES OF PURCHASERS SUBJECT TO
SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS (INCLUDING INSURANCE
COMPANIES, FINANCIAL INSTITUTIONS, BROKER-DEALERS, TAX-EXEMPT ORGANIZATIONS,
FOREIGN CORPORATIONS OR PERSONS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED
STATES, EXCEPT TO THE EXTENT DISCUSSED UNDER THE HEADINGS "TAXATION OF
TAX-EXEMPT STOCKHOLDERS" AND "TAXATION OF NON-U.S. STOCKHOLDERS"). ACCORDINGLY,
EACH PROSPECTIVE PURCHASER, INCLUDING EXISTING STOCKHOLDERS, IS URGED TO
CONSULT HIS OR HER OWN TAX ADVISER REGARDING THE SPECIFIC FEDERAL INCOME TAX
CONSEQUENCES, AS WELL AS THE STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES,
TO HIM OR HER OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF A SHARE OF
COMMON STOCK IN LIGHT OF HIS OR HER PERSONAL INVESTMENT OR TAX CIRCUMSTANCES.
TAXATION OF THE COMPANY
GENERAL
The Company has elected to be taxed as a REIT under sections 856 through
860 of the Code, commencing with its taxable year ending December 31, 1995. The
Company believes that it has been organized and has operated in a manner that
qualifies it to be taxed under the Code as a REIT commencing with that taxable
year. The Company intends to continue to operate in that manner. No assurance,
however, can be given that the manner in which the Company has operated or will
operate has qualified or will qualify the Company to be taxed as a REIT.
The sections of the Code that govern the federal income tax treatment of a
REIT and its stockholders are highly technical and complex. The following
discussion sets forth the material aspects of those sections. This summary is
qualified in its entirety by the applicable Code provisions, the rules and
regulations promulgated thereunder, and the administrative and judicial
interpretations thereof.
In the opinion of Greenberg Traurig, the Company has been organized in
conformity with the requirements for qualification as a REIT under the Code
beginning with the taxable year of the Company starting January 1, 1995, and
the method of operation of the Company and its subsidiaries since January 1,
1995 has enabled the Company, and the proposed method of operation of the
Company will enable the Company, to meet the requirements for qualification and
taxation as a REIT under the Code. It must be emphasized that this opinion is
based on various factual assumptions represented to Greenberg Traurig by the
Company relating to the organization of the Company, the income, assets,
operations and records of, and other matters regarding, the Company,
distributions by the Company and the direct and indirect ownership of the
Company's Common Stock. The opinion assumes further that the statements in the
Prospectus are and will remain true, correct and complete and that actions
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described in the Prospectus have been or will be taken as described. Any
variation or difference in the facts from those set forth or assumed in the
opinion may affect the conclusions stated therein. In addition, the opinion
relies on opinions of Deloitte & Touche LLP, the Company's accountants, to a
major stockholder of the Company and to the Company regarding the Company's
compliance with the requirements of the Code to be treated as a REIT and
assumes the accuracy of the information provided by the Company on which those
letters were based. The opinion speaks only as of the date it was issued and is
based solely on legal authorities as they then exist. Those legal authorities
are subject to change either prospectively or retroactively, see "--Failure to
Quality", and Greenberg Traurig assumes no obligation to update or supplement
its opinion. Finally, the Company's qualification and taxation as a REIT depend
on the Company's ability to meet (through actual operating results,
distribution levels, diversity of stock ownership and other factors) the
various qualification tests imposed under the Code, the results of which
Greenberg Traurig has not investigated independently and will not investigate
independently, and some of which are outside the control of the Company to
satisfy. Accordingly, no assurance can be given that the actual results of the
Company's operations for any taxable year have satisfied or will satisfy the
REIT qualification tests under the Code.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income tax on its net income that is distributed
currently to stockholders. This treatment substantially eliminates the double
taxation at the corporate and stockholder levels that generally results from
investment in a corporation. The Company, however, nevertheless will be subject
to federal income tax as follows: First, the Company will be taxed at regular
corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, the
Company may be subject to the alternative minimum tax on its items of tax
preference. Third, if the Company (i) has net income from the sale or other
disposition of foreclosure property (defined generally as a property acquired
by the Company through foreclosure or otherwise after a default on a loan
secured by the property or on a lease of the property) that is held primarily
for sale to customers in the ordinary course of business or (ii) has other
nonqualifying income from foreclosure property, the Company will be subject to
tax at the highest corporate rate on that income. Fourth, if the Company has
net income from prohibited transactions (which are, in general, certain sales
or other dispositions of property held primarily for sale to customers in the
ordinary course of business, other than foreclosure property), that income will
be subject to tax at a 100% rate. Fifth, if the Company should fail to satisfy
the 75% gross income test or the 95% gross income test (discussed below) but
nonetheless has maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to tax at a 100% rate on an
amount equal to (a) the gross income attributable to the greater of the amount
by which the Company fails the 75% or 95% test multiplied by (b) a fraction
intended to reflect the Company's profitability. Sixth, if the Company should
fail to distribute during any calendar year at least the sum of (i) 85% of its
REIT ordinary income for the year, (ii) 95% of its REIT capital gain net income
for the year, and (iii) any undistributed taxable income from prior periods,
the Company would be subject to a 4% excise tax on the excess of the required
distribution over the amount actually distributed. Seventh, if the Company
acquires an asset from a C corporation (I.E., generally a corporation subject
to full corporate level tax) in a transaction in which the basis of the Company
in the asset is determined by reference to the basis of the C corporation in
the asset (a "Built-In Gain Asset"), and if the Company recognizes gain on a
disposition of the asset during the ten-year period beginning on the date the
Company acquired the asset (the "Recognition Period"), the Company, pursuant to
Treasury regulations yet to be issued, will pay tax at the highest regular
corporate tax rate on the lesser of (i) the excess of the fair market value of
the asset over the basis of the Company in the asset on the date the Company
acquired the asset (the "Built-In Gain") and (ii) the gain recognized by the
Company. The Company has elected pursuant to Notice 88-19 to be subject to the
rules similar to the rules of section 1374 of the Code on net Built-In Gains.
This election was adopted for the tax year ending December 31, 1995 and has
been filed with the Company's Form 1120 for the tax year ended December 31,
1996.
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REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust or association (1) that is
managed by one or more trustees or directors; (2) the beneficial ownership of
which is evidenced by transferable shares or by transferable certificates of
beneficial interest; (3) that would be taxable as a domestic corporation but
for sections 856 through 859 of the Code; (4) that is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(5) the beneficial ownership of which is held by 100 or more persons; (6)
during the last half of whose taxable year not more than 50% in value of the
outstanding stock of which is owned, directly or constructively, by five or
fewer individuals (as defined in the Code to include certain entities); and (7)
that meets certain other tests, described below, regarding the nature of its
income and assets. The Code provides that conditions (1) through (4) must be
met during the entire taxable year and that condition (5) must be met during at
least 335 days of a taxable year of twelve months or during a proportionate
part of a taxable year of less than twelve months. Conditions (5) and (6) do
not apply until after the first taxable year for which an election is made to
be taxed as a REIT. For purposes of conditions (5) and (6), pension funds and
certain other tax-exempt entities are treated as individuals, subject to a
"look-through" exception in the case of condition (6).
The Company has satisfied condition (5) and believes that it has satisfied
condition (6). In addition, the Company's Charter provides for restrictions
regarding ownership and transfer of shares, which restrictions are intended to
assist the Company in continuing to satisfy the share ownership requirements
described in (5) and (6) above. Those ownership and transfer restrictions are
described in "Description of Capital Stock--Restrictions on Ownership and
Transfer of Common Stock". Those restrictions will not ensure that the Company
in all cases will be able to satisfy the share ownership requirements described
above. If the Company fails to satisfy those share ownership requirements, the
Company's status as a REIT will terminate. See "--Failure to Qualify". Pursuant
to the Taxpayer Relief Act of 1997, enacted August 5, 1997, starting with a
REIT's first taxable year that begins after August 5, 1997, a REIT that
complies with Treasury regulations for ascertaining the ownership of its shares
and that does not know, or exercising reasonable diligence would not have
known, whether it failed condition (6) will be treated as meeting condition
(6), and if it fails to comply with those regulations, it may be subject to a
financial penalty but not to disqualification as a REIT.
In addition, a corporation may not elect to become a REIT unless its
taxable year is a calendar year. The Company has and will continue to have a
calendar taxable year.
In February 1998, the Clinton Administration stated it would propose
amendments to the rules relating to REIT qualification to impose an additional
requirement that no person (including any corporation, partnership, trust or
estate) can own more than 50 percent of the total combined voting power of all
classes of voting stock or more than 50 percent of the total value of shares of
all classes of stock in the REIT. For purposes of determining a person's stock
ownership, constructive ownership rules similar to attribution rules contained
in section 856(d)(5) of the Code would apply. The Clinton Administration
proposes that this change be effective for entities electing REIT status for
taxable years beginning on or after the date of first committee action. This
proposed legislation, therefore, if enacted in the form proposed, would not
apply to the Company.
OWNERSHIP OF SUBSIDIARIES
Section 856(i) of the Code provides that a corporation that is a qualified
REIT subsidiary (defined as any corporation if 100 percent of whose stock is
held by the REIT at all times during the period the corporation is in
existence) shall not be treated as a separate corporation, and all assets,
liabilities and items of income, deduction and credit of a qualified REIT
subsidiary shall be treated as assets, liabilities and those items (as the case
may be) of the REIT. The Company believes that each of its subsidiaries
qualifies as a qualified REIT subsidiary within the meaning of the Code. Thus,
in applying the requirements described herein, the Company's subsidiaries are
ignored, and all assets, liabilities and items of income, deduction and credit
of those subsidiaries are treated as assets, liabilities and items of
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income, deduction and credit of the Company. Pursuant to the Taxpayer Relief
Act of 1997, starting with a REIT's first taxable year that begins after August
5, 1997, a corporation can qualify as a qualified REIT subsidiary even though
there was a period of time during which the REIT did not own 100 percent of its
stock, in which case the corporation will be treated as liquidated and
reincorporated by the REIT.
INCOME TESTS
To maintain qualification as a REIT, the Company each year must satisfy
two gross income requirements. First, at least 75% of the Company's gross
income (excluding gross income from prohibited transactions) must be derived
directly or indirectly from investments relating to real property or mortgages
on real property (including rents from real property and, in certain
circumstances, interest) or from certain types of temporary investments.
Second, at least 95% of the Company's gross income (excluding gross income from
prohibited transactions) must be derived from such real property investments,
dividends, interest and gain from the sale or disposition of stock or
securities (or from any combination of the foregoing). A third gross income
test applicable to tax years of REITS that began prior to August 6, 1997
provides that gain derived from the sale or other disposition of stock or
securities held for less than one year, property in a prohibited transaction
and real property held for less than four years (apart from involuntary
conversions and sales of foreclosure property) must represent less than 30% of
the Company's gross income (including gross income from prohibited
transactions). Pursuant to the Taxpayer Relief Act of 1997, the third gross
income requirement is eliminated, starting with a REIT's first taxable year
that begins after August 5, 1997.
Rents received by the Company will qualify as rents from real property in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from rents from real
property solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, rents received from a tenant will not qualify as
rents from real property in satisfying the gross income tests if the REIT, or
an actual or constructive owner of 10% or more of the REIT, actually or
constructively owns 10% or more of the tenant (a "Related Party Tenant").
Third, if rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under the
lease, the portion of the rent attributable to the personal property will not
qualify as rents from real property. Finally, for rents received to qualify as
rents from real property, the REIT generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an independent contractor from whom the REIT derives no revenue.
The REIT, however, may perform directly certain services that are usually or
customarily rendered in connection with the rental of space for occupancy only
and are not otherwise considered rendered to the occupant of the property.
Moreover, pursuant to the Taxpayer Relief Act of 1997, starting with a REIT's
first taxable year that begins after August 5, 1997, income derived by a REIT
from services provided to tenants or from managing or operating a property will
be treated as rent from real property provided the income does not exceed one
percent of the REIT's gross income from the property. The Company has not and
will not (i) charge rent for any property that is based in whole or in part on
the income or profits of any person (except by reason of being based on a
percentage of receipts or sales, as described above), (ii) rent any property to
a Related Party Tenant (unless the Board of Directors determines in its
discretion that the rent received from the Related Party Tenant is not material
and will not jeopardize the Company's status as a REIT), (iii) derive rental
income attributable to personal property (other than personal property leased
in connection with the lease of real property, the amount of which is less than
15% of the total rent received under the lease) or (iv) perform services
considered to be rendered to the occupant of the property (unless the income
from those services qualifies as rent from real property pursuant to the
Taxpayer Relief Act of 1997) other than through an independent contractor from
whom the Company derives no revenue. The Company believes that the aggregate
amount of any nonqualifying income in any taxable year has not exceeded and
will not exceed the limit on nonqualifying income under the gross income tests.
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If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it nevertheless may qualify as a REIT for that year
if it is entitled to relief under certain provisions of the Code. Those relief
provisions generally will be available if the Company's failure to meet the
gross income tests was due to reasonable cause and not willful neglect, the
Company attaches a schedule of the sources of its income to its federal income
tax return, and any incorrect information on the schedule is not due to fraud
with intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of those relief
provisions. For example, if the Company fails to satisfy the gross income tests
because nonqualifying income that the Company intentionally receives exceeds
the limits on that income, the IRS could conclude that the Company's failure to
satisfy the gross income tests was not due to reasonable cause. If those relief
provisions are inapplicable to a particular set of circumstances involving the
Company, the Company will not qualify as a REIT. As discussed above in
"--Taxation of the Company-General", even if those relief provisions apply, a
tax would be imposed with respect to the net nonqualifying income. No similar
mitigation provision provides relief if the Company fails the 30% gross income
test. In that case, the Company would cease to qualify as a REIT. As noted
above, however, that test no longer applies to the Company starting January 1,
1998.
Any gain realized by the Company on the sale of any property held as
inventory or other property held primarily for sale to customers in the
ordinary course of business will be treated as income from a prohibited
transaction that is subject to a penalty tax at a 100% rate. This prohibited
transaction income also may have an adverse effect upon the Company's ability
to satisfy the gross income tests for qualification as a REIT. Under existing
law, whether property is held as inventory or primarily for sale to customers
in the ordinary course of a trade or business is a question of fact that
depends on all the facts and circumstances with respect to the particular
transaction. The Company intends to hold the Existing Properties for investment
with a view to long-term appreciation, to engage in the business of developing,
owning and operating the Existing Properties and acquiring, developing, owning
and operating other properties and to make occasional sales of the Existing
Properties consistent with the Company's investment objectives. There can be no
assurance, however, that the IRS might not contend that one or more of those
sales are subject to the 100% penalty tax.
ASSET TESTS
The Company must satisfy three tests relating to the nature of its assets
at the close of each quarter of its taxable year. First, at least 75% of the
value of the Company's total assets must be represented by real estate assets,
cash, cash items and government securities (including stock or debt instruments
held for not more than one year purchased with the proceeds of an offering by
the Company of stock or debt with a term of at least five years). Second, not
more than 25% of the Company's total assets may be represented by securities
other than those qualifying for the 75% asset class. Third, of the investments
included in the 25% asset class, the value of any one issuer's securities owned
by the Company may not exceed 5% of the value of the Company's total assets,
and the Company may not own more than 10% of any one issuer's outstanding
voting securities.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy those tests
at the end of a later quarter solely by reason of changes in asset values. If
the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close
of that quarter. The Company has maintained and will continue to maintain
adequate records of the value of its assets to ensure compliance with the asset
tests and within the 30 days after the close of any quarter will take those
actions that may be required to cure any noncompliance. If the Company fails to
cure noncompliance with the asset tests within that time period, the Company
will cease to qualify as a REIT.
ANNUAL DISTRIBUTION REQUIREMENTS
To qualify as a REIT, the Company is required to distribute dividends to
its stockholders (other than capital gain dividends) in an amount at least
equal to (A) the sum of (i) 95% of the Company's
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REIT taxable income (computed without regard to the dividends paid deduction
and the Company's net capital gain) and (ii) 95% of any after tax net income
from foreclosure property minus (B) the sum of certain items of noncash income
in excess of 5% of the Company's REIT taxable income. In addition, if the
Company disposes of any Built-In Gain Asset during its Recognition Period, the
Company will be required to distribute at least 95% of any Built-in Gain, after
tax, recognized on the disposition of that asset pursuant to Treasury
regulations that have not yet been promulgated. Those distributions must be
paid in the taxable year to which they relate or in the following taxable year
if declared before the Company timely files its tax return for that year and if
paid on or before the first regular dividend payment after declaration. Those
distributions are taxable to holders of Common Stock (other than tax-exempt
entities, as discussed below) in the year paid even though they relate to a
prior year for purposes of the Company's 95% distribution requirement. To the
extent the Company does not distribute all of its net capital gain or
distributes at least 95% but less than all of its REIT taxable income, as
adjusted, it will be subject to tax thereon at regular corporate tax rates. The
Company has made and intends to make timely distributions sufficient to satisfy
these annual distribution requirements.
It is expected that the Company's REIT taxable income will be less than
its cash flow due to the allowance of depreciation and other noncash charges in
computing REIT taxable income. Accordingly, the Company anticipates that it
generally will have sufficient cash or liquid assets to enable it to satisfy
the distribution requirements described above. It is possible, however, that
the Company, from time to time, may not have sufficient cash or other liquid
assets to meet those distribution requirements due to timing differences
between (i) the actual receipt of income and actual payment of deductible
expenses and (ii) the inclusion of the income and deduction of the expenses in
arriving at taxable income of the Company. If timing differences occur, the
Company, in order to meet the distribution requirements, may find it necessary
to arrange for short-term, or possibly long-term, borrowings.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirements for a year by paying a deficiency
dividend to stockholders in a later year. A deficiency dividend may be included
in the Company's deduction for dividends paid for the earlier year. Thus, the
Company may be able to avoid paying tax on amounts that can be deducted as
deficiency dividends. The Company, however, will be required to pay interest
with respect to tax eliminated through a deficiency dividend.
Furthermore, if the Company should fail to distribute during any calendar
year at least the sum of (i) 85% of its REIT ordinary income for the year, (ii)
95% of its REIT capital gain income for the year and (iii) any undistributed
taxable income from prior periods, the Company would be subject to a 4% excise
tax on the excess of that required distribution over the amounts actually
distributed.
FAILURE TO QUALIFY FOR TAXATION AS A REIT
If the Company fails to qualify for taxation as a REIT in any taxable
year, and if the relief provisions do not apply, the Company will be subject to
tax (including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify as a REIT will not be deductible by the Company (nor
be required to be made). As a result, the Company's failure to qualify as a
REIT would reduce the Cash Available for Distribution by the Company to its
stockholders. In addition, if the Company fails to qualify as a REIT, all
distributions to stockholders will be taxable to them as ordinary income to the
extent of the Company's current and accumulated earnings and profits, although,
subject to certain limitations, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific
statutory provisions, the Company also will be disqualified from taxation as a
REIT for the four taxable years following the year during which qualification
is lost. It is not possible to state whether the Company in all circumstances
would be entitled to statutory relief from disqualification as a REIT.
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TAXATION OF U.S. STOCKHOLDERS
As used herein, the term "U.S. Stockholder" means a holder of shares of
Common Stock who, for U.S. federal income tax purposes, is (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States or of any state
therein or the District of Columbia, (iii) an estate the income of which is
subject to U.S. federal income taxation regardless of its source, or (iv) a
trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more U.S.
fiduciaries have the authority to control all substantial decisions of the
trust.
As long as the Company qualifies as a REIT, distributions made by the
Company out of its current or accumulated earnings and profits (and not
designated as a capital gain dividend) will constitute dividends taxable to its
taxable U.S. Stockholders as ordinary income. Those distributions will not be
eligible for the dividends received deduction in the case of U.S. Stockholders
that are corporations.
Distributions by the Company that are designated by the Company properly
as capital gain dividends, to the extent they do not exceed the Company's
actual net capital gain for the taxable year, will constitute gain from the
sale or other disposition of a capital asset held for more than one year to a
U.S. Stockholder without regard to the period for which the U.S. Stockholder
has held his shares of Common Stock. On November 10, 1997, the IRS issued
Notice 97-64, in which it stated that temporary Treasury regulations will be
issued providing that a REIT that designates a dividend as a capital gain
dividend also may designate the dividend as a 20% rate gain distribution, an
unrecaptured section 1250 gain distribution (taxable at a 25% rate) or a 28%
rate gain distribution, to the extent the net capital gain of the REIT consists
of long-term capital gains that, in the hands of the REIT, would be treated as
falling in, respectively, the 20% group, the 25% group or the 28% group of
long-term capital gains (and if no additional designation is made, the dividend
is a 28% rate gain distribution). A U.S. Stockholder that is a corporation may
be required to treat up to 20% of certain capital gain dividends as ordinary
income.
Pursuant to the Taxpayer Relief Act of 1997, starting with a REIT's first
taxable year that begins after August 5, 1997, a REIT may elect to retain and
pay income tax on net long-term capital gains that it receives during a taxable
year. If a REIT makes this election, its stockholders are required to include
in their income as long-term capital gain their proportionate share of the
undistributed long-term capital gains so designated by the REIT or, if and to
the extent the REIT, pursuant to Notice 97-64, discussed above, designates
undistributed long-term capital gains as a 20% rate gain distribution, an
unrecaptured section 1250 gain distribution or a 28% rate gain distribution, to
include in their income as long-term capital gains falling in, respectively,
the 20% group, the 25% group or the 28% group of long-term capital gains their
proportionate share of the undistributed long-term capital gains of the REIT
falling within those categories. A stockholder will be treated as having paid
his or her share of the tax paid by the REIT in respect of long-term capital
gains so designated by the REIT, for which the stockholder will be entitled to
a credit or refund. In addition, the stockholder's basis in his or her REIT
shares will be increased by the amount of the REIT's designated undistributed
long-term capital gains that are included in the stockholder's long-term
capital gains, reduced by the stockholder's proportionate share of tax paid by
the REIT on those gains that the stockholder is treated as having paid. The
earnings and profits of the REIT will be reduced, and the earnings and profits
of any corporate stockholder of the REIT will be increased, to take into
account amounts designated by the REIT pursuant to this rule. A REIT must pay
its tax on its designated long-term capital gains within 30 days of the close
of any taxable year in which it designates long-term capital gains pursuant to
this rule, and it must mail a written notice of its designation to its
stockholders within 60 days of the close of the taxable year.
Distributions by the Company that exceed the Company's current and
accumulated earnings and profits and that are not designated as capital gain
dividends will be treated by a U.S. Stockholder first as tax free reductions of
his tax basis in his shares of Common Stock to the extent thereof and
thereafter as capital gains (provided he holds those shares as capital assets).
Capital gain recognized by certain
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noncorporate U.S. Stockholders is taxed at preferential rates that will vary
depending on whether the Common Stock has been held for more than one year or
more than 18 months on the date of a distribution. Dividends declared by the
Company in October, November or December of any year and payable to a
stockholder of record on a specified date in any of those months shall be
treated as both paid by the Company and received by the stockholder on December
31 of that year, provided the dividend actually is paid by the Company on or
before January 31 of the following year. A stockholder may not include in his
own income tax return any net operating loss or capital loss of the Company.
Distributions made by the Company and gain arising from the sale or exchange by
a U.S. Stockholder of shares of Common Stock will not be treated as passive
activity income, and, as a result, a U.S. Stockholder generally will not be
able to apply any "passive losses" against that income or gain. Distributions
by the Company, to the extent they do not constitute a return of basis,
generally will be treated as investment income for purposes of computing the
investment income limitation. Gain arising from the sale or other disposition
of Common Stock, however, will not be treated as investment income unless the
U.S. Stockholder elects to reduce the amount of his total net capital gain
eligible for preferential capital gains tax rates by the amount of that gain
with respect to that Common Stock.
Upon any sale or other disposition of Common Stock, a U.S. Stockholder
will recognize gain or loss for federal income tax purposes in an amount equal
to the difference between (i) the amount of cash and the fair market value of
any property received on the sale or other disposition and (ii) the holder's
adjusted tax basis in the Common Stock. That gain or loss will be capital gain
or loss if the Common Stock has been held by the U.S. Stockholder as a capital
asset and will be long-term gain or loss if the share has been held for more
than one year. In general, any loss recognized by a U.S. Stockholder upon the
sale or other disposition of Common Stock that has been held for six months or
less (after applying certain holding period rules) will be treated as a
long-term capital loss to the extent of distributions received by the U.S.
Stockholder from the Company that were required to be treated as long-term
capital gains.
BACKUP WITHHOLDING
The Company will report to its U.S. Stockholders and to the IRS the amount
of dividends paid during each calendar year and the amount of tax withheld, if
any. Under the backup withholding rules, a U.S. stockholder may be subject to
backup withholding at the rate of 31% with respect to dividends paid unless the
U.S. Stockholder (a) is a corporation or comes within certain other exempt
categories and, when required, demonstrates that fact or (b) provides a
taxpayer identification number, certifies as to no loss of exemption from
backup withholding and otherwise complies with applicable requirements of the
backup withholding rules. A U.S. Stockholder that does not provide the Company
with his correct taxpayer identification number also may be subject to
penalties imposed by the IRS. Any amount paid as backup withholding will be
creditable against the U.S. Stockholder's income tax liability. In addition,
the Company may be required to withhold a portion of capital gain distributions
to any stockholders who fail to certify their non-foreign status to the
Company. See "--Taxation of Non-U.S. Stockholders".
TAXATION OF CERTAIN TAX-EXEMPT STOCKHOLDERS
The IRS has ruled that amounts distributed as dividends by a qualified
REIT do not constitute unrelated business taxable income ("UBTI") when received
by a tax-exempt entity. Based on that ruling, provided a tax-exempt stockholder
(with certain exceptions described below) has not held its Common Stock as
"debt financed property" within the meaning of the Code and the Common Stock is
not otherwise used in a trade or business, dividends from the Company will not
be UBTI. Similarly, income from the sale of Common Stock will not constitute
UBTI unless the tax-exempt stockholder has held the Common Stock as "debt
financed property" within the meaning of the Code or has used the Common Stock
in a trade or business.
For a tax-exempt stockholder that is a social club, voluntary employee
benefit association, supplemental unemployment benefit trust or qualified group
legal services plan exempt from federal income taxation under Code section
501(c)(7), (c)(9), (c)(17) or (c)(20), respectively, income from an
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investment in the Company will constitute UBTI unless the organization is able
properly to deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Those
prospective investors should consult their own tax advisers concerning these
"set aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
pension-held REIT shall be treated as UBTI as to any trust that (1) is
described in section 401(a) of the Code, (2) is tax-exempt under section 501(a)
of the Code and (3) holds more than 10% by value of the interests in the REIT.
Tax-exempt pension funds that are described in section 401(a) of the Code are
referred to below as qualified trusts. A REIT is a pension-held REIT if (1) it
would not have qualified as a REIT but for the fact that section 856(h)(3) of
the Code provides that stock owned by a qualified trust shall be treated, for
purposes of requirement (5) of the requirements for qualification as a REIT
(see "Taxation of the Company--Requirements for Qualification"), as owned by
the beneficiaries of the trust (rather than by the trust itself), and (2)
either (a) at least one qualified trust holds more than 25% by value of the
interests in the REIT, or (b) one or more qualified trusts, each of which owns
more than 10% by value of the interests in the REIT, hold in the aggregate more
than 50% by value of the interests in the REIT. The percentage of any REIT
dividend treated as UBTI is equal to the ratio of (i) the UBTI earned by the
REIT (treating the REIT as if it were a qualified trust and therefore subject
to tax on UBTI) to (ii) the total gross income of the REIT. A DE MINIMIS
exception applies when the percentage is less than 5% for any year. The
provisions requiring qualified trusts to treat a portion of REIT distributions
as UBTI will not apply if the REIT is able to satisfy requirement (5) of the
requirements for qualification as a REIT without relying upon the look-through
exception with respect to qualified trusts. As a result of certain limitations
on the transfer and ownership of Common Stock contained in the Charter, the
Company is not and does not expect to be classified as a pension held REIT.
TAXATION OF NON-U.S. STOCKHOLDERS
The rules governing U.S. federal income taxation of the ownership and
disposition of Common Stock by persons that are, for purposes of such taxation,
nonresident alien individuals, foreign corporations, foreign partnerships or
foreign estates or trusts (collectively, "Non-U.S. Stockholders") are complex,
and no attempt is made herein to provide more than a brief summary of the
rules. The discussion, which is directed only at prospective investors that are
not existing stockholders, does not address all aspects of U.S. federal income
taxation and does not address state, local or foreign tax consequences that may
be relevant to a Non-U.S. Stockholder in light of his particular circumstances.
In addition, this discussion is based on current law, which is subject to
change, and assumes that the Company qualifies for taxation as a REIT.
Prospective Non-U.S. Stockholders should consult their own tax advisers to
determine the impact of federal, state, local and foreign tax laws, including
any reporting requirements, with regard to an investment in Common Stock.
DISTRIBUTIONS
A distribution by the Company to a Non-U.S. Stockholder which is neither
attributable to gain from a sale or exchange by the Company of a U.S. real
property interest nor designated by the Company as a capital gain dividend will
be treated as a dividend to the extent it is paid out of current or accumulated
earnings and profits of the Company. A dividend will be subject to withholding
of U.S. federal income tax imposed on the gross amount thereof at the rate of
30% or any lower rate that may be specified by an applicable income tax treaty,
unless the dividend is effectively connected with the conduct of trade or
business by the Non-U.S. Stockholder within the United States or, if an income
tax treaty applies, is attributable to a U.S. permanent establishment of the
Non-U.S. Stockholder. A dividend received by a Non-U.S. Stockholder which is
effectively connected with a U.S. trade or business or is attributable to a
U.S. permanent establishment will be subject to tax at graduated rates on net
income in generally the same manner as a dividend received by a U.S.
Stockholder is taxed and is not subject to U.S. withholding tax. A dividend
received by a Non-U.S. Stockholder that is a corporation also may be subject to
an additional branch profits tax at a 30% rate or a lower rate that may be
specified by an applicable income tax treaty.
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Pursuant to current Treasury regulations, dividends paid to an address in
a country outside the United States generally are presumed to be paid to a
resident of that country for purposes of determining the applicability of U.S.
withholding tax and the applicability of a tax treaty. Under Treasury
regulations that will apply to payments made after December 31, 1998, however,
a Non-U.S. Stockholder who wishes to claim the benefit of an applicable treaty
would be required to satisfy certain certification and other requirements.
Under certain treaties, lower withholding rates generally applicable to
dividends do not apply to dividends from a REIT. Certain certification and
disclosure requirements must be satisfied to qualify for the exemption from
U.S. withholding tax for income effectively connected with a U.S. trade or
business or attributable to a U.S. permanent establishment.
Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Stockholder to the extent they do
not exceed the adjusted basis of the stockholder's Common Stock but rather will
reduce the adjusted basis of that Common Stock. To the extent those
distributions exceed the adjusted basis of a Non-U.S. Stockholder's Common
Stock, they will be treated as gain from the sale or exchange of his Common
Stock, the tax treatment of which is described below. If it cannot be
determined at the time a distribution is made whether or not that distribution
will exceed current and accumulated earnings and profits, the distribution
generally will be treated as a dividend for withholding tax purposes. However,
amounts thus withheld are generally refundable by the IRS if it subsequently is
determined that the distribution in fact exceeded current and accumulated
earnings and profits of the Company.
A distribution to a Non-U.S. Stockholder that is designated by the Company
at the time of distribution as a capital gains dividend (and not arising from
the disposition of a United States real property interest) generally will not
be subject to U.S. federal income tax unless (i) income in respect of the
Common Stock is effectively connected with a U.S. trade or business of the
Non-U.S. Stockholder (or, if an income tax treaty applies, is attributable to a
U.S. permanent establishment of the Non-U.S. Stockholder), in which case the
Non-U.S. Stockholder will be subject to the same tax consequences as a U.S.
Stockholder with respect to that distribution (except that a Non-U.S.
stockholder that is a foreign corporation also may be subject to the U.S.
branch profits tax, as discussed above), or (ii) the Non-U.S. Stockholder is a
nonresident alien individual who is present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States, in
which case the nonresident alien individual will be subject to a 30% tax on his
net capital gains.
A distribution to a Non-U.S. Stockholder that is attributable to gain from
a sale or exchange by the Company of a United States real property interest
will be treated as income effectively connected with a U.S. trade or business
of the Non-U.S. Stockholder. The Non-U.S. Stockholder thus generally would be
taxed at the same graduated tax rates applicable to a U.S. Stockholder (subject
to a special alternative minimum tax in the case of a nonresident alien
individual). A distribution by the Company is deemed to be designated as a
capital gain dividend to the maximum extent it may be so designated, and tax in
an amount equal to 35% of that amount must be withheld from the portion of the
distribution paid to a Non-U.S. Stockholder. In addition, in the hands of a
Non-U.S. Stockholder that is a corporation, the gain may be subject to the U.S.
branch profits tax, as discussed above. In general, in determining whether a
stockholder is a U.S. Stockholder not subject to withholding tax, the Company
or other withholding agent may rely on an IRS Form W-9 or on a certificate of
non-foreign status containing information specified by Treasury regulations,
provided the Company or other withholding agent does not have actual knowledge
to the contrary. The amount of any tax withheld is creditable against the
Non-U.S. Stockholder's U.S. federal income tax liability, and any amount of tax
withheld in excess of that tax liability may be refunded provided an
appropriate claim for refund is filed with the IRS.
SALE OF COMMON STOCK
A Non-U.S. Stockholder will not be subject to U.S. federal income tax on
gain recognized on a sale or other taxable disposition of Common Stock which is
not effectively connected with a U.S. trade or business of the Non-U.S.
Stockholder, so long as the Common Stock is regularly traded on an
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established securities market. Notwithstanding the foregoing, gain from the
sale or exchange of Common Stock will be taxable to a Non-U.S. Stockholder if
either (i) the gain is effectively connected with a U.S. trade or business of
the Non-U.S. Stockholder (or, if an income tax treaty applies, is attributable
to a U.S. permanent establishment of the Non-U.S. Stockholder), in which case
the Non-U.S. Stockholder generally will be subject to the same tax treatment as
a U.S. Stockholder with respect to that gain (subject possibly to a special
alternative minimum tax in the case of a nonresident alien individual), and a
Non-U.S. Stockholder that is a foreign corporation also may be subject to a
U.S. branch profits tax, as discussed above, or (ii) the Non-U.S. Stockholder
is a nonresident alien individual who is present in the United States for at
least 183 days during the taxable year and who has a "tax home" in the United
States. In the latter case, the nonresident alien will be subject to a 30% U.S.
withholding tax on his or her net capital gains. If any gain on a sale or other
disposition of Common Stock would be subject to taxation under section 897 of
the Code, the purchaser generally would be required to withhold and remit to
the IRS tax in an amount equal to 10% of the purchase price.
BACKUP WITHHOLDING OF TAX AND INFORMATION REPORTING
Backup withholding of tax (which generally is a withholding tax imposed at
the rate of 31% on certain payments to persons that fail to furnish identifying
information under the U.S. information reporting requirements) and information
reporting generally will not apply to distributions paid to Non-U.S.
Stockholders outside the United States that are treated as (i) dividends
subject to the 30% (or lower treaty rate) withholding tax discussed above, (ii)
capital gain dividends or (iii) distributions attributable to gain from the
sale or exchange by the Company of U.S. real property interests. As a general
matter, backup withholding and information reporting will not apply to a
payment of the proceeds of a sale of Common Stock by or through a foreign
office of a foreign broker. Information reporting (but not backup withholding)
will apply, however, to a payment of the proceeds of a sale of Common Stock by
a foreign office of a broker that (a) is a United States person, (b) derives
50% or more of its gross income for certain periods from the conduct of a trade
or business in the United States or (c) is a "controlled foreign corporation"
(generally, a foreign corporation controlled by certain U.S. stockholders) for
U.S. tax purposes, unless the broker has documentary evidence in its records
that the holder is a Non-U.S. Stockholder and certain other conditions are met,
or the Non-U.S. Stockholder otherwise establishes an exemption. Payment of the
proceeds of sale of Common Stock to or through a U.S. office of a broker is
subject to both backup withholding and information reporting unless the
stockholder certifies under penalties of perjury that he is a Non-U.S.
Stockholder or otherwise establishes an exemption. A Non-U.S. Stockholder may
obtain a refund of any amounts withheld under the backup withholding rules by
filing the appropriate claim for refund with the IRS.
The U.S. Treasury Department recently issued final regulations regarding
the withholding and information reporting rules discussed above. In general,
the new regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and forms and
clarify and modify reliance standards. The new regulations, for example,
require a Non-U.S. Stockholder that wishes to claim the benefit of a reduced
tax rate in an applicable tax treaty with respect to dividends received from a
U.S. corporation to satisfy certain certification and other requirements. In
addition, the new regulations require a corporation that is a REIT to withhold
tax at the 30% rate (or lower treaty rate) on the portion of a distribution
that is not designated as a capital gain dividend or a return of basis and at
the 35% rate described above on the portion of any distribution designated by
the REIT as a capital gain dividend. The new regulations generally are
effective for payments made after December 31, 1998, subject to certain
transition rules. THE DISCUSSION SET FORTH ABOVE IN "TAXATION OF NON-U.S.
STOCKHOLDERS" DOES NOT TAKE INTO ACCOUNT THE NEW REGULATIONS. PROSPECTIVE
NON-U.S. STOCKHOLDERS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISERS
REGARDING THE NEW REGULATIONS.
TAXPAYER RELIEF ACT OF 1997
On August 5, 1997, President Clinton signed into law the Taxpayer Relief
Act of 1997 (H.R. 2014), which has the effect of modifying certain REIT-related
Code provisions for taxable years beginning
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on or after January 1, 1998. In addition to the changes contained in this
legislation discussed above, some of the other potentially significant
REIT-related changes contained in the legislation include: (i) the rules
regarding attribution to partnerships of ownership in another entity for
purposes of defining qualified rent and independent contractors are modified so
that attribution occurs only when a partner owns a 25% or greater interest in
the partnership; (ii) the class of excess noncash items for purposes of the
REIT distribution requirements is expanded; and (iii) certain other Code
provisions relating to REITs are amended.
PROPOSED TAX LEGISLATION
In February 1998, the Clinton Administration stated it would propose
amendments to the rules relating to REIT qualification. One of the proposed
changes is described above in "Federal Income Tax Considerations--Taxation of
the Company--Requirements for Qualification". An additional proposal by the
Clinton Administration would restrict future activities of "stapled REITs". A
stapled REIT consists of a REIT whose stock trades as a single unit with the
stock of a corporation that is not a REIT. The Company is not, and would not
qualify for the tax benefits of, a stapled REIT. Finally, the Clinton
Administration proposes to limit the ability of a REIT to own stock in a
corporation that is engaged in an active business. Current law prevents a REIT
from owning more than ten percent of the voting stock in such a corporation
(other than a qualified REIT subsidiary). The Clinton Administration's proposal
would prevent a REIT from owning more than ten percent of the stock of a
corporation by either vote or value. The Company currently does not own any
stock in such a corporation and has no plans to acquire any such stock.
OTHER TAX CONSEQUENCES
The Company and its stockholders may be subject to taxation in various
state or local jurisdictions, including those in which it or they transact
business or reside. The state and local tax treatment of the Company and its
stockholders may not conform to the federal income tax consequences discussed
above. Consequently, prospective stockholders should consult their own tax
advisers regarding the effect of state and local tax laws on an investment in
the Company.
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ERISA CONSIDERATIONS
The following is a summary of material considerations arising under the
Employment Retirement Income Security Act of 1974 ("ERISA") and the Code that
may be relevant to a prospective purchaser (including with respect to the
discussion contained in "Plan Assets Issue", to a prospective purchaser that is
not an employee benefit plan, another tax-qualified retirement plan, an
individual retirement account or an individual retirement annuity ("IRAs")).
This discussion does not propose to deal with all aspects of ERISA or the Code
or, to the extent not preempted, state law that may be relevant to particular
employee benefit plan shareholders (including plans subject to Title I of
ERISA, other employee benefit plans and IRAs subject to the prohibited
transaction provisions of the Code, and governmental plans and church plans
that are exempt from ERISA and prohibited transaction provisions of the Code
but that may be subject to state law requirements) in light of their particular
circumstances.
THE FOLLOWING IS INTENDED TO BE A SUMMARY ONLY AND IS NOT A SUBSTITUTE FOR
CAREFUL PLANNING WITH A PROFESSIONAL. A FIDUCIARY MAKING THE DECISION TO INVEST
IN SHARES OF COMMON STOCK ON BEHALF OF A PROSPECTIVE PURCHASER WHICH IS A PLAN
SUBJECT TO ERISA, A TAX-QUALIFIED RETIREMENT PLAN, AN IRA OR OTHER EMPLOYEE
BENEFIT PLAN (COLLECTIVELY "PLANS") IS ADVISED TO CONSULT ITS OWN LEGAL ADVISOR
REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, THE CODE AND (TO THE
EXTENT NOT PREEMPTED) STATE LAW WITH RESPECT TO THE PURCHASE, OWNERSHIP OR SALE
OF SHARES OF COMMON STOCK BY SUCH PLAN OR IRA. A fiduciary should also consider
the entire discussion under the heading "Federal Income Tax Considerations", as
material contained therein is relevant to any decision by an employee benefit
plan, tax-qualified retirement plan or IRA to purchase the Common Stock.
FIDUCIARY CONSIDERATIONS
Each fiduciary of a Plan subject to ERISA should carefully consider
whether an investment in shares of Common Stock is consistent with its
fiduciary responsibilities under ERISA. In particular, to the extent a Plan is
subject to ERISA, the fiduciary requirements of Part 4 of Title I of ERISA
require (i) the Plan's investments to be prudent and in the best interests of
the Plan, its participants and beneficiaries, (ii) the Plan's Investments to be
diversified in order to reduce the risk of large losses, unless under the
circumstances it is clearly prudent not to do so and (iii) the Plan's
investments to be authorized under ERISA and the terms of the governing
documents of the Plan. In determining whether an investment in shares of Common
Stock is prudent for purposes of ERISA, the appropriate fiduciary of a Plan
should consider all of the facts and circumstances, including, without
limitation, whether the investment is reasonably designed, as a part of the
Plan's portfolio for which the fiduciary has investment responsibility, to meet
the objectives of the Plan, taking into consideration the risk of loss and
opportunity for gain (or other return) from the investment, the diversification
cash flow and funding requirements of the Plan, and the liquidity and current
return of the Plan's portfolio. A fiduciary should also take into account the
nature of the Company's business, the management of the Company and the length
of the Company's operating history and other matters described under "Risk
Factors".
In addition, provisions of ERISA and the Code prohibit certain
transactions in Plan assets that involve persons who have specified
relationships with a Plan. The consequences of such prohibited transactions
include excise taxes, disqualification of IRAs and other liabilities.
PLAN ASSETS ISSUE
A prohibited transaction may occur if the assets of the Company are deemed
to be Plan assets. In certain circumstances where a Plan holds an interest in
an entity, the assets of the entity are deemed to be Plan assets (the
"look-through rule"). Under such circumstances, any person that exercises
authority
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or control with respect to the management or disposition of such assets is a
Plan fiduciary. Plan assets are not defined in ERISA or the Code, but the
United States Department of Labor has issued regulations, effective March 13,
1987 (the "Regulations"), that outline the circumstances under which a Plan's
interest in an entity will be subject to the look-through rule.
The Regulations apply only to the purchase by a Plan of an "equity
interest" in an entity, such as common stock of a REIT. However, the
Regulations provide an exception to the look-through rule for equity interests
that are "publicly-offered securities".
Under the Regulations, a "publicly-offered security" is a security that is
(i) freely transferable, (ii) part of a class of securities that is widely held
and (iii) either (a) part of a class of securities that is registered under
section 12(b) or 12(g) of the Exchange Act or (b) sold to a Plan as part of an
offering of securities to the public pursuant to an effective registration
statement under the Securities Act and the class of securities of which such
security is a part is registered under the Exchange Act within 120 days (or
such longer period as may be allowed by the Commission) after the end of the
fiscal year of the issuer during which the offering of such securities to the
public occurred. Whether a security is considered "freely transferable" depends
on the facts and circumstances of each case. Generally, if the security is part
of an offering in which the minimum investment is $10,000 or less, any
restriction on or prohibition against any transfer or assignment of such
security for the purposes of preventing a termination or reclassification of
the entity for federal or state tax purposes will not of itself prevent the
security from being considered freely transferable. A class of securities is
considered "widely-held" only if it is a class of securities that is owned by
100 or more investors independent of the issuer and of one another.
The Company anticipates that the Common Stock will meet the criteria of
the publicly-offered securities exception to the look-through rule. First, the
Company anticipates that the Common Stock will be considered to be freely
transferable, as the minimum investment will be less than $10,000 and the only
restrictions upon its transfer are those required under federal income tax laws
to maintain the Company's status as a REIT. Second, the Company believes that
the Common Stock will be held by 100 or more investors and that at least 100 or
more of these Investors will be independent of the Company and of one another.
Third, the Common Stock will be part of an offering of securities to the public
pursuant to an effective registration statement under the Securities Act and
will be registered under the Exchange Act within 120 days after the end of the
fiscal year of the Company during which the offering of such securities to the
public occurs. Accordingly, the Company believes that if a Plan purchases the
Common Stock, the Company's assets should not be deemed to be Plan assets and,
therefore, that any person who exercises authority or control with respect to
the Company's assets should not be a Plan fiduciary.
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UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1998 (the "Underwriting Agreement"), the Underwriters
named below (the "Underwriters"), for whom Credit Suisse First Boston
Corporation, Morgan Keegan & Company, Inc. and The Robinson-Humphrey Company,
LLC are acting as representatives (collectively, the "Representatives"), have
severally but not jointly agreed to purchase from the Company and the Selling
Stockholder the following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER -----------------
<S> <C>
Credit Suisse First Boston Corporation .........
Morgan Keegan & Company, Inc. ..................
The Robinson-Humphrey Company, LLC .............
Total ........................................ 5,363,032
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the shares of Common Stock
offered hereby (other than those shares covered by the over-allotment option
described below) if any are purchased. The Underwriting Agreement provides
that, in the event of a default by an Underwriter, in certain circumstances,
the purchase commitments of the non-defaulting Underwriters may be increased or
the Underwriting Agreement may be terminated.
The Company has granted to the Underwriters an option, expiring at the
close of business on the 30th day after the date of this Prospectus, to
purchase up to 804,455 additional shares at the initial public offering price
less the underwriting discounts and commissions, all as set forth on the cover
page of this Prospectus. Such option may be exercised only to cover
over-allotments in the sale of the shares of Common Stock. To the extent such
option is exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of Common Stock as it was obligated to purchase pursuant to the
Underwriting Agreement.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public initially at the
public offering price set forth on the cover page of this Prospectus and,
through the Representatives, to certain dealers at such price less a concession
of $ per share, and the Underwriters and such dealers may allow a discount
of $ per share on sales to certain other dealers. After the initial public
offering, the public offering price and concession and discount to dealers may
be changed by the Representatives.
The Representatives have informed the Company that they do not expect
discretionary sales by the Underwriters to exceed 5.0% of the number of shares
being offered hereby.
The Company and its officers, directors and holders of substantially all
of the outstanding shares of Common Stock have agreed that they will not offer,
sell, contract to sell, announce their intention to sell, pledge or otherwise
dispose of, directly or indirectly, or file with the Securities and Exchange
Commission a registration statement under the Securities Act relating to, any
additional shares of Common Stock or securities convertible or exchangeable
into or exercisable for any shares of Common Stock without the prior written
consent of Credit Suisse First Boston Corporation for a period of 180 days
after the date of this Prospectus.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or contribute to payments which the Underwriters may be
required to make in respect thereof.
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The Common Stock has been approved for listing on the New York Stock
Exchange subject to official notice of issuance.
Prior to the Offering, there has been no public market for the Common
Stock. The initial price to the public for the shares of Common Stock has been
negotiated among the Company, the Selling Stockholder and the Representatives.
Such initial price is based on, among other things in addition to prevailing
market conditions, the Company's financial and operating history and condition,
its prospects and the prospects for its industry in general, the management of
the Company and the market prices for securities of companies in businesses
similar to that of the Company. See "Risk Factors--The Price of the Common
Stock May Be Adversely Affected by the Lack of a Prior Market and Fluctuations
in the Stock Market; The Offering Price Is Not Based Upon Property Valuations".
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
Over-allotment involves syndicate sales in excess of the Offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed
a specified maximum. Syndicate covering transactions involve purchases of the
Common Stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the
Representatives to reclaim a selling concession from a syndicate member when
the Common Stock originally sold by such syndicate member are purchased in a
syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the Common Stock to be higher than it would otherwise be in
the absence of such transactions. These transactions may be effected on the New
York Stock Exchange or otherwise and, if commenced, may be discontinued at any
time.
Robert L. Cooney, a director nominee, served as a Managing Director of
Equity Capital Markets of Credit Suisse First Boston from 1978 to 1996. See
"Management--Management and Key Employees" and "Certain Transactions".
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be passed
upon for the Company by Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.,
Miami, Florida. In addition, the description of federal income tax consequences
contained in this Prospectus entitled "Federal Income Tax Considerations" is
based upon the opinion of Greenberg Traurig Hoffman Lipoff Rosen & Quentel,
P.A., Miami, Florida. Certain legal matters related to the Offering will be
passed upon for the Underwriters by Latham & Watkins, Los Angeles, California.
Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A. and Latham & Watkins
will rely upon the opinion of Ballard Spahr Andrews & Ingersoll LLP, Baltimore,
Maryland, as to certain matters relating to Maryland law.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1996 and for each of the three years in the period ended December 31,
1997 included in this Prospectus, the related financial statement schedule
included elsewhere in the registration statement, and the financial statements
from which the selected financial data included in this Prospectus have been
derived, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and elsewhere in the registration
statement, and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
The statement of revenues and certain expenses of Lantana Village and
Summerlin Square for the year ended December 31, 1997 included in this
prospectus have been audited by Deloitte & Touche
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LLP, independent auditors, as stated in their reports appearing herein and
elsewhere in the registration statement, and have been so included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
In addition, certain statistical information and analysis provided under
the captions "Prospectus Summary--Market Data" and "Business--Market Data" has
been prepared by Lesser and included herein in reliance upon the authority of
such firm as an expert in, among other things, real estate consulting and urban
economics.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-11 (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act, with respect to the Common
Stock offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement. For further information with respect
to the Company and the Common Stock offered hereby, reference is hereby made to
such Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete and, in
each instance, reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. Copies of the Registration
Statement may be obtained from the Commission's principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission at Seven World Trade Center, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, upon payment of the fees
prescribed by the Commission, or may be examined without charge at the offices
of the Commission. In addition, copies of the Registration Statement and
related documents may be obtained through the Commission's Internet address at
http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements which have been certified by its
independent public accountants, and quarterly reports containing unaudited
summary financial information for each of the first three quarters of each
fiscal year.
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GLOSSARY
Unless the context otherwise requires, the following capitalized terms
shall have the meanings set forth below for the purposes of this Prospectus:
"ACQUISITION AND DEVELOPMENT OF THE REDEVELOPMENT/DEVELOPMENT PROPERTIES"
means the acquisition and development of those properties referred to in
footnote (1) to the table under "Use of Proceeds".
"ACQUISITION LINE OF CREDIT" means the City National Acquisition Line of
Credit and the J.P. Morgan Acquisition Line of Credit.
"ACRS" means the accelerated cost recovery system depreciation.
"ACTIONS" means the Dan Action and the Company Action.
"ADA" means the Americans with Disabilities Act, enacted on July 26, 1990.
"ADDITIONAL LINE OF CREDIT" means a proposed $100.0 million line of credit
between a certain financial institution and the Company.
"AFFILIATED GROUP" means Chaim Katzman and the stockholders of the Company
who are parties to the Control Agreements.
"AGGREGATE STOCK OWNERSHIP LIMIT" means not more than 9.9% (in value or in
number of shares, whichever is more restrictive) of the aggregate of the
outstanding shares of all classes or series of stock of the Company, including,
without limitation, Common Stock and preferred stock.
"ANCHOR TENANT" means a tenant that, due to size, reputation or other
factors, is particularly responsible for drawing other tenants and shoppers to
a shopping center.
"ATLANTIC VILLAGE" means the Atlantic Village Shopping Center, comprising
100,559 of GLA, located in Atlantic Beach, Florida.
"BASE RENT" means gross rent excluding payments by tenants on account of
real estate taxes, operating expenses, utility expenses and percentage rent.
"BEAUCLERC VILLAGE" means the Beauclerc Village Shopping Center,
comprising 67,930 square feet of GLA located in Jacksonville, Florida.
"BIRD LUDLUM" means the Bird Ludlum Shopping Center, comprising 192,327
square feet of GLA located in Miami, Florida.
"BYLAWS" means the Bylaws of the Company.
"CASH AVAILABLE FOR DISTRIBUTION" means FFO as adjusted for certain
capital expenditures and scheduled principal payments.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act, as amended by the Superfund Amendments and Reauthorization Act
of 1986.
"CHARTER" means the charter of the Company.
"CITY NATIONAL LINE OF CREDIT" means a proposed line of credit of up to
$35.0 million among the Company, City National Bank of Florida and certain
participating lenders.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means shares of the Company's common stock, par value $0.01
per share.
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"COMMON STOCK OWNERSHIP LIMIT" means not more than 9.9 percent (in value
or in number of shares, whichever is more restrictive) of the aggregate of the
outstanding shares of Common Stock of the Company.
"COMMONWEALTH" means the Commonwealth Shopping Center, comprising 71,021
square feet of GLA located in Jacksonville, Florida.
"COMMUNITY SHOPPING CENTER" means a shopping center containing 100,000 to
300,000 square feet of GLA.
"COMPANY" means the business and property of Equity One, Inc., a Maryland
corporation, and its consolidated subsidiaries.
"COMPANY ACTION" means the action commenced by the Company in the Eleventh
Judicial Circuit, Miami-Dade County, Florida against the Dan Group.
"CONTROL AGREEMENTS" means the Investment Contract, the Shareholders
Agreement and the Irrevocable Proxy.
"CORAL WAY" means 10 acres of commercially zoned real property located in
Southwest Miami-Dade County, Florida, which property will be subject to the
Option.
"CPI" means the Consumer Price Index.
"DAN ACTION" means the action commenced by the Dan Group in Tel Aviv,
Israel against the Company, Gazit Holdings, Inc. and Chaim Katzman.
"DANBAR" means Danbar, Ltd., an Israeli corporation whose securities are
publicly traded on TASE.
"DAN GROUP" means Danbar Resources, Dan Overseas, Eli Makavy and David
Wulkan.
"DANBAR RESOURCES" means Danbar Resources, Ltd., an Israeli corporation
whose securities are publicly traded on TASE and a subsidiary of Danbar.
"DAN OVERSEAS" means Dan Overseas, Ltd., a British Virgin Islands
corporation and wholly-owned subsidiary of Danbar Resources.
"DIANA BUILDING" means the 18,707 square feet mixed use office/retail
property located in West Palm Beach, Florida.
"EAST BAY" means East Bay Plaza comprising 81,826 square feet of GLA
located in Largo, Florida.
"EMPLOYMENT AGREEMENTS" mean, collectively, the employment agreements by
and between the Company and each of Chaim Katzman and Doron Valero, each of
which expire on December 31, 2003.
"EQUITY ONE OFFICE BUILDING" means the Equity One Office Building
comprising 28,980 square feet of mixed-use office/retail property, including
the Company's corporate offices located in Miami Beach, Florida.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"EUSTIS SQUARE" means the Eustis Square Shopping Center comprising 126,791
square feet of GLA located in Eustis, Florida.
"EXCESS SHARES" means those shares, the number of which is in excess of
the Ownership Limit.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
109
<PAGE>
"EXISTING PROPERTIES" means the 17 shopping center properties, two mixed
used (office/retail) properties, one office building and one mini-warehouse
facility owned by the Company at the date of this Prospectus.
"FFO" means Funds From Operations.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980.
"FOREST EDGE" means the Forest Edge Shopping Center comprising 68,631
square feet of GLA located in Orlando, Florida.
"FORT CAROLINE" means the Fort Caroline Trading Post comprising 74,546
square feet of GLA located in Jacksonville, Florida.
"FOUR CORNERS" means the Four Corners Shopping Center comprising 115,178
square feet of GLA located in Tomball, Texas, in the Houston metropolitan area.
"FUNDS FROM OPERATIONS" means, as defined by NAREIT, net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of property, plus real estate related depreciation and
amortization (excluding amortization of deferred financing costs).
"GAAP" means generally accepted accounting principles.
"GAZIT (1995)" means Gazit (1995), Inc., a Nevada corporation, a wholly
owned subsidiary of Gazit and successor in interest to Gazit Holdings, Inc.
"GAZIT" means Gazit Inc., a Panamanian corporation whose securities are
publicly traded on TASE.
"GLA" means gross leasable area.
"GLOBAL REALTY" means Global Realty & Management, Inc., a wholly owned
subsidiary of the Company, which performs property management services for the
Company's properties.
"GLOBE REIT" means Globe Reit Investments, Ltd., an Israeli corporation
(formerly known as M.G.N. Oil and Gas Resources, Ltd.) whose securities are
publicly traded on TASE.
"ICSC" means the International Council of Shopping Centers.
"IN-KIND-DIVIDEND" means the Company's distribution immediately prior to
the consummation of the Offering of Partnership Interests to its existing
stockholders pro rata in proportion to their ownership of Common Stock.
"INTERESTED STOCKHOLDER" means, for purposes of the MGCL, any person who
after the date on which the Company had 100 or more beneficial owners of its
stock, beneficially owns ten percent or more of the voting power of the
Company's shares or an affiliate of the corporation who, at any time within a
two-year period immediately prior to the date in question, was the beneficial
owner of ten percent or more of the voting power of the then outstanding voting
stock of the Company.
"INVESTMENT CONTRACT" means the investment contract, dated as of May 21,
1996, among Dan Overseas, Gazit (1995), as successor-in-interest to Gazit
Holdings, Inc., Globe Reit, and the Company.
"IRREVOCABLE PROXY" means the irrevocable proxy granted to Globe Reit by
Dan Overseas, Gazit (1995) and Mr. Chaim Katzman to vote through May 2001 all
of the shares of Common Stock now owned or hereafter acquired by Dan Overseas,
Gazit (1995) and Mr. Katzman for the purposes of electing directors of the
Company.
"IRS" means the Internal Revenue Service.
110
<PAGE>
"LAKE MARY" means the Lake Mary Shopping Centre comprising 288,450 square
feet of GLA located in Seminole County, Orlando, Florida.
"LANTANA VILLAGE" means Lantana Village Square Shopping Center, comprising
85,300 square feet of GLA located in Lantana, Florida.
"LEASING COMMISSIONS" means brokerage commission fees paid by the Company
in connection with new leases or lease renewals.
"LIBOR" means London Interbank Offered Rate published by the Wall Street
Journal.
"M.G.N." means M.G.N. (USA), Inc., a Nevada corporation and wholly owned
subsidiary of Globe Reit.
"MANDARIN" means the Mandarin Mini-Storage warehouse comprising 52,880
square feet of GLA located in Jacksonville, Florida.
"MGCL" means the Maryland General Corporation Law, as amended.
"MONUMENT POINTE" means the Monument Pointe Shopping Center comprising
75,328 square feet of GLA located in Jacksonville, Florida.
"MORTGAGE INDEBTEDNESS" means that mortgage indebtedness referred to in
footnote (1) to the table under "Use of Proceeds".
"MOTION" means the motion to dismiss the complaint of Albertsons filed by
the Subsidiary in the Circuit Court for the Eleventh Judicial District in and
for Miami-Dade County, Florida.
"NAMED OFFICERS" means, collectively, the Company's Chief Executive
Officer, and the Company's Executive Vice President and Chief Operating
Officer.
"NAREIT" means the National Association of Real Estate Investment Trusts.
"NAREIT WHITE PAPER" means the White Paper on FFO approved by the Board of
Governors of the NAREIT in March 1995.
"NEIGHBORHOOD SHOPPING CENTER" means a shopping center containing less
than 100,000 square feet of GLA.
"1995 PLAN" means the 1995 Stock Option Plan adopted by the Company in
December, 1995.
"NET OPERATING INCOME" or "NOI" means net operating income determined by
subtracting operating and general administrative expenses directly related to
the property from total revenues.
"1995 PLAN" means the 1995 Stock Incentive Plan of the Company.
"NYSE" means the New York Stock Exchange, Inc.
"OAK HILL" means the Oak Hill Village Shopping Center comprising 78,492
square feet of GLA located in Jacksonville, Florida.
"OFFERING" means the offering of shares of Common Stock of the Company
pursuant to and as described in this Prospectus.
"OPTION" means the option to be granted by the Partnership to the Company
to purchase Coral Way and an aggregate of 6.75 acres of vacant land adjacent to
certain of the Existing Properties, which option is to be exercisable for a
period of five years.
"OWNERSHIP LIMIT" means the restriction contained in the Company's Charter
providing that, subject to certain exceptions, no holder may own, or be deemed
to own by virtue of the constructive
111
<PAGE>
ownership provisions of the Code, more than 9.9% (by number or value, whichever
is more restrictive) of the outstanding shares of Common Stock.
"PARKER TOWNE" means the Parker Towne Centre comprising 201,927 square
feet of GLA located in Plano, Texas, in the Dallas metropolitan area.
"PARTNERSHIP" means a Florida limited partnership to which the Company
will transfer Coral Way, 6.75 acres of vacant land adjacent to certain of the
Existing Properties and certain promissory notes.
"PARTNERSHIP INTERESTS" means the limited partnership interests of the
Partnership.
"PERFORMING SUPERMARKET CENTER" means Neighborhood and Community Shopping
Centers with tenants occupying 85% or more of GLA and which are well
maintained, substantially fully leased and maintain an appropriate mix of
Anchor Tenants and other tenants.
"PERFORMING SUPERMARKET CENTER ACQUISITIONS" means the proposed
acquisitions of Summerlin Square and Beauclerc Village referred to in footnote
(2) to the table under "Use of Proceeds".
"PERMITTED HOLDER" means a person who may own shares of stock of the
Company without violating the ownership restrictions of the Charter.
"PLAZA DEL REY" means the Plaza Del Rey Shopping Center comprising 50,146
square feet of GLA located in Miami-Dade County, Florida.
"POINTE ROYALE" means the Pointe Royale Shopping Center comprising 199,068
square feet of GLA located in Cutler Ridge, Miami-Dade County, Florida.
"PRO FORMA ADJUSTMENTS" means the pro forma adjustments referred to on
page F-2.
"PROHIBITED OWNER" means a person or entity holding record title to shares
in excess of the Ownership Limit.
"PROHIBITED TRANSFEREE" means any person to which any transfer of Common
Stock of the Company would result in the person violating the Ownership Limit.
"REDEVELOPMENT OF SKY LAKE AND OTHER ACQUISITIONS" means the Redevelopment
of Sky Lake and other property acquisitions referred to in footnote (4) to the
table under "Use of Proceeds".
"REGISTRABLE SHARES" means those shares of stock of the Company granted
registration rights.
"REGISTRATION RIGHTS AGREEMENT" means the registration right agreement by
and among the Company and each of Chaim Katzman, Gazit (1995), Globe Reit, Eli
Makavy, Doron Valero and David Wulkan with respect to their Registrable Shares.
"REIT" means a real estate investment trust as defined in Section 856 of
the Code which meets the requirements for qualification as a REIT described in
Sections 856 through 860 of the Code.
"RELATED PARTY TENANT" means a tenant actually or constructively owned 10%
or more by the REIT or an owner of 10% or more of the REIT.
"RENOVATION AND DEVELOPMENT OF EXISTING PROPERTIES" means the renovation
and development of those properties referred to in footnote (3) to the table
under "Use of Proceeds".
"REPRESENTATIVES" shall mean Credit Suisse First Boston Corporation, Morgan
Keegan & Company, Inc. and The Robinson-Humphrey Company, LLC, as
representatives for the Underwriters.
"RULE 144" means Rule 144 promulgated under the Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
112
<PAGE>
"SELLING STOCKHOLDER" means Dan Overseas or Assumpsit Holding, LP.
"SERIES C WARRANTS" means the warrants to purchase up to 1,306,124 shares
of Common Stock of the Company at an exercise price of $8.25 exercisable
through December 31, 1999.
"SETTLEMENT AGREEMENT" means the agreement among the Dan Group, Gazit and
Chaim Katzman, among others, resolving allegations raised in the Actions.
"SHAREHOLDERS AGREEMENT" means the Stockholders Agreement, dated May 21,
1996, between Gazit and Danbar Resources.
"SKY LAKE" means the property which is known as Sky Lake Mall in
Miami-Dade County, Florida, which, after a comprehensive redevelopment, will
contain 300,000 square feet of GLA.
"STATEMENT NO. 128" means the Statement of Financial Accounting Standards
No. 128, "Earnings Per Share", issued by the Financial Accounting Standards
Board in February 1997.
"SUBSIDIARY" means the subsidiary of the Company which is party to an
action commenced by Albertsons in the Circuit Court for the Eleventh Judicial
District in and for Miami-Dade County, Florida.
"SUMERLIN SQUARE" means the Summerlin Square Shopping Center comprising
110,200 square feet of GLA located in Fort Myers, Florida.
"SUPERMARKET CENTERS" means Community and Neighborhood Shopping Centers
anchored by supermarkets.
"TASE" means the Tel Aviv Stock Exchange.
"TENANT IMPROVEMENTS" means capital costs incurred by the Company for
leasehold improvements including costs for items such as heating, ventilation
and air conditioning, plumbing, electrical upgrades, interior walls, wall
finishes, ceiling treatment and floor coverings.
"TREASURY REGULATIONS" means regulations of the U.S. Department of the
Treasury under the Code.
"UBTI" means unrelated business taxable income.
"UNDERPERFORMING SUPERMARKET CENTER" means Neighborhood and Community
Shopping Centers which are not Performing Supermarket Centers.
"UNDERWRITERS" means the Representatives and those parties named in the
Underwriting Agreement as underwriters of the Offering.
"UNDERWRITING AGREEMENT" means the Underwriting Agreement among the
Company, the Selling Stockholder and the Underwriters relating to the purchase
of the Common Stock offered hereby.
"WEST LAKE" means the West Lake Plaza Shopping Center comprising 100,747
square feet of GLA located in Kendall Lakes, Miami-Dade County, Florida.
113
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PAGE
----
EQUITY ONE, INC. AND SUBSIDIARIES
PRO FORMA (UNAUDITED):
Pro Forma Consolidated Financial Statements .......................... F-2
Pro Forma Consolidated Balance Sheet as of December 31, 1997 ......... F-3
Pro Forma Consolidated Statement of Operations
for the year ended December 31, 1997 ............................... F-4
Notes to the Pro Forma Consolidated Financial Statements ............. F-5
HISTORICAL:
Independent Auditors' Report ......................................... F-7
Consolidated Balance Sheets as of December 31, 1997 and 1996 ......... F-8
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 ................................... F-9
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995 ............... F-10
Consolidated Statements of Cash Flows
for the years ended December 31, 1997, 1996 and 1995 ............... F-11
Notes to Consolidated Financial Statements ........................... F-12
LANTANA VILLAGE SQUARE
Independent Auditors' Report ......................................... F-26
Statement of Revenues and Certain Expenses for the year ended
December 31, 1997 .................................................. F-27
Notes to Statement of Revenues and Certain Expenses .................. F-28
SUMMERLIN SQUARE - PROPOSED ACQUISITION PROPERTY
Independent Auditors' Report ......................................... F-29
Statement of Revenues and Certain Expenses for the year ended
December 31, 1997 .................................................. F-30
Notes to Statement of Revenues and Certain Expenses .................. F-31
</TABLE>
F-1
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma consolidated balance sheet as of December 31, 1997
is presented as if the Pro Forma Adjustmens all had occurred on December 31,
1997. The pro forma consolidated statement of operations for the year ended
December 31, 1997 is presented as if the Pro Forma Adjustments and the
acquisitions of Sky Lake and Monument Pointe all had occurred on January 1,
1997.
The "Pro Forma Adjustments" include (i) the sale of 3,700,000 shares of
Common Stock by the Company at an assumed offering price of $13.50 per share,
(ii) the application of the proceeds thereof to retire indebtedness, to acquire
Beauclerc Village, Summerlin Square, 4.4 acres of vacant land, and a restaurant
property, to redevelop Sky Lake, to renovate and develop the Existing
Properties, and to pay expenses of the Offering, as set forth under "Use of
Proceeds", (iii) the exercise by the Selling Stockholder of Series C Warrants,
(iv) the In-Kind Dividend, (v) the acquisition of Lantana Village, (vi) the
incurrence of mortgage indebtedness in respect of Lantana Village and
Commonwealth, (vii) payments of a portion of the mortgage on Sky Lake and to
Winn-Dixie in respect of its expanded and extended lease at Commonwealth, and
(viii) certain costs in connection with the foregoing, as more fully set forth
in the notes to pro forma consolidated financial statements.
The pro forma consolidated financial statements should be read in
conjunction with and are based upon the historical consolidated financial
statements of Equity One, Inc. and Subsidiaries, including the notes thereto,
included elsewhere in the Prospectus. The pro forma consolidated financial
statements do not purport to represent the Company's actual financial position
as of December 31, 1997 had the Pro Forma Adjustments occurred on December 31,
1997, or the actual results of operations for the year ended December 31, 1997
had the Pro Forma Adjustments and the acquisitions of Sky Lake and Monument
Pointe occurred on January 1, 1997, or to project the Company's financial
position or results of operations as of any future date or for any future
period.
F-2
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS(1)
----------------------------
HISTORICAL DEBIT CREDIT PRO FORMA
------------ --------- ---------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Rental properties:
Land ............................................... $ 40,458 $ 1,350 H(1) $ 42,582
$3,211F(1)
3,985 A(1)
Buildings and improvements ......................... 85,983 18,349 A(2) 111,032
1,300 B(7)
5,400 H(2)
------- ---------
126,441 30,384 3,211 153,614
Less accumulated depreciation ....................... (7,191) (7,191)
-------- --------- --------
Rental properties, net ............................. 119,250 30,384 3,211 146,423
Cash and cash equivalents ........................... 2,598 71 B 2,669
Accounts and other receivables, net ................. 892 892
Securities available for sale ....................... 45 45
Deposits ............................................ 1,339 1,339
Prepaid and other assets ............................ 1,252 1,252
Deferred expenses, net .............................. 1,527 300 C(1) 1,227
-------- ------------ --------
Total assets ..................................... $126,903 $30,455 $ 3,511 $153,847
======== ======= ========= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
LIABILITIES:
Mortgage notes payable .............................. $ 71,004 $ $ 7,700 D(2) $ 54,079
22,625 D(1)
2,000 D(3)
Tenants' security deposits .......................... 764 764
Accounts payable and accrued expenses ............... 1,281 1,281
Deferred rental income .............................. 274 274
-------- --------
Total liabilities ................................ 73,323 24,625 7,700 56,398
-------- ------- --------- --------
STOCKHOLDERS' EQUITY:
Common stock and additional paid-in capital ......... 55,105 3,985 A(1) 98,244
18,349 A(2)
22,625 D(1)
495 C(2)
2,421 B(4)
4,736 F
Notes receivable from stock sales ................... (1,525) 1,525 F(2)
Retained (deficit) .................................. 0 795 C (795)
-------- ------- --------- --------
Total stockholders' equity ....................... 53,580 5,531 49,400 97,449
-------- ------- --------- --------
Total liabilities and stockholders' equity .......... $126,903 $30,156 $57,100 $153,847
======== ======= ========= ========
</TABLE>
The accompanying notes are an integral part of these
pro forma consolidated financial statements.
F-3
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS(2) PRO FORMA
------------ ---------------- ------------
<S> <C> <C> <C>
REVENUES:
Rental income ...................................... $ 19,816 $3,183 I $ 22,999
Investment revenue ................................. 729 (90)L 639
-------- ------ --------
Total revenues .................................. 20,545 3,093 23,638
-------- ------ --------
COSTS AND EXPENSES:
Operating expenses ................................. 5,693 704 I 6,397
Depreciation and amortization ...................... 2,392 458 I 2,850
Interest ........................................... 5,681 (534)J 5,147
General and administrative expenses ................ 581 150 K 731
-------- ------------- --------
Total costs and expenses ........................ 14,347 778 15,125
-------- ------- --------
Net income ......................................... $ 6,198 $2,315 $ 8,513
======== ======= ========
EARNINGS PER SHARE:
Basic earnings per share .......................... $ 0.96 $ 0.80
======== ========
Number of shares used in computing basic earnings
per share ....................................... 6,446 10,599
======== ========
Diluted earnings per share ........................ $ 0.87 $ 0.76
======== ========
Number of shares used in computing diluted earnings
per share ....................................... 7,106 11,220
======== ========
</TABLE>
The accompanying notes are an integral part of these
pro forma consolidated financial statements.
F-4
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
1. ADJUSTMENTS TO THE PRO FORMA CONSOLIDATED BALANCE SHEET
The pro forma adjustments to the pro forma consolidated balance sheet as
of December 31, 1997 are as follows:
<TABLE>
<S> <C>
(A) Reflects the cost of the proposed property acquisitions and of the renovation and
development of the Existing Properties
Redevelopment costs at Sky Lake ....................................................... $ 1,974
Purchase price of Beauclerc
Village and Summerlin Square ........................................................ 13,000
Purchase price of restaurant property ................................................. 1,250
Purchase price of 4.4 acres of vacant land located in Southwest Miami-Dade County ..... 1,010
Atlantic Village renovation costs ..................................................... 850
Commonwealth renovation costs ......................................................... 450
Lake Mary development costs ........................................................... 3,000
Point Royale office building renovation costs ......................................... 800
-------
Total proposed property acquisitions and renovation and development
of Existing Properties .............................................................. $22,334
=======
</TABLE>
The cost of the proposed property acquisitions and renovation and
development of Existing Properties will be allocated as follows:
<TABLE>
<S> <C>
(1) Land .............................................................................. $ 3,985
(2) Buildings and improvements ........................................................ 18,349
---------
$ 22,334
=========
(B) The adjustment to pro forma cash and cash equivalents was determined as follows:
(1) Net proceeds from the Offering after underwriting discount and estimated issuance $ 45,454
costs of $4,496
(2) Repayment of mortgage notes payable including $495 of additional loan fees......... (23,120)
(3) Cost of proposed property acquisitions and of renovation and development
of Existing Properties ............................................................. (22,334)
(4) Exercise of 293 Series C Warrants by Selling Stockholder at an exercise price of 2,421
$8.25 per share
(5) Down payment required to purchase Lantana Village in January 1998 ................. (2,350)
(6) Proceeds from mortgage note payable incurred on Commonwealth in February 1998 ..... 3,300
(7) Payment to Winn-Dixie in connection with the expansion of space at Commonwealth ... (1,300)
(8) Partial repayment of mortgage note payable related to Sky Lake .................... (2,000)
---------
Net increase in cash and cash equivalents ............................................. $ 71
=========
(C) (1) Reflects the write-off of loan costs relating to repayment of mortgage
notes payable ................................................................... $ 300
(2) Additional loan fees resulting from the early repayment of mortgage
notes payable ................................................................... 495
---------
$ 795
=========
(D) (1) Reflects the payment in respect of mortgage notes payable of $23,120,
net of $495 of additional loan fees .............................................. $ 22,625
(2) Reflect the mortgage notes payable incurred in February 1998 related to Lantana
Village of $4,400 and Commonwealth of $3,300...................................... (7,700)
(3) Reflect the partial repayment of mortgage notes payable related to Sky Lake ...... 2,000
---------
$ 16,925
=========
(E) Reflects the sale of 3,700 shares of Common Stock in the Offering
Proceeds from the Offering .......................................................... $ 49,950
Costs associated with the Offering .................................................. (4,496)
---------
Net proceeds after expenses and loan fees ................................................ $ 45,454
=========
Par value of Common Stock to be issued in the Offering ................................... $ 37
Additional paid-in capital from the net proceeds of the Offering ......................... 45,417
---------
$ 45,454
=========
</TABLE>
F-5
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
1. ADJUSTMENTS TO THE PRO FORMA CONSOLIDATED BALANCE SHEET--(CONTINUED)
<TABLE>
<S> <C>
(F) Reflects distribution of the following assets in connection with the In-Kind-Dividend:
(1) Land .............................................................................. $3,211
(2) Notes receivable from stock sales ................................................. 1,525
------
$4,736
======
(G) Reflects the exercise of 293 Series C Warrants by the Selling Stockholder at an
exercise price of $8.25 per share .................................................... $2,421
======
(H) Reflects the purchase of Lantana Village in January 1998 allocated as follows:
(1) Land ............................................................................. $1,350
(2) Building ......................................................................... 5,400
------
$6,750
======
</TABLE>
2. ADJUSTMENTS TO THE PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The pro forma adjustments to the pro forma consolidated statements of
operations for the year ended December 31, 1997 are as follows:
<TABLE>
<S> <C>
(I) Reflects the pro forma net effect of a full year of operations of Sky Lake,
Monument Pointe, Lantana Village, Beauclerc Village and Summerlin Square
shopping centers
Rental income ....................................................................... $ 3,183
Operating expenses .................................................................. (704)
Depreciation and amortization ....................................................... (458)
--------
$ 2.021
========
(J) Reflects the effect on interest expense as a result of the following:
Pro forma net effect of a full year of operations of Sky Lake, Monument Pointe,
Lantana Village, Beauclerc Village and Summerlin Square shopping centers ........... $ 498
Increase in interest expense from prepayment penalties .............................. 495
Decrease in interest expense, including the amortization of deferred financing costs,
resulting from the repayment of mortgage notes payable ............................ (1,527)
--------
(534)
========
(K) Reflects the increase in general and administrative expenses for the incremental costs
of operating as a public REIT ...................................................... $ 150
========
(L) Reflects the decrease in investment revenue as a result of the notes receivable
distributed in connection with the In-Kind-Dividend ................................. $ (90)
========
</TABLE>
F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Equity One, Inc.:
We have audited the accompanying consolidated balance sheets of Equity
One, Inc. and subsidiaries (the "Company") as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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.
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the consolidated financial position of Equity
One, Inc. and subsidiaries as of December 31, 1997 and 1996 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Miami, Florida
February 27, 1998
(March 6, 1998 as to Note 10)
F-7
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
ASSETS
RENTAL PROPERTIES:
Land .............................................. 40,458 $ 28,094
Buildings and improvements ........................ 85,983 78,612
------ --------
126,441 106,706
Less accumulated depreciation ...................... 7,191 4,849
------- --------
Rental properties, net ............................ 119,250 101,857
Cash and cash equivalents .......................... 2,598 1,951
Accounts and other receivables, net ................ 892 800
Securities available for sale ...................... 45 4,528
Deposits ........................................... 1,339 510
Prepaid and other assets ........................... 1,252 1,165
Deferred financing costs, net ...................... 1,527 1,011
------- --------
Total assets ................................... $126,903 $111,822
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Mortgage notes payable ............................. $ 71,004 $ 66,831
Tenants' security deposits ......................... 764 694
Accounts payable and accrued expenses .............. 1,281 950
Deferred rental income ............................. 274 252
-------- --------
Total liabilities .............................. 73,323 68,727
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value - 5,000,000 shares
authorized but unissued
Common stock, $0.01 par value - 40,000,000 shares
authorized; 6,908,130 and 5,768,418 shares
issued and outstanding for 1997 and
1996, respectively ............................... 69 58
Additional paid-in capital ......................... 55,036 44,562
Notes receivable from stock sales .................. (1,525) (1,525)
-------- --------
Total stockholders' equity ..................... 53,580 43,095
-------- --------
Total liabilities and stockholders' equity ......... $126,903 $111,822
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-8
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
RENTAL INCOME .......................................................... $ 19,816 $ 16,337 $ 10,792
-------- -------- --------
INVESTMENT REVENUE:
Interest .............................................................. 424 239 497
Dividends ............................................................. 224 111 23
Realized gain on securities, net ...................................... 81 27 36
-------- -------- --------
Total investment revenue ............................................ 729 377 556
-------- -------- --------
COSTS AND EXPENSES:
Operating expenses .................................................... 5,693 4,832 3,293
Depreciation and amortization ......................................... 2,392 2,067 1,496
Interest .............................................................. 5,681 5,380 3,498
General and administrative expenses ................................... 581 515 549
-------- -------- --------
Total costs and expenses ............................................ 14,347 12,794 8,836
-------- -------- --------
Net Income ............................................................. $ 6,198 $ 3,920 $ 2,512
======== ======== ========
EARNINGS PER SHARE:
Basic earnings per share ............................................... $ 0.96 $ 0.79 $ 0.56
======== ======== ========
Number of shares used in computing basic earnings per share ............ 6,446 4,991 4,487
======== ======== ========
Diluted earnings per share ............................................. $ 0.87 $ 0.69 $ 0.47
======== ======== ========
Number of shares used in computing diluted earnings per share .......... 7,106 5,673 5,298
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-9
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET NOTES RETAINED
ADDITIONAL UNREALIZED RECEIVABLE EARNINGS TOTAL
COMMON PAID-IN HOLDING LOSS FROM (ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL ON SECURITIES STOCK SALES DEFICIT) EQUITY
-------- ------------ --------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 .......... $43 $28,697 $ (28) $ 86 $ 28,798
Issuance of common stock ............ 1 622 623
Net income .......................... 2,512 2,512
Dividends paid ...................... (224) (2,598) (2,822)
Change in net unrealized
holding loss on securities
available for sale ................. 28 28
----- --------
Balance, December 31, 1995 .......... 44 29,095 29,139
Issuance of common stock ............ 13 14,727 14,740
Notes receivable from issuance of
common stock ...................... $ (1,525) (1,525)
Conversion of common stock issued
with put option to equity ......... 1 999 1,000
Net income .......................... 3,920 3,920
Dividends paid ...................... (259) (3,920) (4,179)
------- -------- --------
Balance, December 31, 1996 .......... 58 44,562 (1,525) 43,095
Issuance of common stock ............ 11 10,596 10,607
Net income .......................... 6,198 6,198
Dividends paid ...................... (122) (6,198) (6,320)
------- -------- --------
Balance, December 31, 1997 .......... $69 $55,036 $ 0 $ (1,525) $ 0 $ 53,580
=== ======= ===== ======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-10
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income .............................................................. $ 6,198 $ 3,920 $ 2,512
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .......................................... 2,611 2,282 1,578
Gain on sales of securities ............................................ (81) (27) (36)
Changes in assets and liabilities:
Accounts and other receivables ........................................ (96) 140 (625)
Deposits .............................................................. (79) 113 (262)
Prepaid and other assets .............................................. (133) (112) (75)
Accounts payable and accrued expenses ................................. 331 67 250
Income tax liability .................................................. 0 (34) (35)
Tenants' security deposits ............................................ 70 142 219
Deferred rental income ................................................ 22 189 (57)
--------- --------- ---------
Net cash provided by operating activities ............................ 8,843 6,680 3,469
--------- --------- ---------
INVESTING ACTIVITIES:
Acquisition and improvements to rental property ......................... (9,987) (13,936) (40,722)
Purchases of securities ................................................. (5,237) (7,029) (3,601)
Sales and prepayments of securities ..................................... 9,801 2,688 6,812
Deposits for acquisition of rental property ............................. (750) 0 0
Repayment of notes receivable ........................................... 0 0 300
--------- --------- ---------
Net cash used in investing activities ................................ (6,173) (18,277) (37,211)
--------- --------- ---------
FINANCING ACTIVITIES:
Due to stockholders ..................................................... 0 (2,216) 2,216
Repayments of mortgate notes payable .................................... (19,455) (4,352) (729)
Borrowings under mortgage notes payable ................................. 13,880 10,599 28,620
Deferred expenses ....................................................... (735) (289) (467)
Stock subscription and issuance ......................................... 10,607 13,215 623
Cash dividends paid to stockholders ..................................... (6,320) (4,179) (2,822)
--------- --------- ---------
Net cash (used in) provided by financing activities .................. (2,023) 12,778 27,441
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................... 647 1,181 (6,301)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ........................... 1,951 770 7,071
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................................. $ 2,598 $ 1,951 $ 770
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest, net of amount capitalized ....................... $ 5,476 $ 4,752 $ 3,513
========= ========= =========
Cash paid for income taxes .............................................. $ 36
=========
SUPPLEMENTAL SCHEDULE OF CASH AND NONCASH INVESTING
AND FINANCING ACTIVITIES:
Conversion of common stock issued with put option to equity ............. $ 1,000
=========
Common stock issued for notes receivable ................................ $ 1,525
=========
Changes in unrealized depreciation in securities available for sale ..... $ 28
=========
Acquisition of rental property .......................................... $ 15,402
Cash paid for rental property ........................................... 5,654
---------
Assumption of mortgage notes payable .................................... $ 9,748
=========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-11
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL - Equity One, Inc. (the "Company") was incorporated in Maryland on
June 15, 1992, as a wholly-owned subsidiary of Gazit Holdings, Inc. During
1996, Gazit Holdings, Inc. transferred all of its stock ownership to Gazit
(1995), Inc. ("Gazit") (See Note 6). During 1997 and 1996, additional shares of
stock were issued to both affiliated and unaffiliated entities, reducing
Gazit's holdings in the Company to approximately 37% as of December 31, 1997
and 1996 (See Note 6). The Company was formed for the purpose of holding
various real estate subsidiaries located in the United States of America
("U.S." or "United States").
The Company currently owns and operates seventeen properties in Florida
and two properties in Texas, comprising approximately 86% and 14% of the total
rentable square footage, respectively. In addition, Winn-Dixie Stores Inc., and
Publix Supermarkets Inc., rent approximately 14% and 5% of the total rentable
square footage, respectively.
BASIS OF CONSOLIDATION - The consolidated financial statements include the
accounts of Equity One, Inc. and its wholly-owned subsidiaries. All
subsidiaries hereinafter are referred to as "the consolidated companies." All
intercompany transactions have been eliminated.
CASH AND CASH EQUIVALENTS - For purposes of the statements of cash flows,
the Company considers certificates of deposit with an initial maturity of three
months or less to be cash equivalents. Cash and cash equivalents consist of the
following as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
L997 1996
--------- ---------
<S> <C> <C>
Cash ............................. $2,475 $1,828
Certificates of deposit .......... 123 123
------ ------
Total ......................... $2,598 $1,951
====== ======
</TABLE>
INVESTMENT SECURITIES - Investment securities are accounted for under
Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting for
Certain Investments in Debt and Equity Securities, which the Company adopted
during 1993. As of December 31, 1997 and 1996, all of the Company's securities
are classified as securities available for sale.
DEPOSITS - Deposits are comprised of funds held by various institutions
for future payments of taxes and insurance, utility and other service deposits
and deposits for acquisition of rental property.
RENTAL PROPERTY - Rental property is stated at cost. Major renewals and
betterments are capitalized. Maintenance, repairs and minor renewals are
charged to operating expense as incurred. Depreciation is provided for using
the straight-line method over the estimated useful lives of the assets which
range from 5 to 40 years, except for building improvements related to leasehold
improvements which are depreciated over the lesser of the assets' useful lives
or the terms of the related leases.
LONG-LIVED ASSETS - In accordance with SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF,
long-lived assets, such as property, certain identifiable intangibles, and
goodwill related to those assets to be held and used are to be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amounts of an asset may not be recoverable. The Company periodically
assesses the recoverability of the long-lived assets
F-12
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
based on its expectations of future profitability and undiscounted cash flow of
the related operations. These factors, along with management's plans with
respect to the operations, are considered in assessing the recoverability of
long-lived assets. If the Company determines, based on such measures, that the
carrying amount is impaired, the long-lived assets will be written down to its
recoverable value with corresponding charge to earnings. During the periods
presented, no such impairment was incurred.
DEFERRED EXPENSES - Deferred expenses consist of loan origination and
other fees directly related to rental property financing with third parties.
The fees are being amortized using the straight-line method over the term of
the notes, ranging from 5 to 30 years.
RENTAL INCOME - Rental income is comprised of minimum rentals and
contingent rentals. Contingent rentals are generally received from tenants
based on their gross sales. For the years ended December 31, 1997, 1996 and
1995, contingent rentals recognized by the Company were approximately $172,
$153 and $87, respectively.
INCOME TAXES - There is no provision for income tax expense as a result of
the Company changing to real estate investment trust ("REIT") status, effective
January 1, 1995. The Company is not taxed on its taxable operating income if it
distributes such income to stockholders in conformity with the requirements of
the Internal Revenue Code and meets certain other requirements. Company
management is of the opinion that they are complying with the requirements of
REIT status and hence starting from January 1, 1995 the Company is a REIT for
income tax purposes. The Company intends to continue to meet such requirements
and distribute its future taxable operating income in conformity with such
requirements. Distributed capital gains on sales of real estate are not subject
to tax; however, undistributed capital gains are taxed as capital gain.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS - In February 1997, SFAS No. 128, EARNINGS
PER SHARE was issued. SFAS No. 128, which supersedes APB Opinion No. 15 and was
adopted by the Company as of December 31, 1997, requires a dual presentation of
basic and diluted earnings per share on the face of the income statement. Basic
earnings per share excludes dilution and is computed by dividing income or loss
attributable to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity. The
1996 and 1995 earnings per share data have been restated to conform with this
pronouncement.
In February 1997, SFAS No. 129, DISCLOSURE OF INFORMATION ABOUT CAPITAL
STRUCTURE was issued. SFAS No. 129, which applies to all entities that have
issued securities, requires in summary form, the pertinent rights and
privileges of the various securities outstanding. Examples of information that
shall be disclosed are dividends and liquidation preferences, participation
rights, call prices and dates, conversion or exercise prices or rates and
pertinent dates, sinking-fund requirements, unusual voting
F-13
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
rights, and significant terms of contracts to issue additional shares. SFAS No.
129 is effective for financial statements issued for periods ending after
December 15, 1997. The Company adopted SFAS No. 129 in 1997, and the effects of
adoption are reflected in the consolidated financial statements.
In June 1997, SFAS No. 130, REPORTING COMPREHENSIVE INCOME was issued.
This statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial
statements. This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. This statement is effective for fiscal years
beginning after December 15, 1997 and requires reclassification of comparative
financial statements for all earlier periods presented.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The estimated fair values of
financial instruments have been determined by the Company using available
market information and appropriate valuation methods in accordance with SFAS
No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. Considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation methods may
have a material effect on the estimated fair value amounts. The Company has
used the following market assumptions and/or estimation methods:
CASH AND CASH EQUIVALENTS - The carrying amounts reported in the
consolidated balance sheets are reasonable estimates of fair value.
INVESTMENT SECURITIES - Fair values are based on quoted market prices,
dealer quotes, and independent pricing services. The carrying value
approximates fair value due to the nature of the investments.
MORTGAGE NOTES PAYABLE - The estimated fair value at December 31, 1997
and 1996 was $64,693 and $63,016, respectively, calculated based on the net
present value of payments over the term of the notes using estimated market
rates for similar notes payable.
INTEREST RATE CAP AGREEMENTS - The fair value is based on dealer quotes
and generally represents an estimate of the amount the Company would pay to
terminate the agreement at the reporting date. The fair value at December
31, 1997 and 1996 was $0 and $1, respectively.
The fair value estimates presented herein are based on information
available to management as of the reporting dates. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for
purposes of these consolidated financial statements since that date and,
therefore, current estimates of fair value may differ significantly from
the amounts presented herein.
STOCK OPTION PLAN - On October 23, 1996, the Company adopted the Equity
One, Inc. 1995 Stock Option Plan, (the "Plan") which is described below. The
Company applies APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES,
and related interpretations in accounting for the Plan. The purpose of the Plan
is to further the growth of the Company, by offering an incentive to directors,
F-14
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
officers and other key employees of the Company, and to increase the interest
of these employees in the Company, through additional ownership of its common
stock. The effective date of the Plan is January 1, 1996. The maximum number of
shares of common stock as to which options may be granted under the Plan is
1,000,000 shares, which shall be reduced each year by the required or
discretionary grant of options. The term of each option shall be determined by
the Stock Option Committee of the Company (the "Committee"), but in no event
shall be longer than ten years from the date of the grant. The vesting of the
options shall be determined by the Committee, in its sole and absolute
discretion, at the date of grant of the option.
During 1996, the Company issued 450,000 options under the Plan to two
officers and two non-employee members of the Board of the Company at an
exercise price of $12.375 per share, fair market value on the date of grant as
determined by an independent valuation, which vest over a four year period,
112,500 shares each year, commencing on January 1, 1997, and on the first day
of each year, until all options vest. The per share option price is subject to
a downward adjustment to the extent that dividends declared and paid by the
Company in each year subsequent to 1995 exceed dividends declared and paid by
the Company in the year ended December 31, 1995. As of December 31, 1997 and
1996, the per share price if exercised on that date was $12.05 and $12.20,
respectively. These options are considered "variable" options pursuant to APB
Opinion No. 25, based on the terms of such option (See Note 6).
On December 31, 1996, the Company issued 48,000 options under the Plan to
one officer of the Company at an exercise price of $8.25 per share. These
options were fully vested as of December 31, 1996 and expire on December 31,
1999 (See Note 6).
During 1997, the Company issued 146,000 options under the Plan to certain
employees, at an exercise price of $12.375 per share, fair market value on the
date of grant as determined by an independent valuation, which vest over a
period of three to four years, commencing on January 1, 1998, and on the first
day of each year, until all options vest. These options are not considered
"variable" options pursuant to APB Opinion No. 25, based on the terms of such
options (See Note 6).
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plan to employees and non-employee members of
the Board. Compensation costs would have been increased by approximately
$658,000 and $658,000, for the year ended December 31, 1997 and 1996,
respectively, had the fair value of stock options granted been recognized as
compensation expense as prescribed by SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. The fair value of the stock options at the date of grant was
estimated using the minimum value method prescribed by SFAS No. 123 (See Note
6).
F-15
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
2. SECURITIES AVAILABLE FOR SALE
Composition in the consolidated balance sheets:
<TABLE>
<CAPTION>
1997 1996
------ ---------
<S> <C> <C>
Debt securities ...................... $ 0 $ 550
Mortgage-backed securities ........... 45 2,878
U.S. Government obligations .......... 0 1,100
---- ------
Total ............................. $ 45 $4,528
==== ======
</TABLE>
As of December 31, 1997 and 1996, there were no material differences
between amortized cost and fair value. For the years ended December 31, 1997,
1996 and 1995, the Company had gross securities sales of $8,815, $2,411 and
$6,776 resulting in gross realized gains of $116, $32 and $52 and gross
realized losses of $35, $5 and $16, respectively.
Debt securities, mortgage-backed securities and U.S. government
obligations mature within five years. Actual maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
3. ACCOUNTS AND OTHER RECEIVABLES
Composition in the consolidated balance sheets:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Tenants ............................................. $ 876 $746
Accrued interest receivable - institutions .......... 25 38
Employee loans and advances ......................... 20 16
Allowance for doubtful accounts ..................... (29) 0
----- ----
Total ............................................ $ 892 $800
===== ====
</TABLE>
F-16
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
4. RENTAL PROPERTY
Composition in the consolidated balance sheets:
<TABLE>
<CAPTION>
LAND,
BUILDINGS
AND BUILDING
EQUIPMENT IMPROVEMENTS TOTAL
----------- -------------- -----------
<S> <C> <C> <C>
COST
Balance at beginning of year ............ $102,976 $3,730 $106,706
Additions in the reporting year ......... 16,959 2,776 19,735
-------- ------ --------
Balance at end of year .................. 119,935 6,506 126,441
-------- ------ --------
ACCUMULATED DEPRECIATION
Balance at beginning of year ............ (4,476) (373) (4,849)
Depreciation for the year ............... (2,101) (241) (2,342)
-------- ------ --------
Balance at end of year .................. (6,577) (614) (7,191)
-------- ------ --------
Undepreciated balance
as of December 31, 1997 ................ $113,358 $5,892 $119,250
======== ====== ========
Undepreciated balance
as of December 31, 1996 ................ $ 98,500 $3,357 $101,857
======== ====== ========
</TABLE>
Rental property with a book value of approximately $107,145 serves as
collateral for recourse mortgage notes payable totaling $71,004 and $66,831 as
of December 31, 1997 and 1996, respectively (See Note 5).
Assets are depreciated on a straight-line basis, based on the following
annual percentages:
<TABLE>
<S> <C>
Buildings ............................... 2.50% - 3.33%
Building/leasehold improvements ......... 2.50% - 20.00%
Equipment ............................... 14.00% - 20.00%
</TABLE>
F-17
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
5. MORTGAGE NOTES PAYABLE
Composition in the consolidated balance sheets:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Mortgage payable, 8.125%, payable in monthly installments of $29
including interest, unpaid balance due August 31, 2011, collateralized
by rental property (Financed through an Insurance Company) ................ $ 2,903 $ 3,015
Mortgage payable, 9.49%, payable in monthly installments of $26
including interest, unpaid balance due March 1, 2003, collateralized by
rental property (Financed through an Insurance Company) ................... 2,974 3,001
Mortgage payable, 8.25%, payable in monthly installments of $8 including
interest, unpaid balance due August 1, 2000, collaterized by rental
property (Financed through an Insurance Company) .......................... 908 924
Mortgage payable, 9%, payable in monthly installments of $55 including
interest, unpaid balance due July 1, 2002, collaterized by rental
property (Financed through an Insurance Company) .......................... 5,311 5,482
Mortgage payable, 8.5%, interest only payable monthly through
January 1, 1996 with monthly installments of $21 including
interest commencing January 1, 1996, collateralized by rental property.
The mortgage payable was paid in full in May 1997. ........................ 0 2,351
Mortgage payable, 7.68% through February 15, 2015 payable in monthly
installments of $115 including interest, unpaid balance due
February 15, 2015, collaterized by rental property (Financed through
an Insurance Company) ..................................................... 13,093 13,221
Mortgage payable, 8.75%, payable in monthly installments of $19
including interest, collaterized by rental property. The mortgage
payable was paid in full in May 1997 (Financed through a Bank) ............ 0 2,247
Mortgage payable, 6.375%, payable in monthly installments of $8
including interest, unpaid balance due May 10, 1999, collaterized by
rental property (Financed through an Insurance Company) ................... 1,210 1,227
Mortgage payable, 8.15%, payable in monthly installments of $37
including interest, unpaid balance due July 1, 2002, collaterized by
rental property (Financed through an Insurance Company) ................... 3,929 4,044
Mortgage payable, 7.625%, payable in monthly installments of $20
including interest, unpaid balance due January 1, 2006, collaterized by
rental property (Financed through an Insurance Company) ................... 2,385 2,445
Mortgage payable, 9.35%, payable in monthly installments of $23
including interest, unpaid balance due March 1, 2002, collaterized by
rental property (Financed through an Insurance Company) ................... 2,366 2,419
Mortgage payable, 7.95%, payable in monthly installments of $50
including interest, unpaid balance due July 15, 2010, collaterized by
rental property (Financed through an Insurance Company) ................... 5,674 5,816
</TABLE>
F-18
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
5. MORTGAGE NOTES PAYABLE--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Mortgage payable, 7.85%, payable in monthly installments of $111
including interest, unpaid balance due December 1, 2010, collaterized
by rental property (Financed through an Insurance Company) ................ 12,796 13,109
Mortgage payable, 8.25%, payable in monthly installments of $19
including interest, unpaid balance due October 1, 2002, collaterized by
rental property (Financed through an Insurance Company) ................... 1,997 2,058
Mortgage payable, 7.875%, through July 1, 2006 payable in monthly
installments of $50 and $46 for 1997 and 1996, respectively, including
interest, at which time the lender will adjust the rate of interest equal
to the sum of "Moody's" "A" corporate bond index daily rate plus
.375%, rounded to the next highest one-eight percentage rate. An
additional disbursement of $480 will be made by the lender after
certain conditions and terms were met, including but not limited to the
construction of a restaurant. The unpaid balance is due June 30, 2016,
collateralized by rental property (Financed through an Insurance
Company) .................................................................. 5,822 5,472
Mortgage payable, 10.06%, payable in monthly installments of $26
including interest, unpaid balance due June 1, 2001, collateralized by
rental property (Financed through an Insurance Company) ................... 2,636 0
Mortgage payable, 7.00%, interest only payable in monthly installments
of $49, unpaid balance is due February 15, 1998, collateralized by
rental property (Seller Financed) ......................................... 7,000 0
------ ------
Total ...................................................................... $71,004 $68,831
======= =======
</TABLE>
Principal maturities of the mortgage notes payable as of December 31, 1997
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- --------------------------------
<S> <C>
1998 ......................... $ 8,744
1999 ......................... 3,063
2000 ......................... 2,880
2001 ......................... 4,643
2002 ......................... 13,284
Thereafter ................... 38,390
-------
Total ..................... $71,004
=======
</TABLE>
As of December 31, 1996, the Company had outstanding an off balance sheet
interest rate cap on a variable rate obligation, which protected the Company
from rising interest rates. This cap had a notional amount of $13,000. In
August, 1997, this interest rate cap agreement expired unexercised.
On February 19, 1998 the Company extended the short-term mortgage note
payable of 7.00% with a principal balance of $7,000 as of December 31, 1997
referred to above. The Company paid down
F-19
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
5. MORTGAGE NOTES PAYABLE--(CONTINUED)
$2,000 from the original note amount. The new balance of $5,000 was extended
until August 19, 1998. All other terms of the note remain unchanged.
Interest costs incurred under the mortgage notes payable was $5,462 of
which $145 was capitalized in the years ended December 31, 1997.
6. STOCKHOLDERS' EQUITY
The Company had a two for one stock split on July 15, 1997 and changed the
par value of its common and preferred stock from $1.00 to $0.01. All share and
per share data and stockholders' equity accounts have been restated to reflect
the stock split and change in par value.
As of December 31, 1997 and 1996, the Company has authority to issue
45,000,000 and 15,000,000 shares, of which 40,000,000 and 10,000,000 are shares
of common stock and 5,000,000 are shares of preferred stock, respectively. The
Company had Class A warrants issued and outstanding to purchase 520,000 shares
of the Company's common stock as of December 31, 1996. During 1997 all Class A
warrants were exercised at $5.125 per share. On December 30, 1996, 235,610
Class B warrants were exercised at $8.25 per share and the remaining 906,124
Class B warrants were exchanged for 1,340,000 Class C warrants at an exercise
price of $8.25 per share which expire on December 31, 1999. The Company had
Class C warrants issued and outstanding to purchase 1,306,124 shares of the
Company's common stock as of December 31, 1997 and 1996.
During 1996, the Company entered into an agreement with Globe Reit,
pursuant to which Globe Reit agreed to purchase 2,000,000 shares of Common
Stock. At December 31, 1997, 580,288 shares remain to be purchased under this
agreement. As set forth in the agreement, the per share purchase price
increases at an annual rate of 9.7% and decreases by amounts paid as dividends
by the Company. At December 31, 1997 the adjusted share price was $12.84. The
agreement expires November 1999.
During 1997, the Company paid cash dividends of $.215, $.225, $.2625 and
$.25 per share on March 31, June 18, September 15, and December 18,
respectively, to all stockholders of record on those dates. Gross dividends
paid were $6,320 for the year ended December 31, 1997.
During 1996, the Company paid cash dividends of $.375, $.20 and $.225 per
share on June 18, September 30, and December 31, respectively, to all
stockholders of record on those dates. Gross dividends paid were $4,179 for the
year ended December 31, 1996.
Effective January 1, 1994 the Company acquired Global Realty and
Management, Inc. ("Global"), the property manager for all Florida rental
properties held by the Company. The acquisition was accounted for as a
purchase. The outstanding common stock of Global was exchanged for 144,000
shares of the Company's common stock and 48,000 Class B warrants to purchase
the Company's common stock at $8.25 per share through December 31, 1996. The
former stockholder of Global was granted an option to "put" his newly acquired
Company stock to the Company for $1,000 for a five-year period. During 1996,
the Company canceled the put option in exchange for a similar put option to be
issued by certain stockholders of the Company. On December 30, 1996, the former
stockholder exercised the 48,000 Class B warrants to purchase the Company's
common stock at $8.25 per share. The Company provided a $396 loan for a six
year period for the purpose of exercising the Class B warrants
F-20
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
6. STOCKHOLDERS' EQUITY--(CONTINUED)
held by the former stockholder. The loan bears interest at 5.25% per year. The
loan has been offset against stockholders' equity. Additionally, the Company
entered into an employment agreement with the former stockholder for a period
of 7 years with an option to extend the agreement for another 7 years by the
Company. The former stockholder is entitled to remuneration of $180 per year,
effective January 1, 1996 and options to purchase 150,000 shares in the Company
at an exercise price of $12.375 per share under the Company's 1995 Stock Option
Plan (the "Plan").
During 1996, two officers, including the former stockholder of Global
discussed above, exercised stock options for promissory notes. These notes are
full recourse promissory notes bearing interest at 5.25% and 6.86%,
respectively, and are collateralized by the stock issued upon exercise of the
stock options. Interest is payable annually and principal is due on December
30, 2002 and June 16, 2003, respectively. The notes have been reflected in the
consolidated financial statements as a reduction of stockholders' equity.
In accordance with SFAS No. 123, the following is a summary of the
Company's stock option activity for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
STOCK EXERCISE STOCK EXERCISE
OPTIONS PRICE OPTIONS PRICE
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year ..................... 498,000 $ 11.819 0
Granted ........................................... 146,000 12.375 498,000 $ 11.819
------- --------- ------- --------
Outstanding, end of year ........................... 644,000 $ 11.840 498,000 $ 11.819
======= ========= ======= ========
Exercisable, end of year ........................... 160,500 $ 10.914 48,000 $ 8.250
======= ========= ======= ========
Weighted average fair value of options granted under
SFAS No. 123 during the year ...................... $ 4.558 $ 4.558
========= ========
</TABLE>
The Company adopted the Plan effective January 1, 1996. Accordingly, no
1995 data is presented.
The following table summarizes information about the stock option plan as
of December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------- ---------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL LIFE EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
- ---------------- ------------ ------------------ ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$ 8.250 48,000 0 $ 8.250 48,000 $ 8.250
12.050 450,000 4 12.050 112,500 12.125
12.375 146,000 4 12.375 0 0.000
</TABLE>
F-21
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
6. STOCKHOLDERS' EQUITY--(CONTINUED)
The fair value of each option grant was estimated on the grant date using
the minimum value method with the following assumptions:
<TABLE>
<CAPTION>
1997 1996
--------------- -----------
<S> <C> <C>
Dividend yield ........................ 8.08% - 8.30% 12.12%
Risk-free interest rate ............... 5.00% - 5.67% 5.00%
Expected option life (years) .......... 10 3
</TABLE>
In accordance with SFAS No. 128, the following is a reconciliation of the
numerators and denominators of the basic and diluted per-share computations for
income for the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
--------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- --------------- ----------
<S> <C> <C> <C>
Net income ...................................... $6,198
======
BASIC EPS
Income available to common stockholders ......... $6,198 6,446,320 $ 0.96
====== --------- ======
EFFECT OF DILUTIVE SECURITIES
Series A Warrants ............................... 142,955
Series C Warrants ............................... 466,909
Stock Options ................................... 50,133
---------
659,997
---------
DILUTED EPS
Income available to common stockholders
+ assumed conversions .......................... $6,198 7,106,317 $ 0.87
====== ========= ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- --------------- ----------
<S> <C> <C> <C>
Net income ...................................... $3,920
======
BASIC EPS
Income available to common stockholders ......... $3,920 4,991,321 $ 0.79
====== --------- ======
EFFECT OF DILUTIVE SECURITIES
Series A Warrants ............................... 199,504
Series C Warrants ............................... 450,924
Stock Options ................................... 30,857
---------
681,285
---------
DILUTED EPS
Income available to common stockholders
+ assumed conversions .......................... $3,920 5,672,606 $ 0.69
====== ========= ======
</TABLE>
F-22
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
6. STOCKHOLDERS' EQUITY--(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
--------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- --------------- ----------
<S> <C> <C> <C>
Net income ...................................... $2,512
======
BASIC EPS
Income available to common stockholders ......... $2,512 4,486,673 $ 0.56
====== --------- ======
EFFECT OF DILUTIVE SECURITIES
Series A Warrants ............................... 430,606
Series C Warrants ............................... 380,578
---------
811,184
---------
DILUTED EPS
Income available to common stockholders
+ assumed conversions .......................... $2,512 5,297,857 $ 0.47
====== ========= ======
</TABLE>
7. FUTURE MINIMUM RENTAL INCOME, COMMITMENTS AND CONTINGENCIES
Future minimum rental income under noncancelable operating leases
approximates the following as of December 31, 1997:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- --------------------------------
<S> <C>
1998 ......................... $ 14,267
1999 ......................... 12,809
2000 ......................... 11,152
2001 ......................... 9,451
2002 ......................... 8,303
Thereafter ................... 50,672
--------
Total ..................... $106,654
========
</TABLE>
During 1996, the Company obtained a line of credit of $2,500 secured by
rental property. As of December 31, 1997 no amounts on this line of credit have
been used.
During 1996, the Company pledged a letter of credit for $1,500 as
additional security on one of its properties. As of December 31, 1997 this
pledged letter of credit remains outstanding. The letter of credit is
collateralized by rental property.
In February 1998, a prospective anchor tenant (the "Plaintiff") filed a
claim against the Company for breach of an alleged letter agreement relating to
a proposed lease agreement with the Plaintiff. The Plantiff's claim includes
(i) specific performance, (ii) damages for breach of a letter agreement of
approximately $10,000 (1) misappropriation of trade secrets, (2) promissory
estoppel, including approximately $250 for time, effort, and expenses and (3)
unjust enrichment. The Company believes that this claim is without merit and
will defend against it vigorously. An estimate of the range of loss (if any)
cannot be made at this time.
F-23
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
7. FUTURE MINIMUM RENTAL INCOME, COMMITMENTS AND CONTINGENCIES--(CONTINUED)
The Company is subject to other litigation in the normal course of
business, none of which, in the opinion of management, will have a material
adverse effect on the financial condition of the Company.
8. RELATED PARTY TRANSACTIONS
Transactions with related parties are summarized below. See discussion of
certain additional related party transactions at Notes 6 and 12.
For the year ended December 31, 1995 an affiliated entity, Gazit USA,
Inc., provided the Company with office space, office services and certain
management and consulting services for a management fee. Such fee totaled $150
and is included in general and administrative expenses in the accompanying
consolidated statements of operations.
The Company provided an affiliated entity, Gazit (1995), Inc., with office
space, office services and certain management and consulting services for which
the Company receives a management fee. For the years ended December 31, 1997
and 1996 such fees totaled $10 and $10, respectively and is included as an
offset in general and administrative expenses in the accompanying consolidated
statements of operations.
As of December 31, 1997 and 1996, balances due from related parties are
non-interest bearing with no specified due dates.
The Company has entered into an employment agreement with a current
officer and director for a period of 7 years with an option to extend the
agreement for another 7 years. The individual, or a company under his control,
is entitled to remuneration of $240 per year, effective as of January 1, 1996
and options to purchase 200,000 shares in the Company at an exercise price of
$12.375 per share subject to adjustment. As of December 31, 1996, the Company
provided a $1,129 loan for a seven year period to the individual for the
purpose of exercising existing Class A warrants held by the individual. The
loan bears interest at 6.86% per year. The loan has been offset against
stockholders' equity.
For the years ended December 31, 1997 and 1996, the Company had
compensated Chaim Katzman, President and Doron Valero, Vice President and
significant stockholders, $254 and $191 in 1997, respectively and $240 and $230
in 1996, respectively.
Warrants and options have been issued to certain officers, directors and
affiliates. See Note 6.
F-24
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
9. CONDENSED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1997
Total revenue ...................... $ 4,806 $ 4,867 $ 5,187 $ 5,685
Net income ......................... 1,165 1,407 1,597 2,029
Basic earnings per share ........... $ 0.20 $ 0.23 $ 0.23 $ 0.29
Diluted earnings per share ......... $ 0.18 $ 0.20 $ 0.22 $ 0.27
1996
Total revenue ...................... $ 4,030 $ 4,012 $ 4,240 $ 4,432
Net income ......................... 907 923 1,138 952
Basic earnings per share ........... $ 0.20 $ 0.20 $ 0.21 $ 0.17
Diluted earnings per share ......... $ 0.17 $ 0.18 $ 0.18 $ 0.15
</TABLE>
10. SUBSEQUENT EVENT
On March 6, 1998, the Company proposed a plan to distribute certain assets
to its stockholders. The proposed plan provides for the transfer to a newly
formed partnership of 16.7 acres of land with a book value at December 31, 1997
of $3,211 and the notes receivable from stock sales totaling $1,525. The
Company will then distribute all of the partnership interests to its
stockholders and the book value of the assets will be treated as a distribution
and charged to additional paid-in capital. The Company will also retain an
option for five years to repurchase the land at option prices totaling $5,650.
* * * * * *
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Equity One, Inc.:
We have audited the statement of revenues and certain expenses of Lantana
Village Square (the "Property") for the year ended December 31, 1997. This
financial statement is the responsibility of the Property's management. Our
responsibility is to express an opinion on the financial statement based on our
audit.
We conducted our audit 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission (for inclusion in the filing of Form S-11 of Equity
One, Inc.). Material amounts, described in Note 1 to the statement of revenues
and certain expenses, that would not be comparable to those resulting from
future operations of the acquired property are excluded, and the statement is
not intended to be a complete presentation of the acquired Property's revenues
and expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of Lantana Village
Square for the year ended December 31, 1997 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Miami, Florida
March 17, 1998
F-26
<PAGE>
LANTANA VILLAGE SQUARE
STATEMENT OF REVENUES AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
------------------
<S> <C>
REVENUES:
Rental income ................................. $769,840
Recoverable expenses .......................... 175,499
Other income .................................. 1,923
--------
Total revenues ................................ 947,262
--------
CERTAIN EXPENSES:
Property operating ............................ 76,471
Real estate taxes ............................. 125,648
Insurance ..................................... 20,115
--------
Total certain expenses ..................... 222,234
--------
REVENUES IN EXCESS OF CERTAIN EXPENSES ......... $725,028
========
</TABLE>
See notes to the statement of revenues and certain expenses.
F-27
<PAGE>
LANTANA VILLAGE SQUARE
NOTES TO THE STATEMENT OF REVENUES AND CERTAIN EXPENSES
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Lantana Village Square ("Lantana" or the "Property"), located in Lantana,
Florida, was purchased on January 5, 1998 from an unrelated party by Equity
One, Inc. (the "Company"). The statement of revenues and certain expenses
includes information related to the operations of the Property for the year
ended December 31, 1997 as recorded by the owner, Commercial Venture Services,
Inc.
The accompanying historical financial statement information is presented
in conformity with Rule 3-14 of the Securities and Exchange Commission.
Accordingly, the financial statement is not representative of the actual
operations for the year ended December 31, 1997 as certain expenses, which may
not be comparable to the expenses expected to be incurred in future operations
of the property, have been excluded. Expenses excluded consist of interest,
income taxes, depreciation and amortization, and other costs not directly
related to the future operations of the property after acquisition.
The Company is not aware of any material factors relating to the Property
that would cause the reported financial information not to be necessarily
indicative of future operating results.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of revenues and
certain expenses during the reporting period. Actual results could differ from
those estimates.
RENTAL INCOME - Rental income is recognized on a straight-line basis over
the terms of the related leases. For the year ended December 31, 1997, no
contingent rentals were recognized by the Property.
PROPERTY OPERATING EXPENSES - Property operating expenses consist
primarily of utilities, repairs and maintenance, security and safety, cleaning,
and other expenses.
MANAGEMENT FEES - For the year ended December 31, 1997, the Property was
managed by Commercial Venture Services, Inc. for a property management fee paid
monthly based on a fixed monthly fee of $3,500.
2. OPERATING LEASES
Operating revenue is principally obtained from tenant rentals under
noncancelable operating lease agreements. The future minimum rentals under
noncancelable operating lease agreements as of December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31 AMOUNT
- ------------------------ -------------
<S> <C>
1998 ............... $ 778,754
1999 ............... 699,256
2000 ............... 587,190
2001 ............... 567,889
2002 ............... 532,313
Thereafter .......... 4,127,616
----------
Total ............... $7,293,018
==========
</TABLE>
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Equity One, Inc.:
We have audited the statement of revenues and certain expenses of
Summerlin Square (the "Property") for the year ended December 31, 1997. This
financial statement is the responsibility of the Property's management. Our
responsibility is to express an opinion on the financial statement based on our
audit.
We conducted our audit 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission (for inclusion in the filing of Form S-11 of Equity
One, Inc.). Material amounts, described in Note 1 to the statement of revenues
and certain expenses, that would not be comparable to those resulting from
future operations of the acquired property are excluded, and the statement is
not intended to be a complete presentation of the acquired Property's revenues
and expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of Summerlin Square
for the year ended December 31, 1997 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Miami, Florida
March 18, 1998
F-29
<PAGE>
SUMMERLIN SQUARE
STATEMENT OF REVENUES AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
------------------
<S> <C>
REVENUES:
Rental income .................... $1,101,776
Recoverable expenses ............. 153,900
----------
Total revenues ................. 1,255,676
----------
CERTAIN EXPENSES:
Property operating ............... 60,800
Real estate taxes ................ 149,251
Insurance ........................ 41,989
----------
Total certain expenses ......... 252,040
----------
REVENUES IN EXCESS OF
CERTAIN EXPENSES ................ $1,003,636
==========
</TABLE>
See notes to the statement of revenues and certain expenses.
F-30
<PAGE>
SUMMERLIN SQUARE
NOTES TO THE STATEMENT OF REVENUES AND CERTAIN EXPENSES
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Summerlin Square ("Summerlin" or the "Property"), located in Fort Myers,
Florida, is under contract to be acquired from an unrelated party by Equity
One, Inc. (the "Company"). The statement of revenues and certain expenses
includes information related to the operations of the Property for the year
ended December 31, 1997 as recorded by the owner, Sunrise Limited Partnership.
The accompanying historical financial statement information is presented
in conformity with Rule 3-14 of the Securities and Exchange Commission.
Accordingly, the financial statement is not representative of the actual
operations for the year ended December 31, 1997 as certain expenses, which may
not be comparable to the expenses expected to be incurred in the future
operations of the acquired property, have been excluded. Expenses excluded
consist of interest, income taxes, depreciation and amortization, and other
costs not directly related to the future operations of the property after
acquisition.
The Company is not aware of any material factors relating to the Property
that would cause the reported financial information not to be necessarily
indicative of future operating results.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of revenues and
certain expenses during the reporting period. Actual results could differ from
those estimates.
RENTAL INCOME - Rental income is recognized on a straight-line basis over
the terms of the related leases. For the year ended December 31, 1997,
contingent rentals recognized by the Property were approximately $10,869.
PROPERTY OPERATING EXPENSES - Property operating expenses consist
primarily of utilities, repairs and maintenance, security and safety, cleaning,
and other expenses.
MANAGEMENT FEES - For the year ended December 31, 1997, the Property was
managed by Sunrise Limited Parternship for a property management fee paid
monthly based on 4% of base rental income.
AGREEMENT FOR PURCHASE AND SALE - An agreement for purchase and sale was
signed on March 12, 1998 with Sunrise Limited Partnership. The closing date is
scheduled to take place on or before April 26, 1998.
F-31
<PAGE>
SUMMERLIN SQUARE
NOTES TO THE STATEMENT OF REVENUES AND CERTAIN EXPENSES--(CONTINUED)
2. OPERATING LEASES
Operating revenue is principally obtained from tenant rentals under
noncancelable operating lease agreements. The future minimum rentals under
noncancelable operating lease agreements as of December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31 AMOUNT
- ---------------------------- -------------
<S> <C>
1998 ............... $ 991,082
1999 ............... 896,743
2000 ............... 866,150
2001 ............... 796,713
2002 ............... 727,171
Thereafter ......... 2,292,070
----------
Total ............ $6,569,929
==========
</TABLE>
F-32
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary ................................... 1
Risk Factors ......................................... 17
Use of Proceeds ...................................... 31
Distribution Policy .................................. 32
Dilution ............................................. 36
Capitalization ....................................... 37
Selected Consolidated Financial Data ................. 38
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ........................................ 40
Business ............................................. 45
Management ........................................... 67
Certain Transactions ................................. 73
Policies with Respect to Certain Activities .......... 77
Principal and Selling Stockholders ................... 80
Description of Capital Stock ......................... 82
Shares Eligible for Future Sale ...................... 90
Federal Income Tax Considerations .................... 91
ERISA Considerations ................................. 103
Underwriting ......................................... 105
Legal Matters ........................................ 106
Experts .............................................. 106
Additional Information ............................... 107
Glossary ............................................. 108
Index to Financial Statements ........................ F-1
</TABLE>
--------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[GRAPHIC OMITTED]
EQUITY ONE, INC.
5,363,032 Shares
Common Stock
($.01 par value)
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
MORGAN KEEGAN & COMPANY, INC.
THE ROBINSON-HUMPHREY
COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses payable by the Registrant in
connection with the Offering described in this registration statement (other
than underwriting discounts and commissions) will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee .................... $ 26,206.06
NASD filing fee ........................................................ 9,148.00
New York Stock Exchange listing fee .................................... 107,700.00
Printing and engraving expenses ........................................ 200,000.00
Accounting fees and expenses ........................................... 125,000.00
Legal fees and expenses ................................................ 500,000.00
Fees and expenses (including legal fees) for qualifications under state
securities laws ..................................................... 5,000.00
Registrar and Transfer Agent's fees and expenses ....................... 5,000.00
Miscellaneous .......................................................... 21,945.94
--------------
Total .............................................................. $ 1,000,000.00
==============
</TABLE>
- ----------------
All amounts except the Securities and Exchange Commission registration fee, the
NASD filing fee and the NYSE listing fee are estimated.
ITEM 32. SALES TO SPECIAL PARTIES.
The following table sets forth the persons to whom the Company sold Common
Stock within the last six months at prices varying from the proposed Offering
price. Share amounts and purchase prices have been adjusted for the two-for-one
stock split effected by the Company on July 15, 1997.
<TABLE>
<CAPTION>
DATE PURCHASER PURCHASE PURCHASE PRICE PRICE PER SHARE
- ---------- ------------------------------ ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
05/09/97 Globe Reit Investments, Ltd. 522,404 Shares $6,692,000 $ 12.81
05/21/97 Globe Reit Investments, Ltd. 35,034 Shares $ 450,000 $ 12.84
06/17/97 Globe Reit Investments, Ltd. 38,670 Shares $ 500,003 $ 12.93
06/17/97 Gazit (1995), Inc. 400,000 Shares $2,050,000 $ 5.125(1)
06/17/97 Dan Overseas, Ltd. 120,000 Shares $ 615,000 $ 5.125(1)
06/19/97 Globe Reit Investments, Ltd. 23,604 Shares $ 300,006 $ 12.71
</TABLE>
- ----------------
(1) Represents the exercise of Outstanding Series A Warrants, which warrants
were issued by the Company in early 1993.
II-1
<PAGE>
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.
(A) Set forth below is information relating to certain sales of an
aggregate of 3,098,676 shares of Common Stock within the last three years.
<TABLE>
<CAPTION>
DATE OF SALE PURCHASER PURCHASE PRICE
- -------------- ------------------------------ SHARES PURCHASED ---------------
<S> <C> <C> <C>
09/29/94 Dan Overseas, Ltd. 10,260 Shares $ 85,000
10/03/94 Gazit Holdings, Inc. 255,556 Shares $ 2,300,000
10/03/94 Dan Overseas, Ltd. 138,148 Shares $ 1,243,332
11/07/94 Globe Reit Investments, Ltd. 300,000 Shares $ 2,775,000
11/25/94 Globe Reit Investments, Ltd. 430,000 Shares $ 4,017,060
12/07/94 Globe Reit Investments, Ltd. 266,668 Shares $ 2,500,000
06/28/95 Globe Reit Investments, Ltd. 63,332 Shares $ 622,505
06/10/96 Chaim Katzman 215,000 Shares(1) $ 1,128,750
07/05/96 M.G.N. (USA) Inc.(2) 800,000 Shares $11,668,125
05/09/97 M.G.N. (USA) Inc.(2) 522,404 Shares $ 6,692,000
05/21/97 M.G.N. (USA) Inc.(2) 35,034 Shares $ 450,000
06/17/97 M.G.N. (USA) Inc.(2) 38,670 Shares $ 500,003
06/19/97 M.G.N. (USA) Inc.(2) 23,604 Shares $ 300,006
</TABLE>
- ----------------
(1) Represents the exercise of Series A Warrants granted to Mr. Katzman in the
beginning of 1993.
(2) Represents sales pursuant to the investment agreement between the Company
and Globe Reit Investments, Ltd. dated May 21, 1996. M.G.N. (USA) Inc. is
the wholly-owned subsidiary of Globe Reit Investments, Ltd.
The aforementioned issuances and sales were made in reliance upon the
exemption from registration provisions of the Act afforded by Section 4(2)
thereof, as transactions by an issuer not involving a public offering.
(B) On December 30, 1996, the Company issued an aggregate of 235,610
shares of Common Stock upon the exercise of outstanding Series B Warrants (the
"Series B Warrants"). The Series B Warrants were issued by the Company in June
1994.
<TABLE>
<CAPTION>
PURCHASER SHARES PURCHASED AGGREGATE PURCHASE PRICE
- ------------------------------ ------------------ -------------------------
<S> <C> <C>
Gazit (1995), Inc. 101,516 Shares $837,507
Dan Overseas, Ltd. 54,984 Shares $453,618
Globe Reit Investments, Ltd. 1,240 Shares $ 10,230
Doron Valero 48,000 Shares $396,000
Chaim Katzman 25,990 Shares $214,417
Saul Rickman 970 Shares $ 8,002
Martin Klein 2,910 Shares $ 24,007
</TABLE>
The aforementioned issuances and sales were made in reliance upon the
exemption from registration provisions of the Act afforded by Section 4(2)
thereof, as transactions by an issuer not involving a public offering.
(C) On December 30, 1996, the Company issued Series C Warrants in exchange
for outstanding Series B Warrants on a pro rata basis. Series C Warrants to
purchase an aggregate of 1,306,124 shares of Common Stock were issued in
connection with this exchange. The Series C Warrants are exercisable at an
exercise price of $8.25 per share, the exercise price of the Series B Warrants
and expire on December 31, 1999. The Series C Warrants were issued as follows:
<TABLE>
<CAPTION>
STOCKHOLDER SHARES SUBJECT TO WARRANTS
- ----------------------------------- ---------------------------
<S> <C>
Gazit (1995), Inc. .......... 542,136 Shares
Dan Overseas, Ltd. .......... 293,430 Shares
M.G.N. (USA) Inc. ........... 398,760 Shares
Chaim Katzman ............... 62,344 Shares
Saul Rickman ................ 2,364 Shares
Martin Klein ................ 7,090 Shares
</TABLE>
II-2
<PAGE>
The aforementioned issuances were made in reliance upon the exemption from
registration provisions of the Act afforded by Section 4(2) thereof, as
transactions by an issuer not involving a public offering.
(D) On June 17, 1997, the Company issued an aggregate of 520,000 shares of
Common Stock upon the exercise of outstanding Series A Warrants. The Series A
Warrants were issued by the Company in the beginning of 1993. The Common Stock
was issued as follows:
<TABLE>
<CAPTION>
STOCKHOLDER SHARES PURCHASED AGGREGATE PURCHASE PRICE
- -------------------- ------------------ -------------------------
<S> <C> <C>
Gazit (1995), Inc. 400,000 Shares $2,050,000
Dan Overseas, Ltd. 120,000 Shares $ 615,000
</TABLE>
The aforementioned issuances were made in reliance upon the exemption from
registration provisions of the Act afforded by Section 4(2) thereof, as
transactions by an issuer not involving a public offering.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Maryland General Corporation Law (the "MGCL") permits a Maryland
corporation to include in its charter a provision limiting the liability of its
directors and officers to the corporation and its stockholders for money
damages except for liability resulting from (a) actual receipt of an improper
benefit or profit in money, property or services or (b) active and deliberate
dishonesty established by a final judgment as being material to the cause of
action. The Charter of the Company contains such a provision which limits such
liability to the maximum extent permitted by the MGCL. This provision does not
limit the ability of the Company or its stockholders to obtain other relief,
such as an injunction or rescission.
The Bylaws of the Company obligate it to the maximum extent permitted by
Maryland law to indemnify and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any present or former
director or officer who is made a party to the proceeding by reason of his
service in that capacity or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner
or trustee of such corporation, real estate investment trust, partnership,
joint venture, trust, employee benefit plan, or other enterprise and who is
made a party to the proceeding by reason of his service in that capacity. The
Charter and Bylaws also permit the Company to indemnify and advance expenses to
any person who served a predecessor of the Company in any of the capacities
described above and to any employee or agent of the Company or a predecessor of
the Company.
The MGCL requires a corporation (unless its Charter provides otherwise,
which the Company's Charter does not) to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of any
proceeding to which he is made a party by reason of his service in that
capacity. The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their
service in those or other capacities unless it is established that (a) the act
or omission of the director or officer was material to the matter giving rise
to the proceeding and (i) was committed in bad faith or (ii) was the result of
active and deliberate dishonesty, (b) the director or officer actually received
an improper personal benefit in money, property or services or (c) in the case
of any criminal proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. However, under the MGCL, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation or for a judgment of liability on the basis
that a personal benefit was improperly received, unless in either case a court
orders indemnification and then only for expenses. In addition, the MGCL
permits a corporation to advance reasonable expenses to a director or officer
upon the Company's receipt of (a) a written affirmation by the director or
officer of his good faith belief that
II-3
<PAGE>
he has met the standard of conduct necessary for indemnification by the Company
and (b) a written undertaking by him or on his behalf to repay the amount paid
or reimbursed by the Company if it shall ultimately be determined that the
standard of conduct was not met. The termination of any proceeding by
conviction, or upon a plea of nolo contendere or its equivalent, or an entry of
any order of probation prior to judgment, creates a rebuttable presumption that
the director or officer did not meet the requisite standard of conduct required
for indemnification to be permitted.
The Company has entered into indemnification agreements with each member
of the Board of Directors (each, an "Indemnified Director"). The
indemnification agreements require, among other things, that the Company
indemnify to the fullest extent permitted by law and advance to the Indemnified
Director all related expenses, subject to reimbursement if it is subsequently
determined that indemnification is not permitted. Under the indemnification
agreements, the Company must also indemnify and advance all expenses incurred
by an Indemnified Director seeking to enforce his rights under the
indemnification agreements and may cover executive officers and directors under
the Company's directors' and officers' liability insurance. Although the form
of indemnification agreement offers substantially the same scope of coverage
afforded by law, it provides greater assurance to directors and executive
officers that indemnification will be available, because, as a contract, it
cannot be modified unilaterally in the future by the Board of Directors or the
stockholders to eliminate the rights it provides.
It is the position of the Commission that indemnification of directors and
officers for liabilities arising under the Securities Act is against public
policy and is unenforceable pursuant to Section 14 of the Securities Act.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not Applicable.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS SCHEDULES.
(a) Financial Statements.
PRO FORMA (UNAUDITED)
Pro Forma Consolidated Financial Statements
Pro Forma Consolidated Balance Sheet as of December 31, 1997
Pro Forma Consolidated Statement of Operations for the year ended December
31, 1997
Notes to the Pro Forma Consolidated Financial Statements
HISTORICAL:
Independent Auditor's Report
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
LANTANA VILLAGE SQUARE--PROPOSED ACQUISITION PROPERTY
Independent Auditors' Report
Statement of Revenues and Certain Expenses for the year ended December 31,
1997
Notes to Statement of Revenues and Certain Expenses
SUMMERLIN SQUARE--PROPOSED ACQUISITION PROPERTY
Independent Auditors' Report
Statement of Revenues and Certain Expenses for the year ended December 31,
1997
Notes to Statement of Revenues and Certain Expenses
II-4
<PAGE>
(b) Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- --------------------------------------------------------------------------------------------
<S> <C>
1.1 Proposed form of Underwriting Agreement.(1)
3.1 Company Charter, as amended.*
3.2 Company Bylaws, as amended.*
4.1 Form of Common Stock Certificate.(1)
5.1 Opinion of Ballard Spahr Andrews & Ingersoll LLP as to the validity of the Common Stock
being registered.
8.1 Form of opinion of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A. as to tax
matters.*
10.1 Form of Indemnification Agreement.(1)
10.2 Employment Agreement, dated as of January 1, 1996 by and between the Company and Chaim
Katzman.(1)
10.3 Employment Agreement, dated as of January 1, 1996 by and between the Company and Doron
Valero.(1)
10.4 Form of 1995 Stock Option Plan, as amended.(1)
10.5 Form of Stock Option Agreement.(1)
10.6 Registration Rights Agreement, dated as of January 1, 1996 by and among the Company,
Chaim Katzman, Gazit Holdings, Inc., Dan Overseas Ltd., Glob Reit Investments, Ltd., Eli
Makavy, Doron Valero and David Wulkan.(1)
10.7 Stock Pledge Agreement, dated June 17, 1996, by and between Chaim Katzman and the
Company.(1)
10.8 Promissory Note, in the amount of $1,128,750 from Chaim Katzman, payable to the
Company.(1)
10.9 Stock Pledge Agreement, dated December 30, 1996, by and between the Company and Doron
Valero.(1)
10.10 Promissory Note, in the amount of $396,000 from Doron Valero payable to the Company.(1)
10.11 Consulting Agreement, dated as of January 1, 1996 by and between the Company and Eli
Makavy.(1)
10.12 Consulting Agreement, dated as of January 1, 1996 by and between the Company and David
Wulkan.(1)
10.13 Investment Agreement, dated May 21, 1996 by and between Globe Reit Investments, Ltd.,
Dan Overseas, Ltd., Gazit Holdings, Inc. and the Company.(1)
10.14 Shareholders Agreement, dated May 21, 1996 by and between Gazit Inc. and Danbar
Resources, Ltd.(1)
10.15 Use Agreement, regarding use of facilities, by and between Gazit (1995), Inc. and the
Company, dated January 1, 1996.(1)
10.16 Pledge Agreement, dated November 9, 1995 among Equity One (Lake Mary), Inc. and The
Mutual Life Insurance Company of New York.(1)
10.17 Note Secured by First Real Estate Lien, dated November 9, 1995 in the amount of $13,422,500
from Equity One (Lake Mary), Inc. in favor of The Mutual Life Insurance Company of New
York.(1)
10.18 Purchase and Sale Agreement, dated October 24, 1995 by and between 1740 Ventures, Inc. and
Equity One (Lake Mary), Inc.(1)
10.19 Florida Real Estate Mortgage and Security Agreement, dated November 9, 1995 by and
between Equity One (Lake Mary), Inc. and The Mutual Life Insurance Company of New
York.(1)
10.20 Agreement for Purchase and Sale, dated June 12, 1997 by and between Equity One (Gamma)
Inc. and Isidoro Lerman, Trustee.(1)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- --------------------------------------------------------------------------------------------
<S> <C>
10.21 Contract for Sale and Purchase, dated March 31, 1997 by and among Equity One (Gamma)
Inc., Angel Pena and Hermilio Concepcion.(1)
10.22 Property Management Agreement, dated as of January 1, 1996, by and between the Company
and Global Realty and Management, Inc.(1)
10.23 Agreement for Purchase and Sale (Lantana Village Square), dated September 24, 1997,
between Equity One (Gamma) Inc. and Commercial Ventures Services, Inc.(1)
10.24 Mortgage Promissory Note, dated August 19, 1997, by and between Equity One (Sky Lake)
Inc. and Isidoro Lerman, as Trustee.(1)
10.25 Mortgage, dated August 19, 1997, by and between Equity One (Sky Lake) Inc. and Isidoro
Lerman, as Trustee.(1)
10.26 Settlement Agreement, dated March 6, 1998 among Gazit Inc., Danbar Resources and
Development Ltd. and Dan Overseas Ltd.
10.27 Mortgage and Security Agreement, dated February 27, 1998, by and between Equity One
(Commonwealth) Inc. and Principal Mutual Life Insurance Company.
10.28 Secured Promissory Note, dated February 27, 1998 in the amount of $3,300,000 by and between
Equity One (Commonwealth) Inc. and Principal Mutual Life Insurance Company.
10.29 Mortgage and Securities Agreement, dated as of February 18, 1998, by and between Equity
One (Lantana) Inc. and Principal Mutual Life Insurance Company.
10.30 Secured Promissory Note, dated February 18, 1998, in the amount of $1,700,000, by and
between Equity One (Lantana) Inc. and Principal Mutual Life Insurance Company.
10.31 Secured Promissory Note, dated February 18, 1998 in the amount of $2,700,000 by and between
Equity One (Lantana) Inc. and Principal Mutual Life Insurance Company.
23.1 Consent of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.(1)
23.2 Consents of Deloitte & Touche LLP.
23.3 Consent of Ballard Spahr Andrews & Ingersoll.(1)
23.4 Consent of Robert Charles Lesser & Co.(1)
24.1 Reference is made to the Signatures section of this Registration Statement for the Power of
Attorney contained therein.
27.1 Financial Data Schedule.
99.1 Consent of Robert L. Cooney.(1)
99.2 Consent of Ronald Chase.
</TABLE>
- ----------------
* To be filed by amendment.
(1) Previously filed.
(c) Financial Statement Schedules:
Independent Auditors Report
Schedule III--Real Estate Investments and Accumulated Depreciation for the
year ended December 31, 1997
All other schedules have been omitted either because they are not
applicable or because the required information has been disclosed in the
financial statements and related notes included in the prospectus.
ITEM 37. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
II-6
<PAGE>
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registration of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
a registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 4 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Miami,
State of Florida, on March 25, 1998.
EQUITY ONE, INC.
By: /s/ CHAIM KATZMAN
------------------------------------
Chaim Katzman, Chairman of the
Board,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------- ---------------------------------- ---------------
<S> <C> <C>
/s/ CHAIM KATZMAN Chairman of the Board, President March 25, 1998
- ------------------------------------ and Chief Executive Officer
Chaim Katzman (principal executive officer)
/s/ DAVID BOOKMAN Vice President, Chief Financial March 25, 1998
- ------------------------------------ Officer and Treasurer
David Bookman (principal accounting officer)
/s/ DORON VALERO Executive Vice President, Chief March 25, 1998
- ------------------------------------ Operating Officer and Director
Doron Valero
Director March , 1998
- ------------------------------------
Noam Ben Ozer
/s/ ELI MAKAVY* Director March 25, 1998
- ------------------------------------
Eli Makavy
/s/ DR. SHAIY PILPEL Director March 25, 1998
- ------------------------------------
Dr. Shaiy Pilpel
/s/ DR. SHULAMIT ROZEN-KATZMAN Director March 25, 1998
- ------------------------------------
Dr. Shulamit Rozen-Katzman
/s/ DAVID WULKAN* Director March 25, 1998
- ------------------------------------
David Wulkan
Director March , 1998
- ------------------------------------
Yuval Yanai
/s/ ROBERT COONEY Director March 25, 1998
- ------------------------------------
Robert Cooney
* By: /s/ CHAIM KATZMAN March 25, 1998
- ------------------------------------
Chaim Katzman
Attorney-in-fact
</TABLE>
II-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Equity One, Inc.:
We have audited the consolidated balance sheets of Equity One, Inc. and
subsidiaries (the "Company") as of December 31, 1997 and 1996, and for each of
the three years in the period ended December 31, 1997, and have issued our
report thereon dated February 27, 1998 (included elsewhere in this Registration
Statement). Our audits also included the financial statement schedule, listed
in Item 16 of this Registration Statement. These financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
Miami, Florida
February 27, 1998
S-1
<PAGE>
SCHEDULE III
EQUITY ONE, INC. AND SUBSIDIARIES
REAL ESTATE INVESTMENTS AND
ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNTS
AT WHICH CARRIED
CAPITALIZED AT THE CLOSE OF
INITIAL COST SUBSEQUENT TO THE PERIOD
BUILDINGS & ACQUISITION- ------------------------
PROPERTY LOCATION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS THE LAND IMPROVEMENTS
- ----------------------- -------------------- -------------- --------- -------------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
NORTH FLORIDA
Atlantic Village
Shopping Center Atlantic Beach, FL $ 4,044 $ 1,190 $ 4,760 $ 18 $ 1,190 $ 4,778
Commonwealth
Shopping Center Jacksonville, FL 2,247 730 2,920 730 2,920
Fort Caroline
Trading Post Jacksonville, FL 2,419 738 2,432 535 738 2,967
Mandarin Mini-Storage Jacksonville, FL 1,227 362 1,448 5 362 1,453
Oak Hill Village
Shopping Center Jacksonville, FL 2,445 690 2,760 37 690 2,797
CENTRAL FLORIDA
East Bay Plaza Largo, FL 924 314 1,296 241 314 1,537
Eustis Square
Shopping Center Eustis, FL 5,482 1,450 5,799 23 1,450 5,822
Forest Edge
Shopping Center Orlando, FL 2,058 1,250 1,850 1,250 1,850
Lake Mary Centre Lake Mary, FL 13,109 6,972 13,878 30 6,972 13,908
SOUTH FLORIDA
Bird Ludlam
Shopping Center Miami, FL 13,221 4,080 16,318 1,403 5,425 16,375
Diana Building W. Palm Beach, FL 0 123 493 898 123 1,391
Equity One
Office Building Miami Beach, FL 0 579 423 746 579 1,169
Plaza Del Rey
Shopping Center Miami, FL 3,015 740 2,961 130 740 3,091
Point Royale
Shopping Center Miami, FL 5,816 3,720 5,005 106 3,720 5,111
West Lakes Plaza Miami, FL 5,472 2,141 5,789 65 2,141 5,854
TEXAS
Four Corners
Shopping Center Tomball,TX 3,001 950 3,800 278 950 4,078
Parker Towne Centre Plano, TX 2,351 720 2,881 556 720 3,437
------- ------- ------- ------ ------- -------
TOTAL $66,831 $26,749 $74,813 $5,071 $28,094 $78,538
======= ======= ======= ====== ======= =======
</TABLE>
S-2
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
REAL ESTATE INVESTMENTS AND
ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNTS
AT WHICH CARRIED
AT THE CLOSE OF
INITIAL COST THE PERIOD
------------------------ CAPITALIZED -----------------------
SUBSEQUENT TO
BUILDINGS & ACQUISITION-
PROPERTY LOCATION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS
- ----------------------- -------------------- ------------- --------- -------------- -------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
NORTH FLORIDA
Atlantic Village
Shopping Center Atlantic Beach, FL $ 3,929 $ 1,190 $ 4,760 $ 18 $ 1,190 $ 4,778
Commonwealth
Shopping Center Jacksonville, FL 0 730 2,920 4 730 2,924
Fort Caroline
Trading Post Jacksonville, FL 2,366 738 2,432 541 738 2,973
Mandarin Mini-Storage Jacksonville, FL 1,211 362 1,448 5 362 1,453
Monument Pointe Jacksonville, FL 2,636 1,336 2,330 87 1,336 2,417
Oak Hill Village
Shopping Center Jacksonville, FL 2,385 690 2,760 37 690 2,797
CENTRAL FLORIDA
East Bay Plaza Largo, FL 908 314 1,296 309 325 1,594
Eustis Square
Shopping Center Eustis, FL 5,311 1,450 5,799 52 1,463 5,838
Forest Edge
Shopping Center Orlando, FL 1,997 1,250 1,850 6 1,250 1,856
Lake Mary Centre Lake Mary, FL 12,796 6,972 13,878 34 6,972 13,912
SOUTH FLORIDA
Bird Ludlam
Shopping Center Miami, FL 13,093 4,080 16,318 68 5,433 16,378
Diana Building W. Palm Beach, FL 0 123 493 909 123 1,402
Equity One
Office Building Miami Beach, FL 0 579 423 752 579 1,175
Plaza Del Rey
Shopping Center Miami, FL 2,903 740 2,961 134 740 3,095
Point Royale
Shopping Center Miami, FL 5,673 3,720 5,005 109 3,720 5,114
West Lakes Plaza Miami, FL 5,822 2,141 5,789 134 2,141 5,923
Sky Lake Miami, FL 7,000 9,472 2,250 2,094 9,472 4,344
TEXAS
Four Corners
Shopping Center Tomball,TX 2,974 950 3,800 337 958 4,129
Parker Towne Centre Plano, TX 0 720 2,881 914 720 3,797
------- ------- ------- ------ ------- -------
TOTAL $71,004 $37,557 $79,393 $6,544 $38,942 $85,899
======= ======= ======= ====== ======= =======
</TABLE>
S-3
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
REAL ESTATE INVESTMENTS AND
ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED DATE DEPRECIABLE
PROPERTY TOTAL DEPRECIATION ACQUIRED LIVES
- ---------------------------------- ----------- -------------- ------------------- ------------
<S> <C> <C> <C> <C>
NORTH FLORIDA
Atlantic Village Shopping Center $ 5,968 $ 179 JUNE 30, 1995 40
Commonwealth Shopping Center $ 3,650 207 FEBRUARY 28, 1994 40
Fort Caroline Trading Post $ 3,705 205 JANUARY 24, 1994 40
Mandarin Mini-Storage $ 1,815 96 MAY 10, 1994 40
Oak Hill Village Shopping Center $ 3,487 76 DECEMBER 7, 1995 40
CENTRAL FLORIDA
East Bay Plaza $ 1,851 186 JULY 27, 1993 30
Eustis Square Shopping Center $ 7,272 627 OCTOBER 22, 1993 30
Forest Edge Shopping Center $ 3,100 0 DECEMBER 31, 1996 40
Lake Mary Centre $ 20,880 406 NOVEMBER 9, 1995 40
SOUTH FLORIDA
Bird Ludlam Shopping Center $ 21,800 994 AUGUST 11, 1994 40
Diana Building $ 1,514 25 FEBRUARY 15, 1995 40
Equity One Office Building $ 1,748 84 APRIL 10, 1992 40
Plaza Del Rey Shopping Center $ 3,831 605 AUGUST 22, 1991 30
Point Royale Shopping Center $ 8,831 182 JULY 27, 1995 40
West Lakes Plaza $ 7,995 22 NOVEMBER 6, 1996 40
TEXAS
Four Corners Shopping Center $ 5,028 601 JANUARY 22, 1993 30
Parker Towne Centre $ 4,157 320 DECEMBER 9, 1993 30
-------- ------
TOTAL $106,632 $4,815
======== ======
</TABLE>
S-4
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
REAL ESTATE INVESTMENTS AND
ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED DATE DEPRECIABLE
PROPERTY TOTAL DEPRECIATION ACQUIRED LIVES
- ---------------------------------- ----------- -------------- ------------------- ------------
<S> <C> <C> <C> <C>
NORTH FLORIDA
Atlantic Village Shopping Center $ 5,968 $ 299 JUNE 30, 1995 40
Commonwealth Shopping Center $ 3,654 280 FEBRUARY 28, 1994 40
Fort Caroline Trading Post $ 3,711 280 JANUARY 24, 1994 40
Mandarin Mini-Storage $ 1,815 132 MAY 10, 1994 40
Monument Pointe $ 3,753 57 JANUARY 31, 1997 40
Oak Hill Village Shopping Center $ 3,487 148 DECEMBER 7, 1995 40
CENTRAL FLORIDA
East Bay Plaza $ 1,919 279 JULY 27, 1993 30
Eustis Square Shopping Center $ 7,301 823 OCTOBER 22, 1993 30
Forest Edge Shopping Center $ 3,106 46 DECEMBER 31, 1996 40
Lake Mary Centre $ 20,884 764 NOVEMBER 9, 1995 40
SOUTH FLORIDA
Bird Ludlam Shopping Center $ 21,811 1,413 AUGUST 11, 1994 40
Diana Building $ 1,525 60 FEBRUARY 15, 1995 40
Equity One Office Building $ 1,754 118 APRIL 10, 1992 40
Plaza Del Rey Shopping Center $ 3,835 711 AUGUST 22, 1991 30
Point Royale Shopping Center $ 8,834 315 JULY 27, 1995 40
West Lakes Plaza $ 8,064 178 NOVEMBER 6, 1996 40
Sky Lake $ 13,816 21 AUGUST 19, 1997 40
TEXAS
Four Corners Shopping Center $ 5,087 780 JANUARY 22, 1993 30
Parker Towne Centre $ 4,517 440 DECEMBER 9, 1993 30
-------- ------
TOTAL $124,841 $7,144
======== ======
</TABLE>
S-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NO. DESCRIPTION NUMBER
- --------- ---------------------------------------------------------------------------------- -----------
<S> <C> <C>
5.1 Opinion of Ballard Spahr Andrews & Ingersoll LLP as to the validity of the
Common Stock being registered.
10.26 Settlement Agreement, dated March 6, 1998 among Gazit Inc., Danbar Resources
and Development Ltd. and Dan Overseas Ltd.
10.27 Mortgage and Security Agreement, dated February 27, 1998, by and between
Equity One (Commonwealth) Inc. and Principal Mutual Life Insurance Company.
10.28 Secured Promissory Note, dated February 27, 1998 in the amount of $3,300,000 by
and between Equity One (Commonwealth) Inc. and Principal Mutual Life
Insurance Company.
10.29 Mortgage and Securities Agreement, dated as of February 18, 1998, by and
between Equity One (Lantana) Inc. and Principal Mutual Life Insurance Company.
10.30 Secured Promissory Note, dated February 18, 1998, in the amount of $1,700,000, by
and between Equity One (Lantana) Inc. and Principal Mutual Life Insurance
Company.
10.31 Secured Promissory Note, dated February 18, 1998 in the amount of $2,700,000 by
and between Equity One (Lantana) Inc. and Principal Mutual Life Insurance
Company.
23.1 Consent of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.
23.2 Consents of Deloitte & Touche LLP.
27.1 Financial Data Schedule.
99.2 Consent of Ronald Chase.
</TABLE>
EXHIBIT 5.1
LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL
March 26, 1998
Equity One, Inc.
Penthouse
777 17th Street
Miami Beach, Florida 33139
Re: REGISTRATION STATEMENT ON FORM S-11
REGISTRATION NO. 333-33977
Ladies and Gentlemen:
We have served as Maryland counsel to Equity One, Inc., a
Maryland corporation (the "Company"), in connection with certain matters of
Maryland law arising out of the registration of 5,363,032 shares of Common
Stock, $.01 par value per share, of the Company (the "Common Stock"), covered by
the above-referenced Registration Statement, and all amendments thereto (the
"Registration Statement"), under the Securities Act of 1933, as amended (the
"1933 Act"). The Registration Statement covers up to 3,700,000 shares of Common
Stock to be issued by the Company (the "Shares"), as well as 1,663,032 shares of
common stock to be sold by Dan Overseas, Ltd., a stockholder of the Company.
Unless otherwise defined herein, capitalized terms used herein shall have the
meanings assigned to them in the Registration Statement.
In connection with our representation of the Company, and as a
basis for the opinion hereinafter set forth, we have examined originals, or
copies certified or otherwise identified to our satisfaction, of the following
documents (hereinafter collectively referred to as the "Documents"):
1. The Registration Statement and the related form of
prospectus included therein in the form in which it was transmitted to the
Securities and Exchange Commission under the 1933 Act;
2. The charter of the Company, certified as of a recent date
by the State Department of Assessments and Taxation of Maryland (the "SDAT");
3. The Bylaws of the Company, certified as of a recent date by
its Secretary;
4. Resolutions adopted by the Board of Directors of the
Company relating to the sale, issuance and registration of the Shares, certified
as of a recent date by the Secretary of the Company;
5. The form of certificate representing a Share, certified as
of a recent date by the Secretary of the Company;
<PAGE>
Equity One, Inc.
March 26, 1998
Page 2
6. A certificate of the SDAT as to the good standing of the
Company, dated as of a recent date;
7. A certificate executed by Alan Marcus, Secretary of the
Company, dated as of the date hereof; and
8. Such other documents and matters as we have deemed
necessary or appropriate to express the opinion set forth in this letter,
subject to the assumptions, limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed,
and so far as is known to us there are no facts inconsistent with, the
following:
1. Each of the parties (other than the Company) executing any
of the Documents has duly and validly executed and delivered each of the
Documents to which such party is a signatory, and such party's obligations set
forth therein are legal, valid and binding.
2. Each individual executing any of the Documents on behalf of
a party (other than the Company) is duly authorized to do so.
3. Each individual executing any of the Documents, whether on
behalf of such individual or any other person, is legally competent to do so.
4. All Documents submitted to us as originals are authentic.
All Documents submitted to us as certified or photostatic copies conform to the
original documents. All signatures on all such Documents are genuine. All public
records reviewed or relied upon by us or on our behalf are true and complete.
All statements and information contained in the Documents are true and complete.
There has been no oral or written modification or amendment to any of the
Documents, and there has been no waiver of any of the provisions of the
Documents, by action or conduct of the parties or otherwise.
The phrase "known to us" is limited to the actual knowledge,
without independent inquiry, of the lawyers at our firm who have performed legal
services in connection with the issuance of this opinion.
Based upon the foregoing, and subject to the assumptions,
limitations and qualifications stated herein, it is our opinion that:
<PAGE>
Equity One, Inc.
March 26, 1998
Page 3
1. The Company is a corporation duly incorporated and existing
under and by virtue of the laws of the State of Maryland and is in good standing
with the SDAT.
2. The Shares have been duly authorized and, when issued, sold
and delivered against payment therefor in the manner described in the
Registration Statement and the Underwriting Agreement to be entered into among
the Company and several Underwriters and in accordance with the resolutions of
the Board of Directors of the Company authorizing their issuance, will be
validly issued, fully paid and nonassessable.
The foregoing opinion is limited to the substantive laws of
the State of Maryland and we do not express any opinion herein concerning any
other law. We express no opinion as to compliance with the securities (or "blue
sky") laws or the real estate syndication laws of the State of Maryland.
We assume no obligation to supplement this opinion if any
applicable law changes after the date hereof or if we become aware of any fact
that might change the opinion expressed herein after the date hereof.
This opinion is being furnished to you solely for submission
to the Securities and Exchange Commission as an exhibit to the Registration
Statement and, accordingly, may not be relied upon by, quoted in any manner to,
or delivered to any other person or entity (other than Greenberg Traurig Hoffman
Lipoff Rosen & Quentel, P.A., counsel to the Company) without, in each instance,
our prior written consent.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the use of the name of our firm therein. In
giving this consent, we do not admit that we are within the category of persons
whose consent is required by Section 7 of the 1933 Act.
Very truly yours,
BALLARD SPAHR ANDREWS & INGERSOLL
EXHIBIT 10.26
AGREEMENT
Drafted and signed in Tel Aviv on the 6th day of the month of March 1998
Between
Gazit Inc.
The address of which is:
Suite 414, Balboa Avenue, Panama City, Panama
Address for the purpose of the service of Court documents:
Law offices of Rafael - Rabinowitz - Mehulal and Co.
(hereinafter: "Gazit") ON THE ONE HAND;
And
Danbar Resources and Development Ltd.
Mashabim Holdings (Magen 1993) Ltd.
The address of which is: 1 Kramanitsky Street, Tel Aviv
(jointly and separately, hereinafter to be called by the name of the "Danbar
Group")
And Dan Overseas Ltd.
The address of which is care of:
Havelet Trust Company (International) Ltd.
Havelet House P.O. Box 237 South Esplanade,
St. Peter Port, Guernsey, GY13PE
(hereinafter: "Dan")
The address for the purpose of the service of the Court documents of the Danbar
group and Dan is:
c/o Attorney Y. Segev and Co., 4 Visotsky Street, Tel Aviv
ON THE OTHER HAND;
Whereas Gazit and the Danbar group directly and indirectly hold
securities of Globe Reit Investments Inc. (hereinafter: "Globe
Reit") and Gazit, indirectly, and Dan hold securities of
Equity One Inc. (hereinafter: "EQ1");
And whereas The Danbar group and Dan wish to sell and/or to
exchange their holdings in these companies, and Gazit agrees
to purchase and/or to exchange the holdings of the Danbar
group and Dan in these companies, all as outlined in this
agreement;
<PAGE>
And whereas The parties have reached an agreement, as outlined below;
THEREFORE, IT HAS BEEN AGREED AND STIPULATED BETWEEN THE PARTIES AS
FOLLOWS:
1. PREFACE, APPENDICES AND HEADINGS
1.1 The preface to this agreement constitutes a main and integral section
of this agreement;
1.2 The appendices to this agreement constitute an integral part thereof;
1.3 The headings of the sections in this agreement were provided for the
sake of convenience, only, and shall not be given any interpretative
significance.
2. TERMS AND DEFINITIONS
In this contract and in its appendices, the following terms shall have the
meaning that is written alongside them:
"Options" 293,430 C series options in EQ1, which is
owned by Dan.
"Globe Reit shares" 3,707,135 shares of Globe Reit, which is
owned by the Danbar group.
"Issue to the public" Issue to the public of shares of EQ1, under
terms which are mainly similar to the
document dated December 31, 1997, with its
attachments, which is attached to the
agreement as Appendix A.
"The shares of Dan in EQ1" All of the EQ1 shares that are owned by Dan,
as well as the shares that will result from
the realization of the options, to the
extent that they are realized prior to the
time of the issue to the public.
"The underwriting and
distribution commissions" Commissions that the underwriters shall
collect for the sale of the shares of Dan in
EQ1, within the framework of the issue to
the public "underwriting discount", as long
as their rate does not exceed the
underwriting and distribution commissions
that EQ1 shall pay within the framework of
the issue to the public.
"Date of the execution
of the issue to the public" The date when EQ1 Is to receive the
consideration from the issue to the public.
"The additional shares" 2,707,135 shares out of the Globe Reit
shares.
<PAGE>
"The rate of exchange" The exchange of every 4.47 shares of
Globe Reit for all of the following items:
1 share of EQ1 and 0.16 C series options of
EQ1, as well as $0.90 and 5.45 New Israeli
Shekels.
"Act of the distribution
of the EQ1 shares" The act of the distribution of EQI shares to
the shareholders of Globe Reit, whether by
means of a split or by any other means.
"The determining date" The later date between the two following
dates:
1) 7 months subsequent to the date of
the execution of the issue.
2) 30 days subsequent to the end of
the period of the blockage of the
shares of the founders of EQ1, as
long as the determining date shall
be no longer than 12 months after
the date of the execution of the
issue.
"The date of notification" The date when Gazit announces the option
that it has chosen, out of the alternatives
that are listed in Section 5.2, below.
"Pricing" The procedure of determining the price of
the EQ1 shares in the issue to the public
and the signature of the underwriting
agreement, within the framework of the issue
to the public.
"Spin off" The split of assets from EQ1 assets, in the
manner which is described in Appendix A to
this agreement.
"Terminating condition" As per its meaning in the Contracts Act
(General Section) 5733 - 1973.
3. DECLARATIONS AND OBLIGATIONS OF THE DANBAR GROUP AND DAN
The Danbar group and Dan hereby declare and undertake as follows:
3.1 That Dan is the registered owner and the possessor of all of
the rights to 1,369,602 shares and to 293,430 options of EQ1.
3.2 That the Danbar group is the owner and the possessor of all of
the rights to 3,707,135 shares of Globe Reit.
3.3 That these shares and options are free of any debt, pledge,
lien or third party rights, whatsoever, and that they will
remain in this condition pending their sale and/or transfer,
as stated in this agreement.
<PAGE>
3.4 That there is no legal or other reason to prohibit their
engagement in this agreement.
3.5 That they agree that EQ1 will perform the issue to the public,
under terms which are mainly similar to those which are
outlined in the document that is dated December 31, 1997, with
its attachments, which is attached to the agreement as
"APPENDIX A". All of this is subject to the existence of the
terms of Sections 4 and 5, below, and subject to the fact
that, in any case, the price for which the shares of EQ1 are
issued to the public, subsequent to the execution of the
Spin-off move, shall be no less than $12 (twelve U.S. dollars)
per share.
3.6 That, subject to the execution of the issue to the public, as
stated in Section 3.5, above, the Danbar group hereby
undertakes to sell the Globe Reit shares to Gazit or to a
party on its behalf, pursuant to the terms which are outlined
in Section 5, below.
4. THE SALE OF THE DAN SHARES TO EQ1 WITHIN THE FRAMEWORK OF THE ISSUE TO
THE PUBLIC
4.1 The parties shall act to the best of their ability, in order
to cause a situation whereby EQ1 shall execute the issue to
the public, and that within the framework of the issue to the
public, all of the Dan shares in EQ1 shall be sold, including
shares that shall result from the realization of the Series C
option warrants that are in the possession of Dan, which Dan
wishes to realize and sell within the framework of the issue,
for the price of the issue of the shares to the public, minus
the underwriting and distribution commissions. Dan undertakes
to give Gazit notification of up to and no later than nine
days from the date of the signature of this agreement, with
regard to the quantity of the options which Dan will be
realizing and seeking to sell within the framework of the
issue to the public.
4.2 If, within the framework of the issue to the public, it will
not be possible to sell the shares of Dan in EQ1, in full or
in part, the following provisions shall apply:
4.2.1 Gazit shall provide written notification, immediately
upon finding out, if it is interested in purchasing
the balance of the shares of Dan in EQ1.
4.2.2 Should Gazit give notification that it is not
interested in purchasing the balance of the shares of
Dan in EQ1, this shall be considered a terminating
condition, and the provisions of Section 11.4, below,
shall apply.
4.2.3 Should Gazit give notification that it is interested
in purchasing, either itself or through any party on
its behalf, all of the balance of the shares of Dan
in EQ1 for the price of the issue to the public,
minus the underwriting and the distribution
commissions, the issue to the public shall be
executed, and Gazit shall purchase all the entire
balance of the shares of Dan in EQ1, at the issue
price, minus the underwriting and the distribution
commissions.
<PAGE>
Should Gazit purchase the balance of the shares of
Dan in EQ1, as stated above, Gazit shall pay the full
consideration to Dan, within sixty days of the date
of the execution of the issue. The payment shall be
made against the transfer of the balance of the
shares of Dan to EQ1 into the name of Gazit or into
the name of any party which Gazit shall instruct.
5. THE SALE OF GLOBE REIT SHARES
Once the issue to the public has been executed, the Danbar group hereby
undertakes to sell to Gazit, and Gazit undertakes to purchase, either on its own
or by means of any party on its behalf, the shares of Globe Reit, in the
condition which is described in Section 3.3, above, as follows:
5.1 The Danbar group shall sell and Gazit shall purchase 1,000,000
(one million) of the shares of Globe Reit, at a price of 12
(twelve) New Israeli Shekels for each share, totaling
12,000,000 (twelve million) New Israeli Shekels. Gazit shall
pay the consideration delineated above within seven days from
the date of the execution of the issue, against the transfer
of shares into the ownership of Gazit or into the ownership of
such party as Gazit shall instruct.
5.2 2,707,135 of the additional shares of Globe Reit that are held
by the Danbar Group shall be sold to Gazit or to any party on
its behalf, and Gazit or any party on its behalf shall
purchase, all pursuant to one of the following alternatives or
a combination of the two alternatives, all pursuant to the
selection of Gazit, as long as Gazit or anyone on its behalf
purchases all of the additional shares:
5.2.1 Gazit shall purchase the additional shares or part
thereof, according to the price of 12.5 New Israeli
Shekel per share. This amount shall bear annual
dollar interest at a rate of three percent per year,
from the date of the execution of the issue to the
public, until seven months have passed from the date
of the execution of the issue to the public or until
the date of the execution of the actual payment,
whichever of the dates fall earlier.
Or
5.2.2 Gazit shall see to it that against the receipt of
every 4.47 shares of Globe Reit shares, out of the
additional shares or part thereof, one share of EQ1
and 0.16 C Series options of EQ1 shall be transferred
to the Danbar group. These shall be clear of any
debt, pledge, lien or third party rights, whatsoever.
In addition, $0.90 and 5.45 New Israeli Shekels shall
be paid to the Danbar group. Should the approval of
the Bank of Israel be necessary, and this is not
received pending the determining date or pending the
date of the execution of the provisions of subsection
5.2.2 herein, whichever of the dates falls earlier,
the shares and the options that are due to the Danbar
group pursuant to the rate of exchange shall be
<PAGE>
deposited with a trustee, the identity of whom shall
be determined by the Danbar group. The balance of the
consideration which is due to the Danbar group
pursuant to the rate of exchange shall be paid to
Danbar, in accordance with the provisions of this
agreement. The deposit of the shares and the options,
as stated, and the execution of the payment of the
balance of the consideration, pursuant to the rate of
exchange, shall be executed against the transfer of
the additional shares which are due Gazit, pursuant
to the provisions of this section, into the name or
into the possession of Gazit or into the name or into
the possession of such party that Gazit shall
instruct, with these in the condition which is
described in Section 3.3, above.
The shares of EQ1 and the shares that shall be the
product of the realization of the options which are
outlined in this section, which are to be transferred
to Danbar, shall be negotiable and available for
sale, without any limitation, this is at the end of
twelve months from the date of the execution of the
issue to the public. Should the Danbar group request
to receive the shares when they are negotiable and
available for sale, as stated, prior to the end of
twelve months from the date of the execution of the
issue to the public, then it will have to bear the
differences in the expenses that shall ensue, due to
the expedition of the date, as stated, all pursuant
to the approval of the attorneys of EQ1, who shall
perform this procedure.
Should bonus shares or any other benefits be
distributed, with the exception of a cash dividend,
for Globe Reit shares and/or EQ1, pending the date of
the execution of the actual exchange, an adjustment
to the rate of the exchange shall be made,
accordingly.
In spite of what is stated, above, if the exchange
pursuant to subsection 5.2.2, herein, is executed
after more than six months have passed from the date
of the execution of the issue to the public, then the
rate of exchange shall be adjusted, as follows: all
of the amounts of the dividends that are to be
distributed for EQ1 shares that are to be transferred
to the Danbar group, pursuant to the provision of
subsection 5.2.2., herein, for the period from the
end of six months from the date of the execution of
the issue to the public and until the date of the
execution of the actual exchange (hereinafter: "the
determining period") shall be added to the rate of
exchange. In the event that the dividends are
distributed for a period which does not overlap the
determining period (hereinafter: "the entire
period"), then the amounts of the dividends that are
due pursuant to what is stated above, shall be
computed as the relative portion of the dividends
that were distributed for the entire period, for the
total months that are included in the entire period.
In order to eliminate any doubts, if on the date of
the execution of the actual exchange, the amounts of
the dividends for the
<PAGE>
determining period, in full or in part, this shall
not prevent or postpone the execution of exchange,
pursuant to what is stated above, and on the date of
the execution of the actual exchange, Gazit shall pay
the amounts that were actually distributed prior to
the execution of the exchange and shall complete, to
the extent that this shall be necessary, all of the
amounts of the dividends, should they exist, which
shall be actually distributed by EQ1, subsequent to
the execution of the actual exchange, for the
remainder of the determining period.
If, pending the date of the execution of the actual
exchange, Globe Reit causes the distribution of EQ1
shares to its shareholders in the form of a split or
by any other means, then the rate of exchange shall
be adjusted, in consideration of the execution of the
act of the distribution of EQ1 shares, as stated, in
a manner in which, ultimately, the Danbar group shall
receive, whether directly from Gazit and/or any party
on its behalf, or by means of the act of the
distribution of EQ1 shares, one share of EQ1 and 0.16
options of EQ1, plus $0.90 and 5.45 New Israeli
Shekels, for each 4.47 shares of Globe Reit, out of
the additional shares, or part thereof.
5.3 Gazit shall inform the Danbar group in writing, within six
months from the date of the execution of the issue, which of
the above alternatives it has selected, or whether it has
chosen to combine the two alternatives, and how many shares it
wishes to purchase, pursuant to the alternative in Section
5.2.1, above (hereinafter: "the date of notification").
5.4 Gazit hereby undertakes to pay the consideration for the
additional shares that shall be purchased pursuant to the
alternative in Section 5.2.2, above, up until and no later
than the determining date. The payment of the consideration
shall be made against the transfer of the additional shares
into the ownership of Gazit or whatever party that Gazit shall
instruct, with the shares in the condition which is described
in Section 3.3., above.
5.5 Gazit hereby undertakes to pay the consideration for the
additional shares that shall be purchased pursuant to the
alternative in Section 5.2.1, above, within seven months from
the date of the execution of the issue to the public, or by
the date which is mentioned later in subsection 5.5, herein,
all against the transfer of the additional shares, with the
shares in the condition which is described in Section 3.3,
above, into the ownership of Gazit or the ownership of
whatever party that Gazit shall instruct.
In spite of what is stated above, should Gazit decide with
regard to the additional shares, in full or in part, to select
that alternative that is listed in Section 5.2.1., above, it
shall be entitled to postpone the date of the execution of the
payment for those shares out of the additional shares that it
wishes to purchase, pursuant to the provisions of Section
5.2.1, above, for a period of up to and including six
<PAGE>
additional months from the end of seven months from the date
of the execution of the issue to the public, as long as it has
given notification of this in writing to the Danbar group on
the date of notification. Should Gazit give notification, as
stated, the price of the additional shares shall bear dollar
interest at a rate of nine percent per year, from the end of
seven months from the date of the execution of the issue,
until the date of actual full payment.
5.6 Within fourteen days from the date of the signature of the
agreement, the Danbar group shall deposit the Globe Reit
shares with Attorney Dr. Yosef Segev and/or Yuri Nehoshtan
(hereinafter: "Segev") as a trustee for the parties, with
irrevocable instructions to take action in their regard, as
stated in the document of instructions that is attached to
this agreement as an integral part thereof, and which is
MARKED "B". Shortly subsequent to the deposit of the shares,
as stated, with the irrevocable instructions, Segev shall
confirm to Gazit that the Globe Reit shares have been
deposited in its trust, with the irrevocable instructions that
constitute Appendix B, and that it will take action in
accordance with these irrevocable instructions. It shall
attach to this confirmation a signed copy of the document of
irrevocable instructions.
Shortly prior to the date of the execution of the "pricing",
Gazit shall deposit with Attorney Amnon Evron and/or Dorit
Raviv Barson (hereinafter: "Evron - Raviv - Barson") as a
trustee for the parties, the full consideration that is
required by the provisions of Section 5.1, above, as well as
guarantees to secure the consideration that is outlined in
Section 5.2, above, with an irrevocable instruction to handle
these funds pursuant to the document of instructions that is
attached to this agreement as an integral part thereof, and
which is MARKED "C". Shortly following the deposit of the
consideration and the guarantees that are mentioned above,
with the irrevocable instructions, Evron - Raviv - Barson
shall confirm to the Danbar group that the consideration and
the guarantees have been deposited with them in trust, with
the irrevocable instructions that constitute Appendix C, and
that they will take action in accordance with these
irrevocable instructions. A signed copy of the document of
irrevocable instructions shall be attached to this
confirmation. Notification, as stated, shall be delivered
prior to the commencement of the pricing procedure, and the
pricing procedure shall not begin, prior to the delivery of
notification, as stated.
It is explicitly agreed that the deposit of guarantees that
are valued at one million dollars constitutes a sufficient
guarantee, pursuant to the provision of this section, with
regard to Section 5.2, above, and that the deposit of stock
certificates that pertain to 100,000 shares of EQ1 or the
deposit of bonds (Series D) of Gazit Inc., with a nominal
value of one million and one hundred thousand dollars
constitute, each one separately, guarantees worth at least one
million dollars.
<PAGE>
The deposit of the shares, the consideration and the
guarantees shall be for the duration of time of up to the full
execution of Sections 5.1 or 5.2, above, all as shall be
relevant, or pending the termination of the agreement,
pursuant to the provisions of Section 11, below, or until the
date when Gazit shall give notification in writing to Segev
and Evron - Raviv -Barson that, within the framework of the
pricing procedure, it was not possible to arrive at an issue
to the public of the EQ1 shares at a price of at least twelve
dollars per share and/or that it was not possible to sell all
of the EQ1 shares within the framework of the issue to the
public, and that it is not interested in purchasing the
balance of the shares of Dan in EQ1, whichever of the three
falls earliest.
5.7 The Danbar group hereby instructs Gazit to pay and to transfer
to Segev the consideration to which it is due for the Globe
Reit shares, pursuant to the alternative in Section 5.2.1, and
to transfer to Segev the consideration, the shares and the
option warrants of EQ1, pursuant to the alternative in Section
5.2.2, above, pursuant to the document of irrevocable
instructions that constitute Appendix B.
Gazit hereby instructs the Danbar group to transfer to Evron -
Raviv - Barson the Globe Reit shares that are due to Gazit
pursuant to the provision of Section 5.2.1 and/or 5.2.2,
above, pursuant to the document of irrevocable instructions
that constitute Appendix C.
6. SPIN OFF
Prior to the issue to the public, Spin off shall be performed, and the
following provisions shall apply:
6.1 Should there be an issue to the public, Dan undertakes to sell
all of the shares of Dan in the new corporation that shall be
established within the framework of the execution of the spin
off move, and the Danbar group undertakes to cause them to be
sold, and Gazit undertakes to purchase or to cause them to be
purchased. Such shares shall amount to 1,369,602 shares, which
shall be clear of any debt, pledge, lien or third party
rights, whatsoever, in exchange for a payment of $0.90 per
shares. The payment shall be executed against the transfer of
the above mentioned shares into the name of Gazit or any party
on its behalf, within fourteen days from the end of the date
of the execution of the issue to the public.
6.2 Dan undertakes and the Danbar group undertakes to see to it
that, proximate to the date of the execution of the issue to
the pubic, bills for the transfer of the shares and the stock
certificates that are mentioned in this section (hereinafter:
"the documents") shall be deposited with Attorney Martin
Novack of the New York law firm named Lynch, Rowin, Novack,
Burnbaum & Crystal, as a trustee for the parties, with
irrevocable instructions to handle them pursuant to the
document of instructions that is attached to this agreement as
an integral part thereof, and which is MARKED "D". On the same
date, Gazit shall deposit the full consideration
<PAGE>
which is due in accordance with this section with Attorney
Alan Marcus, as a trustee for the parties, with irrevocable
instructions to handle the funds in accordance with the
document of instructions that is attached to this agreement as
an integral part thereof, and which is MARKED "E".
The deposit of the shares and the consideration, pursuant to
this section, shall be done by the time of the full execution
of what is stated in this section, or by the time of the
termination of this contract, pursuant to the provisions of
Section 11 or 4.2.2, above, or by the date that Gazit shall
provide written notification of to Segev and Evron - Raviv -
Barson, that within the framework of the pricing agreement, it
was not possible to arrive at an issue to the public of the
shares of EQ1 of at least twelve dollars per share, according
to the earlier among the dates. Should what is stated in
Section 6, herein, not be fully executed, and any of the
events mentioned above take place, in addition, the documents
shall be returned to Dan and the money, including interest,
shall be returned to Gazit.
7. RESIGNATION FROM THE BOARD OF DIRECTORS; TERMINATION OF ENGAGEMENTS
7.1 Immediately upon completion of the pricing procedure, the
Board of Directors that was appointed by the Danbar group,
from the Board of Directors of Globe Reit and from the Board
of Directors of EQ1, shall resign. In addition, all of the
persons serving in any position on behalf of the Danbar group
shall resign from all of their other positions in these
companies.
At the time of the signature of this agreement, Messrs. Eli
Makabi and David Volkan shall sign the documents of
resignation from the Board of Directors of EQ1, and Messrs.
Volkan, Eli Makabi and Esther Makabi shall sign the documents
of resignation from the Board of Directors of Globe Reit.
These documents shall be deposited in trust with Segev, with
irrevocable instructions to transfer them to Gazit,
immediately subsequent to the execution of the pricing
procedure, all pursuant to the text of the document of
irrevocable instructions that is attached to this agreement as
an integral part thereof, and which is MARKED "B". Segev shall
provide Gazit with confirmation in writing with regard to the
deposit of the documents, as stated, with the irrevocable
instructions, and shall confirm that it will act in accordance
with the irrevocable instructions.
7.2 In spite of what is stated above, the members of the Board of
Directors who were appointed on behalf of the Danbar group in
Globe Reit and EQ1 may resign and appoint new member/s of the
Board of Directors, in the place of those members of the Board
of Directors who are resigning. All of this shall be subject
to the deposit with Segev of documents of resignation, as
well, with irrevocable instructions, as stated above, by the
members of the Board of Directors who shall be appointed, as
stated. This shall be done at the same time as their
appointment as members of the Board of Directors. The parties
shall take all of the requisite steps for the purpose of the
appointment of these director/s.
<PAGE>
7.3 All of the agreements that have been signed between Globe Reit
or EQ1 and the members of the Board of Directors or the
persons holding positions on behalf of the Danbar group and
Dan, including the consulting agreements that have been signed
with Messrs. Makabi and Volkan, shall be terminated on the
date of the resignation of these members of the Board of
Directors from the Board of Directors of EQ1, as stated,
without this granting any of the parties to these agreements
any right of claim. Globe Reit or EQ1, as shall be relevant,
shall pay only those payments that are due pursuant to these
agreements for a period of up to the date of the termination
of the agreements, as stated. In order to eliminate doubt, any
commitment for indemnification that was made by Globe Reit or
EQ1 or any company in their control, to the extent that such
commitments were made, to any party on behalf of the Danbar
group and Dan or members of the Board of Directors or persons
holding positions who were appointed on their behalf
(including David Volkan, Eli Makabi and Esther Makabi, to the
extent that they were given a commitment for indemnification),
shall remain in effect and shall not be canceled, in spite of
what is stated in this section.
The provisions of this section shall be considered an
obligation to the benefit of a third party, in other words, to
the benefit of Globe Reit and EQ1, and this is subject to the
execution of the issue to the public.
8. INTEREST AND LINKAGE DIFFERENTIALS
8.1 The amounts that are mentioned in this agreement in dollars
shall be computed in accordance with the representative rate
of exchange of the US. Dollar on the date of the execution of
payment, while the amounts that are stated in New Israeli
Shekels shall be linked to the representative rate of the U.S.
dollar, while the basic rate is the rate that was known on
February 18, 1998 - in other words: 1 U.S. dollar - 3.602 New
Israeli Shekels.
8.2 Any amount that a party must pay the other, pursuant to the
provisions of this agreement, which is not paid on time and in
full, shall bear interest for arrears at the rate of twelve
percent per year, in addition to the above rate differentials.
For the purpose of this section, payment on time also means
payment on a date that has been postponed, pursuant to the
provisions of this agreement.
Nothing that is stated in this subsection shall detract from
any other right or remedy that is available to the party that
is upholding the agreement against the party that is violating
it.
9. EXECUTION OF THE ISSUE TO THE PUBLIC
The parties hereby undertake as follows:
<PAGE>
9.1 To act to the best of their ability in order to cause a
situation in which the issue to the public of EQ1, within the
framework of which the shares of Dan in EQ1 will be sold,
shall be executed as soon as possible and, for this purpose,
to do whatever is necessary and without detracting from the
generality of what is stated above, to make all of the
necessary decisions in any forum, to sign all of the documents
and to deposit all of the requisite documents, and to perform
all of the actions that are necessary for the purpose of the
execution of what is stated, above.
9.2 Without detracting from the generality of what is stated
above, it is hereby agreed between the parties as follows:
9.2.1 The parties hereby agree that a change to the bylaws
of EQ1, which are attached to this agreement as
APPENDIX E, shall be confirmed shortly following the
signature of this agreement, by the Board of
Directors and within the framework of the general
meeting of EQ1.
9.2.2 To make all of the decisions that are necessary for
the purpose of the change of the bylaws of EQ1,
pursuant to the text of the resolutions that are
outlined in the document that is dated December 31,
1997, which is attached to this agreement as APPENDIX
A, and the change of the memorandum of EQ1 which is
required by the change in the bylaws, and any
additional resolutions, as they may be necessary from
time to time, for the purpose of the execution of the
issue to the public and the sale of the shares of Dan
within the framework of the issue to the public, in
an optimal manner, all within any forum, whatsoever,
including within the framework of a general meeting.
Such resolutions shall be made shortly subsequent to
the signature of this agreement, however they shall
go into effect upon the execution of the pricing.
9.2.3 To make any additional decisions as shall be required
on a periodic basis, for the purpose of the execution
of the issue to the public and the sale of Dan
shares, within the framework of the issue to the
public and the execution of this agreement, including
the signature of any additional documents that shall
be necessary, such as lock-up agreements,
underwriting agreements, questionnaires, signature of
the prospectus of EQ1, etc..
9.2.4 Without detracting from what is stated in this
agreement, the Danbar group and Dan undertake to act
in accordance with the guidelines of the chief
underwriter of the issue to the public and of the
attorneys for the issue to the public, with regard to
the sale of their shares, within the framework of the
issue to the public, to produce any document,
including stock certificates, which refer to all of
the shares of Dan in EQ1 and the bills of transfer of
shares with regard to these shares, and to take any
action that shall be necessary, including the
signature of all of the
<PAGE>
documents that shall be necessary, including custody
agreements, by whatever party that the underwriter
shall instruct, underwriting agreements, bills for
the transfer of shares, questionnaires, etc., and to
take any additional actions that shall be necessary,
on the date that shall be required by the underwriter
for the issue, for the purpose of realizing the
option warrants that are in the possession of Dan,
including payment for the price of the realization,
on the date that shall be determined by the
underwriter for the issue, and under the condition
that this shall not take place prior to the
completion of the pricing process.
9.2.5 Any document that Dan and/or the Danbar group shall
be asked to do [Translator's note: as written] or to
sign shall be produced to it, to the extent that this
is possible, five business days prior to the date
when the signature or the action is required.
Gazit, Dan and the Danbar group undertake to do
whatever they are asked to do, so that no delays will
be caused to the execution of the issue to the public
or to any other move that is related to this issue.
For this purpose, Dan and the Danbar group further
undertake that they will give approval to the
underwriter, to whatever extent this shall be
required, on the date of the execution of the
pricing, with regard to their consent to the price of
the issue to the public, as shall be agreed upon by
EQ1, under the condition that this shall be no less
than twelve dollars per share.
10. CANCELLATION OF PRIOR AGREEMENTS, MUTUAL WAIVER
10.1 It is hereby agreed that the agreements dated November 28,
1993 and the shareholders agreement dated May 21, 1996, which
were signed between the parties, shall be rendered void. In
addition, with regard to the investment contract, dated May
21, 1996, the Danbar group and Dan waive all of their rights
pursuant to this agreement vis-a-vis Globe Reit, EQ1 and
Gazit, and Gazit takes upon itself all of the obligations of
the Danbar group and Dan vis-a-vis Globe Reit and EQ1,
pursuant to this agreement. This is subject to the execution
of the issue to the public and the deposit of the guarantees,
pursuant to this agreement.
The provisions of this section shall be considered to be an
obligation to the benefit of a third party.
This section shall go into effect on the date of the execution
of the issue to the public and the deposit of the
consideration and the guarantees, pursuant to this agreement.
10.2 The parties undertake to see to it that within three days from
the date when this
<PAGE>
agreement goes into effect, all of the legal proceedings that
have been instituted by them against the parties to this
agreement or any one of them shall be terminated, and that the
legal proceedings that have been instituted against Haim
Katzman, EQ1, Gazit Holding, Eli Makabi and David Volkan shall
be terminated, as well, without any order with regard to
costs.
10.3 Subject to the execution of the issue to the public and all of
the other provisions to this agreement, in full, the parties
declare to one another that they do not and shall not have any
claims, demands or complaints of any type or sort toward one
another, or toward any of the members of the Board of
Directors or persons holding positions or consultants and/or
service providers of any of the above mentioned entities. In
addition, all of the elements that are listed above have or
shall have any claim and/or demand and/or complaint vis-a-vis
Globe Reit and/or EQ1, all as is relevant, their shareholders
or their officers or their consultants and/or service
providers, subject to the fact that Globe Reit and/or EQ1, as
relevant, also does not and shall not have any claims or
demands or complaints toward the Danbar group, Dan, their
officers and their shareholders.
Messrs. Haim Katzman, Dori Segel, Eli Makabi and David Volkan,
by their signatures in the margins of this agreement, hereby
declare that what is stated in this section applies and refers
to them, as well, and is, in addition, subject to the
execution of the issue to the public and all of the other
provisions of this agreement, in their entirety. They, as
well, do not have and shall not have any mutual claims or
demands or complaints of any type or sort whatsoever,
vis-a-vis each other or vis-a-vis the other elements that are
mentioned in this section, above, as long as, to the extent
that this refers to Globe Reit and/or EQ1, as is relevant,
what is stated above is subject to the fact that Globe Reit
and/or EQ1, as is relevant, does not have any claims or
demands or complaints against them.
The provisions of this section constitute an obligation to the
benefit of a third party, if and when the issue to the public
is executed.
11. TERMINATING CONDITION
11.1 If the issue to the public of the EQ1 shares is not executed
by August 15, 1998, this shall be considered a terminating
condition, and the provisions of Section 11.4, below, shall
apply.
11.2 If, subsequent to the signature of this agreement, written
notification is given by the chief underwriter of the issue of
EQ1 (the lead manager), that the range of prices of the issue
of the shares of EQ1 shall be lower than what is stated in
APPENDIX A of this agreement (hereinafter: "the notification
of the underwriter"), this shall be a terminating condition,
and the provisions of Section 11.4, below, shall apply.
<PAGE>
The side to this agreement that received the notification of
the chief underwriter, as stated, undertakes to produce it to
the other side, immediately subsequent to its receipt.
11.3 In spite of what is stated above, it is explicitly agreed
that, should written notification be given by Gazit to the
Danbar group and to Dan (with copies to Segev and Evron -
Raviv -Barson), that it is not interested in purchasing the
balance of the shares of Dan in EQ1, all as stated in Section
4.2, above, this shall be considered a terminating condition,
and the provisions of Section 11.4 shall apply.
The termination of this agreement, pursuant to the provisions of
Section 11.1, Section 11.2 and Section 11.3, shall not grant any of the
parties any remedy, whatsoever.
11.4 In any event in which this agreement is terminated, for any
reason whatsoever, then on the date of termination the
obligations of the parties, pursuant to this agreement, shall
become null and void, and the parties shall return to the
state in which they were prior to the signature of this
agreement, and all of the actions and decisions shall be
canceled (including, inter alia, the changes in bylaws of EQ1)
and all of the actions of any type or sort whatsoever, with
the exception of acts of ongoing management, during the
regular course of business, both in EQ1 and Globe Reit and all
of their subsidiaries, and the rights and claims of the
parties of any type or sort whatsoever, shall remain as they
were prior to the signature of this agreement.
What is stated above does not refer to payments that were made
or that must be made for the issue to the public to service
providers that constitute third parties.
To eliminate doubt, in this case, none of the provisions of
Section 10.3, above, shall apply, and all of the members of
the Board of Directors and the officers, as they were prior to
the signature of this agreement shall return to the positions
that they held prior to the signature of the agreement.
12. THE PERIOD UP TO THE ISSUE TO THE PUBLIC
It is explicitly declared that the parties shall act to the best of
their ability, so that by a date that is proximate to the issue to the
public, EQ1 shall continue in the policy of the distribution of the
dividends, as it existed prior to the signature of this agreement; in
other words, at a rate of 25 cents per share for each complete quarter.
The parties shall act to the best of their ability to cause a situation
whereby EQ1 shall distribute a dividend prior to the issue to the
public, with regard to the period that preceded the date of the issue
to the public, even if this does not refer to a complete quarter.
13. PURCHASE OF SHARES FROM SHAREHOLDERS
<PAGE>
13.1 Gazit hereby undertakes to purchase or to cause the purchase
of all of the holdings of Messrs. Eli Makabi, David Volkan,
Menachem Weinberg and Michael Blumenthal (hereinafter: "the
shareholders") in Globe Reit; in other words, 712,027 shares,
in a state in which they are clear of any lien, pledge, debt,
or third party right, whatsoever, all subject to the execution
of the issue to the public and execution of all of the other
obligations of the Danbar group and Dan, pursuant to this
agreement.
13.2 Gazit hereby undertakes to pay the shareholders the sum of
10.5 (ten and a half) New Israeli Shekels for each share. The
payment shall be made at the same time as the execution of the
payment, pursuant to Section 5.1, above, against the transfer
of the shares into the name of or to Gazit, or to the order of
Gazit.
The transaction of the sale of the shares of the shareholders shall be
subject to the receipt of the approval of the general meeting of Danbar
Resources and Development Ltd. , up to the end of 45 days from the date
of the signature of this agreement. The Danbar group shall notify Gazit
in writing, within seven days from the date when the resolution of the
general meeting is passed, as stated, if the said sales transaction is
approved. If the said approval is not received, as stated, for the
execution of the sale of the shares that is outlined in this section,
by the date that is mentioned, above, the provisions of this section
shall become null and void, but this shall not prejudice the validity
of all of the other sections of this agreement, and the shareholders
and the parties to the agreement shall not have any complaint or claim
toward each other in this regard. The shareholders shall confirm, by
their signatures, their consent to everything that is stated in this
section.
The provisions of Section 5.6, above, with regard to the deposit of the
shares and the deposit of the consideration for them, shall also apply
to this section, all as outlined in the documents of irrevocable
instructions that constitute APPENDIX G and APPENDIX H, which are
attached to this agreement as an integral part thereof, subject to the
fact that the deposit of the shares shall be executed within seven days
after the passing of the resolution of the general meeting of Danbar
Resources, as stated below.
14. Each party shall be responsible for the taxes which apply to it, should
they apply, as well as for its attorney's fees.
15. It is agreed that the competent Courts in Tel Aviv and in New York,
only, shall have the exclusive, concurrent jurisdiction to hear any
matter that is related to this agreement, its interpretation and its
execution, while the law of the state of the forum, in other words,
Israeli law or the law of New York, all as is relevant, shall apply to
this agreement.
The parties undertake not to oppose the place of jurisdiction that the
plaintiff selects, as long as it is Tel Aviv or New York.
16. The validity of this agreement is contingent upon the receipt of the
approval of the Board of Directors of Gazit, the Board of Directors of
Danbar and the Board of Directors of Dan
<PAGE>
to this agreement, up to and no later than seven days from the date of
the signature of this agreement.
17. The addresses of the parties shall be as noted in the heading to this
agreement.
18. All notifications pursuant to this agreement, which are intended for
Gazit, shall be delivered to Evron - Raviv - Barson, and all of the
notifications that are intended for the Danbar group and Dan shall be
delivered to Segev.
<PAGE>
AND IN WITNESS WHEREOF, THE PARTIES HAVE AFFIXED THEIR SIGNATURES:
_____________________
Danbar Resources and Development Ltd.
_____________________
Dan Overseas Ltd.
_____________________
Mashabim Holdings (Magen 1993) Ltd.
/s/ GAZIT INC.
- ---------------------
Gazit Inc.
We, the undersigned, Eli Makabi and David Volkan, agree to the provisions of
Sections 7, 10.3 and 13, above, and I, the undersigned, Esther Makabi, agree to
the provisions of Section 7, above.
_____________________
Eli Makabi
_____________________
David Volkan
_____________________
Esther Makabi
We, the undersigned, Haim Katzman and Dori Segel, agree to the provision of
Section 10.3, above.
/S/ HAIM KATZMAN
- ---------------------
Haim Katzman
_____________________
Dori Segal
We, the undersigned, Menachem Weinberg and Michael Blumenthal, agree to the
provisions of Section 13, above.
_____________________
Menachem Weinberg
<PAGE>
_____________________
Michael Blumenthal
EXHIBIT 10.27
Record and return to:
Principal Mutual Life Insurance Company
711 High Street
Des Moines, IA 50392
ATTN: Patrice Davis
MORTGAGE AND SECURITY AGREEMENT
D-751848
THIS MORTGAGE AND SECURITY AGREEMENT made as of February 27, 1998, by and
between EQUITY ONE (COMMONWEALTH) INC., a Florida corporation, having a
principal place of business and post office address at c/o Global Realty &
Management, Inc., 777 17th Street, Penthouse, Miami Beach, Florida 33139, herein
called Mortgagor, and PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, an Iowa
corporation, having its principal place of business and post office address at
711 High Street, Des Moines, Iowa 50392, herein called Mortgagee,
WITNESSETH:
THAT Mortgagor is justly indebted to Mortgagee for money borrowed in the
principal sum of Three Million Three Hundred Thousand and 00/100 Dollars
($3,300,000.00) evidenced by Mortgagor's promissory note (herein called the
Note) of even date herewith, made payable and delivered to Mortgagee, in which
Note Mortgagor promises to pay to Mortgagee the said principal sum or so much
thereof as may be advanced from time to time by Mortgagee, together with
interest at the rate, at the times, and in installments as in the Note provided,
until the entire principal and accrued interest have been paid, but in any
event, the unpaid balance (if any) remaining due on the Note shall be due and
payable on February 15, 2018 ("Maturity Date").
NOW, THEREFORE, to secure the payment of the said indebtedness in
accordance with the terms and conditions hereof and of the Note, and all
extensions, modifications and renewals thereof and the performance of the
covenants and agreements contained herein, and also to secure the payment of any
and all other indebtedness, direct or contingent, that may now or hereafter
become owing from Mortgagor to Mortgagee, and in consideration of Ten Dollars in
hand paid, receipt of which is hereby acknowledged, Mortgagor does by these
presents grant, bargain, sell, alien, convey, confirm, remise and release unto
Mortgagee, its successors and assigns forever, that certain real estate and all
of Mortgagor's estate, right, title and interest therein, located in the County
of Duval, State of Florida, more particularly described in Exhibit A attached
hereto and made a part hereof, which real estate, together with the following
described property, rights and interests, is collectively referred to herein as
the "Premises."
Together with Mortgagor's interest as lessor in and to all leases of the
said Premises, or any part thereof, heretofore or hereafter made and entered
into by Mortgagor during the life of this Mortgage or any extension or renewal
hereof and all rents, income, issues, proceeds and profits accruing and to
accrue from the Premises (which are pledged primarily and on a parity with the
real estate and not secondarily).
<PAGE>
-2-
Together with all and singular the tenements, hereditaments, easements,
appurtenances, passages, waters, water courses, riparian rights, rights in trade
names, other rights, liberties and privileges thereof or in any way now or
hereafter appertaining, including homestead and any other claim at law or in
equity as well as any after-acquired title, franchise or license and the
reversion and reversions and remainder and remainders thereof.
Together with the right in case of foreclosure hereunder of the encumbered
property for Mortgagee to take and use the name by which the buildings and all
other improvements situated on the Premises are commonly known and the right to
manage and operate the said buildings under any such name and variants thereof.
Together with all right, title and interest of Mortgagor in any and all
buildings and improvements of every kind and description now or hereafter
erected or placed on the said real estate and all materials intended for
construction, reconstruction, alteration and repairs of such buildings and
improvements now or hereafter erected thereon, all of which materials shall be
deemed to be included within the Premises immediately upon the delivery thereof
to the Premises, and all fixtures now or hereafter owned by Mortgagor and
attached to or contained in and used in connection with the Premises including,
but not limited to, all machinery, motors, elevators, fittings, radiators,
awnings, shades, screens, and all plumbing, heating, lighting, ventilating,
refrigerating, incinerating, air-conditioning and sprinkler equipment and
fixtures and appurtenances thereto; and all items of furniture, furnishings,
equipment and personal property owned by Mortgagor used or useful in the
operation of the Premises; and all renewals or replacements thereof or articles
in substitution therefor, whether or not the same are or shall be attached to
said buildings or improvements in any manner; it being mutually agreed, intended
and declared that all the aforesaid property owned by Mortgagor and placed by it
on the real estate or used in connection with the operation or maintenance of
the Premises shall, so far as permitted by law, be deemed to form a part and
parcel of the real estate and for the purpose of this Mortgage to be real estate
and covered by this Mortgage, and as to any of the property aforesaid which does
not so form a part and parcel of the real estate or does not constitute a
"fixture" (as such term is defined in the Uniform Commercial Code) this Mortgage
is hereby deemed to be, as well, a Security Agreement under the Uniform
Commercial Code for the purpose of creating hereby a security interest in such
property which Mortgagor hereby grants to Mortgagee as Secured Party. Mortgagor
agrees to execute any and all documents, including financing statements which
may be required to perfect the security interest granted hereby.
Together with all right, title and interest of Mortgagor, now or hereafter
acquired, in and to any and all strips and gores of land adjacent to and used in
connection with the Premises and all right, title and interest of Mortgagor, now
owned or hereafter acquired, in, to, over and under the ways, streets, sidewalks
and alleys adjoining the Premises.
Together with all funds now or hereafter held by Mortgagee under any escrow
security agreement or under any of the terms hereof, including but not limited
to funds held under the provisions of paragraph 4 hereof.
TO HAVE AND TO HOLD the same unto the Mortgagee, its successors and assigns
forever, for the purposes and uses herein set forth.
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Mortgagor represents that it is the absolute owner in fee simple of the
Premises described in Exhibit A, which Premises are free and clear of any liens
or encumbrances except as set out in Exhibit B attached hereto, and except for
taxes which are not yet due or delinquent. Mortgagor shall forever warrant and
defend the title to the Premises against all claims and demands of all persons
whomsoever and will on demand execute any additional instrument which may be
required to give Mortgagee a valid first lien on all of the Premises, except as
stated in Exhibit B.
Mortgagor further represents that: (i) the Premises is not subject to any
casualty damage; (ii) except as disclosed in that Phase I Environmental Report
conducted by Aerostar Environmental Services, Inc. and dated August 12, 1997
(the "Report"), there is no Hazardous Material (as hereinafter defined) on the
Premises, nor has any Hazardous Material been discharged from the Premises or
penetrated any surface or subsurface rivers or streams crossing or adjoining the
Premises or the aquifer underlying the Premises; and (iii) Mortgagor has
complied and caused the Premises to comply with all Environmental Laws (as
hereinafter defined) relating to the Premises. "Hazardous Material(s)" as used
in this Mortgage means any hazardous or toxic material, substance, pollutant,
contaminant or waste, or similar terms, defined by or regulated as such under
any Environmental Laws, but shall not include (a) supplies for cleaning and
maintenance in commercially reasonable amounts required for use in the ordinary
course of business, provided such items are incidental to the use of the
Premises and are stored and used in compliance with all Environmental Laws, (b)
standard office supplies in commercially reasonable amounts required for use in
the ordinary course of business, provided such items are incidental to the use
of the Premises and are stored and used in compliance with all Environmental
Laws, or (c) retail tenants' inventory generally held for resale in a typical
shopping center, provided such inventory is stored and sold in compliance with
Environmental Laws (items referred to in clauses (a), (b) and (c) hereinafter
sometimes referred to as "Excluded Hazardous Material"). "Environmental Law(s)"
as used in this Mortgage means any federal, state or local law, whether common
law, court or administrative decision, ordinance, regulation, rule, court order
or decree, or administrative order or any administrative policy or guideline
concerning action levels of a governmental authority relating to the
environment, public health, any Hazardous Material or any Environmental Activity
or Condition (as hereinafter defined) on, under or about the Premises, in effect
from time to time, including, but not limited to (u) the Florida Pollutant Spill
Prevention and Control Act, Chapter 376, Florida Statutes; (v) the Florida Air
and Water Pollution Act, Chapter 403, Florida Statutes; (w) the Federal Water
Pollution Control Act, as amended (33U.S.C. ss.1251 etseq.); (x) the
Resource Conservation and Recovery Act, as amended (42U.S.C. ss.6901
etseq.); (y) the Comprehensive Environmental Response, Compensation and
Liability Act, as amended (42U.S.C. ss.9601 etseq.); or (z) the Federal
Clean Air Act, as amended (42U.S.C. ss.7401 etseq.). "Environmental
Activity or Condition" as used in this Mortgage means the presence, use,
generation, manufacture, production, processing, storage, release, threatened
release, discharge, disposal, treatment or transportation of any Hazardous
Material on, onto, in, under, over or from the Premises, or the violation of any
Environmental Law because of the condition of, or activity on, the Premises.
MORTGAGOR COVENANTS AND AGREES AS FOLLOWS:
1. Mortgagor shall
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(a) pay each item of indebtedness secured by this Mortgage when due
according to the terms hereof and of the Note;
(b) pay a late charge equal to four percent (4%) of any payment of
principal, interest or premium which is not paid on or before the due
date thereof to cover the expense involved in handling such late
payment;
(c) pay on or before the due date thereof any indebtedness which may be
secured by a lien or charge on the Premises (except for mechanic's
liens, which are prohibited under paragraph 1(f) hereof), and upon
request of Mortgagee exhibit satisfactory evidence of the discharge
thereof;
(d) complete within a reasonable time the construction of any building now
or at any time in process of construction upon the real estate;
(e) make no material alteration to the Premises without the prior written
consent of Mortgagee, except such as are required by law or ordinance;
(f) remove or demolish no building or other improvement at any time a part
of the Premises, and shall keep the Premises, including the buildings
and improvements, in good condition and repair, without waste, and free
from mechanics' liens or other liens or claims for liens and
encumbrances;
(g) comply, and cause each lessee or other user of the Premises to comply,
with all requirements of law and ordinance, and all rules and
regulations, now or hereafter enacted, by authorities having
jurisdiction of the Premises and the use thereof, all orders and
directions of the National Fire Protection Association or similar body,
and all covenants, conditions and restrictions of record pertaining to
the Premises, including the buildings and improvements, and the use
thereof;
(h) cause or permit no change to be made in the general nature, as of the
date hereof, of the occupancy of the Premises without Mortgagee's prior
written consent;
(i) initiate or acquiesce in no zoning reclassification or material change
in zoning without Mortgagee's prior written consent;
(j) make or permit no use of the Premises that could with the passage of
time result in the creation of any right of use, or any claim of
adverse possession or easement on, to or against any part of the
Premises in favor of any person or the public;
(k) subject to the provisions of paragraph 5(c) hereof, promptly repair,
restore or rebuild any buildings or improvements now or hereafter a
part of the Premises which may become damaged or be destroyed by any
cause whatsoever, so that upon completion of the repair, restoration
and rebuilding of the buildings and improvements there will be no liens
of any nature arising out of
<PAGE>
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the construction and the Premises will be of substantially the same
character and will have a commercial value at least as great as the
commercial value thereof prior to the damage or destruction;
(l) not, directly or indirectly, due to assignment of beneficial interest
under a trust, partnership interest in a partnership, or otherwise,
cause or permit any sale, transfer or conveyance of the Premises or
create, suffer or permit any encumbrance or lien on the Premises other
than the lien hereof, the leases of the Premises assigned to Mortgagee
and other exceptions expressly referred to herein (except for
mechanic's liens, which are prohibited under paragraph 1(f) hereof), it
being understood and agreed that the indebtedness evidenced by the Note
and its terms are personal to Mortgagor and in accepting the same
Mortgagee has relied upon what it perceived as the willingness and
ability of Mortgagor to perform its obligations hereunder, under the
Note, and as lessor under leases of the Premises; Mortgagee may consent
to a sale, transfer, conveyance or encumbrance and expressly waive this
provision in writing to Mortgagor however any such consent and waiver
shall not constitute any consent or waiver of this provision as to any
sale, transfer, conveyance or encumbrance other than that for which the
consent and waiver was expressly granted; Mortgagee's ability to
consent to any sale, transfer, conveyance or encumbrance and waive this
provision implies no standard of reasonableness in determining whether
or not such consent shall be granted and the same may be based upon
what Mortgagee solely deems to be in its best interest; without
limiting Mortgagee's right to withhold its consent and waiver entirely,
such consent and waiver may be conditioned upon an increase in the rate
of interest under the Note and the imposition of other terms and
conditions thereunder or hereunder; any sale, transfer, conveyance or
encumbrance made, created or permitted in violation of this provision
shall be null and void and in addition to the other rights and remedies
available to Mortgagee hereunder, Mortgagee shall have the option of
declaring the unpaid principal balance of the Note, together with all
accrued and unpaid interest, premium, if any and all other sums and
charges evidenced thereby or owing hereunder, immediately due and
payable;
Notwithstanding anything hereinabove to the contrary, Mortgagee does
hereby consent to a one time sale, transfer or conveyance of the
Premises and subsequent assumption of the obligations of Mortgagor
under this Mortgage and the Note secured hereby, subject to Mortgagee's
approval of the proposed purchaser which approval shall be conditioned
upon but not limited to, the proposed purchaser's creditworthiness,
financial strength and real estate management expertise and subject to
the payment of an assumption fee in the amount of one percent (1%) of
the then outstanding principal balance of the Note to Mortgagee.
Mortgagor shall pay to Mortgagee a reasonable fee for the handling of
this transaction not to exceed $2,500.00.
Further notwithstanding the above, Mortgagee does hereby consent to
transfers of the equity interest in Mortgagor through a public offering
of stock, subject to Mortgagee's review and approval of the
documentation in connection with such offering and provided that in no
event shall greater than 75% of the original interest in Mortgagor be
transferred in the aggregate. Mortgagor shall pay to Mortgagee the
following fees in connection with the proposed transfers:
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(i) any transfer(s) that results in a cumulative transfer of up to 40%
of the original stock ownership in Mortgagor shall be subject to a fee
not to exceed $7,500.00; (ii) any transfer(s) that results in a
cumulative transfer of between 40% and 60% of the original stock
ownership in Mortgagor shall be subject to a fee not to exceed
$15,000.00; and (iii) any transfer(s) that results in a cumulative
transfer of between 60% and 75% of the original stock ownership in
Mortgagor shall be subject to a fee not to exceed .75% of the
outstanding indebtedness.
(m) not cause or permit any Hazardous Material to exist on or discharge
from the Premises, and comply and cause the Premises to comply with all
Environmental Laws and promptly: (i) pay any claim against Mortgagor or
the Premises due to an Environmental Activity or Condition, (ii) remove
any charge or lien upon the Premises due to an Environmental Activity
or Condition, and (iii) indemnify, defend and hold Mortgagee harmless
from any and all claims, demands, loss or damage, resulting from any
Environmental Activity or Condition; provided, however, that this
indemnity does not apply to any future Environmental Activity or
Condition resulting solely from any act or omission for which Mortgagor
bears no responsibility and which occurs after Mortgagor or any person
or entity in any way related to Mortgagor no longer holds title to or
has any interest in the Premises;
(n) not cause or permit any Hazardous Material to exist on or discharge
from any property owned or used by Mortgagor which would result in any
charge or lien upon the Premises;
(o) notify Mortgagee of any Hazardous Material that exists on or is
discharged from the Premises within ten (10) days after Mortgagor first
has knowledge of such existence or discharge;
(p) if other than a natural person, do all things necessary to preserve and
keep in full force and effect its existence, franchises, rights and
privileges under the laws of the state of its formation and, if other
than its state of formation, the state where the Premises is located;
(q) do all things necessary to preserve and keep in full force and effect
Mortgagee's title insurance coverage insuring the lien of this Mortgage
as a first and prior lien, subject only to the exceptions stated in
Exhibit B and any other exceptions after the date of this Mortgage
approved in writing by Mortgagee, including without limitation,
delivering to Mortgagee not less than 30 days prior to the effective
date of any rate adjustment, modification or extension of the Note or
this Mortgage, any new policy or endorsement which may be required to
assure Mortgagee of such continuing coverage;
(r) not directly or indirectly, commit waste;
(s) pay or cause any lessee to pay all utilities on the Premises prior to
becoming delinquent;
(t) not amend, alter, modify or terminate that certain Construction,
Operation and Reciprocal Easement Agreement recorded July 26, 1983 in
Official Records Book 5678, Page 652; as
<PAGE>
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amended or affected by Acknowledgment recorded July 3, 1984 in Official
Records Book 5921, Page 866; Amendment and Supplemental Agreements
recorded July 26, 1983 in Official Records Book 5678, Page 694 and June
26, 1991 in Official Records Book 7130, Page 1963 without Mortgagee's
prior written consent;
(u) provide Mortgagee with the results of annual tests of the ground water
monitoring well located on the Premises (which tests and results shall
be performed and provided by Mortgagee's preapproved consultant at
Mortgagor's expense) beginning March 15, 1999 and annually thereafter
throughout the term of the Note;
(v) upon Mortgagee's request, terminate the lease of any tenant who is
operating a dry cleaning plant on site, in the event that the levels of
contamination from the dry cleaning operations on the Premises increase
(which shall be determined by Mortgagee from the results of the annual
testing of the ground monitoring well);
(w) condition any approval of an assignment and subletting of the lease
between Mortgagor and William N. Thomas d/b/a Jet Dry Cleaners upon the
requirement that dry cleaning operations cease on the Premises occupied
by said tenant and its assigns and/or sublessees; and
(x) provide Mortgagee with a copy of the final, unconditional Certificate
of Occupancy for the expanded Winn-Dixie Stores, Inc. space by no later
then May 1, 1998 (which date may be extended subject to delays in
completion of the expansion due to Winn-Dixie Stores, Inc.'s completion
of its tenant improvements).
2. (a) Mortgagor shall pay or cause to be paid when due and before any
penalty attaches or interest accrues all general taxes, special
taxes, assessments (including assessments for benefits from public
works or improvements whenever begun or completed), water charges,
sewer service charges, CAM charges, if any, vault or space charges
and all other like charges against or affecting the Premises or
against any property or equipment located on the Premises, or
which might become a lien on the Premises, and shall, within 10
days following Mortgagee's request, furnish to Mortgagee a
duplicate receipt of such payment. If any such tax, assessment or
charge may legally be paid in installments, Mortgagor may, at its
option, pay such tax, assessment or charge in installments.
(b) To prevent default hereunder Mortgagor shall pay in full, under
protest in the manner provided by law, any tax, assessment or
charge which Mortgagor may desire to contest; provided, however,
that
(i) if contest of any tax, assessment or charge may be made
without the payment thereof, and
<PAGE>
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(ii) such contest shall have the effect of preventing the
collection of the tax, assessment or charge so contested and
the sale or forfeiture of the Premises or any part thereof or
any interest therein to satisfy the same, then Mortgagor may
at its option and in its discretion and upon the giving of
written notice to Mortgagee of its intended action and upon
the furnishing to Mortgagee of such security or bond as
Mortgagee may require, contest any such tax, assessment or
charge in good faith and in the manner provided by law. All
costs and expenses incidental to such contest shall be paid
by Mortgagor. In the event of a ruling or adjudication
adverse to Mortgagor, Mortgagor shall promptly pay such tax,
assessment or charge. Mortgagor shall indemnify and save
harmless the Mortgagee and the Premises from any loss or
damage arising from such contest and shall, if necessary to
prevent sale, forfeiture or any other loss or damage to the
Premises or to the Mortgagee, pay such tax, assessment or
charge or take whatever action is necessary to prevent any
sale, forfeiture or loss.
3. (a) Mortgagor shall at all times keep in force (i) property insurance
insuring all buildings and improvements which now are or hereafter
become a part of the Premises for perils covered by an all-risk
insurance policy containing both replacement cost and agreed
amount endorsements or options; (ii) commercial general liability
insurance naming Mortgagee as additional insured protecting
Mortgagor and Mortgagee against liability for bodily injury or
property damage occurring in, on or adjacent to the Premises in
commercially reasonable amounts; (iii) boiler and machinery
insurance if the property has a boiler or is an office building;
(iv) rental value insurance for the perils specified herein for
one hundred percent (100%) of the rents (including operating
expenses, real estate taxes, assessments and insurance costs which
are lessee's liability) for a period of twelve (12) months; and
(v) insurance against all other hazards as may be reasonably
required by Mortgagee, including, without limitation, insurance
against loss or damage by flood and earthquake.
(b) All insurance shall be in form, content and amounts approved
by Mortgagee and written by an insurance company or companies
rated A, class size X or better in the most current issue of
Best's Insurance Reports and which is licensed to do business in
the state in which the Premises are located and domiciled in the
United States or a governmental agency or instrumentality approved
by Mortgagee. The policies for such insurance shall have attached
thereto standard mortgagee clauses in favor of and permitting
Mortgagee to collect any and all proceeds payable thereunder and
shall include a 30 day (except for nonpayment of premium, in which
case, a 10 day) notice of cancellation clause in favor of
Mortgagee. All policies or certificates of insurance shall be
delivered to and held by Mortgagee as further security for the
payment of the Note and any other obligations arising under the
Loan Documents, with evidence of renewal coverage delivered to
Mortgagee at least 30 days before the expiration date of any
policy. Not more frequently than once every three years, if
Mortgagee has a reasonable belief that the replacement cost value
is not correct, it shall notify Mortgagor and Mortgagor, at its
expense, will furnish Mortgagee with an appraisal of the full
insurable replacement cost value of the Premises, made
<PAGE>
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by fire insurance appraisers satisfactory to Mortgagee and fire
insurance companies generally. Said appraisals shall coincide with
the appraisals, if any, used to determine Mortgagee's appraised
value of the Premises as required pursuant to the Note secured
hereby, unless required more frequently by the insurer of the
Premises. Mortgagor shall not carry separate insurance, concurrent
in kind or form and contributing in the event of loss, with any
insurance required herein.
4. (a) Mortgagor shall deposit with and pay to Mortgagee, on each payment
date specified in the Note, a sum equivalent to: (1) the taxes and
assessments assessed or levied against and next due on the
Premises divided by the number of payments that will become due
and payable under the Note before the date when such taxes and
assessments will become due and payable, plus upon request of
Mortgagee (2) the premiums that will next become due and payable
for insurance required by this Mortgage to be furnished by
Mortgagor divided by the number of payments that will become due
and payable under the Note before the date when such premiums will
become due and payable. Mortgagee shall use such deposits to pay
the taxes, assessments and premiums when the same become due.
Mortgagee shall not be liable for interest on such deposits.
Mortgagor shall procure and deliver to Mortgagee, in advance,
statements for such charges. If the total payments made by
Mortgagor under this paragraph plus interest, if any, accrued
thereon exceed the amount of payments actually made by Mortgagee
for taxes, assessments and insurance premiums, such excess shall
be credited by Mortgagee on subsequent deposits to be made by
Mortgagor. If, however, the deposits are insufficient to pay the
taxes, assessments and insurance premiums when the same shall be
due and payable, Mortgagor will pay to Mortgagee any amount
necessary to make up the deficiency, five (5) business days before
the date when payment of such taxes, assessments and insurance
premiums shall be due. If at any time Mortgagor shall tender to
Mortgagee, in accordance with the provisions of the Note secured
by this Mortgage, full payment of the entire indebtedness
represented thereby, Mortgagee shall, in computing the amount of
such indebtedness, credit to the account of Mortgagor any balance
remaining in the funds accumulated and held by Mortgagee under the
provisions of this paragraph. If there is an Event of Default
under any of the provisions of this Mortgage resulting in a public
sale of the Premises, or if Mortgagee otherwise acquires the
Premises after an Event of Default, Mortgagee shall apply, at the
time of commencement of such proceedings, or at the time the
Premises is otherwise acquired, the balance then remaining in the
funds accumulated under this paragraph as a credit on the interest
accrued and unpaid and the balance to the principal then remaining
unpaid under the Note. The provisions of this paragraph shall not
affect the enforceability of the covenants relating to taxes,
assessments and insurance premiums provided for in this Mortgage
except to the extent that obligations for the same have been
actually met by compliance with this paragraph.
(b) Any funds held under this paragraph shall not constitute any
deposit or account of the Mortgagor or moneys to which the
Mortgagor is entitled upon demand, or upon the mere passage of
time, or sums to which Mortgagor is entitled to any interest or
crediting of interest by virtue of Mortgagee's mere possession of
such deposits. Mortgagee shall not be required to
<PAGE>
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segregate such deposits or hold such deposits in any separate
account for the benefit of Mortgagor. Mortgagee may hold such
deposits in its general account or any other account and may
commingle such deposits with any other moneys of Mortgagee or
moneys which Mortgagee is holding on behalf of any other person or
entity. Mortgagor hereby consents to the investment of such
deposits by Mortgagee as outlined herein.
5. In the event of any damage to or destruction of the buildings or
improvements which are a part of the Premises:
(a) Mortgagor will immediately notify Mortgagee thereof in the manner
provided in this Mortgage for the giving of notices. Mortgagee may
in its discretion (and it is hereby authorized to) either settle
and adjust any claim under such insurance policies, or allow
Mortgagor to agree with the insurance company or companies on the
amount to be paid upon the loss. In either case, the proceeds
shall be paid to Mortgagee and Mortgagee is authorized to collect
and to give receipts therefor. In the event Mortgagee elects to
either settle or adjust any claim under such insurance policies,
and provided there is no Event of Default or event which with the
passage of time or notice or both would constitute an Event of
Default which has occurred and is continuing, Mortgagor shall have
the right to participate in said settlement or adjustment;
provided, however, that any settlement or adjustment shall be
subject to the written approval of Mortgagee.
(b) Such proceeds, after deducting therefrom any expenses incurred in
the collection thereof, including reasonable attorneys' fees and
costs, shall be applied at the option of Mortgagee either to the
cost of rebuilding and restoring the buildings and improvements or
in reduction of the indebtedness secured hereby whether or not
then due and payable, provided however, that if no Event of
Default has occurred and Mortgagee has not otherwise previously
accelerated the whole or any part of the indebtedness secured
hereby, such reduction shall be without Make Whole Premium. Any
excess proceeds remaining after said indebtedness is fully paid
shall be promptly remitted to Mortgagor.
(c) Regardless of the cause of the damage or destruction or the
availability or sufficiency of insurance proceeds until all
indebtedness secured hereby shall be fully paid, Mortgagor shall
be obligated to repair, restore and rebuild any buildings or
improvements so damaged or destroyed, provided however, that if
any insurance proceeds have been paid to Mortgagee under any
insurance policies maintained by Mortgagor under the provisions of
Paragraph 3 hereof, Mortgagor shall be so obligated only if
Mortgagee elects to apply such proceeds to the cost of rebuilding
and restoration. Repair and restoration of the buildings and
improvements shall be commenced promptly after the occurrence of
the loss and shall be prosecuted to completion diligently, and the
buildings and improvements shall be so restored and rebuilt as to
be of at least equal value and substantially the same character as
prior to such damage and destruction. In the event the estimated
costs of rebuilding and restoration exceed 25% of the indebtedness
<PAGE>
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then remaining unpaid as secured hereby, the drawings and
specifications pertaining to such rebuilding and restoration shall
be subject to the prior written approval of Mortgagee.
Notwithstanding anything to the contrary contained in this
Mortgage, such insurance proceeds shall be held by Mortgagee
without any allowance of interest and shall be made available to
reimburse Mortgagor for the cost of the rebuilding or restoration
of buildings or improvements on the Premises, subject to paragraph
5(d) hereinbelow and the following conditions:
(i) there has been no Event of Default or event which with the
passage of time or notice or both would become an Event of
Default under the Loan Documents;
(ii) the annual net operating income from all approved executed
leases in effect on the Premises with no annual defaults
shall equal or exceed 1.20 times the annual debt service on
the Note with approved leases that have at least 2 years
remaining prior to the expiration of their term;
(iii)Winn-Dixie Stores, Inc. and Mortgagor confirm in writing to
the Mortgagee that (x) the tenant intends to reoccupy the
Premises after the restoration is completed, (y) the lease is
in full force and effect and (z) no defaults have occurred
and are continuing thereunder;
(iv) Mortgagee approves the plans and specifications of such work
before such work is commenced;
(v) Mortgagor provides suitable completion or performance bonds
and builder's all risk insurance;
(vi) no insurer asserts any defense against Mortgagor or a tenant
under a lease covering all or any portion of the Premises
pursuant to any insurance policies covering the improvements
on the Premises;
(vii) there shall be sufficient funds on deposit with Mortgagee at
all times to complete the repair and restoration, as
certified from time to time by an inspecting architect
approved by Mortgagee;
(viii) said rebuilding or restoration shall be, in Mortgagee's
opinion, economically feasible;
(ix) Mortgagor is obligated to rebuild and restore the damaged or
destroyed buildings or improvements under the terms of the
leases approved by Mortgagee in effect on the Premises;
<PAGE>
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(x) Mortgagor pays to Mortgagee a non-refundable processing fee
equal to the greater of $5,000.00 or .5% of the amount of
such proceeds within sixty (60) days of the occurrence of any
such damage or destruction and before Mortgagee disburses any
proceeds;
(xi) the installment payments and any other sums that become due
and all obligations under the Loan Documents shall be fully
recourse obligations to Mortgagor commencing upon Mortgagee's
receipt of said non-refundable processing fee and continuing
until such time as the rebuilding or restoration is completed
in accordance with the provisions contained herein; and
(xii)such other conditions to such disbursements, in Mortgagee's
discretion as would be customarily required by a construction
lender doing business in the area.
If the foregoing conditions are not met, Mortgagee at its option
may require Mortgagor to use any proceeds to either immediately
rebuild any portion or all of the improvements or apply the
insurance proceeds to the reduction of the indebtedness secured
hereby, whether due or not, without the imposition of a premium.
Mortgagor agrees and acknowledges that all such proceeds shall be
deemed to be "Cash Collateral" as that term is defined in Section
363 of the Bankruptcy Code in any bankruptcy proceeding of
Mortgagor.
(d) In the event that Mortgagor is to be reimbursed out of the
insurance proceeds, such proceeds shall be made available from
time to time upon the furnishing to Mortgagee of satisfactory
evidences of the estimated cost of completion thereof and such
architect's certificates, waivers of lien, contractor's sworn
statements, and other evidence of cost and of payment and of the
continued priority of the lien hereof over any potential liens of
mechanics and materialmen as Mortgagee may require and approve. No
payment made by Mortgagee prior to the final completion of the
work shall, together with all payments theretofore made, exceed
90% of the cost of the work performed to the time of payment, and
at all times the undisbursed balance of said proceeds shall be at
least sufficient to pay for the cost of completion of the work
free and clear of liens. Any proceeds remaining after payment of
the cost of rebuilding and restoration shall, at the option of
Mortgagee, either be applied in reduction of the indebtedness
secured hereby, provided, however, that if no Event of Default has
occurred and Mortgagee has not otherwise previously accelerated
the whole or any part of the indebtedness secured hereby, such
reduction shall be without Make Whole Premium, or paid to
Mortgagor.
(e) Should such damage or destruction occur after foreclosure or sale
proceedings have been instituted, the proceeds of any such
insurance policy or policies, if not applied in rebuilding or
restoration of the buildings or improvements, shall be used to pay
the indebtedness, then due and owing in the event of a
non-judicial sale or the amount due in accordance with any decree
of foreclosure or deficiency judgment that may be entered in
connection with such proceedings, and the balance, if any, shall
be paid to the owner of the equity of redemption if he shall then
be entitled to the same, or otherwise as any court having
jurisdiction may direct. Following any
<PAGE>
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foreclosure sale, or other sale of the Premises by Mortgagee
pursuant to the terms hereof, Mortgagee is authorized without the
consent of Mortgagor to assign any and all insurance policies to
the purchaser at the sale and to take such other steps as
Mortgagee may deem advisable to cause the interests of such
purchaser to be protected by any of such insurance policies.
6. Mortgagor hereby assigns, transfers and sets over to Mortgagee the
entire proceeds of any award or claim for damage to any of the Premises
taken or damaged under the power of eminent domain or by condemnation.
In the event of the commencement of any eminent domain or condemnation
proceeding affecting the Premises:
(a) Mortgagor shall notify Mortgagee thereof in the manner provided in
this Mortgage for the giving of notices. Mortgagee may participate
in such proceeding, and Mortgagor shall deliver to Mortgagee all
documents requested by it to permit such participation.
(b) Mortgagee may elect to apply the proceeds of the award upon or in
reduction of the indebtedness secured hereby whether or not then
due and payable, provided however, that if no Event of Default has
occurred and Mortgagee has not otherwise previously accelerated
the whole or any part of the indebtedness secured hereby, such
reduction shall be without Make Whole Premium, or require
Mortgagor to restore or rebuild, in which event the proceeds shall
be held by Mortgagee and used to reimburse Mortgagor for the cost
of restoring and rebuilding all buildings and improvements in
accordance with plans and specifications to be submitted to and
approved by Mortgagee.
Notwithstanding anything to the contrary contained in this
Mortgage, such condemnation proceeds shall be held by Mortgagee
without any allowance of interest and shall be made available to
reimburse Mortgagor for the cost of the rebuilding or restoration
of buildings or improvements on the Premises, subject to paragraph
6(c) hereinbelow and the following conditions:
(i) there has been no Event of Default or event which with the
passage of time or notice or both would become an Event of
Default under the Loan Documents;
(ii) the annual net operating income from all approved executed
leases in effect on the Premises with no annual defaults
shall equal or exceed 1.20 times the annual debt service on
the Note with approved leases that have at least 2 years
remaining prior to the expiration of their term;
(iii) Winn-Dixie Stores, Inc. and Mortgagor confirm in writing to
the Mortgagee that (x) the tenant intends to reoccupy the
Premises after the restoration is completed, (y) the lease is
in full force and effect and (z) no defaults have occurred
and are continuing thereunder;
<PAGE>
-14-
(iv) Mortgagee approves the plans and specifications of such work
before such work is commenced;
(v) Mortgagor provides suitable completion or performance bonds
and builder's all risk insurance;
(vi) there shall be sufficient funds on deposit with Mortgagee at
all times to complete the repair and restoration, as
certified from time to time by an inspecting architect
approved by Mortgagee;
(vii) said rebuilding or restoration shall be, in Mortgagee's
opinion, economically feasible;
(viii) Mortgagor is obligated to rebuild and restore the damaged
or destroyed buildings or improvements under the terms of the
leases approved by Mortgagee in effect on the Premises;
(ix) Mortgagor pays to Mortgagee a non-refundable processing fee
equal to the greater of $5,000.00 or .5% of the amount of
such proceeds within sixty (60) days of the occurrence of any
such damage or destruction and before Mortgagee disburses any
proceeds;
(x) the installment payments and any other sums that become due
and all obligations under the Loan Documents shall be fully
recourse obligations to Mortgagor commencing upon Mortgagee's
receipt of said non-refundable processing fee and continuing
until such time as the rebuilding or restoration is completed
in accordance with the provisions contained herein; and
(xi) such other conditions to such disbursements, in Mortgagee's
discretion as would be customarily required by a construction
lender doing business in the area.
If the foregoing conditions are not met, Mortgagee at its option
may require Mortgagor to use any proceeds to either immediately
rebuild any portion or all of the improvements or apply the
condemnation proceeds to the reduction of the indebtedness secured
hereby, whether due or not, without the imposition of a premium.
Mortgagor agrees and acknowledges that all such proceeds shall be
deemed to be "Cash Collateral" as that term is defined in Section
363 of the Bankruptcy Code in any bankruptcy proceeding of
Mortgagor.
(c) In the event Mortgagee elects to reimburse Mortgagor for the costs
of restoring and rebuilding the Premises, then the proceeds of the
award shall be paid out in the same manner as provided in this
Mortgage for the payment of insurance proceeds in reimbursement of
the costs of rebuilding and restoration. If the amount of such
award is insufficient to cover the cost of restoring and
rebuilding, Mortgagor shall pay such cost in excess of the award
before being entitled to reimbursement out of the award. Any
proceeds remaining after payment of cost of
<PAGE>
-15-
restoring and rebuilding shall, at the option of Mortgagee, either be
applied on account of the indebtedness secured hereby, provided,
however, that if no Event of Default has occurred and Mortgagee has not
otherwise previously accelerated the whole or any part of the
indebtedness secured hereby, such reduction shall be without Make Whole
Premium, or be paid to Mortgagor.
7. If by the laws of the United States of America or of any state or
governmental subdivision having jurisdiction of Mortgagor or of the
Premises or of the transaction evidenced by the Note and this Mortgage,
any tax or fee is due or becomes due in respect of the issuance of the
Note hereby secured or the making, recording and registration of this
Mortgage, except for Mortgagee's income tax, Mortgagor covenants and
agrees to pay such tax or fee in the manner required by such law, and
to hold harmless and indemnify Mortgagee, its successors and assigns,
against any liability incurred by reason of the imposition of any such
tax or fee.
8. In the event of the enactment after the date hereof of any applicable
law deducting from the value of land for the purpose of taxation any
lien thereon, or imposing upon Mortgagee the payment of the whole or
any part of the taxes or assessments or charges or liens herein
required to be paid by Mortgagor, or changing in any way the laws
relating to the taxation of mortgages or debts secured by mortgages or
Mortgagee's interest in the Premises, or the manner of collection of
taxes, so as to affect this Mortgage or the debt secured hereby or the
holder thereof, except for Mortgagee's income tax, then and in any such
event Mortgagor shall, upon demand by Mortgagee, pay such taxes or
assessments or reimburse Mortgagee therefor; provided, however, that,
if in the opinion of counsel for Mortgagee (a) it might be unlawful to
require Mortgagor to make such payment or (b) the making of such
payment might be construed as imposing a rate of interest beyond the
maximum permitted by law, then and in such event Mortgagee may elect to
declare all of the indebtedness secured hereby to be and become due and
payable 60 days from the giving of written notice of such election to
Mortgagor, provided, however, that if no Event of Default has occurred
and Mortgagee has not otherwise previously accelerated the whole or any
part of the indebtedness secured hereby, such payment shall be without
Make Whole Premium.
9. (a) Upon the occurrence of any Event of Default under this Mortgage,
Mortgagee may, but need not, make any payment or perform any act
herein required of Mortgagor, in any form and manner deemed
expedient and may, but need not, make full or partial payments of
principal or interest on prior encumbrances, if any, and purchase,
discharge, compromise or settle any tax lien or other prior lien
or title or claim thereof, or redeem from any tax sale or
forfeiture affecting said Premises, or contest any tax or
assessment. All moneys paid for any of the purposes herein
authorized and all reasonable expenses paid or incurred in
connection therewith, including reasonable attorneys' fees and
costs and reasonable attorneys' fees and costs on appeal, and any
other money advanced by Mortgagee to protect the Premises and the
lien hereof, shall be so much additional indebtedness secured
hereby and shall become immediately due and payable without notice
and with interest thereon at the Default Rate (as hereinafter
defined) from the date of expenditure or advance until paid.
<PAGE>
-16-
(b) In making any payment hereby authorized relating to taxes or
assessments or for the purchase, discharge, compromise or
settlement of any prior lien, Mortgagee may make such payment
according to any bill, statement or estimate secured from the
appropriate public office without inquiry into the accuracy
thereof or into the validity of any tax, assessment, sale,
forfeiture, tax lien or title or claim thereof or without inquiry
as to the validity or amount of any claim for lien which may be
asserted.
10. If one or more of the following events (herein called "Events of
Default") shall have occurred:
(a) default shall be made in the payment of any principal, interest or
premium, utilities, taxes or assessments referred to in this
Mortgage or insurance premiums for the insurance required pursuant
to this Mortgage when due under the Note or this Mortgage, and
such default shall have continued for 10 days; or
(b) Mortgagor or any general partner of Mortgagor shall be dissolved,
or a decree or order for relief shall be entered by a court having
jurisdiction in respect of Mortgagor or any general partner of
Mortgagor in a voluntary or involuntary case under the Federal
Bankruptcy Code as now or hereafter constituted, or Mortgagor or
any general partner of Mortgagor shall file a voluntary petition
in bankruptcy or for reorganization or an arrangement or any
composition, readjustment, liquidation, dissolution or similar
relief pursuant to any similar present or future state or federal
bankruptcy law, or shall be adjudicated a bankrupt or become
insolvent, or shall commit any act of bankruptcy as defined in
such law, or shall take any action in furtherance of any of the
foregoing; or
(c) a petition or answer shall be filed proposing the adjudication of
Mortgagor or any general partner of Mortgagor as a bankrupt or its
reorganization or arrangement, or any composition, readjustment,
liquidation, dissolution or similar relief with respect to it
pursuant to any present or future federal or state bankruptcy or
similar law, and Mortgagor or any general partner of Mortgagor
shall consent to the filing thereof, or such petition or answer
shall not be discharged within 60 days after the filing thereof;
or
(d) by the order of a court of competent jurisdiction, a receiver,
trustee or liquidator of the Premises or any part thereof or of
Mortgagor or any general partner of Mortgagor or of substantially
all of its assets shall be appointed and shall not be discharged
or dismissed within 60 days after such appointment, or if
Mortgagor or any general partner of Mortgagor shall consent to or
acquiesce in such appointment; or
(e) with respect to the matters not described in the other
subparagraphs of this paragraph 10, default shall be made in the
due observance or performance of any covenant, condition or
agreement of the Mortgagor contained in this Mortgage, the Note
and Assignment of Leases and Rents of even date herewith from
Mortgagor to Mortgagee or in any other instrument or
<PAGE>
-17-
agreement by which the Note is secured (the "Loan Documents"), and
such default shall have continued for 30 days after notice
specifying such default is given by Mortgagee to Mortgagor; or
(f) any representation or warranty made by Mortgagor in the Loan
Documents shall prove to be untrue or inaccurate in any material
respect; or
(g) the failure of Mortgagor to give notice to Mortgagee in the manner
provided in this Mortgage for the giving of notices within 30 days
after the death of any natural person who is personally liable for
the payment of the indebtedness secured hereby or any part
thereof, whether such person is the Mortgagor or any indemnitor or
guarantor and whether or not such person has executed the Note or
this Mortgage; or
(h) the death of any natural person who is personally liable for the
payment of the indebtedness secured hereby or any part thereof,
whether such person is the Mortgagor or any indemnitor or
guarantor and whether or not such person has executed the Note or
this Mortgage or the death of any general partner of Mortgagor; or
(i) the failure of the Guarantor, Equity One, Inc. (under that certain
Guaranty of even date herewith) to maintain a minimum net worth of
Ten Million and 00/100 Dollars ($10,000,000.00), as determined by
Mortgagee;
then, in each and every such case, the whole of said principal sum
hereby secured shall, at the option of the Mortgagee and without
further notice to Mortgagor, become immediately due and payable
together with accrued interest thereon and a Make Whole Premium
calculated in accordance with the provisions hereof, and whether or not
Mortgagee has exercised said option, interest shall accrue on the
entire principal balance and any interest or premium then due, at the
Default Rate until fully paid or if Mortgagee has not exercised said
option, for the duration of any Event of Default.
If any default under "(e)" above shall be of such nature that it cannot
be cured or remedied within 30 days, Mortgagor shall be entitled to a
reasonable period of time to cure or remedy such Event of Default,
provided Mortgagor commences the cure or remedy thereof within the 30
day period following the giving of notice and thereafter proceeds with
diligence to complete such cure or remedy.
11. Mortgagor agrees that if Mortgagee accelerates the whole or any part of
the principal sum hereby secured, or applies any proceeds as if such
application had been made as a result of such acceleration, pursuant to
the provisions hereof, Mortgagor waives any right to prepay the
principal sum hereby secured in whole or in part without premium and
agrees to pay, as yield maintenance protection and not as a penalty, a
"Make Whole Premium," except as otherwise provided herein. The Make
Whole Premium shall be the greater of one percent (1%) of the principal
amount to be prepaid or a premium calculated as follows:
<PAGE>
-18-
(a) Determine the "Reinvestment Yield." The Reinvestment Yield will be
equal to the yield on the applicable U.S. Treasury Issue ("primary
issue")* published one week prior to the date of prepayment and
converted to an equivalent monthly compounded nominal yield.
*In the event there is no market activity involving the primary
issue at the time of prepayment, Mortgagee shall choose a
comparable Treasury Bond, Note or Bill ("secondary issue") which
Mortgagee deems to be similar to the primary issue's
characteristics (i.e., rate, remaining time to maturity, yield).
(b) Calculate the "Present Value of the Mortgage." The Present Value
of the Mortgage is the present value of the payments to be made in
accordance with the Note (all installment payments and any
remaining payment due on the Call Date (as defined in the Note),
or if the Call Date has already passed, on the Maturity Date)
discounted at the Reinvestment Yield for the number of months
remaining from the date of prepayment to the Call Date, or if the
Call Date has already passed, to the Maturity Date. In the event
of a partial prepayment as a result of the aforementioned
application of proceeds, the Present Value of the Mortgage shall
be calculated in accordance with the preceding sentence multiplied
by the fraction which results from dividing the amount of the
prepaid proceeds by the principal balance immediately prior to
prepayment.
(c) Subtract the amount of the prepaid proceeds from the Present Value
of the Mortgage as of the date of prepayment. Any resulting
positive differential shall be the premium.
As set forth above, the U.S. Treasury Issue applicable for each
prepayment period is as follows:
PREPAYMENT PERIOD U.S. TREASURY ISSUE
----------------- -------------------
To March 15, 2008 *
March 15, 2008 to February 15, 2018 *
*At this time there is not a U.S. Treasury Issue for this
prepayment period. At the time of prepayment Mortgagee shall
select in its sole and absolute discretion a U.S. Treasury
Issue with similar remaining time to the end of the applicable
prepayment period.
12. Upon the occurrence of any Event of Default, in addition to any other
rights or remedies provided in the Loan Documents, at law, in equity or
otherwise, Mortgagee shall have the right to foreclose the lien hereof,
and to the extent permitted herein and by applicable law to sell the
Premises by sale independent of the foreclosure proceedings. In any
suit to foreclose the lien hereof, and in any sale of the Premises,
there shall be allowed and included as additional indebtedness payable
by Mortgagor to Mortgagee and secured hereby all expenditures and
expenses which may be paid or incurred by or on behalf of Mortgagee for
attorneys' fees and costs, including attorneys' fees and costs on
appeal, appraisers' fees, expenditures for documentary and expert
evidence, stenographer's charges,
<PAGE>
-19-
publication and advertising costs, survey costs, environmental audits
and costs (which may be estimated as to items to be expended after the
entry of any decree) of procuring all such abstracts of title, title
searches and examinations, title insurance policies, Torrens
certificates and similar data and assurances with respect to title as
Mortgagee deems reasonably necessary either to prosecute such suit or
to consummate such sale or to evidence to bidders at any sale the true
condition of the title to or the value of the Premises.
13. The proceeds of any foreclosure sale, or other sale of the Premises in
accordance with the terms hereof or as permitted by law, shall be
distributed and applied in the following order of priority: First, to
the payment of all costs and expenses incident to the foreclosure
and/or sale proceedings, including all items as are mentioned in any
preceding or succeeding paragraph hereof; second, to the payment of all
other items which under the terms hereof constitute secured
indebtedness in addition to that evidenced by the Note, with interest
thereon as herein provided; third, to the payment of all principal and
accrued interest remaining unpaid on the Note; fourth, any surplus to
the Mortgagor, its successors or assigns, as their rights may appear.
14. During the continuance of any Event of Default, Mortgagor shall
forthwith upon demand of Mortgagee surrender to Mortgagee possession of
the Premises, and Mortgagee shall be entitled to take actual possession
of the Premises or any part thereof personally or by its agents or
attorneys, and Mortgagee in its discretion may, with or without force
and with or without process of law, enter upon and take and maintain
possession of all or any part of the Premises together with all
documents, books, records, papers and accounts of the Mortgagor or the
then owner of the Premises relating thereto, and may exclude Mortgagor,
its agents or assigns wholly therefrom, and may as attorney-in-fact or
agent of the Mortgagor, or in its own name as Mortgagee and under the
powers herein granted:
(a) hold, operate, manage or control the Premises and conduct the
business, if any, thereof, either personally or by its agents, and
with full power to use such measures, legal or equitable, as in
its discretion it deems proper or necessary to enforce the payment
or security of the income, rents, issues and profits of the
Premises, including actions for the recovery of rent, actions in
forcible detainer and actions in distress for rents, hereby
granting full power and authority to exercise each and every of
the rights, privileges and powers herein granted at any and all
times hereafter, without notice to Mortgagor;
(b) cancel or terminate any lease or sublease for any cause or on any
ground which would entitle Mortgagor to cancel the same;
(c) elect to cancel any lease or sublease made subsequent to this
Mortgage or subordinated to the lien hereof unless this Mortgage
has specifically been made subordinate to such lease or sublease;
<PAGE>
-20-
(d) extend or modify any then existing leases and make new leases,
which extensions, modifications or new leases may provide for
terms to expire, or for options to lessees to extend or renew
terms to expire, beyond the Maturity Date of the Note and the
issuance of a deed or deeds to a purchaser or purchasers at a
foreclosure sale, it being understood and agreed that any such
leases, and the options or other such provisions to be contained
therein, shall be binding upon Mortgagor and all persons whose
interests in the Premises are subject to the lien hereof and shall
be binding also upon the purchaser or purchasers at any
foreclosure sale, notwithstanding any redemption from sale,
discharge of the indebtedness secured hereby, satisfaction of any
foreclosure decree, or issuance of any certificate of sale or deed
to any purchaser;
(e) make all necessary or proper repairs, decorating, renewals,
replacements, alterations, additions, betterments and improvements
to the Premises as it may deem judicious, insure and reinsure the
same and all risks incidental to Mortgagee's possession, operation
and management thereof, and receive all income, rents, issues and
profits.
Mortgagee shall not be obligated to perform or discharge, nor does it
hereby undertake to perform or discharge, any obligation, duty or
liability under any lease, and the Mortgagor shall and does hereby
agree to indemnify and to hold Mortgagee harmless of and from all
liability, loss or damage which it might incur under said leases or
under or by reason of the assignment thereof, and of and from any and
all claims or demands whatsoever which may be asserted against it by
reason of any alleged obligations or undertakings on its part to
perform or discharge any of the terms, covenants or agreements
contained in said leases. Should Mortgagee incur any such liability,
loss or damage under any of said leases, or under or by reason of the
assignment thereof, or in the defense of any claims or demands, the
amount thereof, including costs, expenses and reasonable attorneys'
fees and costs, including reasonable attorneys' fees and costs on
appeal, shall be secured hereby and Mortgagor shall reimburse Mortgagee
therefor immediately upon demand, together with interest at the Default
Rate from the date of payment by Mortgagee to the date of
reimbursement.
15. Mortgagee in the exercise of the rights and powers conferred upon it
shall have the full power to use and apply the avails, rents, issues
and profits of the Premises to the payment of or on account of the
following, at the election of Mortgagee and in such order as Mortgagee
may determine:
(a) to the payment of the expenses of operating the Premises,
including cost of management and leasing thereof (which shall
include reasonable compensation to Mortgagee and its agent or
agents if management is delegated to an agent or agents, and shall
also include lease commissions and other compensation and expenses
of seeking and procuring tenants and entering into leases),
established claims for damages, if any, and premiums on insurance
as hereinabove authorized;
(b) to the payment of taxes and special assessments now due or which
may hereafter become due on the Premises;
<PAGE>
-21-
(c) to the payment of all repairs, decorating, renewals, replacements,
alterations, additions, betterments and improvements of the
Premises and of placing the Premises in such condition as will in
the judgment of Mortgagee make it readily rentable; and/or
(d) to the payment of any principal, interest or other indebtedness
secured hereby or any deficiency which may result from any
foreclosure sale.
16. During the continuance of any Event of Default under this Mortgage,
Mortgagee may apply to any court having jurisdiction for the
appointment of a receiver of the Premises. Such appointment may be made
either before or after sale, without notice, without regard to the
solvency or insolvency of Mortgagor at the time of application for such
receiver and without regard to the then value of the Premises or the
adequacy of Mortgagee's security. Mortgagee or any holder of the Note
may be appointed as such receiver. The receiver shall have power to
collect the rents, issues and profits of the Premises during the
pendency of any foreclosure proceedings and, in case of a sale, during
the full redemption period, if any, as well as during any further times
when Mortgagor, except for the intervention of such receiver, would be
entitled to collect such rents, issues and profits. In addition, the
receiver shall have all other powers which shall be necessary or are
usual in such cases for the protection, possession, control, management
and operation of the Premises during the whole of said period. The
court from time to time may authorize the receiver to apply the net
income in his hands at Mortgagee's election and in such order as
Mortgagee may determine in payment in full or in part of:
(a) principal, interest and all other indebtedness secured hereby or
provided by any decree foreclosing this Mortgage, or any tax,
special assessment or other lien which may be or become superior
to the lien hereof or of such decree, provided such application is
made prior to foreclosure sale; and
(b) the deficiency in case of a sale and deficiency.
17. (a) Mortgagor agrees that all reasonable costs, charges and expenses,
including reasonable attorneys' fees, incurred or expended by
Mortgagee arising out of or in connection with any action,
proceeding or hearing, legal, equitable or quasi-legal, including
the preparation therefor and any appeal therefrom, in any way
affecting or pertaining to this Mortgage, the Note, any other
instrument or agreement securing the Note, or the Premises, shall
be promptly paid by Mortgagor. All such sums not promptly paid by
Mortgagor shall be added to the indebtedness secured hereby and
shall bear interest at the Default Rate from the date of such
advance and shall be due and payable on demand.
(b) Mortgagor hereby agrees that upon the occurrence of an Event of
Default and the acceleration of the principal sum secured hereby
pursuant to this Mortgage, to the full extent that such rights can
be lawfully waived, Mortgagor hereby waives and agrees not to
insist upon, plead, or in any manner take advantage of, any notice
of acceleration, any stay, extension, exemption,
<PAGE>
-22-
homestead, marshaling or moratorium law or any law providing for the
valuation or appraisement of all or any part of the Premises prior to
any sale or sales thereof under any provision of this Mortgage or
before or after any decree, judgment or order of any court or
confirmation thereof, or claim or exercise any right to redeem all or
any part of the Premises so sold and hereby expressly waives to the
full extent permitted by applicable law on behalf of itself and each
and every person or entity acquiring any right, title or interest in or
to all or any part of the Premises, all benefit and advantage of any
such laws which would otherwise be available to Mortgagor or any such
person or entity, and agrees that neither Mortgagor nor any such person
or entity will invoke or utilize any such law to otherwise hinder,
delay or impede the exercise of any remedy granted or delegated to
Mortgagee herein but will permit the exercise of such remedy as though
any such laws had not been enacted. Mortgagor hereby further expressly
waives to the full extent permitted by applicable law on behalf of
itself and each and every person or entity acquiring any right, title
or interest in or to all or any part of the Premises any and all rights
of redemption from any sale or any order or decree of foreclosure
obtained pursuant to provisions of this Mortgage.
18. Mortgagee, at its option, is authorized to foreclose this Mortgage
subject to the rights of any tenants of the Premises, and the failure
to make any such tenants parties defendant to any foreclosure
proceedings or to foreclose their rights or the failure to disturb the
possession of any such tenants after foreclosure will not be, nor may
it be asserted by Mortgagor as a defense to any proceedings instituted
by Mortgagee to collect the sums secured hereby or to collect any
deficiency remaining unpaid after the foreclosure sale of the Premises.
19. Mortgagor hereby assigns to Mortgagee directly and absolutely, and not
merely collaterally, the rents, issues, profits, royalties, and
payments payable under any lease of the Premises, or portion thereof,
including any oil, gas or mineral lease, or any installments of money
payable pursuant to any agreement or any sale of the Premises or any
part thereof, subject only to a license, if any, granted by Mortgagee
to Mortgagor with respect thereto prior to the occurrence of a default
hereunder. Mortgagee, without regard to the adequacy of any security
for the indebtedness hereby secured, shall be entitled to (a) collect
such rents, issues, profits, royalties, payments and installments of
money and apply the same as more particularly set forth in this
paragraph, all without taking possession of the Premises, or (b) enter
and take possession of the Premises or any part thereof, in person, by
agent, or by a receiver to be appointed by the court and to sue for or
otherwise collect such rents, issues, profits, royalties, payments and
installments of money. Mortgagee may apply any such rents, issues,
profits, royalties, payments and installments of money so collected,
less costs and expenses of operation and collection, including
reasonable attorneys' fees and costs and reasonable attorneys' fees and
costs on appeal, upon any principal, interest and all other
indebtedness secured hereby, at Mortgagee's option and in such order as
Mortgagee may determine, and, if such costs and expenses and reasonable
attorneys' fees and costs shall exceed the amount collected, the excess
shall be immediately due and payable. The collection of such rents,
issues, profits, royalties, payments and installments of money and the
application thereof as aforesaid shall not cure or waive any Event of
Default or notice of default hereunder or invalidate any act done
pursuant to such notice, except to
<PAGE>
-23-
the extent any such Event of Default is fully cured. Failure or
discontinuance of Mortgagee at any time, or from time to time, to
collect any such moneys shall not impair in any manner the subsequent
enforcement by Mortgagee of the right, power and authority herein
conferred on Mortgagee. Nothing contained herein, including the
exercise of any right, power or authority herein granted to Mortgagee,
shall be, or be construed to be, an affirmation by Mortgagee of any
tenancy, lease or option, or an assumption of liability under, or the
subordination of the lien or charge of this Mortgage to any such
tenancy, lease or option. Mortgagor hereby agrees that, in the event
Mortgagee exercises its rights as in this paragraph provided, Mortgagor
waives any right to compensation for the use of Mortgagor's furniture,
furnishings or equipment in the Premises for the period such assignment
of rents or receivership is in effect, it being understood that the
rents, issues, profits, royalties, payments and installments of money
derived from the use of any such items shall be applied to Mortgagor's
obligations hereunder as above provided.
20. (a) Mortgagor has executed and delivered that certain Assignment of
Leases and Rents of even date herewith assigning to Mortgagee
directly and absolutely, and not merely collaterally, the interest
of Mortgagor as lessor under the existing leases of the Premises,
as well as all other leases which may hereafter be made in respect
of the Premises, and the rents and other income arising thereunder
and from the use of the Premises. Said Assignment of Leases and
Rents grants to Mortgagee specific rights and remedies in respect
of said leases and governs the collection of rents and other
income thereunder and from the use of the Premises, and such
rights and remedies so granted shall be cumulative of those
granted herein.
(b) Mortgagor shall keep and perform all terms, conditions and
covenants required to be performed by it as lessor under the
aforesaid leases; shall promptly advise Mortgagee in writing of
any claim of default by Mortgagor made by a lessee under any such
lease or of any default thereunder by a lessee; and shall promptly
provide Mortgagee with a copy of any notice of default or other
notice served upon Mortgagor by any such lessee. Mortgagor will
not cancel, modify or alter, or accept the surrender of, any
existing or future lease of the Premises or any part thereof
without first obtaining written consent of Mortgagee unless
otherwise specifically permitted in the Assignment of Leases and
Rents of even date herewith.
21. (a) All rights and remedies granted to Mortgagee in the Loan Documents
shall be in addition to and not in limitation of any rights and
remedies to which it is entitled in equity, at law or by statute,
and the invalidity of any right or remedy herein provided by
reason of its conflict with applicable law or statute shall not
affect any other valid right or remedy afforded to Mortgagee. No
waiver of any Event of Default or of any default in the
performance of any covenant contained in the Note or any other
instrument securing the Note shall at any time thereafter be held
to be a waiver of any rights of the Mortgagee hereunder, nor shall
any waiver of a prior Event of Default or default operate to waive
any subsequent Event of Default or default. All remedies provided
for herein, in the Note and in any other instrument securing the
Note are cumulative and may, at the election of Mortgagee, be
exercised alternatively, successively, or concurrently. No act of
Mortgagee shall be construed as an election to proceed under any
one provision
<PAGE>
-24-
herein to the exclusion of any other provision or to proceed
against one portion of the Premises to the exclusion of any other
portion.
(b) This Mortgage is subject to any existing statutory condition and
upon the further condition that all covenants and agreements of
Mortgagor herein shall be fully or timely performed, time being of
the essence under this Mortgage. No breach of any such condition
or agreement shall be permitted, and in the event of any such
breach, Mortgagee shall have any statutory power of sale, and this
Mortgage shall be subject to foreclosure as provided by law.
22. By accepting payment of any sum secured hereby after its due date,
Mortgagee does not waive its right either to require prompt payment
when due of all other sums or installments so secured or to declare a
default for failure to pay such other sums or installments.
23. Notwithstanding anything herein or in the Note to the contrary, no
provision contained herein or in the Note which purports to obligate
Mortgagor to pay any amount of interest or any fees, costs or expenses
which are in excess of the maximum permitted by applicable law, shall
be effective to the extent that it calls for the payment of any
interest or other sums in excess of such maximum. All agreements
between Mortgagor and Mortgagee, whether now existing or hereafter
arising and whether written or oral, are hereby limited so that in no
contingency, whether by reason of demand for payment of or acceleration
of the maturity of any of the indebtedness secured hereby or otherwise,
shall the interest contracted for, charged or received by Mortgagee
exceed the maximum amount permissible under applicable law. If, from
any circumstance whatsoever, interest would otherwise be payable to
Mortgagee in excess of the maximum lawful amount, the interest payable
to Mortgagee shall be reduced to the maximum amount permitted under
applicable law; and if from any circumstance Mortgagee shall ever
receive anything of value deemed interest by applicable law in excess
of the maximum lawful amount, an amount equal to any excessive interest
shall at Mortgagee's option, be refunded to Mortgagor or be applied to
the reduction of the principal balance of the indebtedness secured
hereby and not to the payment of interest or, if such excessive
interest exceeds the unpaid balance of principal of the indebtedness
secured hereby, such excess shall be refunded to Mortgagor. This
paragraph shall control all agreements between Mortgagor and Mortgagee.
24. In the event one or more provisions of the Loan Documents shall be held
to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other
provision hereof, and this Mortgage shall be construed as if any such
provision had never been contained herein.
25. If the payment of the indebtedness secured hereby or of any part
thereof shall be extended or varied, or if any part of the security be
released, all persons now or at any time hereafter liable therefor, or
interested in said Premises, shall be held to assent to such extension,
variation or release, and their liability and the lien and all
provisions hereof shall continue in full force, the right of recourse
against all such persons being expressly reserved by Mortgagee
notwithstanding such variation or release.
<PAGE>
-25-
26. Upon payment in full of the indebtedness secured hereby and the
performance by Mortgagor of all of the obligations imposed on Mortgagor
in the Loan Documents, these presents shall be null and void, and
Mortgagee shall release this Mortgage and the lien hereof by proper
instrument executed in recordable form.
27. Mortgagor shall have the privilege of making prepayments on the
principal of the Note (in addition to the required payments) if and
only to the extent and upon the terms and conditions, if any, expressly
set forth in the Note. If not expressly so set forth, the Note is not
subject to such prepayment.
28. (a) Mortgagor hereby grants to Mortgagee and its respective agents,
attorneys, employees, consultants, contractors and assigns an
irrevocable license and authorization to enter upon and inspect
the Premises and all facilities located thereon at reasonable
times.
(b) In connection with any sale or conveyance of this Mortgage,
Mortgagor grants to Mortgagee and its respective agents,
attorneys, employees, consultants, contractors and assigns an
irrevocable license and authorization to conduct, at Mortgagee's
expense, a Phase I environmental audit of the Premises.
(c) In the event there has been an Event of Default or in the event
Mortgagee has formed a reasonable belief, based on its inspection
of the Premises or other factors known to it, that Hazardous
Materials may be present on the Premises, then Mortgagor grants to
Mortgagee and its respective agents, attorneys, employees,
consultants, contractors and assigns an irrevocable license and
authorization to conduct, at Mortgagor's expense, environmental
tests of the Premises, including without limitation, a Phase I
environmental audit, subsurface testing, soil and ground water
testing, and other tests which may physically invade the Premises
or facilities (the "Tests"). The scope of the Tests shall be such
as Mortgagee, in its sole discretion, determines is necessary to
(i) investigate the condition of the Premises, (ii) protect the
security interests created under this Mortgage, or (iii) determine
compliance with Environmental Laws, the provisions of this
Mortgage and other matters relating thereto.
(d) The foregoing licenses and authorizations are intended to be a
means of protection of Mortgagee's security interest in the
Premises and not as participation in the management of the
Premises.
29. Within 15 days after any written request by Mortgagee, Mortgagor shall
certify, by a written statement duly acknowledged, the amount of
principal and interest then owing on the Note and whether any offsets
or defenses exist against the indebtedness secured hereby.
30. (a) Mortgagor shall furnish to Mortgagee within 90 days after the end
of each fiscal year of Mortgagor, a detailed and analytical
financial report prepared in accordance with generally accepted
accounting principles consistently applied, certified in a manner
and otherwise in form and substance acceptable to Mortgagee
covering the full and complete operation of the
<PAGE>
-26-
Premises, including without limitation: (i) income and expense
statements and budget, and (ii) a report of the leasing status of
the Premises as of the end of such year, identifying the lessee,
square footage leased, rental amount, base rental increases,
rental concessions and/or rental deferments, if any, commencement
and expiration dates under each lease of the Premises and a
listing of sales volumes attained by lessees of the Premises under
percentage leases for the immediately preceding year and an aged
accounts receivable report. Such reports shall be prepared by an
accountant who may be an employee of Mortgagor, or of an affiliate
of Mortgagor, acceptable to Mortgagee. In addition to the reports
referred to herein, Mortgagor shall promptly supply any additional
information or records relating to the Premises or its operation
as Mortgagee may from time to time request.
(b) Mortgagor shall submit to Mortgagee within 90 days following the
end of each fiscal year annual balance sheets and income
statements for Mortgagor and Equity One, Inc.. Said balance sheets
and income statements shall be subject to Mortgagee's review.
31. Any notice which any party hereto may desire or be required to give to
the other shall be deemed to be an adequate and sufficient notice if
given in writing and service is made by either (i)registered or
certified mail, postage prepaid, in which case notice shall be deemed
to have been received three (3) business days following deposit to U.S.
mail; or (ii)nationally recognized overnight air courier, next day
delivery, prepaid, in which case such notice shall be deemed to have
been received one (1) business day following delivery to such
nationally recognized overnight air courier. All notices shall be
addressed to Mortgagor at its address given on the first page hereof or
to Mortgagee at 711 High Street, Des Moines, Iowa 50392-1450, Attn:
Commercial Real Estate Loan Administration, Loan No.D-751848, or to
such other place as either party may by written notice to the other
hereafter designate as a place for service of notice.
32. This Mortgage and all the provisions hereof shall extend to and be
binding upon Mortgagor and all persons claiming by, under or through
Mortgagor, and the word "Mortgagor" when used herein shall include all
such persons and all persons liable for the payment of the indebtedness
secured hereby or any part thereof, whether or not such persons have
executed the Note or this Mortgage. The word "Mortgagee" as used herein
shall include the successors and assigns of the Mortgagee named herein,
and the holder or holders from time to time of the Note secured hereby.
33. Mortgagor has had the opportunity to fully negotiate the terms hereof
and modify the draftsmanship of this Mortgage. Therefore, the terms of
this Mortgage shall be construed and interpreted without any
presumption, inference, or rule requiring construction or
interpretation of any provision of this Mortgage against the interest
of the party causing this Mortgage or any portion of it to be drafted.
Mortgagor is entering into this Mortgage freely and voluntarily without
any duress, economic or otherwise.
34. This Mortgage shall be governed by and construed in accordance with the
laws of the State of Florida.
<PAGE>
-27-
35. As used herein, the term "Default Rate" means a rate equal to the
lesser of (i) 4% per annum above the then applicable interest rate
payable under the Note or (ii)the maximum rate allowed by applicable
law.
36. Notwithstanding any provision of this Mortgage, the Note or any other
instruments evidencing or securing the loan evidenced by the Note which
might be construed to the contrary, the assignment of rents and other
amounts provided for herein is an absolute assignment and not merely a
collateral assignment or a security interest, and is effective whether
or not a default occurs hereunder, subject only to a license, if any,
granted by Mortgagee to Mortgagor with respect thereto prior to the
occurrence of a default beyond any applicable notice and cure periods
hereunder, the extent of which may be more fully described in the
Assignment of Leases and Rents. It is the intention of Mortgagor and
Mortgagee that the assignment effectuated by this Mortgage with respect
to such rents and other amounts payable under the leases shall be a
direct and currently effective assignment and shall not constitute
merely the granting of a lien, security interest or pledge for the
purpose of securing the indebtedness secured hereby. In the event that
a court of competent jurisdiction determines that, notwithstanding such
expressed intent of the parties, Mortgagee's interest in the rents and
other amounts payable under the leases constitutes a lien on or
security interest in or pledge thereof, it is agreed and understood
that the forwarding of a notice to Mortgagor after the occurrence of a
default beyond any applicable notice and cure periods, advising
Mortgagor of the revocation of any license then in favor of Mortgagor
to collect such rents or other amounts payable under the leases, or of
the existence of a default beyond any applicable notice and cure
periods, shall be sufficient action by Mortgagee to (i) perfect such
lien on or security interest in or pledge of the rents and other
amounts payable under the leases, (ii) take possession thereof, and
(iii) entitle Mortgagee to immediate and direct payment of the rents
and other amounts payable under the leases, for application as provided
in this Mortgage, all without the necessity of any further action by
Mortgagee, including, without limitation, any action to obtain
possession of the land, improvements or any other portion of the
premises. Notwithstanding the direct and absolute assignment of the
rents and other amounts payable under the leases as herein described,
there shall be no protanto reduction in any portion of the
indebtedness secured by this Mortgage except with respect to rents and
other amounts payable under the leases actually received by Mortgagee
and applied by Mortgagee toward payment of the indebtedness. Mortgagee
may, upon written notice to Mortgagor, elect to (i) exclude from the
assignment provided in this Mortgage any of the leases as specified in
such notice so that the interest under such indicated lease is not
assigned to Mortgagee, and (ii) subordinate the lien and other terms
and provisions of this Mortgage to any of the leases as indicated in
said notice to Mortgagor.
37. Mortgagor knowingly, voluntarily and intentionally waives, to the
extent permitted by law, trial by jury in any actions brought by
Mortgagor or Mortgagee in connection with this Mortgage, any of the
Loan Documents, the indebtedness secured hereby, or any other
statements or actions of Mortgagee.
38. (a) Notwithstanding any provision to the contrary in the Note, this
Mortgage or any other instrument or agreement by which the Note is
secured and except as otherwise provided in this
<PAGE>
-28-
paragraph, the liability of Mortgagor under the Loan Documents
shall be limited to the interest of Mortgagor in the Premises and
the rents, issues, proceeds and profits thereof. In the event of
foreclosure of the liens evidenced by the Loan Documents, no
judgment for any deficiency upon the indebtedness evidenced by the
Loan Documents shall be sought or obtained by Mortgagee against
Mortgagor. Nothing contained in this paragraph shall:
(i) limit or impair Mortgagee's right to declare an Event of
Default under the Loan Documents in the event of the failure
of Mortgagor to make any payment or to perform any obligation
under any of the Loan Documents within the time periods
provided therein;
(ii) be construed as limiting the obligations of Mortgagor to any
tenant under any lease of the Premises;
(iii) in any way limit or impair the lien or enforcement of the
Loan Documents pursuant to the terms thereof; or
(iv) limit the obligations of any indemnitor or guarantor, if any,
of Mortgagor's obligations under the Loan Documents.
(b) Notwithstanding subparagraph (a) above, Mortgagor shall be
personally liable to Mortgagee for:
(i) Mortgagor's failure to comply with paragraphs 2 (taxes and
assessments) and 3 (insurance) hereof;
(ii) any event or circumstance for which Mortgagor indemnifies
Mortgagee under paragraph 1(m) (environmental indemnity)
hereof or under any separate Environmental Indemnity
Agreement;
(iii) Mortgagor's failure to pay utilities on or before the date
such payments are due;
(iv) operation and maintenance of the Premises;
(v) any sums expended by Mortgagee in fulfilling the obligations
of Mortgagor as lessor under any lease of the Premises prior
to a sale of the Premises pursuant to foreclosure or power of
sale, a bona fide sale (permitted by the terms of paragraph
1(l) hereof or consented to in writing by Mortgagee) to an
unrelated third party or upon conveyance to Mortgagee of the
Premises by a deed acceptable to Mortgagee in form and
content (each of which shall be referred to as a "Sale" for
purposes of this paragraph) or expended by Mortgagee after a
Sale of the Premises for obligations of Mortgagor which arose
prior to a Sale of the Premises;
<PAGE>
-29-
(vi) any rents or other income regardless of type or source of
payment (including, but not limited to, CAM charges, lease
termination payments, refunds of any type, prepayment of
rents, settlements of litigation, or settlements of past due
rents) from the Premises which Mortgagor has received or has
a right to receive after an Event of Default under the Loan
Documents or an event which with the passage of time, the
giving of notice or both would constitute an Event of
Default, either or both of which have occurred and are
continuing, and which are not applied to (A) expenses of
operation and maintenance of the Premises and the taxes,
assessments, utility charges and insurance of the Premises,
taking into account sufficient reserves for the same and for
replacements and recurring items, and (B) payment of
principal, interest and other charges when due under the Loan
Documents; provided that any payments to parties related to
Mortgagor shall be considered expenses of operation only if
they are at market rates or fees consistent with market rates
or fees for the same or similar services;
(vii) any security deposits of tenants, together with any interest
on such security deposits required by law or the leases, not
turned over to Mortgagee upon conveyance of the Premises to
Mortgagee pursuant to foreclosure or power of sale or by a
deed acceptable to Mortgagee in form and content;
(viii) misapplication or misappropriation of tax reserve accounts,
tenant improvement reserve accounts, security deposits,
prepaid rents or other similar sums paid to or held by
Mortgagor or any other entity or person in connection with
the operation of the Premises;
(ix) any waste committed or allowed by Mortgagor with respect to
the Premises; and
(x) any insurance or condemnation proceeds or other similar funds
or payments applied by Mortgagor in a manner other than as
expressly provided in the Loan Documents.
(c) Notwithstanding anything to the contrary in the Loan Documents,
the limitation on liability contained in subparagraph (a) above
SHALL BECOME NULL AND VOID and shall be of no further force and
effect in the event:
(i) of any breach or violation of paragraph 1(l) (due on sale or
encumbrance) hereof, other than the filing of a nonmaterial
mechanic's lien affecting the Premises, the granting of any
utility or other nonmaterial easement or servitude burdening
the Premises, or any other transfer or encumbrance not in the
nature of a transfer, reduction or impairment of any material
economic interest in the Premises; or
<PAGE>
-30-
(ii) of any fraud or willful misrepresentation by Mortgagor
regarding the Premises, the making or delivery of any of the
Loan Documents or in any materials or information provided by
Mortgagor in connection with the loan; or
(iii) Mortgagor gives any consent, exercises any right or option
or agrees to any changes to the lease with Winn-Dixie Stores,
Inc. dated June 4, 1982 as amended by Memorandum of Lease
dated June 3, 1983; Amendment to Lease dated June 3, 1983;
Supplemental Memorandum of Lease dated August 22, 1983; and
Amended and Restated Lease dated July 14, 1997, including but
not limited to any modification, amendment, termination,
renewal and/or extension without obtaining Mortgagee's prior
written consent.
39. This Mortgage shall constitute a security agreement within the meaning
of the Florida Uniform Commercial Code with respect to any and all sums
at any time on deposit for the benefit of Mortgagee or held by
Mortgagee (whether deposited or on behalf of the Mortgagor or anyone
else) pursuant to the provisions of this Mortgage and with respect to
any personal property included in the granting clauses of this
Mortgage, and all replacements of such personal property, and the
proceeds thereof. Upon default, without limitation of any other
remedies, Mortgagee shall have the remedies of a secured party under
the Uniform Commercial Code. This Mortgage is intended to be a
financing statement within the purview of Florida Statutes Subsection
679.402 with respect to the personal property described herein.
Mortgagor, as debtor, hereby authorizes Mortgagee, as secured party to
execute, deliver, file or re-file as secured party without joinder of
the Mortgagor, any financing statement, continuation statement or other
instruments that Mortgagee may reasonably require from time to time to
perfect or renew such security interest under the Florida Uniform
Commercial Code.
40. This Mortgage and the indebtedness secured hereby is for the sole
purpose of conducting or acquiring a lawful business, professional or
commercial activity or for the acquisition or management of real or
personal property as a commercial investment, and all proceeds of such
indebtedness shall be used for said business or commercial investment
purpose. Such proceeds will not be used for the purchase of any
security within the meaning of the Securities Exchange Act of 1934, as
amended, or any regulation issued pursuant thereto, including without
limitation, Regulations G, T and X of the Board of Governors of the
Federal Reserve System. This is not a purchase money mortgage where a
seller is providing financing to a buyer for the payment of all or any
portion of the purchase price, and the Premises secured hereby is not a
residence or homestead or used for mining, grazing, agriculture, timber
or farming purposes.
41. Unless Mortgagee shall otherwise direct in writing, Mortgagor shall
appear in and defend all actions or proceedings purporting to affect
the security hereunder, or any right or power of the Mortgagee. The
Mortgagee shall have the right to appear in such actions or
proceedings. Mortgagor shall save Mortgagee harmless from all costs and
expenses, including reasonable attorneys' fees and costs of a title
search, continuation of abstract and preparation of survey, incurred by
reason of any action, suit, proceeding, hearing, motion or application
before any court or administrative body in and to which
<PAGE>
-31-
Mortgagee may be or become a party by reason hereof. Such proceedings
shall include but not be limited to condemnation, bankruptcy, probate
and administration proceedings, as well as any other action, suit,
proceeding, right, motion or application wherein proof of claim is by
law required to be filed or in which it becomes necessary to defend or
uphold the terms of this Mortgage or otherwise purporting to affect the
security hereof or the rights or powers of Mortgagee. All money paid or
expended by Mortgagee in that regard, together with interest thereon
from date of such payment at the Default Rate shall be additional
indebtedness secured hereby and shall be immediately due and payable by
Mortgagor without notice.
42. During the occurrence of an Event of Default, all rents, issues and
profits collected or received by Mortgagor shall be accepted and held
for Mortgagee in trust and shall not be commingled with the funds and
property of Mortgagor, but shall be promptly paid over to Mortgagee.
IN WITNESS WHEREOF, Mortgagor has caused this Mortgage to be duly executed
and delivered as of the date first above written.
WITNESS: EQUITY ONE (COMMONWEALTH) INC.,
a Florida corporation
By /s/ ANA J. PEROZO
-----------------
Print Name: Ana J. Perozo
By /s/ DORON VALERO
------------------------------
Name: Doron Valero
By /s/ ALAN J. MARCUS Title: Vice President
------------------
Print Name: Alan J. Marcus
EXHIBIT 10.28
SECURED PROMISSORY NOTE
D-751848
$3,300,000.00 February 27, 1998
1. FOR VALUE RECEIVED, the undersigned, EQUITY ONE (COMMONWEALTH) INC., a
Florida corporation, hereby promises to pay to the order of PRINCIPAL
MUTUAL LIFE INSURANCE COMPANY, an Iowa corporation, at the Home Office
of Principal Mutual Life Insurance Company at 711 High Street, Des
Moines, Iowa 50392, or at such other place as the holder of this Note
may designate, the principal sum of Three Million Three Hundred
Thousand and 00/100 Dollars ($3,300,000.00) or so much thereof as shall
from time to time have been advanced, together with interest on the
unpaid balance of said sum from Febrruary 27, 1998 at the rate of seven
percent (7.00%) per annum, computed on the basis of a 360-day year
composed of twelve 30-day months, in installments as follows:
Beginning on March 15, 1998, principal and interest shall be due
and payable in installments of Twenty-five Thousand Five Hundred
Eighty-four and 86/100 Dollars ($25,584.86), with an installment
in a like amount due and payable on the same day of each month
thereafter continuing to and including February 15, 2008. Holder
shall have the right to offer an Adjusted Interest Rate as
hereinafter defined or to declare this Note to be due and payable
in full, without premium on March 15, 2008. In the event holder
elects to offer an Adjusted Interest Rate, then on February 15,
2008, the per annum interest rate shall be adjusted to an interest
rate established by the holder of this Note ("Adjusted Interest
Rate") based upon the holder of this Note's evaluation of: (i) the
then current financial performance and projected risk of the
Premises, which shall encompass various factors, including but not
limited to contract debt service coverage, loan-to-value ratio,
economic debt service coverage, occupancy, frequency of tenant
rollover, financial strength and stability of tenants; (ii) the
then current financial status of the undersigned, which shall
include but not be limited to creditworthiness, financial
strength, percentage of liabilities to liquid assets, and annual
net income; and (iii) the remaining term and current outstanding
balance of the Note. Commencing on March 15, 2008, monthly
installments of principal and interest shall be due and payable in
an amount determined by amortizing the then principal balance of
this Note over a ten (10) year term at the Adjusted Interest Rate,
and a like amount shall be due and payable on the same day of each
month thereafter until said principal and interest shall be paid,
except that all remaining principal and interest shall be due and
payable on February 15, 2018 ("Maturity Date"). Each installment
shall be credited first upon interest then accrued and the
remainder upon principal, and interest shall cease to accrue upon
principal so credited. If on the date of the first installment,
interest is accrued for more or less than one installment period,
the amount of said installment shall be increased or decreased by
the amount that the interest accrued exceeds or is less than the
interest for one installment period based on the actual number of
days elapsed to the date of said installment. All principal and
interest shall be paid in lawful money of the United States of
America, by wire transfer of immediately
<PAGE>
-2-
available funds to the registered owner hereof at Norwest Bank,
Iowa, N.A., 7th and Walnut Streets, Des Moines, Iowa 50304, for
credit to Principal Mutual Life Insurance Company, Collection
Account No. 7069975, RE: D-751848 with reference to the
undersigned.
The holder of this Note shall notify the undersigned in writing on or
before January 15, 2008, of holder's election to offer the undersigned
the Adjusted Interest Rate or of holder's intention to declare this
Note to be due and payable in full. In the event holder notifies the
undersigned of its intention to declare this Note to be due and
payable in full in lieu of offering an Adjusted Interest Rate or in
the event the undersigned fails to notify the holder in writing on or
before January 22, 2008, that the undersigned accepts the Adjusted
Interest Rate or in the event the undersigned fails to pay Ten
Thousand and 00/100 Dollars ($10,000.00) as a rate adjustment fee to
holder on or before January 22, 2008, this Note shall on March 15,
2008 ("Call Date"), become due and payable in full, without premium,
and all principal, interest accrued or to accrue to the date of
prepayment at the rate in effect at the time of the notice of Adjusted
Interest Rate and all other amounts then unpaid on the Note or due or
to become due under any instrument by which it is secured shall become
immediately due and payable in full. Notwithstanding any other
provision herein, holder shall not be obligated to offer an Adjusted
Interest Rate if any default exists under this Note or the Mortgage
and Security Agreement ("Mortgage"). In the event the holder of this
Note fails to notify the undersigned of its election to offer an
Adjusted Interest Rate or to declare this Note to be due and payable
in full as provided herein, then the interest rate shall not be
changed and monthly installments of principal and interest shall
continue at the amounts and the times set forth herein, except that
all remaining principal and interest shall be due and payable on the
Maturity Date.
In the event the undersigned accepts the Adjusted Interest Rate, the
undersigned is required to provide holder the following:
(i) a new ALTA standard loan title policy or an endorsement updating
said title policy in the full amount of the loan in form and by
an issuer satisfactory to holder at the time of the rate
adjustment unless (x) the outstanding loan balance at the time
of the Call Date is less than $20,000,000.00, (y) no liens or
encumbrances exist against the Premises except as previously
approved by holder in the Mortgage and (z) no mortgages exist
against the Premises except for the Mortgage. The undersigned
further agrees that the policy shall insure holder's Mortgage,
which secures this Note, at the Adjusted Interest Rate to be a
first and prior lien subject only to those exceptions which were
previously approved by holder and provide coverage against
mechanic's liens;
(ii) a Note amendment in form and substance satisfactory to holder
executed by the undersigned evidencing the Adjusted Interest
Rate and a representation that the Premises are free and clear
of any liens, privileges, mortgages or encumbrances except as
expressly permitted in the Mortgage;
<PAGE>
-3-
(iii) a usury opinion or endorsement to the title policy acceptable to
the holder if the holder reasonably believes that the Adjustment
Interest Rate is or may be usurious; and
(iv) reimbursement to the holder for costs incurred in obtaining a
title date down/report.
2. No privilege is reserved by the undersigned to prepay any principal of
this Note prior to the Maturity Date, except on or anytime after the
date hereof, privilege is reserved, after giving sixty (60) days' prior
written notice to the holder of this Note, to prepay in full, but not
in part, all principal and interest to the date of payment, along with
all sums, amounts, advances, or charges due under any instrument or
agreement by which this Note is secured, upon the payment of a "Make
Whole Premium." The Make Whole Premium shall be the greater of one
percent (1%) of the principal amount to be prepaid or a premium
calculated as provided in subparagraphs (a) through (c) below:
(a) Determine the "Reinvestment Yield." The Reinvestment Yield will
be equal to the yield on the applicable U.S. Treasury Issue
("primary issue")* published one week prior to the date of
prepayment and converted to an equivalent monthly compounded
nominal yield.
*In the event there is no market activity involving the primary
issue at the time of prepayment, the holder of this Note shall
choose a comparable Treasury Bond, Note or Bill ("secondary
issue") which the holder of this Note deems to be similar to the
primary issue's characteristics (i.e., rate, remaining time to
maturity, yield).
(b) Calculate the "Present Value of the Mortgage." The Present Value
of the Mortgage is the present value of the payments to be made
in accordance with this Note (all installment payments and any
remaining payment due on the Call Date, or if the Call Date has
already passed, on the Maturity Date) discounted at the
Reinvestment Yield for the number of months remaining from the
date of prepayment to the Call Date, or if the Call Date has
already passed, to the Maturity Date.
(c) Subtract the amount of the prepaid proceeds from the Present
Value of the Mortgage as of the date of prepayment. Any
resulting positive differential shall be the premium.
<PAGE>
-4-
As set forth above, the U.S. Treasury Issue applicable for each
prepayment period is as follows:
PREPAYMENT PERIOD U.S. TREASURY ISSUE
----------------- -------------------
To March 15, 2008 *
March 15, 2008 to February 15, 2018 *
*At this time there is not a U.S. Treasury Issue for this prepayment
period. At the time of prepayment, holder shall select in its sole and
absolute discretion a U.S. Treasury Issue with similar remaining time
to the end of the applicable prepayment period.
3. The undersigned agrees that if the holder of this Note accelerates the
whole or any part of the principal sum evidenced hereby, or applies any
proceeds as if such application had been made as a result of such
acceleration, pursuant to the provisions of the Mortgage and Security
Agreement of even date herewith between the undersigned and Principal
Mutual Life Insurance Company, the undersigned waives any right to
prepay said principal sum in whole or in part without premium and
agrees to pay, as yield maintenance protection and not as a penalty,
the "Make Whole Premium" defined herein.
Time is of the essence with respect to the payment of this note.
4. If any payment of principal, interest or premium is not made when due,
damages will be incurred by the holder of this Note, including
additional expense in handling overdue payments, the amount of which is
difficult and impractical to ascertain. The undersigned therefore
agrees to pay, upon demand, the sum of four cents ($.04) for each one
dollar ($1.00) of each said payment which becomes overdue as a
reasonable estimate of the amount of said damages, subject, however, to
the limitations contained in the second immediately succeeding
paragraph.
5. If any payment of principal, interest or premium is not made for a
period exceeding ten (10) days after due, or if any Event of Default
has occurred and is continuing under any instrument by which this Note
is, or may hereafter be, secured, the entire principal balance,
interest then accrued, and premium, whether or not otherwise then due,
shall at the option of the holder of this Note, become immediately due
and payable without demand or notice, and whether or not the holder of
this Note has exercised said option, interest shall accrue on the
entire principal balance, interest then accrued, and any premium then
due, at a rate equal to the lesser of (i) four percent (4%) per annum
above the then applicable rate of interest payable under this Note or
(ii) the maximum rate allowed by applicable law until fully paid or if
the holder of this Note has not exercised said option, for the duration
of such Event of Default.
6. Notwithstanding anything herein or in any of the Loan Documents to the
contrary, no provision contained herein or therein which purports to
obligate the undersigned to pay any amount of interest or any fees,
costs or expenses which are in excess of the maximum permitted by
<PAGE>
-5-
applicable law, shall be effective to the extent it calls for the
payment of any interest or other amount in excess of such maximum. All
agreements between the undersigned and the holder hereof, whether now
existing or hereafter arising and whether written or oral, are hereby
limited so that in no contingency, whether by reason of demand for
payment or acceleration of the maturity hereof or otherwise, shall the
interest contracted for, charged or received by the holder hereof
exceed the maximum amount permissible under applicable law. If, from
any circumstance whatsoever, interest would otherwise be payable to the
holder hereof in excess of the maximum lawful amount, the interest
payable to the holder hereof shall be reduced to the maximum amount
permitted under applicable law; and if from any circumstance the holder
hereof shall ever receive anything of value deemed interest by
applicable law in excess of the maximum lawful amount, an amount equal
to any excessive interest shall, at the option of the holder hereof, be
refunded to the undersigned or be applied to the reduction of the
principal hereof and not to the payment of interest or, if such
excessive interest exceeds the unpaid balance of principal hereof such
excess shall be refunded to the undersigned. This paragraph shall
control all agreements between the undersigned and the holder hereof.
7. The undersigned and any endorsers or guarantors waive presentment,
protest and demand, notice of protest, demand and dishonor and
nonpayment, and agree the due date of this Note or any installment may
be extended without affecting any liability hereunder, and further
promise to pay all reasonable costs and expenses, including attorney's
and paralegal's fees, incurred by the holder hereof in connection with
any default or in any proceeding (whether incurred in any trial,
appellate, bankruptcy, condemnation or any other proceeding) to
interpret and/or enforce any provision of this Note or any instrument
by which it is secured. No release of the undersigned from liability
hereunder shall release any other maker, endorser or guarantor hereof.
8. This Note is secured by instruments and agreements of even date
herewith executed and delivered by the undersigned to Principal Mutual
Life Insurance Company creating among other things legal and valid
encumbrances on and an assignment of all of the undersigned's interest
in any leases of certain Premises located in the County of Duval, State
of Florida. Terms used herein which are defined in such instruments or
agreements and not otherwise defined herein have the same definition as
in such instruments and agreements. In no event shall such documents be
construed inconsistently with the terms of this Note, and in the event
of any discrepancy between any such documents and this Note, the terms
hereof shall govern. The proceeds of this Note are to be used for
business, commercial, investment or other similar purposes, and no
portion thereof will be used for any personal, family or household use.
This Note shall be governed by and construed in accordance with the
laws of the State where the Premises is located.
9. (a) Notwithstanding any provision to the contrary in this Note, the
Mortgage of even date herewith, or any other instrument or
agreement by which this Note is secured (collectively referred
to herein as the "Loan Documents"), and except as otherwise
provided in this paragraph, the liability of the undersigned
under the Loan Documents shall be limited to the interest of the
undersigned in the Premises and the rents, issues, proceeds and
profits
<PAGE>
-6-
thereof. In the event of foreclosure of the liens evidenced by
the Loan Documents, no judgment for any deficiency upon the
indebtedness evidenced by the Loan Documents shall be sought or
obtained by the holder of this Note against the undersigned.
Nothing contained in this paragraph shall:
(i) limit or impair the right of the holder of this Note to
declare an Event of Default under the Loan Documents in
the event of the failure of the undersigned to make any
payment or to perform any obligation under any of the
Loan Documents within the time periods provided therein;
(ii) be construed as limiting the obligations of the
undersigned to any tenant under any lease of the
Premises;
(iii) in any way limit or impair the lien or enforcement of
the Loan Documents pursuant to the terms thereof; or
(iv) limit the obligations of any indemnitor or guarantor, if
any, of obligations of the undersigned under the Loan
Documents.
(b) Notwithstanding subparagraph (a) above, the undersigned shall be
personally liable to the holder of this Note for:
(i) failure of the undersigned to comply with paragraphs 2
(taxes and assessments) and 3 (insurance) of the
Mortgage;
(ii) any event or circumstance for which the undersigned
indemnifies the holder of this Note under paragraph 1(m)
(environmental indemnity) of the Mortgage or under any
separate Environmental Indemnity Agreement;
(iii) failure of the undersigned to pay utilities on or before
the date such payments are due;
(iv) operation and maintenance of the Premises;
(v) any sums expended by the holder of this Note in
fulfilling the obligations of the undersigned as lessor
under any lease of the Premises prior to a sale of the
Premises pursuant to foreclosure or power of sale, a
bona fide sale (permitted by the terms of paragraph 1(l)
of the Mortgage or consented to in writing by the holder
of this Note) to an unrelated third party or upon
conveyance to the holder of this Note of the Premises by
a deed acceptable to the holder of this Note in form and
content (each of which shall be referred to as a "Sale"
for purposes of this paragraph) or expended by the
holder of this Note after a Sale of the Premises for
obligations of the undersigned which arose prior to a
Sale of the Premises;
<PAGE>
-7-
(vi) any rents or other income regardless of type or source
of payment (including, but not limited to, CAM charges,
lease termination payments, refunds of any type,
prepayment of rents, settlements of litigation, or
settlements of past due rents) from the Premises which
the undersigned has received or has a right to receive
after an Event of Default under the Loan Documents or an
event which with the passage of time, the giving of
notice or both would constitute an Event of Default,
either or both of which have occurred and are
continuing, and which are not applied to (A) expenses of
operation and maintenance of the Premises and the taxes,
assessments, utility charges and insurance of the
Premises, taking into account sufficient reserves for
the same and for replacements and recurring items, and
(B) payment of principal, interest and other charges
when due under the Loan Documents; provided that any
payments to parties related to the undersigned shall be
considered expenses of operation only if they are at
market rates or fees consistent with market rates or
fees for the same or similar services;
(vii) any security deposits of tenants, together with any
interest on such security deposits required by law or
the leases, not turned over to the holder of this Note
upon conveyance of the Premises to the holder of this
Note pursuant to foreclosure or power of sale or by a
deed acceptable to the holder of this Note in form and
content;
(viii) misapplication or misappropriation of tax reserve
accounts, tenant improvement reserve accounts, security
deposits, prepaid rents or other similar sums paid to or
held by the undersigned or any other entity or person in
connection with the operation of the Premises;
(ix) any waste committed or allowed by the undersigned with
respect to the Premises; and
(x) any insurance or condemnation proceeds or other similar
funds or payments applied by the undersigned in a manner
other than as expressly provided in the Loan Documents.
(c) Notwithstanding anything to the contrary in the Loan Documents,
the limitation on liability contained in subparagraph (a) above
SHALL BECOME NULL AND VOID and shall be of no further force and
effect in the event:
(i) of any breach or violation of paragraph 1(l) (due on
sale or encumbrance) of the Mortgage, other than the
filing of a nonmaterial mechanic's lien affecting the
Premises, the granting of any utility or other
nonmaterial easement or servitude burdening the
Premises, or any other transfer or encumbrance not in
the nature of a transfer, reduction or impairment of any
material economic interest in the Premises; or
<PAGE>
-8-
(ii) of any fraud or willful misrepresentation by the
undersigned regarding the Premises, the making or
delivery of any of the Loan Documents or in any
materials or information provided by the undersigned in
connection with the loan; or
(iii) the undersigned gives any consent, exercises any right
or option or agrees to any changes to the lease with
Winn-Dixie Stores, Inc. dated June 4, 1982 as amended by
Memorandum of Lease dated June 3, 1983; Amendment to
Lease dated June 3, 1983; Supplemental Memorandum of
Lease dated August 22, 1983; and Amended and Restated
Lease dated July 14, 1997,, including but not limited to
any modification, amendment, termination, renewal and/or
extension without obtaining the holder of this Note's
prior written consent.
10. If more than one, all obligations and agreements of the undersigned are
joint and several.
11. This Note may not be changed or terminated orally, but only by an
agreement in writing and signed by the party against whom enforcement
of any waiver, change, modification or discharge is sought. All of the
rights, privileges and obligations hereunder shall inure to the benefit
of the heirs, successors and assigns of the holder hereof and shall
bind the heirs, successors and assigns of the undersigned.
The parties hereto intend and believe that each provision of this Note
comports with all applicable law. However, if any provision in this
Note is found by a court of law to be in violation of any applicable
law, and if such court should declare such provision of this Note to be
unlawful, void or unenforceable as written, then it is the intent of
all parties hereto that such provision shall be given full force and
effect to the fullest possible extent that it is legal, valid and
enforceable, that the remainder of this Note shall be construed as if
such unlawful, void or unenforceable provision were not contained
herein, and that the rights, obligations and interests of the
undersigned and the holder hereof under the remainder of this Note
shall continue in full force and effect.
AFTER CONSULTING WITH COUNSEL AND CAREFUL CONSIDERATION, THE
UNDERSIGNED AND THE HOLDER (BY ITS ACCEPTANCE HEREOF) KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE THE RIGHT EITHER OF THEM MAY HAVE
TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION ARISING OUT OF THIS
NOTE OR ANY OTHER INSTRUMENT OR AGREEMENT BY WHICH THIS NOTE IS, OR MAY
HEREAFTER BE, SECURED, OR OUT OF ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (ORAL OR WRITTEN), OR ACTIONS OF THE UNDERSIGNED OR
THE HOLDER. THIS WAIVER IS A MATERIAL INDUCEMENT TO THE HOLDER'S
ACCEPTANCE OF THIS NOTE.
<PAGE>
-9-
EQUITY ONE (COMMONWEALTH)
INC., a Florida corporation
By /s/ DORON VALERO
--------------------------------
Name: Doron Valero
Title: Vice President
Exhibit 10.29
Record and return to:
Principal Mutual Life Insurance Company
711 High Street
Des Moines, IA 50392
ATTN: Patrice Davis
MORTGAGE AND SECURITY AGREEMENT
D-751849
THIS MORTGAGE AND SECURITY AGREEMENT made as of February 18, 1998, by
and between EQUITY ONE (LANTANA) INC., a Florida corporation, having a principal
place of business and post office address at c/o Global Realty & Management,
Inc., 777 17th Street, Penthouse, Miami Beach, Florida 33139, herein called
Mortgagor, and PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, an Iowa corporation,
having its principal place of business and post office address at 711 High
Street, Des Moines, Iowa 50392, herein called Mortgagee,
WITNESSETH:
THAT Mortgagor is justly indebted to Mortgagee for money borrowed in
the principal sum of Four Million Four Hundred Thousand and 00/100 Dollars
($4,400,000.00), evidenced by Mortgagor's promissory note in the principal
amount of $1,700,000.00 and Mortgagor's promissory note in the principal amount
of $2,700,000.00, with each of said notes bearing even date herewith, made
payable and delivered to Mortgagee, and in which Mortgagor promises to pay to
Mortgagee the said principal sum or so much thereof as may be advanced from time
to time by Mortgagee, together with interest at the rate, at the times and in
installments as in each secured promissory note provided, until the entire
principal and accrued interest have been paid, but in any event, the principal
balance (if any) remaining due on each of the secured promissory notes shall be
due and payable on the fifteenth day of February, 2011 ("Maturity Date"). Each
secured promissory note is equally and ratably secured by this Mortgage, without
priority of one over the other. The $1,700,000.00 secured promissory note and
the $2,700,000.00 secured promissory note are hereinafter collectively referred
to as the "Note".
NOW, THEREFORE, to secure the payment of the said indebtedness in
accordance with the terms and conditions hereof and of the Note, and all
extensions, modifications and renewals thereof and the performance of the
covenants and agreements contained herein, and also to secure the payment of any
and all other indebtedness, direct or contingent, that may now or hereafter
become owing from Mortgagor to Mortgagee, and in consideration of Ten Dollars in
hand paid, receipt of which is hereby acknowledged, Mortgagor does by these
presents grant, bargain, sell, alien, convey, confirm, remise and release unto
Mortgagee, its successors and assigns forever, that certain real estate and all
of Mortgagor's estate, right, title and interest therein, located in the County
of Palm Beach, State of Florida, more particularly described in Exhibit A
attached hereto and made a part hereof, which real estate, together with the
following described property, rights and interests, is collectively referred to
herein as the "Premises."
<PAGE>
-2-
Together with Mortgagor's interest as lessor in and to all leases of the
said Premises, or any part thereof, heretofore or hereafter made and entered
into by Mortgagor during the life of this Mortgage or any extension or renewal
hereof and all rents, income, issues, proceeds and profits accruing and to
accrue from the Premises (which are pledged primarily and on a parity with the
real estate and not secondarily).
Together with all and singular the tenements, hereditaments, easements,
appurtenances, passages, waters, water courses, riparian rights, rights in trade
names, other rights, liberties and privileges thereof or in any way now or
hereafter appertaining, including homestead and any other claim at law or in
equity as well as any after-acquired title, franchise or license and the
reversion and reversions and remainder and remainders thereof.
Together with the right in case of foreclosure hereunder of the
encumbered property for Mortgagee to take and use the name by which the
buildings and all other improvements situated on the Premises are commonly known
and the right to manage and operate the said buildings under any such name and
variants thereof.
Together with all right, title and interest of Mortgagor in any and all
buildings and improvements of every kind and description now or hereafter
erected or placed on the said real estate and all materials intended for
construction, reconstruction, alteration and repairs of such buildings and
improvements now or hereafter erected thereon, all of which materials shall be
deemed to be included within the Premises immediately upon the delivery thereof
to the Premises, and all fixtures now or hereafter owned by Mortgagor and
attached to or contained in and used in connection with the Premises including,
but not limited to, all machinery, motors, elevators, fittings, radiators,
awnings, shades, screens, and all plumbing, heating, lighting, ventilating,
refrigerating, incinerating, air-conditioning and sprinkler equipment and
fixtures and appurtenances thereto; and all items of furniture, furnishings,
equipment and personal property owned by Mortgagor used or useful in the
operation of the Premises; and all renewals or replacements thereof or articles
in substitution therefor, whether or not the same are or shall be attached to
said buildings or improvements in any manner; it being mutually agreed, intended
and declared that all the aforesaid property owned by Mortgagor and placed by it
on the real estate or used in connection with the operation or maintenance of
the Premises shall, so far as permitted by law, be deemed to form a part and
parcel of the real estate and for the purpose of this Mortgage to be real estate
and covered by this Mortgage, and as to any of the property aforesaid which does
not so form a part and parcel of the real estate or does not constitute a
"fixture" (as such term is defined in the Uniform Commercial Code) this Mortgage
is hereby deemed to be, as well, a Security Agreement under the Uniform
Commercial Code for the purpose of creating hereby a security interest in such
property which Mortgagor hereby grants to Mortgagee as Secured Party. Mortgagor
agrees to execute any and all documents, including financing statements which
may be required to perfect the security interest granted hereby.
Together with all right, title and interest of Mortgagor, now or
hereafter acquired, in and to any and all strips and gores of land adjacent to
and used in connection with the Premises and all right, title and interest of
Mortgagor, now owned or hereafter acquired, in, to, over and under the ways,
streets, sidewalks and alleys adjoining the Premises.
Together with all funds now or hereafter held by Mortgagee under any
escrow security agreement or under any of the terms hereof, including but not
limited to funds held under the provisions of paragraph 4 hereof.
<PAGE>
-3-
TO HAVE AND TO HOLD the same unto the Mortgagee, its successors and
assigns forever, for the purposes and uses herein set forth.
Mortgagor represents that it is the absolute owner in fee simple of the
Premises described in Exhibit A, which Premises are free and clear of any liens
or encumbrances except as set out in Exhibit B attached hereto, and except for
taxes which are not yet due or delinquent. Mortgagor shall forever warrant and
defend the title to the Premises against all claims and demands of all persons
whomsoever and will on demand execute any additional instrument which may be
required to give Mortgagee a valid first lien on all of the Premises, except as
stated in Exhibit B.
Mortgagor further represents that: (i) the Premises is not subject to any
casualty damage; (ii) except as disclosed in the following reports: Phase I
Environmental Site Assessment Report dated October 1994 and Phase 1 Update -
Asbestos Screening - Phase II Testing Report dated October 1997, both conducted
by Environmental Property Audits Inc. (collectively the "Report"), there is no
Hazardous Material (as hereinafter defined) on the Premises, nor has any
Hazardous Material been discharged from the Premises or penetrated any surface
or subsurface rivers or streams crossing or adjoining the Premises or the
aquifer underlying the Premises; and (iii) Mortgagor has complied and caused the
Premises to comply with all Environmental Laws (as hereinafter defined) relating
to the Premises. "Hazardous Material(s)" as used in this Mortgage means any
hazardous or toxic material, substance, pollutant, contaminant or waste, or
similar terms, defined by or regulated as such under any Environmental Laws, but
shall not include (a) supplies for cleaning and maintenance in commercially
reasonable amounts required for use in the ordinary course of business, provided
such items are incidental to the use of the Premises and are stored and used in
compliance with all Environmental Laws, (b) standard office supplies in
commercially reasonable amounts required for use in the ordinary course of
business, provided such items are incidental to the use of the Premises and are
stored and used in compliance with all Environmental Laws, or (c) retail
tenants' inventory generally held for resale in a typical shopping center,
provided such inventory is stored and sold in compliance with Environmental Laws
(items referred to in clauses (a), (b) and (c) hereinafter sometimes referred to
as "Excluded Hazardous Material"). "Environmental Law(s)" as used in this
Mortgage means any federal, state or local law, whether common law, court or
administrative decision, ordinance, regulation, rule, court order or decree, or
administrative order or any administrative policy or guideline concerning action
levels of a governmental authority relating to the environment, public health,
any Hazardous Material or any Environmental Activity or Condition (as
hereinafter defined) on, under or about the Premises, in effect from time to
time, including, but not limited to (u) the Florida Pollutant Spill Prevention
and Control Act, Chapter 376, Florida Statutes; (v) the Florida Air and Water
Pollution Act, Chapter 403, Florida Statutes; (w) the Federal Water Pollution
Control Act, as amended (33 U.S.C. ss.1251 et seq.); (x) the Resource
Conservation and Recovery Act, as amended (42 U.S.C. ss.6901 et seq.); (y) the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
(42 U.S.C. ss.9601 et seq.); or (z) the Federal Clean Air Act, as amended (42
U.S.C. ss.7401 et seq.). "Environmental Activity or Condition" as used in this
Mortgage means the presence, use, generation, manufacture, production,
processing, storage, release, threatened release, discharge, disposal, treatment
or transportation of any Hazardous Material on, onto, in, under, over or from
the Premises, or the violation of any Environmental Law because of the condition
of, or activity on, the Premises.
<PAGE>
-4-
MORTGAGOR COVENANTS AND AGREES AS FOLLOWS:
1. Mortgagor shall
(a) pay each item of indebtedness secured by this Mortgage when
due according to the terms hereof and of the Note;
(b) pay a late charge equal to four percent (4%) of any payment
of principal, interest or premium which is not paid on or
before the due date thereof to cover the expense involved in
handling such late payment;
(c) pay on or before the due date thereof any indebtedness which
may be secured by a lien or charge on the Premises (except
for mechanic's liens, which are prohibited under paragraph
1(f) hereof), and upon request of Mortgagee exhibit
satisfactory evidence of the discharge thereof;
(d) complete within a reasonable time the construction of any
building now or at any time in process of construction upon
the real estate;
(e) make no material alteration to the Premises without the
prior written consent of Mortgagee, except such as are
required by law or ordinance;
(f) remove or demolish no building or other improvement at any
time a part of the Premises, and shall keep the Premises,
including the buildings and improvements, in good condition
and repair, without waste, and free from mechanics' liens or
other liens or claims for liens and encumbrances;
(g) comply, and cause each lessee or other user of the Premises
to comply, with all requirements of law and ordinance, and
all rules and regulations, now or hereafter enacted, by
authorities having jurisdiction of the Premises and the use
thereof, all orders and directions of the National Fire
Protection Association or similar body, and all covenants,
conditions and restrictions of record pertaining to the
Premises, including the buildings and improvements, and the
use thereof;
(h) cause or permit no change to be made in the general nature,
as of the date hereof, of the occupancy of the Premises
without Mortgagee's prior written consent;
(i) initiate or acquiesce in no zoning reclassification or
material change in zoning without Mortgagee's prior written
consent;
(j) make or permit no use of the Premises that could with the
passage of time result in the creation of any right of use,
or any claim of adverse possession or easement on, to or
against any part of the Premises in favor of any person or
the public;
<PAGE>
-5-
(k) subject to the provisions of paragraph 5(c) hereof, promptly
repair, restore or rebuild any buildings or improvements now
or hereafter a part of the Premises which may become damaged
or be destroyed by any cause whatsoever, so that upon
completion of the repair, restoration and rebuilding of the
buildings and improvements there will be no liens of any
nature arising out of the construction and the Premises will
be of substantially the same character and will have a
commercial value at least as great as the commercial value
thereof prior to the damage or destruction;
(l) not, directly or indirectly, due to assignment of beneficial
interest under a trust, partnership interest in a
partnership, or otherwise, cause or permit any sale,
transfer or conveyance of the Premises or create, suffer or
permit any encumbrance or lien on the Premises other than
the lien hereof, the leases of the Premises assigned to
Mortgagee and other exceptions expressly referred to herein
(except for mechanic's liens, which are prohibited under
paragraph 1(f) hereof), it being understood and agreed that
the indebtedness evidenced by the Note and its terms are
personal to Mortgagor and in accepting the same Mortgagee
has relied upon what it perceived as the willingness and
ability of Mortgagor to perform its obligations hereunder,
under the Note, and as lessor under leases of the Premises;
Mortgagee may consent to a sale, transfer, conveyance or
encumbrance and expressly waive this provision in writing to
Mortgagor however any such consent and waiver shall not
constitute any consent or waiver of this provision as to any
sale, transfer, conveyance or encumbrance other than that
for which the consent and waiver was expressly granted;
Mortgagee's ability to consent to any sale, transfer,
conveyance or encumbrance and waive this provision implies
no standard of reasonableness in determining whether or not
such consent shall be granted and the same may be based upon
what Mortgagee solely deems to be in its best interest;
without limiting Mortgagee's right to withhold its consent
and waiver entirely, such consent and waiver may be
conditioned upon an increase in the rate of interest under
the Note and the imposition of other terms and conditions
thereunder or hereunder; any sale, transfer, conveyance or
encumbrance made, created or permitted in violation of this
provision shall be null and void and in addition to the
other rights and remedies available to Mortgagee hereunder,
Mortgagee shall have the option of declaring the unpaid
principal balance of the Note, together with all accrued and
unpaid interest, premium, if any and all other sums and
charges evidenced thereby or owing hereunder, immediately
due and payable;
Notwithstanding anything hereinabove to the contrary,
Mortgagee does hereby consent to a one time sale, transfer
or conveyance of the Premises and subsequent assumption of
the obligations of Mortgagor under this Mortgage and the
Note secured hereby, subject to Mortgagee's approval of the
proposed purchaser which approval shall be conditioned upon
but not limited to, the proposed purchaser's
creditworthiness, financial strength and real estate
management expertise and subject to the payment of an
assumption fee in the amount of one percent (1%) of the then
outstanding principal balance of the Note to Mortgagee.
Mortgagor shall pay to Mortgagee a reasonable fee for the
handling of this transaction not to exceed $2,500.00.
<PAGE>
-6-
Further notwithstanding the above, Mortgagee does hereby
consent to transfers of the equity interest in Mortgagor
through a public offering of stock, subject to Mortgagee's
review and approval of the documentation in connection with
such offering and provided that in no event shall greater
than 75% of the original interest in Mortgagor be
transferred in the aggregate. Mortgagor shall pay to
Mortgagee the following fees in connection with the proposed
transfers: (i) any transfer(s) that results in a cumulative
transfer of up to 40% of the original stock ownership in
Mortgagor shall be subject to a fee not to exceed $7,500.00;
(ii) any transfer(s) that results in a cumulative transfer
of between 40% and 60% of the original stock ownership in
Mortgagor shall be subject to a fee not to exceed
$15,000.00; and (iii) any transfer(s) that results in a
cumulative transfer of between 60% and 75% of the original
stock ownership in Mortgagor shall be subject to a fee not
to exceed .75% of the outstanding indebtedness.
(m) not cause or permit any Hazardous Material to exist on or
discharge from the Premises, and comply and cause the
Premises to comply with all Environmental Laws and promptly:
(i) pay any claim against Mortgagor or the Premises due to
an Environmental Activity or Condition, (ii) remove any
charge or lien upon the Premises due to an Environmental
Activity or Condition, and (iii) indemnify, defend and hold
Mortgagee harmless from any and all claims, demands, loss or
damage, resulting from any Environmental Activity or
Condition; provided, however, that this indemnity does not
apply to any future Environmental Activity or Condition
resulting solely from any act or omission for which
Mortgagor bears no responsibility and which occurs after
Mortgagor or any person or entity in any way related to
Mortgagor no longer holds title to or has any interest in
the Premises;
(n) not cause or permit any Hazardous Material to exist on or
discharge from any property owned or used by Mortgagor which
would result in any charge or lien upon the Premises;
(o) notify Mortgagee of any Hazardous Material that exists on or
is discharged from the Premises within ten (10) days after
Mortgagor first has knowledge of such existence or
discharge;
(p) if other than a natural person, do all things necessary to
preserve and keep in full force and effect its existence,
franchises, rights and privileges under the laws of the
state of its formation and, if other than its state of
formation, the state where the Premises is located;
(q) do all things necessary to preserve and keep in full force
and effect Mortgagee's title insurance coverage insuring the
lien of this Mortgage as a first and prior lien, subject
only to the exceptions stated in Exhibit B and any other
exceptions after the date of this Mortgage approved in
writing by Mortgagee, including without limitation,
delivering to Mortgagee not less than 30 days prior to the
effective date of any rate adjustment, modification or
extension of the Note or this Mortgage, any new policy or
endorsement which may be required to assure Mortgagee of
such continuing coverage;
(r) not directly or indirectly, commit waste; and
<PAGE>
-7-
(s) pay or cause any lessee to pay all utilities on the Premises
prior to becoming delinquent.
2. (a) Mortgagor shall pay or cause to be paid when due and before
any penalty attaches or interest accrues all general taxes,
special taxes, assessments (including assessments for
benefits from public works or improvements whenever begun or
completed), water charges, sewer service charges, CAM
charges, if any, vault or space charges and all other like
charges against or affecting the Premises or against any
property or equipment located on the Premises, or which
might become a lien on the Premises, and shall, within 10
days following Mortgagee's request, furnish to Mortgagee a
duplicate receipt of such payment. If any such tax,
assessment or charge may legally be paid in installments,
Mortgagor may, at its option, pay such tax, assessment or
charge in installments.
(b) To prevent default hereunder Mortgagor shall pay in full,
under protest in the manner provided by law, any tax,
assessment or charge which Mortgagor may desire to contest;
PROVIDED, HOWEVER, that
(i) if contest of any tax, assessment or charge may be
made without the payment thereof, and
(ii) such contest shall have the effect of preventing the
collection of the tax, assessment or charge so
contested and the sale or forfeiture of the Premises
or any part thereof or any interest therein to
satisfy the same,
then Mortgagor may at its option and in its discretion and
upon the giving of written notice to Mortgagee of its
intended action and upon the furnishing to Mortgagee of such
security or bond as Mortgagee may require, contest any such
tax, assessment or charge in good faith and in the manner
provided by law. All costs and expenses incidental to such
contest shall be paid by Mortgagor. In the event of a ruling
or adjudication adverse to Mortgagor, Mortgagor shall
promptly pay such tax, assessment or charge. Mortgagor shall
indemnify and save harmless the Mortgagee and the Premises
from any loss or damage arising from such contest and shall,
if necessary to prevent sale, forfeiture or any other loss
or damage to the Premises or to the Mortgagee, pay such tax,
assessment or charge or take whatever action is necessary to
prevent any sale, forfeiture or loss.
3. (a) Mortgagor shall at all times keep in force (i) property
insurance insuring all buildings and improvements which now
are or hereafter become a part of the Premises for perils
covered by an all-risk insurance policy containing both
replacement cost and agreed amount endorsements or options;
(ii) commercial general liability insurance naming Mortgagee
as additional insured protecting Mortgagor and Mortgagee
against liability for bodily injury or property damage
occurring in, on or adjacent to the Premises in commercially
reasonable amounts; (iii) boiler and machinery insurance if
the property has a boiler or is an office building; (iv)
rental value insurance for the perils specified herein for
one hundred percent (100%) of the rents (including
<PAGE>
-8-
operating expenses, real estate taxes, assessments and
insurance costs which are lessee's liability) for a period
of twelve (12) months; and (v) insurance against all other
hazards as may be reasonably required by Mortgagee,
including, without limitation, insurance against loss or
damage by flood and earthquake.
(b) All insurance shall be in form, content and amounts approved
by Mortgagee and written by an insurance company or
companies rated A, class size X or better in the most
current issue of Best's Insurance Reports and which is
licensed to do business in the state in which the Premises
are located and domiciled in the United States or a
governmental agency or instrumentality approved by
Mortgagee. The policies for such insurance shall have
attached thereto standard mortgagee clauses in favor of and
permitting Mortgagee to collect any and all proceeds payable
thereunder and shall include a 30 day (except for nonpayment
of premium, in which case, a 10 day) notice of cancellation
clause in favor of Mortgagee. All policies or certificates
of insurance shall be delivered to and held by Mortgagee as
further security for the payment of the Note and any other
obligations arising under the Loan Documents, with evidence
of renewal coverage delivered to Mortgagee at least 30 days
before the expiration date of any policy. Not more
frequently than once every three years, if Mortgagee has a
reasonable belief that the replacement cost value is not
correct, it shall notify Mortgagor and Mortgagor, at its
expense, will furnish Mortgagee with an appraisal of the
full insurable replacement cost value of the Premises, made
by fire insurance appraisers satisfactory to Mortgagee and
fire insurance companies generally. Said appraisals shall
coincide with the appraisals, if any, used to determine
Mortgagee's appraised value of the Premises as required
pursuant to the Note secured hereby, unless required more
frequently by the insurer of the Premises. Mortgagor shall
not carry separate insurance, concurrent in kind or form and
contributing in the event of loss, with any insurance
required herein.
4. (a) Mortgagor shall deposit with and pay to Mortgagee, on each
payment date specified in the Note, a sum equivalent to: (1)
the taxes and assessments assessed or levied against and
next due on the Premises divided by the number of payments
that will become due and payable under the Note before the
date when such taxes and assessments will become due and
payable, PLUS UPON REQUEST OF MORTGAGEE (2) the premiums
that will next become due and payable for insurance required
by this Mortgage to be furnished by Mortgagor divided by the
number of payments that will become due and payable under
the Note before the date when such premiums will become due
and payable. Mortgagee shall use such deposits to pay the
taxes, assessments and premiums when the same become due.
Mortgagee shall not be liable for interest on such deposits.
Mortgagor shall procure and deliver to Mortgagee, in
advance, statements for such charges. If the total payments
made by Mortgagor under this paragraph plus interest, if
any, accrued thereon exceed the amount of payments actually
made by Mortgagee for taxes, assessments and insurance
premiums, such excess shall be credited by Mortgagee on
subsequent deposits to be made by Mortgagor. If, however,
the deposits are insufficient to pay the taxes, assessments
and insurance premiums when the same shall be due and
payable, Mortgagor will pay to Mortgagee any amount
necessary to make up the deficiency, five (5) business days
<PAGE>
-9-
before the date when payment of such taxes, assessments and
insurance premiums shall be due. If at any time Mortgagor
shall tender to Mortgagee, in accordance with the provisions
of the Note secured by this Mortgage, full payment of the
entire indebtedness represented thereby, Mortgagee shall, in
computing the amount of such indebtedness, credit to the
account of Mortgagor any balance remaining in the funds
accumulated and held by Mortgagee under the provisions of
this paragraph. If there is an Event of Default under any of
the provisions of this Mortgage resulting in a public sale
of the Premises, or if Mortgagee otherwise acquires the
Premises after an Event of Default, Mortgagee shall apply,
at the time of commencement of such proceedings, or at the
time the Premises is otherwise acquired, the balance then
remaining in the funds accumulated under this paragraph as a
credit on the interest accrued and unpaid and the balance to
the principal then remaining unpaid under the Note. The
provisions of this paragraph shall not affect the
enforceability of the covenants relating to taxes,
assessments and insurance premiums provided for in this
Mortgage except to the extent that obligations for the same
have been actually met by compliance with this paragraph.
(b) Any funds held under this paragraph shall not constitute any
deposit or account of the Mortgagor or moneys to which the
Mortgagor is entitled upon demand, or upon the mere passage
of time, or sums to which Mortgagor is entitled to any
interest or crediting of interest by virtue of Mortgagee's
mere possession of such deposits. Mortgagee shall not be
required to segregate such deposits or hold such deposits in
any separate account for the benefit of Mortgagor. Mortgagee
may hold such deposits in its general account or any other
account and may commingle such deposits with any other
moneys of Mortgagee or moneys which Mortgagee is holding on
behalf of any other person or entity. Mortgagor hereby
consents to the investment of such deposits by Mortgagee as
outlined herein.
<PAGE>
-10-
5. In the event of any damage to or destruction of the buildings or
improvements which are a part of the Premises:
(a) Mortgagor will immediately notify Mortgagee thereof in the
manner provided in this Mortgage for the giving of notices.
Mortgagee may in its discretion (and it is hereby authorized
to) either settle and adjust any claim under such insurance
policies, or allow Mortgagor to agree with the insurance
company or companies on the amount to be paid upon the loss.
In either case, the proceeds shall be paid to Mortgagee and
Mortgagee is authorized to collect and to give receipts
therefor. In the event Mortgagee elects to either settle or
adjust any claim under such insurance policies, and provided
there is no Event of Default or event which with the passage
of time or notice or both would constitute an Event of
Default which has occurred and is continuing, Mortgagor
shall have the right to participate in said settlement or
adjustment; provided, however, that any settlement or
adjustment shall be subject to the written approval of
Mortgagee.
(b) Such proceeds, after deducting therefrom any expenses
incurred in the collection thereof, including reasonable
attorneys' fees and costs, shall be applied at the option of
Mortgagee either to the cost of rebuilding and restoring the
buildings and improvements or in reduction of the
indebtedness secured hereby whether or not then due and
payable, provided however, that if no Event of Default has
occurred and Mortgagee has not otherwise previously
accelerated the whole or any part of the indebtedness
secured hereby, such reduction shall be without Make Whole
Premium. Any excess proceeds remaining after said
indebtedness is fully paid shall be promptly remitted to
Mortgagor.
(c) Regardless of the cause of the damage or destruction or the
availability or sufficiency of insurance proceeds until all
indebtedness secured hereby shall be fully paid, Mortgagor
shall be obligated to repair, restore and rebuild any
buildings or improvements so damaged or destroyed, provided
however, that if any insurance proceeds have been paid to
Mortgagee under any insurance policies maintained by
Mortgagor under the provisions of Paragraph 3 hereof,
Mortgagor shall be so obligated only if Mortgagee elects to
apply such proceeds to the cost of rebuilding and
restoration. Repair and restoration of the buildings and
improvements shall be commenced promptly after the
occurrence of the loss and shall be prosecuted to completion
diligently, and the buildings and improvements shall be so
restored and rebuilt as to be of at least equal value and
substantially the same character as prior to such damage and
destruction. In the event the estimated costs of rebuilding
and restoration exceed 25% of the indebtedness then
remaining unpaid as secured hereby, the drawings and
specifications pertaining to such rebuilding and restoration
shall be subject to the prior written approval of Mortgagee.
Notwithstanding anything to the contrary contained in this
Mortgage, such insurance proceeds shall be held by Mortgagee
without any allowance of interest and shall be made
available to
<PAGE>
-11-
reimburse Mortgagor for the cost of the rebuilding or
restoration of buildings or improvements on the Premises,
subject to paragraph 5(d) hereinbelow and the following
conditions:
(i) there has been no Event of Default or event which
with the passage of time or notice or both would
become an Event of Default under the Loan Documents;
(ii) the annual net operating income from all approved
executed leases in effect on the Premises with no
annual defaults shall equal or exceed 1.20 times the
annual debt service on the Note with approved leases
that have at least 2 years remaining prior to the
expiration of their term;
(iii) Winn-Dixie Stores, Inc. and Mortgagor confirm in
writing to the Mortgagee that (x) the tenant intends
to reoccupy the Premises after the restoration is
completed, (y) the lease is in full force and effect
and (z) no defaults have occurred and are continuing
thereunder;
(iv) Mortgagee approves the plans and specifications of
such work before such work is commenced;
(v) Mortgagor provides suitable completion or performance
bonds and builder's all risk insurance;
(vi) no insurer asserts any defense against Mortgagor or a
tenant under a lease covering all or any portion of
the Premises pursuant to any insurance policies
covering the improvements on the Premises;
(vii) there shall be sufficient funds on deposit with
Mortgagee at all times to complete the repair and
restoration, as certified from time to time by an
inspecting architect approved by Mortgagee;
(viii) said rebuilding or restoration shall be, in
Mortgagee's opinion, economically feasible;
(ix) Mortgagor is obligated to rebuild and restore the
damaged or destroyed buildings or improvements under
the terms of the leases approved by Mortgagee in
effect on the Premises;
(x) Mortgagor pays to Mortgagee a non-refundable
processing fee equal to the greater of $5,000.00 or
.5% of the amount of such proceeds within sixty (60)
days of the occurrence of any such damage or
destruction and before Mortgagee disburses any
proceeds;
(xi) the installment payments and any other sums that
become due and all obligations under the Loan
Documents shall be fully recourse obligations to
Mortgagor commencing upon Mortgagee's receipt of said
non-refundable processing fee and continuing until
such time
<PAGE>
-12-
as the rebuilding or restoration is completed in
accordance with the provisions contained herein; and
(xii) such other conditions to such disbursements, in
Mortgagee's discretion as would be customarily
required by a construction lender doing business in
the area.
If the foregoing conditions are not met, Mortgagee at its
option may require Mortgagor to use any proceeds to either
immediately rebuild any portion or all of the improvements
or apply the insurance proceeds to the reduction of the
indebtedness secured hereby, whether due or not, without the
imposition of a premium. Mortgagor agrees and acknowledges
that all such proceeds shall be deemed to be "Cash
Collateral" as that term is defined in Section 363 of the
Bankruptcy Code in any bankruptcy proceeding of Mortgagor.
(d) In the event that Mortgagor is to be reimbursed out of the
insurance proceeds, such proceeds shall be made available
from time to time upon the furnishing to Mortgagee of
satisfactory evidences of the estimated cost of completion
thereof and such architect's certificates, waivers of lien,
contractor's sworn statements, and other evidence of cost
and of payment and of the continued priority of the lien
hereof over any potential liens of mechanics and materialmen
as Mortgagee may require and approve. No payment made by
Mortgagee prior to the final completion of the work shall,
together with all payments theretofore made, exceed 90% of
the cost of the work performed to the time of payment, and
at all times the undisbursed balance of said proceeds shall
be at least sufficient to pay for the cost of completion of
the work free and clear of liens. Any proceeds remaining
after payment of the cost of rebuilding and restoration
shall, at the option of Mortgagee, either be applied in
reduction of the indebtedness secured hereby, provided,
however, that if no Event of Default has occurred and
Mortgagee has not otherwise previously accelerated the whole
or any part of the indebtedness secured hereby, such
reduction shall be without Make Whole Premium, or paid to
Mortgagor.
(e) Should such damage or destruction occur after foreclosure or
sale proceedings have been instituted, the proceeds of any
such insurance policy or policies, if not applied in
rebuilding or restoration of the buildings or improvements,
shall be used to pay the indebtedness, then due and owing in
the event of a non-judicial sale or the amount due in
accordance with any decree of foreclosure or deficiency
judgment that may be entered in connection with such
proceedings, and the balance, if any, shall be paid to the
owner of the equity of redemption if he shall then be
entitled to the same, or otherwise as any court having
jurisdiction may direct. Following any foreclosure sale, or
other sale of the Premises by Mortgagee pursuant to the
terms hereof, Mortgagee is authorized without the consent of
Mortgagor to assign any and all insurance policies to the
purchaser at the sale and to take such other steps as
Mortgagee may deem advisable to cause the interests of such
purchaser to be protected by any of such insurance policies.
<PAGE>
-13-
6. Mortgagor hereby assigns, transfers and sets over to Mortgagee the
entire proceeds of any award or claim for damage to any of the
Premises taken or damaged under the power of eminent domain or by
condemnation. In the event of the commencement of any eminent
domain or condemnation proceeding affecting the Premises:
(a) Mortgagor shall notify Mortgagee thereof in the manner
provided in this Mortgage for the giving of notices.
Mortgagee may participate in such proceeding, and Mortgagor
shall deliver to Mortgagee all documents requested by it to
permit such participation.
(b) Mortgagee may elect to apply the proceeds of the award upon
or in reduction of the indebtedness secured hereby whether
or not then due and payable, provided however, that if no
Event of Default has occurred and Mortgagee has not
otherwise previously accelerated the whole or any part of
the indebtedness secured hereby, such reduction shall be
without Make Whole Premium, or require Mortgagor to restore
or rebuild, in which event the proceeds shall be held by
Mortgagee and used to reimburse Mortgagor for the cost of
restoring and rebuilding all buildings and improvements in
accordance with plans and specifications to be submitted to
and approved by Mortgagee.
Notwithstanding anything to the contrary contained in this
Mortgage, such condemnation proceeds shall be held by
Mortgagee without any allowance of interest and shall be
made available to reimburse Mortgagor for the cost of the
rebuilding or restoration of buildings or improvements on
the Premises, subject to paragraph 6(c) hereinbelow and the
following conditions:
(i) there has been no Event of Default or event which
with the passage of time or notice or both would
become an Event of Default under the Loan Documents;
(ii) the annual net operating income from all approved
executed leases in effect on the Premises with no
annual defaults shall equal or exceed 1.20 times the
annual debt service on the Note with approved leases
that have at least 2 years remaining prior to the
expiration of their term;
(iii) Winn-Dixie Stores, Inc. and Mortgagor confirm in
writing to the Mortgagee that (x) the tenant intends
to reoccupy the Premises after the restoration is
completed, (y) the lease is in full force and effect
and (z) no defaults have occurred and are continuing
thereunder;
(iv) Mortgagee approves the plans and specifications of
such work before such work is commenced;
(v) Mortgagor provides suitable completion or performance
bonds and builder's all risk insurance;
<PAGE>
-14-
(vi) there shall be sufficient funds on deposit with
Mortgagee at all times to complete the repair and
restoration, as certified from time to time by an
inspecting architect approved by Mortgagee;
(vii) said rebuilding or restoration shall be, in
Mortgagee's opinion, economically feasible;
(viii) Mortgagor is obligated to rebuild and restore the
damaged or destroyed buildings or improvements under
the terms of the leases approved by Mortgagee in
effect on the Premises;
(ix) Mortgagor pays to Mortgagee a non-refundable
processing fee equal to the greater of $5,000.00 or
.5% of the amount of such proceeds within sixty (60)
days of the occurrence of any such damage or
destruction and before Mortgagee disburses any
proceeds;
(x) the installment payments and any other sums that
become due and all obligations under the Loan
Documents shall be fully recourse obligations to
Mortgagor commencing upon Mortgagee's receipt of said
non-refundable processing fee and continuing until
such time as the rebuilding or restoration is
completed in accordance with the provisions contained
herein; and
(xi) such other conditions to such disbursements, in
Mortgagee's discretion as would be customarily
required by a construction lender doing business in
the area.
If the foregoing conditions are not met, Mortgagee at its
option may require Mortgagor to use any proceeds to either
immediately rebuild any portion or all of the improvements
or apply the condemnation proceeds to the reduction of the
indebtedness secured hereby, whether due or not, without the
imposition of a premium. Mortgagor agrees and acknowledges
that all such proceeds shall be deemed to be "Cash
Collateral" as that term is defined in Section 363 of the
Bankruptcy Code in any bankruptcy proceeding of Mortgagor.
(c) In the event Mortgagee elects to reimburse Mortgagor for the
costs of restoring and rebuilding the Premises, then the
proceeds of the award shall be paid out in the same manner
as provided in this Mortgage for the payment of insurance
proceeds in reimbursement of the costs of rebuilding and
restoration. If the amount of such award is insufficient to
cover the cost of restoring and rebuilding, Mortgagor shall
pay such cost in excess of the award before being entitled
to reimbursement out of the award. Any proceeds remaining
after payment of cost of restoring and rebuilding shall, at
the option of Mortgagee, either be applied on account of the
indebtedness secured hereby, provided, however, that if no
Event of Default has occurred and Mortgagee has not
otherwise previously accelerated the whole or any part of
the indebtedness secured hereby, such reduction shall be
without Make Whole Premium, or be paid to Mortgagor.
<PAGE>
-15-
7. If by the laws of the United States of America or of any state or
governmental subdivision having jurisdiction of Mortgagor or of
the Premises or of the transaction evidenced by the Note and this
Mortgage, any tax or fee is due or becomes due in respect of the
issuance of the Note hereby secured or the making, recording and
registration of this Mortgage, except for Mortgagee's income tax,
Mortgagor covenants and agrees to pay such tax or fee in the
manner required by such law, and to hold harmless and indemnify
Mortgagee, its successors and assigns, against any liability
incurred by reason of the imposition of any such tax or fee.
8. In the event of the enactment after the date hereof of any
applicable law deducting from the value of land for the purpose of
taxation any lien thereon, or imposing upon Mortgagee the payment
of the whole or any part of the taxes or assessments or charges or
liens herein required to be paid by Mortgagor, or changing in any
way the laws relating to the taxation of mortgages or debts
secured by mortgages or Mortgagee's interest in the Premises, or
the manner of collection of taxes, so as to affect this Mortgage
or the debt secured hereby or the holder thereof, except for
Mortgagee's income tax, then and in any such event Mortgagor
shall, upon demand by Mortgagee, pay such taxes or assessments or
reimburse Mortgagee therefor; PROVIDED, HOWEVER, that, if in the
opinion of counsel for Mortgagee (a) it might be unlawful to
require Mortgagor to make such payment or (b) the making of such
payment might be construed as imposing a rate of interest beyond
the maximum permitted by law, then and in such event Mortgagee may
elect to declare all of the indebtedness secured hereby to be and
become due and payable 60 days from the giving of written notice
of such election to Mortgagor, provided, however, that if no Event
of Default has occurred and Mortgagee has not otherwise previously
accelerated the whole or any part of the indebtedness secured
hereby, such payment shall be without Make Whole Premium.
9. (a) Upon the occurrence of any Event of Default under this
Mortgage, Mortgagee may, but need not, make any payment or
perform any act herein required of Mortgagor, in any form
and manner deemed expedient and may, but need not, make full
or partial payments of principal or interest on prior
encumbrances, if any, and purchase, discharge, compromise or
settle any tax lien or other prior lien or title or claim
thereof, or redeem from any tax sale or forfeiture affecting
said Premises, or contest any tax or assessment. All moneys
paid for any of the purposes herein authorized and all
reasonable expenses paid or incurred in connection
therewith, including reasonable attorneys' fees and costs
and reasonable attorneys' fees and costs on appeal, and any
other money advanced by Mortgagee to protect the Premises
and the lien hereof, shall be so much additional
indebtedness secured hereby and shall become immediately due
and payable without notice and with interest thereon at the
Default Rate (as hereinafter defined) from the date of
expenditure or advance until paid.
(b) In making any payment hereby authorized relating to taxes or
assessments or for the purchase, discharge, compromise or
settlement of any prior lien, Mortgagee may make such
payment according to any bill, statement or estimate secured
from the appropriate public office without inquiry into the
accuracy thereof or into the validity of any tax,
assessment, sale, forfeiture, tax
<PAGE>
-16-
lien or title or claim thereof or without inquiry as to the
validity or amount of any claim for lien which may be
asserted.
10. If one or more of the following events (herein called "Events of
Default") shall have occurred:
(a) default shall be made in the payment of any principal,
interest or premium, utilities, taxes or assessments
referred to in this Mortgage or insurance premiums for the
insurance required pursuant to this Mortgage when due under
the Note or this Mortgage, and such default shall have
continued for 10 days; or
(b) Mortgagor or any general partner of Mortgagor shall be
dissolved, or a decree or order for relief shall be entered
by a court having jurisdiction in respect of Mortgagor or
any general partner of Mortgagor in a voluntary or
involuntary case under the Federal Bankruptcy Code as now or
hereafter constituted, or Mortgagor or any general partner
of Mortgagor shall file a voluntary petition in bankruptcy
or for reorganization or an arrangement or any composition,
readjustment, liquidation, dissolution or similar relief
pursuant to any similar present or future state or federal
bankruptcy law, or shall be adjudicated a bankrupt or become
insolvent, or shall commit any act of bankruptcy as defined
in such law, or shall take any action in furtherance of any
of the foregoing; or
(c) a petition or answer shall be filed proposing the
adjudication of Mortgagor or any general partner of
Mortgagor as a bankrupt or its reorganization or
arrangement, or any composition, readjustment, liquidation,
dissolution or similar relief with respect to it pursuant to
any present or future federal or state bankruptcy or similar
law, and Mortgagor or any general partner of Mortgagor shall
consent to the filing thereof, or such petition or answer
shall not be discharged within 60 days after the filing
thereof; or
(d) by the order of a court of competent jurisdiction, a
receiver, trustee or liquidator of the Premises or any part
thereof or of Mortgagor or any general partner of Mortgagor
or of substantially all of its assets shall be appointed and
shall not be discharged or dismissed within 60 days after
such appointment, or if Mortgagor or any general partner of
Mortgagor shall consent to or acquiesce in such appointment;
or
(e) with respect to the matters not described in the other
subparagraphs of this paragraph 10, default shall be made in
the due observance or performance of any covenant, condition
or agreement of the Mortgagor contained in this Mortgage,
the Note and Assignment of Leases and Rents of even date
herewith from Mortgagor to Mortgagee or in any other
instrument or agreement by which the Note is secured (the
"Loan Documents"), and such default shall have continued for
30 days after notice specifying such default is given by
Mortgagee to Mortgagor; or
<PAGE>
-17-
(f) any representation or warranty made by Mortgagor in the Loan
Documents shall prove to be untrue or inaccurate in any
material respect; or
(g) the failure of Mortgagor to give notice to Mortgagee in the
manner provided in this Mortgage for the giving of notices
within 30 days after the death of any natural person who is
personally liable for the payment of the indebtedness
secured hereby or any part thereof, whether such person is
the Mortgagor or any indemnitor or guarantor and whether or
not such person has executed the Note or this Mortgage; or
(h) the death of any natural person who is personally liable for
the payment of the indebtedness secured hereby or any part
thereof, whether such person is the Mortgagor or any
indemnitor or guarantor and whether or not such person has
executed the Note or this Mortgage or the death of any
general partner of Mortgagor; or
(i) the failure of the Guarantor, Equity One, Inc. (under that
certain Guaranty of even date herewith) to maintain a
minimum net worth of Ten Million and 00/100 Dollars
($10,000,000.00), as determined by Mortgagee;
then, in each and every such case, the whole of said principal sum
hereby secured shall, at the option of the Mortgagee and without
further notice to Mortgagor, become immediately due and payable
together with accrued interest thereon and a Make Whole Premium
calculated in accordance with the provisions hereof, and whether
or not Mortgagee has exercised said option, interest shall accrue
on the entire principal balance and any interest or premium then
due, at the Default Rate until fully paid or if Mortgagee has not
exercised said option, for the duration of any Event of Default.
If any default under "(e)" above shall be of such nature that it
cannot be cured or remedied within 30 days, Mortgagor shall be
entitled to a reasonable period of time to cure or remedy such
Event of Default, provided Mortgagor commences the cure or remedy
thereof within the 30 day period following the giving of notice
and thereafter proceeds with diligence to complete such cure or
remedy.
11. Mortgagor agrees that if Mortgagee accelerates the whole or any
part of the principal sum hereby secured, or applies any proceeds
as if such application had been made as a result of such
acceleration, pursuant to the provisions hereof, Mortgagor waives
any right to prepay the principal sum hereby secured in whole or
in part without premium and agrees to pay, as yield maintenance
protection and not as a penalty, a "Make Whole Premium," except as
otherwise provided herein. The Make Whole Premium shall be the
greater of one percent (1%) of the principal amount to be prepaid
or a premium calculated as follows:
(a) Determine the "Reinvestment Yield." The Reinvestment Yield
will be equal to the yield on the applicable U.S. Treasury
Issue ("primary issue")* published one week prior to the
date of prepayment and converted to an equivalent monthly
compounded nominal yield.
<PAGE>
-18-
*In the event there is no market activity involving the
primary issue at the time of prepayment, Mortgagee shall
choose a comparable Treasury Bond, Note or Bill ("secondary
issue") which Mortgagee deems to be similar to the primary
issue's characteristics (i.e., rate, remaining time to
maturity, yield).
(b) Calculate the "Present Value of the Mortgage." The Present
Value of the Mortgage is the present value of the payments
to be made in accordance with the Note (all installment
payments and any remaining payment due on the Call Date (as
defined in the Note), or if the Call Date has already
passed, on the Maturity Date) discounted at the Reinvestment
Yield for the number of months remaining from the date of
prepayment to the Call Date, or if the Call Date has already
passed, to the Maturity Date. In the event of a partial
prepayment as a result of the aforementioned application of
proceeds, the Present Value of the Mortgage shall be
calculated in accordance with the preceding sentence
multiplied by the fraction which results from dividing the
amount of the prepaid proceeds by the principal balance
immediately prior to prepayment.
(c) Subtract the amount of the prepaid proceeds from the Present
Value of the Mortgage as of the date of prepayment. Any
resulting positive differential shall be the premium.
As set forth above, the U.S. Treasury Issue applicable for
each prepayment period is as follows:
PREPAYMENT PERIOD U.S. TREASURY ISSUE
----------------- -------------------
To March 15, 2005 February 2005n 7 1/2
March 15, 2005 to February 15, 2011 *
*At this time there is not a U.S. Treasury Issue for this
prepayment period. At the time of prepayment Mortgagee shall
select in its sole and absolute discretion a U.S. Treasury
Issue with similar remaining time to maturity as the Note.
12. Upon the occurrence of any Event of Default, in addition to any
other rights or remedies provided in the Loan Documents, at law,
in equity or otherwise, Mortgagee shall have the right to
foreclose the lien hereof, and to the extent permitted herein and
by applicable law to sell the Premises by sale independent of the
foreclosure proceedings. In any suit to foreclose the lien hereof,
and in any sale of the Premises, there shall be allowed and
included as additional indebtedness payable by Mortgagor to
Mortgagee and secured hereby all expenditures and expenses which
may be paid or incurred by or on behalf of Mortgagee for
attorneys' fees and costs, including attorneys' fees and costs on
appeal, appraisers' fees, expenditures for documentary and expert
evidence, stenographer's charges, publication and advertising
costs, survey costs, environmental audits and costs (which may be
estimated as to items to be expended after the entry of any
decree) of procuring all such abstracts of title, title searches
and examinations, title insurance policies, Torrens certificates
and similar data and assurances with respect to title as Mortgagee
deems reasonably necessary either to prosecute such
<PAGE>
-19-
suit or to consummate such sale or to evidence to bidders at any
sale the true condition of the title to or the value of the
Premises.
13. The proceeds of any foreclosure sale, or other sale of the
Premises in accordance with the terms hereof or as permitted by
law, shall be distributed and applied in the following order of
priority: First, to the payment of all costs and expenses incident
to the foreclosure and/or sale proceedings, including all items as
are mentioned in any preceding or succeeding paragraph hereof;
second, to the payment of all other items which under the terms
hereof constitute secured indebtedness in addition to that
evidenced by the Note, with interest thereon as herein provided;
third, to the payment of all principal and accrued interest
remaining unpaid on the Note; fourth, any surplus to the
Mortgagor, its successors or assigns, as their rights may appear.
14. During the continuance of any Event of Default, Mortgagor shall
forthwith upon demand of Mortgagee surrender to Mortgagee
possession of the Premises, and Mortgagee shall be entitled to
take actual possession of the Premises or any part thereof
personally or by its agents or attorneys, and Mortgagee in its
discretion may, with or without force and with or without process
of law, enter upon and take and maintain possession of all or any
part of the Premises together with all documents, books, records,
papers and accounts of the Mortgagor or the then owner of the
Premises relating thereto, and may exclude Mortgagor, its agents
or assigns wholly therefrom, and may as attorney-in-fact or agent
of the Mortgagor, or in its own name as Mortgagee and under the
powers herein granted:
(a) hold, operate, manage or control the Premises and conduct
the business, if any, thereof, either personally or by its
agents, and with full power to use such measures, legal or
equitable, as in its discretion it deems proper or necessary
to enforce the payment or security of the income, rents,
issues and profits of the Premises, including actions for
the recovery of rent, actions in forcible detainer and
actions in distress for rents, hereby granting full power
and authority to exercise each and every of the rights,
privileges and powers herein granted at any and all times
hereafter, without notice to Mortgagor;
(b) cancel or terminate any lease or sublease for any cause or
on any ground which would entitle Mortgagor to cancel the
same;
(c) elect to cancel any lease or sublease made subsequent to
this Mortgage or subordinated to the lien hereof unless this
Mortgage has specifically been made subordinate to such
lease or sublease;
(d) extend or modify any then existing leases and make new
leases, which extensions, modifications or new leases may
provide for terms to expire, or for options to lessees to
extend or renew terms to expire, beyond the Maturity Date of
the Note and the issuance of a deed or deeds to a purchaser
or purchasers at a foreclosure sale, it being understood and
agreed that any such leases, and the options or other such
provisions to be contained therein, shall be binding upon
<PAGE>
-20-
Mortgagor and all persons whose interests in the Premises
are subject to the lien hereof and shall be binding also
upon the purchaser or purchasers at any foreclosure sale,
notwithstanding any redemption from sale, discharge of the
indebtedness secured hereby, satisfaction of any foreclosure
decree, or issuance of any certificate of sale or deed to
any purchaser;
(e) make all necessary or proper repairs, decorating, renewals,
replacements, alterations, additions, betterments and
improvements to the Premises as it may deem judicious,
insure and reinsure the same and all risks incidental to
Mortgagee's possession, operation and management thereof,
and receive all income, rents, issues and profits.
Mortgagee shall not be obligated to perform or discharge, nor does
it hereby undertake to perform or discharge, any obligation, duty
or liability under any lease, and the Mortgagor shall and does
hereby agree to indemnify and to hold Mortgagee harmless of and
from all liability, loss or damage which it might incur under said
leases or under or by reason of the assignment thereof, and of and
from any and all claims or demands whatsoever which may be
asserted against it by reason of any alleged obligations or
undertakings on its part to perform or discharge any of the terms,
covenants or agreements contained in said leases. Should Mortgagee
incur any such liability, loss or damage under any of said leases,
or under or by reason of the assignment thereof, or in the defense
of any claims or demands, the amount thereof, including costs,
expenses and reasonable attorneys' fees and costs, including
reasonable attorneys' fees and costs on appeal, shall be secured
hereby and Mortgagor shall reimburse Mortgagee therefor
immediately upon demand, together with interest at the Default
Rate from the date of payment by Mortgagee to the date of
reimbursement.
15. Mortgagee in the exercise of the rights and powers conferred upon
it shall have the full power to use and apply the avails, rents,
issues and profits of the Premises to the payment of or on account
of the following, at the election of Mortgagee and in such order
as Mortgagee may determine:
(a) to the payment of the expenses of operating the Premises,
including cost of management and leasing thereof (which
shall include reasonable compensation to Mortgagee and its
agent or agents if management is delegated to an agent or
agents, and shall also include lease commissions and other
compensation and expenses of seeking and procuring tenants
and entering into leases), established claims for damages,
if any, and premiums on insurance as hereinabove authorized;
(b) to the payment of taxes and special assessments now due or
which may hereafter become due on the Premises;
(c) to the payment of all repairs, decorating, renewals,
replacements, alterations, additions, betterments and
improvements of the Premises and of placing the Premises in
such condition as will in the judgment of Mortgagee make it
readily rentable; and/or
<PAGE>
-21-
(d) to the payment of any principal, interest or other
indebtedness secured hereby or any deficiency which may
result from any foreclosure sale.
16. During the continuance of any Event of Default under this
Mortgage, Mortgagee may apply to any court having jurisdiction for
the appointment of a receiver of the Premises. Such appointment
may be made either before or after sale, without notice, without
regard to the solvency or insolvency of Mortgagor at the time of
application for such receiver and without regard to the then value
of the Premises or the adequacy of Mortgagee's security. Mortgagee
or any holder of the Note may be appointed as such receiver. The
receiver shall have power to collect the rents, issues and profits
of the Premises during the pendency of any foreclosure proceedings
and, in case of a sale, during the full redemption period, if any,
as well as during any further times when Mortgagor, except for the
intervention of such receiver, would be entitled to collect such
rents, issues and profits. In addition, the receiver shall have
all other powers which shall be necessary or are usual in such
cases for the protection, possession, control, management and
operation of the Premises during the whole of said period. The
court from time to time may authorize the receiver to apply the
net income in his hands at Mortgagee's election and in such order
as Mortgagee may determine in payment in full or in part of:
(a) principal, interest and all other indebtedness secured
hereby or provided by any decree foreclosing this Mortgage,
or any tax, special assessment or other lien which may be or
become superior to the lien hereof or of such decree,
provided such application is made prior to foreclosure sale;
and
(b) the deficiency in case of a sale and deficiency.
17. (a) Mortgagor agrees that all reasonable costs, charges and
expenses, including reasonable attorneys' fees, incurred or
expended by Mortgagee arising out of or in connection with
any action, proceeding or hearing, legal, equitable or
quasi-legal, including the preparation therefor and any
appeal therefrom, in any way affecting or pertaining to this
Mortgage, the Note, any other instrument or agreement
securing the Note, or the Premises, shall be promptly paid
by Mortgagor. All such sums not promptly paid by Mortgagor
shall be added to the indebtedness secured hereby and shall
bear interest at the Default Rate from the date of such
advance and shall be due and payable on demand.
(b) Mortgagor hereby agrees that upon the occurrence of an Event
of Default and the acceleration of the principal sum secured
hereby pursuant to this Mortgage, to the full extent that
such rights can be lawfully waived, Mortgagor hereby waives
and agrees not to insist upon, plead, or in any manner take
advantage of, any notice of acceleration, any stay,
extension, exemption, homestead, marshaling or moratorium
law or any law providing for the valuation or appraisement
of all or any part of the Premises prior to any sale or
sales thereof under any provision of this Mortgage or before
or after any decree, judgment or order of any court or
confirmation thereof, or claim or exercise any right to
redeem all or any part of the Premises so
<PAGE>
-22-
sold and hereby expressly waives to the full extent
permitted by applicable law on behalf of itself and each and
every person or entity acquiring any right, title or
interest in or to all or any part of the Premises, all
benefit and advantage of any such laws which would otherwise
be available to Mortgagor or any such person or entity, and
agrees that neither Mortgagor nor any such person or entity
will invoke or utilize any such law to otherwise hinder,
delay or impede the exercise of any remedy granted or
delegated to Mortgagee herein but will permit the exercise
of such remedy as though any such laws had not been enacted.
Mortgagor hereby further expressly waives to the full extent
permitted by applicable law on behalf of itself and each and
every person or entity acquiring any right, title or
interest in or to all or any part of the Premises any and
all rights of redemption from any sale or any order or
decree of foreclosure obtained pursuant to provisions of
this Mortgage.
18. Mortgagee, at its option, is authorized to foreclose this Mortgage
subject to the rights of any tenants of the Premises, and the
failure to make any such tenants parties defendant to any
foreclosure proceedings or to foreclose their rights or the
failure to disturb the possession of any such tenants after
foreclosure will not be, nor may it be asserted by Mortgagor as a
defense to any proceedings instituted by Mortgagee to collect the
sums secured hereby or to collect any deficiency remaining unpaid
after the foreclosure sale of the Premises.
19. Mortgagor hereby assigns to Mortgagee directly and absolutely, and
not merely collaterally, the rents, issues, profits, royalties,
and payments payable under any lease of the Premises, or portion
thereof, including any oil, gas or mineral lease, or any
installments of money payable pursuant to any agreement or any
sale of the Premises or any part thereof, subject only to a
license, if any, granted by Mortgagee to Mortgagor with respect
thereto prior to the occurrence of a default hereunder. Mortgagee,
without regard to the adequacy of any security for the
indebtedness hereby secured, shall be entitled to (a) collect such
rents, issues, profits, royalties, payments and installments of
money and apply the same as more particularly set forth in this
paragraph, all without taking possession of the Premises, or (b)
enter and take possession of the Premises or any part thereof, in
person, by agent, or by a receiver to be appointed by the court
and to sue for or otherwise collect such rents, issues, profits,
royalties, payments and installments of money. Mortgagee may apply
any such rents, issues, profits, royalties, payments and
installments of money so collected, less costs and expenses of
operation and collection, including reasonable attorneys' fees and
costs and reasonable attorneys' fees and costs on appeal, upon any
principal, interest and all other indebtedness secured hereby, at
Mortgagee's option and in such order as Mortgagee may determine,
and, if such costs and expenses and reasonable attorneys' fees and
costs shall exceed the amount collected, the excess shall be
immediately due and payable. The collection of such rents, issues,
profits, royalties, payments and installments of money and the
application thereof as aforesaid shall not cure or waive any Event
of Default or notice of default hereunder or invalidate any act
done pursuant to such notice, except to the extent any such Event
of Default is fully cured. Failure or discontinuance of Mortgagee
at any time, or from time to time, to collect any such moneys
shall not impair in any manner the subsequent enforcement by
Mortgagee of the right, power and authority herein conferred on
Mortgagee. Nothing contained herein, including the exercise of any
right, power or authority herein granted to
<PAGE>
-23-
Mortgagee, shall be, or be construed to be, an affirmation by
Mortgagee of any tenancy, lease or option, or an assumption of
liability under, or the subordination of the lien or charge of
this Mortgage to any such tenancy, lease or option. Mortgagor
hereby agrees that, in the event Mortgagee exercises its rights as
in this paragraph provided, Mortgagor waives any right to
compensation for the use of Mortgagor's furniture, furnishings or
equipment in the Premises for the period such assignment of rents
or receivership is in effect, it being understood that the rents,
issues, profits, royalties, payments and installments of money
derived from the use of any such items shall be applied to
Mortgagor's obligations hereunder as above provided.
20. (a) Mortgagor has executed and delivered that certain
Assignment of Leases and Rents of even date herewith
assigning to Mortgagee directly and absolutely, and not
merely collaterally, the interest of Mortgagor as lessor
under the existing leases of the Premises, as well as all
other leases which may hereafter be made in respect of the
Premises, and the rents and other income arising thereunder
and from the use of the Premises. Said Assignment of Leases
and Rents grants to Mortgagee specific rights and remedies
in respect of said leases and governs the collection of
rents and other income thereunder and from the use of the
Premises, and such rights and remedies so granted shall be
cumulative of those granted herein.
(b) Mortgagor shall keep and perform all terms, conditions and
covenants required to be performed by it as lessor under the
aforesaid leases; shall promptly advise Mortgagee in writing
of any claim of default by Mortgagor made by a lessee under
any such lease or of any default thereunder by a lessee; and
shall promptly provide Mortgagee with a copy of any notice
of default or other notice served upon Mortgagor by any such
lessee. Mortgagor will not cancel, modify or alter, or
accept the surrender of, any existing or future lease of the
Premises or any part thereof without first obtaining written
consent of Mortgagee unless otherwise specifically permitted
in the Assignment of Leases and Rents of even date herewith.
21. (a) All rights and remedies granted to Mortgagee in the Loan
Documents shall be in addition to and not in limitation of
any rights and remedies to which it is entitled in equity,
at law or by statute, and the invalidity of any right or
remedy herein provided by reason of its conflict with
applicable law or statute shall not affect any other valid
right or remedy afforded to Mortgagee. No waiver of any
Event of Default or of any default in the performance of any
covenant contained in the Note or any other instrument
securing the Note shall at any time thereafter be held to be
a waiver of any rights of the Mortgagee hereunder, nor shall
any waiver of a prior Event of Default or default operate to
waive any subsequent Event of Default or default. All
remedies provided for herein, in the Note and in any other
instrument securing the Note are cumulative and may, at the
election of Mortgagee, be exercised alternatively,
successively, or concurrently. No act of Mortgagee shall be
construed as an election to proceed under any one provision
herein to the exclusion of any other provision or to proceed
against one portion of the Premises to the exclusion of any
other portion.
<PAGE>
-24-
(b) This Mortgage is subject to any existing statutory condition
and upon the further condition that all covenants and
agreements of Mortgagor herein shall be fully or timely
performed, time being of the essence under this Mortgage. No
breach of any such condition or agreement shall be
permitted, and in the event of any such breach, Mortgagee
shall have any statutory power of sale, and this Mortgage
shall be subject to foreclosure as provided by law.
22. By accepting payment of any sum secured hereby after its due date,
Mortgagee does not waive its right either to require prompt
payment when due of all other sums or installments so secured or
to declare a default for failure to pay such other sums or
installments.
23. Notwithstanding anything herein or in the Note to the contrary, no
provision contained herein or in the Note which purports to
obligate Mortgagor to pay any amount of interest or any fees,
costs or expenses which are in excess of the maximum permitted by
applicable law, shall be effective to the extent that it calls for
the payment of any interest or other sums in excess of such
maximum. All agreements between Mortgagor and Mortgagee, whether
now existing or hereafter arising and whether written or oral, are
hereby limited so that in no contingency, whether by reason of
demand for payment of or acceleration of the maturity of any of
the indebtedness secured hereby or otherwise, shall the interest
contracted for, charged or received by Mortgagee exceed the
maximum amount permissible under applicable law. If, from any
circumstance whatsoever, interest would otherwise be payable to
Mortgagee in excess of the maximum lawful amount, the interest
payable to Mortgagee shall be reduced to the maximum amount
permitted under applicable law; and if from any circumstance
Mortgagee shall ever receive anything of value deemed interest by
applicable law in excess of the maximum lawful amount, an amount
equal to any excessive interest shall at Mortgagee's option, be
refunded to Mortgagor or be applied to the reduction of the
principal balance of the indebtedness secured hereby and not to
the payment of interest or, if such excessive interest exceeds the
unpaid balance of principal of the indebtedness secured hereby,
such excess shall be refunded to Mortgagor. This paragraph shall
control all agreements between Mortgagor and Mortgagee.
24. In the event one or more provisions of the Loan Documents shall be
held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any
other provision hereof, and this Mortgage shall be construed as if
any such provision had never been contained herein.
25. If the payment of the indebtedness secured hereby or of any part
thereof shall be extended or varied, or if any part of the
security be released, all persons now or at any time hereafter
liable therefor, or interested in said Premises, shall be held to
assent to such extension, variation or release, and their
liability and the lien and all provisions hereof shall continue in
full force, the right of recourse against all such persons being
expressly reserved by Mortgagee notwithstanding such variation or
release.
26. Upon payment in full of the indebtedness secured hereby and the
performance by Mortgagor of all of the obligations imposed on
Mortgagor in the Loan Documents, these presents shall be null and
void,
<PAGE>
-25-
and Mortgagee shall release this Mortgage and the lien hereof by
proper instrument executed in recordable form.
27. Mortgagor shall have the privilege of making prepayments on the
principal of the Note (in addition to the required payments) if
and only to the extent and upon the terms and conditions, if any,
expressly set forth in the Note. If not expressly so set forth,
the Note is not subject to such prepayment.
28. (a) Mortgagor hereby grants to Mortgagee and its respective
agents, attorneys, employees, consultants, contractors and
assigns an irrevocable license and authorization to enter
upon and inspect the Premises and all facilities located
thereon at reasonable times.
(b) In connection with any sale or conveyance of this Mortgage,
Mortgagor grants to Mortgagee and its respective agents,
attorneys, employees, consultants, contractors and assigns
an irrevocable license and authorization to conduct, at
Mortgagee's expense, a Phase I environmental audit of the
Premises.
(c) In the event there has been an Event of Default or in the
event Mortgagee has formed a reasonable belief, based on its
inspection of the Premises or other factors known to it,
that Hazardous Materials may be present on the Premises,
then Mortgagor grants to Mortgagee and its respective
agents, attorneys, employees, consultants, contractors and
assigns an irrevocable license and authorization to conduct,
at Mortgagor's expense, environmental tests of the Premises,
including without limitation, a Phase I environmental audit,
subsurface testing, soil and ground water testing, and other
tests which may physically invade the Premises or facilities
(the "Tests"). The scope of the Tests shall be such as
Mortgagee, in its sole discretion, determines is necessary
to (i) investigate the condition of the Premises, (ii)
protect the security interests created under this Mortgage,
or (iii) determine compliance with Environmental Laws, the
provisions of this Mortgage and other matters relating
thereto.
(d) The foregoing licenses and authorizations are intended to be
a means of protection of Mortgagee's security interest in
the Premises and not as participation in the management of
the Premises.
29. Within 15 days after any written request by Mortgagee, Mortgagor
shall certify, by a written statement duly acknowledged, the
amount of principal and interest then owing on the Note and
whether any offsets or defenses exist against the indebtedness
secured hereby.
30. (a) Mortgagor shall furnish to Mortgagee within 90 days after
the end of each fiscal year of Mortgagor, a detailed and
analytical financial report prepared in accordance with
generally accepted accounting principles consistently
applied, certified in a manner and otherwise in form and
substance acceptable to Mortgagee covering the full and
complete operation of the Premises, including without
limitation: (i) income and expense statements and budget,
and (ii) a report of the leasing status of the Premises as
of the end of such year, identifying the lessee,
<PAGE>
-26-
square footage leased, rental amount, base rental increases,
rental concessions and/or rental deferments, if any,
commencement and expiration dates under each lease of the
Premises and a listing of sales volumes attained by lessees
of the Premises under percentage leases for the immediately
preceding year and an aged accounts receivable report. Such
reports shall be prepared by an accountant who may be an
employee of Mortgagor, or of an affiliate of Mortgagor,
acceptable to Mortgagee. In addition to the reports referred
to herein, Mortgagor shall promptly supply any additional
information or records relating to the Premises or its
operation as Mortgagee may from time to time request.
(b) Mortgagor shall submit to Mortgagee within 90 days following
the end of each fiscal year annual balance sheets and income
statements for Mortgagor and Equity One, Inc.. Said balance
sheets and income statements shall be subject to Mortgagee's
review.
31. Any notice which any party hereto may desire or be required to
give to the other shall be deemed to be an adequate and sufficient
notice if given in writing and service is made by either (i)
registered or certified mail, postage prepaid, in which case
notice shall be deemed to have been received three (3) business
days following deposit to U.S. mail; or (ii) nationally recognized
overnight air courier, next day delivery, prepaid, in which case
such notice shall be deemed to have been received one (1) business
day following delivery to such nationally recognized overnight air
courier. All notices shall be addressed to Mortgagor at its
address given on the first page hereof or to Mortgagee at 711 High
Street, Des Moines, Iowa 50392-1450, Attn: Commercial Real Estate
Loan Administration, Loan No. D-751849, or to such other place as
either party may by written notice to the other hereafter
designate as a place for service of notice.
32. This Mortgage and all the provisions hereof shall extend to and be
binding upon Mortgagor and all persons claiming by, under or
through Mortgagor, and the word "Mortgagor" when used herein shall
include all such persons and all persons liable for the payment of
the indebtedness secured hereby or any part thereof, whether or
not such persons have executed the Note or this Mortgage. The word
"Mortgagee" as used herein shall include the successors and
assigns of the Mortgagee named herein, and the holder or holders
from time to time of the Note secured hereby.
33. Mortgagor has had the opportunity to fully negotiate the terms
hereof and modify the draftsmanship of this Mortgage. Therefore,
the terms of this Mortgage shall be construed and interpreted
without any presumption, inference, or rule requiring construction
or interpretation of any provision of this Mortgage against the
interest of the party causing this Mortgage or any portion of it
to be drafted. Mortgagor is entering into this Mortgage freely and
voluntarily without any duress, economic or otherwise.
34. This Mortgage shall be governed by and construed in accordance
with the laws of the State of Florida.
<PAGE>
-27-
35. As used herein, the term "Default Rate" means a rate equal to the
lesser of (i) 4% per annum above the then applicable interest rate
payable under the Note or (ii) the maximum rate allowed by
applicable law.
36. Notwithstanding any provision of this Mortgage, the Note or any
other instruments evidencing or securing the loan evidenced by the
Note which might be construed to the contrary, the assignment of
rents and other amounts provided for herein is an absolute
assignment and not merely a collateral assignment or a security
interest, and is effective whether or not a default occurs
hereunder, subject only to a license, if any, granted by Mortgagee
to Mortgagor with respect thereto prior to the occurrence of a
default beyond any applicable notice and cure periods hereunder,
the extent of which may be more fully described in the Assignment
of Leases and Rents. It is the intention of Mortgagor and
Mortgagee that the assignment effectuated by this Mortgage with
respect to such rents and other amounts payable under the leases
shall be a direct and currently effective assignment and shall not
constitute merely the granting of a lien, security interest or
pledge for the purpose of securing the indebtedness secured
hereby. In the event that a court of competent jurisdiction
determines that, notwithstanding such expressed intent of the
parties, Mortgagee's interest in the rents and other amounts
payable under the leases constitutes a lien on or security
interest in or pledge thereof, it is agreed and understood that
the forwarding of a notice to Mortgagor after the occurrence of a
default beyond any applicable notice and cure periods, advising
Mortgagor of the revocation of any license then in favor of
Mortgagor to collect such rents or other amounts payable under the
leases, or of the existence of a default beyond any applicable
notice and cure periods, shall be sufficient action by Mortgagee
to (i) perfect such lien on or security interest in or pledge of
the rents and other amounts payable under the leases, (ii) take
possession thereof, and (iii) entitle Mortgagee to immediate and
direct payment of the rents and other amounts payable under the
leases, for application as provided in this Mortgage, all without
the necessity of any further action by Mortgagee, including,
without limitation, any action to obtain possession of the land,
improvements or any other portion of the premises. Notwithstanding
the direct and absolute assignment of the rents and other amounts
payable under the leases as herein described, there shall be no
pro tanto reduction in any portion of the indebtedness secured by
this Mortgage except with respect to rents and other amounts
payable under the leases actually received by Mortgagee and
applied by Mortgagee toward payment of the indebtedness. Mortgagee
may, upon written notice to Mortgagor, elect to (i) exclude from
the assignment provided in this Mortgage any of the leases as
specified in such notice so that the interest under such indicated
lease is not assigned to Mortgagee, and (ii) subordinate the lien
and other terms and provisions of this Mortgage to any of the
leases as indicated in said notice to Mortgagor.
37. Mortgagor knowingly, voluntarily and intentionally waives, to the
extent permitted by law, trial by jury in any actions brought by
Mortgagor or Mortgagee in connection with this Mortgage, any of
the Loan Documents, the indebtedness secured hereby, or any other
statements or actions of Mortgagee.
38. (a) Notwithstanding any provision to the contrary in the Note,
this Mortgage or any other instrument or agreement by which
the Note is secured and except as otherwise provided in this
paragraph, the liability of Mortgagor under the Loan
Documents shall be limited to the interest
<PAGE>
-28-
of Mortgagor in the Premises and the rents, issues, proceeds
and profits thereof. In the event of foreclosure of the
liens evidenced by the Loan Documents, no judgment for any
deficiency upon the indebtedness evidenced by the Loan
Documents shall be sought or obtained by Mortgagee against
Mortgagor. Nothing contained in this paragraph shall:
(i) limit or impair Mortgagee's right to declare
an Event of Default under the Loan Documents
in the event of the failure of Mortgagor to
make any payment or to perform any
obligation under any of the Loan Documents
within the time periods provided therein;
(ii) be construed as limiting the obligations of
Mortgagor to any tenant under any lease of
the Premises;
(iii) in any way limit or impair the lien or
enforcement of the Loan Documents pursuant
to the terms thereof; or
(iv) limit the obligations of any indemnitor or
guarantor, if any, of Mortgagor's
obligations under the Loan Documents.
(b) Notwithstanding subparagraph (a) above, Mortgagor shall be
personally liable to Mortgagee for:
(i) Mortgagor's failure to comply with
paragraphs 2 (taxes and assessments) and 3
(insurance) hereof;
(ii) any event or circumstance for which
Mortgagor indemnifies Mortgagee under
paragraph 1(m) (environmental indemnity)
hereof or under any separate Environmental
Indemnity Agreement;
(iii) Mortgagor's failure to pay utilities on or
before the date such payments are due;
(iv) operation and maintenance of the Premises;
(v) any sums expended by Mortgagee in fulfilling
the obligations of Mortgagor as lessor under
any lease of the Premises prior to a sale of
the Premises pursuant to foreclosure or
power of sale, a bona fide sale (permitted
by the terms of paragraph 1(l) hereof or
consented to in writing by Mortgagee) to an
unrelated third party or upon conveyance to
Mortgagee of the Premises by a deed
acceptable to Mortgagee in form and content
(each of which shall be referred to as a
"Sale" for purposes of this paragraph) or
expended by Mortgagee after a Sale of the
Premises for obligations of Mortgagor which
arose prior to a Sale of the Premises;
<PAGE>
-29-
(vi) any rents or other income regardless of type
or source of payment (including, but not
limited to, CAM charges, lease termination
payments, refunds of any type, prepayment of
rents, settlements of litigation, or
settlements of past due rents) from the
Premises which Mortgagor has received or has
a right to receive after an Event of Default
under the Loan Documents or an event which
with the passage of time, the giving of
notice or both would constitute an Event of
Default, either or both of which have
occurred and are continuing, and which are
not applied to (A) expenses of operation and
maintenance of the Premises and the taxes,
assessments, utility charges and insurance
of the Premises, taking into account
sufficient reserves for the same and for
replacements and recurring items, and (B)
payment of principal, interest and other
charges when due under the Loan Documents;
provided that any payments to parties
related to Mortgagor shall be considered
expenses of operation only if they are at
market rates or fees consistent with market
rates or fees for the same or similar
services;
(vii) any security deposits of tenants, together
with any interest on such security deposits
required by law or the leases, not turned
over to Mortgagee upon conveyance of the
Premises to Mortgagee pursuant to
foreclosure or power of sale or by a deed
acceptable to Mortgagee in form and content;
(viii) misapplication or misappropriation of tax
reserve accounts, tenant improvement reserve
accounts, security deposits, prepaid rents
or other similar sums paid to or held by
Mortgagor or any other entity or person in
connection with the operation of the
Premises;
(ix) any waste committed or allowed by Mortgagor
with respect to the Premises; and
(x) any insurance or condemnation proceeds or
other similar funds or payments applied by
Mortgagor in a manner other than as
expressly provided in the Loan Documents.
(c) Notwithstanding anything to the contrary in the Loan
Documents, the limitation on liability contained in
subparagraph (a) above SHALL BECOME NULL AND VOID and shall
be of no further force and effect in the event:
(i) of any breach or violation of paragraph 1(l)
(due on sale or encumbrance) hereof, other
than the filing of a nonmaterial mechanic's
lien affecting the Premises, the granting of
any utility or other nonmaterial easement or
servitude burdening the Premises, or any
other transfer or encumbrance not in the
nature of a transfer, reduction or
impairment of any material economic interest
in the Premises; or
<PAGE>
-30-
(ii) of any fraud or willful misrepresentation by
Mortgagor regarding the Premises, the making
or delivery of any of the Loan Documents or
in any materials or information provided by
Mortgagor in connection with the loan.
39. This Mortgage shall constitute a security agreement within the
meaning of the Florida Uniform Commercial Code with respect to any
and all sums at any time on deposit for the benefit of Mortgagee
or held by Mortgagee (whether deposited or on behalf of the
Mortgagor or anyone else) pursuant to the provisions of this
Mortgage and with respect to any personal property included in the
granting clauses of this Mortgage, and all replacements of such
personal property, and the proceeds thereof. Upon default, without
limitation of any other remedies, Mortgagee shall have the
remedies of a secured party under the Uniform Commercial Code.
This Mortgage is intended to be a financing statement within the
purview of Florida Statutes Subsection 679.402 with respect to the
personal property described herein. Mortgagor, as debtor, hereby
authorizes Mortgagee, as secured party to execute, deliver, file
or re-file as secured party without joinder of the Mortgagor, any
financing statement, continuation statement or other instruments
that Mortgagee may reasonably require from time to time to perfect
or renew such security interest under the Florida Uniform
Commercial Code.
40. This Mortgage and the indebtedness secured hereby is for the sole
purpose of conducting or acquiring a lawful business, professional
or commercial activity or for the acquisition or management of
real or personal property as a commercial investment, and all
proceeds of such indebtedness shall be used for said business or
commercial investment purpose. Such proceeds will not be used for
the purchase of any security within the meaning of the Securities
Exchange Act of 1934, as amended, or any regulation issued
pursuant thereto, including without limitation, Regulations G, T
and X of the Board of Governors of the Federal Reserve System.
This is not a purchase money mortgage where a seller is providing
financing to a buyer for the payment of all or any portion of the
purchase price, and the Premises secured hereby is not a residence
or homestead or used for mining, grazing, agriculture, timber or
farming purposes.
41. Unless Mortgagee shall otherwise direct in writing, Mortgagor
shall appear in and defend all actions or proceedings purporting
to affect the security hereunder, or any right or power of the
Mortgagee. The Mortgagee shall have the right to appear in such
actions or proceedings. Mortgagor shall save Mortgagee harmless
from all costs and expenses, including reasonable attorneys' fees
and costs of a title search, continuation of abstract and
preparation of survey, incurred by reason of any action, suit,
proceeding, hearing, motion or application before any court or
administrative body in and to which Mortgagee may be or become a
party by reason hereof. Such proceedings shall include but not be
limited to condemnation, bankruptcy, probate and administration
proceedings, as well as any other action, suit, proceeding, right,
motion or application wherein proof of claim is by law required to
be filed or in which it becomes necessary to defend or uphold the
terms of this Mortgage or otherwise purporting to affect the
security hereof or the rights or powers of Mortgagee. All money
paid or expended by Mortgagee in that regard, together with
interest thereon from date of such payment at the Default Rate
shall be additional indebtedness secured hereby and shall be
immediately due and payable by Mortgagor without notice.
<PAGE>
-31-
42. During the occurrence of an Event of Default, all rents, issues
and profits collected or received by Mortgagor shall be accepted
and held for Mortgagee in trust and shall not be commingled with
the funds and property of Mortgagor, but shall be promptly paid
over to Mortgagee.
IN WITNESS WHEREOF, Mortgagor has caused this Mortgage to be duly
executed and delivered as of the date first above written.
WITNESS: EQUITY ONE (LANTANA) INC., a
Florida corporation
By /s/ ALAN J. MARCUS
--------------------------
Print Name: Alan J. Marcus
By /s/ DORON VALERO
------------------------------
Name: Doron Valero
By /s/ ANA PEROZO Title: Vice President
--------------------------
Print Name: Ana Perozo
SECURED PROMISSORY NOTE
D-751849
$1,700,000.00 FEBRUARY 18, 1998
1. FOR VALUE RECEIVED, the undersigned, EQUITY ONE (LANTANA) INC., a Florida
corporation, hereby promises to pay to the order of PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY, an Iowa corporation, at the Home Office of Principal
Mutual Life Insurance Company at 711 High Street, Des Moines, Iowa 50392,
or at such other place as the holder of this Note may designate, the
principal sum of One Million Seven Hundred Thousand and 00/100 Dollars
($1,700,000.00) or so much thereof as shall from time to time have been
advanced, together with interest on the unpaid balance of said sum from
February 19, 1998 at the rate of six and ninety-five hundredths percent
(6.95%) per annum, computed on the basis of a 360-day year composed of
twelve 30-day months, in installments as follows:
Beginning on March 15, 1998, principal and interest shall be due and
payable in installments of Thirteen Thousand One Hundred Twenty-nine and
11/100 Dollars ($13,129.11), with an installment in a like amount due and
payable on the same day of each month thereafter continuing to and
including February 15, 2005. Holder shall have the right to offer an
Adjusted Interest Rate as hereinafter defined or to declare this Note to
be due and payable in full, without premium on March 15, 2005. In the
event holder elects to offer an Adjusted Interest Rate, then on February
15, 2005, the per annum interest rate shall be adjusted to an interest
rate established by the holder of this Note ("Adjusted Interest Rate")
based upon the holder of this Note's evaluation of: (i) the then current
financial performance and projected risk of the Premises, which shall
encompass various factors, including but not limited to contract debt
service coverage, loan-to-value ratio, economic debt service coverage,
occupancy, frequency of tenant rollover, financial strength and stability
of tenants; (ii) the then current financial status of the undersigned,
which shall include but not be limited to creditworthiness, financial
strength, percentage of liabilities to liquid assets, and annual net
income; and (iii) the remaining term and current outstanding balance of
the Note. Commencing on March 15, 2005, monthly installments of principal
and interest shall be due and payable in an amount determined by
amortizing the then principal balance of this Note over a thirteen (13)
year term at the Adjusted Interest Rate, and a like amount shall be due
and payable on the same day of each month thereafter until said principal
and interest shall be paid, except that all remaining principal and
interest shall be due and payable on February 15, 2011 ("Maturity Date").
Each installment shall be credited first upon interest then accrued and
the remainder upon principal, and interest shall cease to accrue upon
principal so credited. If on the date of the first installment, interest
is accrued for more or less than one installment period, the amount of
said installment shall be increased or decreased by the amount that the
interest accrued exceeds or is less than the interest for one installment
period based on the actual number of days elapsed to the date of said
installment. All principal and interest shall be paid in lawful money of
the United States of America, by wire transfer of immediately
<PAGE>
-2-
available funds to the registered owner hereof at Norwest Bank, Iowa,
N.A., 7th and Walnut Streets, Des Moines, Iowa 50304, for credit to
Principal Mutual Life Insurance Company, General Account No. 014752, RE:
D-751849 with reference to the undersigned.
The term the "Other Note" as used herein shall mean that certain Secured
Promissory Note of even date herewith in the original principal amount of
$2,700,000.00 given by the undersigned to Principal Mutual Life Insurance
Company. Any default by the undersigned under the Other Note shall
constitute a default under this Note.
The holder of this Note shall notify the undersigned in writing on or
before January 15, 2005, of holder's election to offer the undersigned
the Adjusted Interest Rate or of holder's intention to declare this Note
to be due and payable in full. In the event holder notifies the
undersigned of its intention to declare this Note to be due and payable
in full in lieu of offering an Adjusted Interest Rate or in the event the
undersigned fails to notify the holder in writing on or before January
22, 2005, that the undersigned accepts the Adjusted Interest Rate or in
the event the undersigned fails to pay Three Thousand Eight Hundred
Sixty-four and 00/100 Dollars ($3,864.00) as a rate adjustment fee to
holder on or before January 22, 2005, this Note shall on March 15, 2005
("Call Date"), become due and payable in full, without premium, and all
principal, interest accrued or to accrue to the date of prepayment at the
rate in effect at the time of the notice of Adjusted Interest Rate and
all other amounts then unpaid on the Note or due or to become due under
any instrument by which it is secured shall become immediately due and
payable in full. Notwithstanding any other provision herein, holder shall
not be obligated to offer an Adjusted Interest Rate if any default exists
under this Note or the Mortgage and Security Agreement ("Mortgage"). In
the event the holder of this Note fails to notify the undersigned of its
election to offer an Adjusted Interest Rate or to declare this Note to be
due and payable in full as provided herein, then the interest rate shall
not be changed and monthly installments of principal and interest shall
continue at the amounts and the times set forth herein, except that all
remaining principal and interest shall be due and payable on the Maturity
Date.
In the event the undersigned accepts the Adjusted Interest Rate, the
undersigned is required to provide holder the following:
(i) a new ALTA standard loan title policy or an endorsement updating
said title policy in the full amount of the loan in form and by an
issuer satisfactory to holder at the time of the rate adjustment
unless (x) the outstanding loan balance at the time of the Call
Date is less than $20,000,000.00, (y) no liens or encumbrances
exist against the Premises except as previously approved by holder
in the Mortgage and (z) no mortgages exist against the Premises
except for the Mortgage. The undersigned further agrees that the
policy shall insure holder's Mortgage, which secures this Note, at
the Adjusted Interest Rate to be a first and prior lien subject
only to those exceptions which were previously approved by holder
and provide coverage against mechanic's liens;
<PAGE>
-3-
(ii) a Note amendment in form and substance satisfactory to holder
executed by the undersigned evidencing the Adjusted Interest Rate
and a representation that the Premises are free and clear of any
liens, privileges, mortgages or encumbrances except as expressly
permitted in the Mortgage;
(iii) a usury opinion or endorsement to the title policy acceptable to
the holder if the holder reasonably believes that the Adjustment
Interest Rate is or may be usurious; and
(iv) reimbursement to the holder for costs incurred in obtaining a title
date down/report.
2. No privilege is reserved by the undersigned to prepay any principal of
this Note prior to the Maturity Date, except on or anytime after the date
hereof, privilege is reserved after giving sixty (60) days prior written
notice to the holder of this Note and the Other Note, to prepay in full,
but not in part, all principal and interest to the date of payment, along
with all sums, amounts, advances or charges due under any instrument or
agreement by which they are secured upon the payment of a "Make Whole
Premium", provided that the undersigned simultaneously exercises its right
to prepay the Other Note as provided for therein. The Make Whole Premium
shall be the greater of one percent (1%) of the principal amount to be
prepaid or the amount calculated as provided in subparagraphs (a)-(c)
below.
(a) Determine the "Reinvestment Yield." The Reinvestment Yield will be
equal to the yield on the applicable U.S. Treasury Issue ("primary
issue")* published one week prior to the date of prepayment and
converted to an equivalent monthly compounded nominal yield.
*In the event there is no market activity involving the primary issue
at the time of prepayment, the holder of this Note shall choose a
comparable Treasury Bond, Note or Bill ("secondary issue") which the
holder of this Note deems to be similar to the primary issue's
characteristics (i.e., rate, remaining time to maturity, yield).
(b) Calculate the "Present Value of the Mortgage." The Present Value of
the Mortgage is the present value of the payments to be made in
accordance with this Note (all installment payments and any remaining
payment due on the Call Date, or if the Call Date has already passed,
on the Maturity Date) discounted at the Reinvestment Yield for the
number of months remaining from the date of prepayment to the Call
Date, or if the Call Date has already passed, to the Maturity Date.
(c) Subtract the amount of the prepaid proceeds from the Present Value of
the Mortgage as of the date of prepayment. Any resulting positive
differential shall be the premium.
<PAGE>
-4-
As set forth above, the U.S. Treasury Issue applicable for each
prepayment period is as follows:
PREPAYMENT PERIOD U.S. TREASURY ISSUE
----------------- -------------------
To March 15, 2005 February 2005n 7 1/2
March 15, 2005 to February 15, 2011 *
*At this time there is not a U.S. Treasury Issue for this prepayment
period. At the time of prepayment, holder shall select in its sole and
absolute discretion a U.S. Treasury Issue with similar remaining time to
the end of the applicable prepayment period.
3. The undersigned agrees that if the holder of this Note accelerates the
whole or any part of the principal sum evidenced hereby, or applies any
proceeds as if such application had been made as a result of such
acceleration, pursuant to the provisions of the Mortgage and Security
Agreement of even date herewith between the undersigned and Principal
Mutual Life Insurance Company, the undersigned waives any right to prepay
said principal sum in whole or in part without premium and agrees to pay,
as yield maintenance protection and not as a penalty, the "Make Whole
Premium" defined herein.
Time is of the essence with respect to the payment of this note.
4. If any payment of principal, interest or premium is not made when due,
damages will be incurred by the holder of this Note, including additional
expense in handling overdue payments, the amount of which is difficult
and impractical to ascertain. The undersigned therefore agrees to pay,
upon demand, the sum of four cents ($.04) for each one dollar ($1.00) of
each said payment which becomes overdue as a reasonable estimate of the
amount of said damages, subject, however, to the limitations contained in
the second immediately succeeding paragraph.
5. If any payment of principal, interest or premium is not made for a period
exceeding ten (10) days after due under this Note or the Other Note, or
if any Event of Default has occurred and is continuing under any
instrument by which this Note or the Other Note are, or may hereafter be,
secured, the entire principal balance, interest then accrued, and
premium, whether or not otherwise then due, shall at the option of the
holder of this Note, become immediately due and payable without demand or
notice, and whether or not the holder of this Note has exercised said
option, interest shall accrue on the entire principal balance, interest
then accrued, and any premium then due, at a rate equal to the lesser of
(i) four percent (4%) per annum above the then applicable rate of
interest payable under this Note or (ii) the maximum rate allowed by
applicable law until fully paid or if the holder of this Note has not
exercised said option, for the duration of such Event of Default.
6. Notwithstanding anything herein or in any of the Loan Documents to the
contrary, no provision contained herein or therein which purports to
obligate the undersigned to pay any amount of
<PAGE>
-5-
interest or any fees, costs or expenses which are in excess of the
maximum permitted by applicable law, shall be effective to the extent it
calls for the payment of any interest or other amount in excess of such
maximum. All agreements between the undersigned and the holder hereof,
whether now existing or hereafter arising and whether written or oral,
are hereby limited so that in no contingency, whether by reason of demand
for payment or acceleration of the maturity hereof or otherwise, shall
the interest contracted for, charged or received by the holder hereof
exceed the maximum amount permissible under applicable law. If, from any
circumstance whatsoever, interest would otherwise be payable to the
holder hereof in excess of the maximum lawful amount, the interest
payable to the holder hereof shall be reduced to the maximum amount
permitted under applicable law; and if from any circumstance the holder
hereof shall ever receive anything of value deemed interest by applicable
law in excess of the maximum lawful amount, an amount equal to any
excessive interest shall, at the option of the holder hereof, be refunded
to the undersigned or be applied to the reduction of the principal hereof
and not to the payment of interest or, if such excessive interest exceeds
the unpaid balance of principal hereof such excess shall be refunded to
the undersigned. This paragraph shall control all agreements between the
undersigned and the holder hereof.
7. The undersigned and any endorsers or guarantors waive presentment,
protest and demand, notice of protest, demand and dishonor and
nonpayment, and agree the due date of this Note or any installment may be
extended without affecting any liability hereunder, and further promise
to pay all reasonable costs and expenses, including attorney's and
paralegal's fees, incurred by the holder hereof in connection with any
default or in any proceeding (whether incurred in any trial, appellate,
bankruptcy, condemnation or any other proceeding) to interpret and/or
enforce any provision of this Note or any instrument by which it is
secured. No release of the undersigned from liability hereunder shall
release any other maker, endorser or guarantor hereof.
8. This Note is secured by instruments and agreements of even date herewith
executed and delivered by the undersigned to Principal Mutual Life
Insurance Company creating among other things legal and valid
encumbrances on and an assignment of all of the undersigned's interest in
any leases of certain Premises located in the County of Palm Beach, State
of Florida. Terms used herein which are defined in such instruments or
agreements and not otherwise defined herein have the same definition as
in such instruments and agreements. In no event shall such documents be
construed inconsistently with the terms of this Note, and in the event of
any discrepancy between any such documents and this Note, the terms
hereof shall govern. The proceeds of this Note are to be used for
business, commercial, investment or other similar purposes, and no
portion thereof will be used for any personal, family or household use.
This Note shall be governed by and construed in accordance with the laws
of the State where the Premises is located.
9. (a) Notwithstanding any provision to the contrary in this Note, the
Mortgage of even date herewith, or any other instrument or agreement
by which this Note is secured (collectively referred to herein as
the "Loan Documents"), and except as otherwise provided in this
paragraph, the liability of the undersigned under the Loan Documents
shall be limited to the
<PAGE>
-6-
interest of the undersigned in the Premises and the rents, issues,
proceeds and profits thereof. In the event of foreclosure of the
liens evidenced by the Loan Documents, no judgment for any
deficiency upon the indebtedness evidenced by the Loan Documents
shall be sought or obtained by the holder of this Note against the
undersigned. Nothing contained in this paragraph shall:
(i) limit or impair the right of the holder of this Note to declare
an Event of Default under the Loan Documents in the event of
the failure of the undersigned to make any payment or to
perform any obligation under any of the Loan Documents within
the time periods provided therein;
(ii) be construed as limiting the obligations of the undersigned to
any tenant under any lease of the Premises;
(iii)in any way limit or impair the lien or enforcement of the Loan
Documents pursuant to the terms thereof; or
(iv) limit the obligations of any indemnitor or guarantor, if any,
of obligations of the undersigned under the Loan Documents.
(b) Notwithstanding subparagraph (a) above, the undersigned shall be
personally liable to the holder of this Note for:
(i) failure of the undersigned to comply with paragraphs 2
(taxes and assessments) and 3 (insurance) of the Mortgage;
(ii) any event or circumstance for which the undersigned
indemnifies the holder of this Note under paragraph 1(m)
(environmental indemnity) of the Mortgage or under any
separate Environmental Indemnity Agreement;
(iii) failure of the undersigned to pay utilities on or before the
date such payments are due;
(iv) operation and maintenance of the Premises;
(v) any sums expended by the holder of this Note in fulfilling
the obligations of the undersigned as lessor under any lease
of the Premises prior to a sale of the Premises pursuant to
foreclosure or power of sale, a bona fide sale (permitted by
the terms of paragraph 1(l) of the Mortgage or consented to
in writing by the holder of this Note) to an unrelated third
party or upon conveyance to the holder of this Note of the
Premises by a deed acceptable to the holder of this Note in
form and content (each of which shall be referred to as a
"Sale" for purposes of this paragraph) or expended by
<PAGE>
-7-
the holder of this Note after a Sale of the Premises for
obligations of the undersigned which arose prior to a Sale
of the Premises;
(vi) any rents or other income regardless of type or source of
payment (including, but not limited to, CAM charges, lease
termination payments, refunds of any type, prepayment of
rents, settlements of litigation, or settlements of past due
rents) from the Premises which the undersigned has received
or has a right to receive after an Event of Default under
the Loan Documents or an event which with the passage of
time, the giving of notice or both would constitute an Event
of Default, either or both of which have occurred and are
continuing, and which are not applied to (A) expenses of
operation and maintenance of the Premises and the taxes,
assessments, utility charges and insurance of the Premises,
taking into account sufficient reserves for the same and for
replacements and recurring items, and (B) payment of
principal, interest and other charges when due under the
Loan Documents; provided that any payments to parties
related to the undersigned shall be considered expenses of
operation only if they are at market rates or fees
consistent with market rates or fees for the same or similar
services;
(vii) any security deposits of tenants, together with any interest
on such security deposits required by law or the leases, not
turned over to the holder of this Note upon conveyance of
the Premises to the holder of this Note pursuant to
foreclosure or power of sale or by a deed acceptable to the
holder of this Note in form and content;
(viii) misapplication or misappropriation of tax reserve accounts,
tenant improvement reserve accounts, security deposits,
prepaid rents or other similar sums paid to or held by the
undersigned or any other entity or person in connection with
the operation of the Premises;
(ix) any waste committed or allowed by the undersigned with
respect to the Premises; and
(x) any insurance or condemnation proceeds or other similar
funds or payments applied by the undersigned in a manner
other than as expressly provided in the Loan Documents.
(c) Notwithstanding anything to the contrary in the Loan Documents, the
limitation on liability contained in subparagraph (a) above SHALL
BECOME NULL AND VOID and shall be of no further force and effect in
the event:
(i) of any breach or violation of paragraph 1(l) (due on sale or
encumbrance) of the Mortgage, other than the filing of a
nonmaterial mechanic's lien affecting the Premises, the
granting of any utility or other nonmaterial easement or
servitude burdening the Premises, or any other transfer or
encumbrance not in the nature of a
<PAGE>
-8-
transfer, reduction or impairment of any material economic
interest in the Premises; or
(ii) of any fraud or willful misrepresentation by the undersigned
regarding the Premises, the making or delivery of any of the
Loan Documents or in any materials or information provided by
the undersigned in connection with the loan.
10. If more than one, all obligations and agreements of the undersigned are
joint and several.
11. This Note may not be changed or terminated orally, but only by an
agreement in writing and signed by the party against whom enforcement of
any waiver, change, modification or discharge is sought. All of the
rights, privileges and obligations hereunder shall inure to the benefit
of the heirs, successors and assigns of the holder hereof and shall bind
the heirs, successors and assigns of the undersigned.
The parties hereto intend and believe that each provision of this Note
comports with all applicable law. However, if any provision in this Note
is found by a court of law to be in violation of any applicable law, and
if such court should declare such provision of this Note to be unlawful,
void or unenforceable as written, then it is the intent of all parties
hereto that such provision shall be given full force and effect to the
fullest possible extent that it is legal, valid and enforceable, that the
remainder of this Note shall be construed as if such unlawful, void or
unenforceable provision were not contained herein, and that the rights,
obligations and interests of the undersigned and the holder hereof under
the remainder of this Note shall continue in full force and effect.
AFTER CONSULTING WITH COUNSEL AND CAREFUL CONSIDERATION, THE UNDERSIGNED
AND THE HOLDER (BY ITS ACCEPTANCE HEREOF) KNOWINGLY, VOLUNTARILY, AND
INTENTIONALLY WAIVE THE RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY
WITH RESPECT TO ANY LITIGATION ARISING OUT OF THIS NOTE OR ANY OTHER
INSTRUMENT OR AGREEMENT BY WHICH THIS NOTE IS, OR MAY HEREAFTER BE,
SECURED, OR OUT OF ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(ORAL OR WRITTEN), OR
<PAGE>
-9-
ACTIONS OF THE UNDERSIGNED OR THE HOLDER. THIS WAIVER IS A MATERIAL
INDUCEMENT TO THE HOLDER'S ACCEPTANCE OF THIS NOTE.
EQUITY ONE (LANTANA) INC., a
Florida corporation
By /s/ DORON VALERO
----------------------------
Name: Doron Valero
Title: Vice President
SECURED PROMISSORY NOTE
D-751849
$2,700,000.00 FEBRUARY 18, 1998
1. FOR VALUE RECEIVED, the undersigned, EQUITY ONE (LANTANA) INC., a Florida
corporation, hereby promises to pay to the order of PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY, an Iowa corporation, at the Home Office of Principal
Mutual Life Insurance Company at 711 High Street, Des Moines, Iowa 50392,
or at such other place as the holder of this Note may designate, the
principal sum of Two Million Seven Hundred Thousand and 00/100 Dollars
($2,700,000.00) or so much thereof as shall from time to time have been
advanced, together with interest on the unpaid balance of said sum from
February 19, 1998 at the rate of six and ninety-five hundredths percent
(6.95%) per annum, computed on the basis of a 360-day year composed of
twelve 30-day months, in installments as follows:
Beginning on March 15, 1998, principal and interest shall be due and
payable in installments of Twenty Thousand Eight Hundred Fifty-two and
11/100 Dollars ($20,852.11), with an installment in a like amount due and
payable on the same day of each month thereafter continuing to and
including February 15, 2005. Holder shall have the right to offer an
Adjusted Interest Rate as hereinafter defined or to declare this Note to
be due and payable in full, without premium on March 15, 2005. In the
event holder elects to offer an Adjusted Interest Rate, then on February
15, 2005, the per annum interest rate shall be adjusted to an interest
rate established by the holder of this Note ("Adjusted Interest Rate")
based upon the holder of this Note's evaluation of: (i) the then current
financial performance and projected risk of the Premises, which shall
encompass various factors, including but not limited to contract debt
service coverage, loan-to-value ratio, economic debt service coverage,
occupancy, frequency of tenant rollover, financial strength and stability
of tenants; (ii) the then current financial status of the undersigned,
which shall include but not be limited to creditworthiness, financial
strength, percentage of liabilities to liquid assets, and annual net
income; and (iii) the remaining term and current outstanding balance of
the Note. Commencing on March 15, 2005, monthly installments of principal
and interest shall be due and payable in an amount determined by
amortizing the then principal balance of this Note over a thirteen (13)
year term at the Adjusted Interest Rate, and a like amount shall be due
and payable on the same day of each month thereafter until said principal
and interest shall be paid, except that all remaining principal and
interest shall be due and payable on February 15, 2011 ("Maturity Date").
Each installment shall be credited first upon interest then accrued and
the remainder upon principal, and interest shall cease to accrue upon
principal so credited. If on the date of the first installment, interest
is accrued for more or less than one installment period, the amount of
said installment shall be increased or decreased by the amount that the
interest accrued exceeds or is less than the interest for one installment
period based on the actual number of days elapsed to the date of said
installment. All principal and interest shall be paid in lawful money of
the United States of America, by wire transfer of immediately
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available funds to the registered owner hereof at Norwest Bank, Iowa,
N.A., 7th and Walnut Streets, Des Moines, Iowa 50304, for credit to
Principal Mutual Life Insurance Company, General Account No. 014752, RE:
D-751849 with reference to the undersigned.
The term the "Other Note" as used herein shall mean that certain Secured
Promissory Note of even date herewith in the original principal amount of
$1,700,000.00 given by the undersigned to Principal Mutual Life Insurance
Company. Any default by the undersigned under the Other Note shall
constitute a default under this Note.
The holder of this Note shall notify the undersigned in writing on or
before January 15, 2005, of holder's election to offer the undersigned
the Adjusted Interest Rate or of holder's intention to declare this Note
to be due and payable in full. In the event holder notifies the
undersigned of its intention to declare this Note to be due and payable
in full in lieu of offering an Adjusted Interest Rate or in the event the
undersigned fails to notify the holder in writing on or before January
22, 2005, that the undersigned accepts the Adjusted Interest Rate or in
the event the undersigned fails to pay Six Thousand One Hundred
Thirty-six and 00/100 Dollars ($6,136.00) as a rate adjustment fee to
holder on or before January 22, 2005, this Note shall on March 15, 2005
("Call Date"), become due and payable in full, without premium, and all
principal, interest accrued or to accrue to the date of prepayment at the
rate in effect at the time of the notice of Adjusted Interest Rate and
all other amounts then unpaid on the Note or due or to become due under
any instrument by which it is secured shall become immediately due and
payable in full. Notwithstanding any other provision herein, holder shall
not be obligated to offer an Adjusted Interest Rate if any default exists
under this Note or the Mortgage and Security Agreement ("Mortgage"). In
the event the holder of this Note fails to notify the undersigned of its
election to offer an Adjusted Interest Rate or to declare this Note to be
due and payable in full as provided herein, then the interest rate shall
not be changed and monthly installments of principal and interest shall
continue at the amounts and the times set forth herein, except that all
remaining principal and interest shall be due and payable on the Maturity
Date.
In the event the undersigned accepts the Adjusted Interest Rate, the
undersigned is required to provide holder the following:
(i) a new ALTA standard loan title policy or an endorsement updating
said title policy in the full amount of the loan in form and by
an issuer satisfactory to holder at the time of the rate
adjustment unless (x) the outstanding loan balance at the time of
the Call Date is less than $20,000,000.00, (y) no liens or
encumbrances exist against the Premises except as previously
approved by holder in the Mortgage and (z) no mortgages exist
against the Premises except for the Mortgage. The undersigned
further agrees that the policy shall insure holder's Mortgage,
which secures this Note, at the Adjusted Interest Rate to be a
first and prior lien subject only to those exceptions which were
previously approved by holder and provide coverage against
mechanic's liens;
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(ii) a Note amendment in form and substance satisfactory to holder
executed by the undersigned evidencing the Adjusted Interest Rate
and a representation that the Premises are free and clear of any
liens, privileges, mortgages or encumbrances except as expressly
permitted in the Mortgage;
(iii) a usury opinion or endorsement to the title policy acceptable to
the holder if the holder reasonably believes that the Adjustment
Interest Rate is or may be usurious; and
(iv) reimbursement to the holder for costs incurred in obtaining a
title date down/report.
2. No privilege is reserved by the undersigned to prepay any principal of
this Note prior to the Maturity Date, except on or anytime after the date
hereof, privilege is reserved after giving sixty (60) days prior written
notice to the holder of this Note and the Other Note, to prepay in full,
but not in part, all principal and interest to the date of payment, along
with all sums, amounts, advances or charges due under any instrument or
agreement by which they are secured upon the payment of a "Make Whole
Premium", provided that the undersigned simultaneously exercises its
right to prepay the Other Note as provided for therein. The Make Whole
Premium shall be the greater of one percent (1%) of the principal amount
to be prepaid or the amount calculated as provided in subparagraphs
(a)-(c) below.
(a) Determine the "Reinvestment Yield." The Reinvestment Yield will
be equal to the yield on the applicable U.S. Treasury Issue
("primary issue")* published one week prior to the date of
prepayment and converted to an equivalent monthly compounded
nominal yield.
*In the event there is no market activity involving the primary
issue at the time of prepayment, the holder of this Note shall
choose a comparable Treasury Bond, Note or Bill ("secondary
issue") which the holder of this Note deems to be similar to the
primary issue's characteristics (i.e., rate, remaining time to
maturity, yield).
(b) Calculate the "Present Value of the Mortgage." The Present Value
of the Mortgage is the present value of the payments to be made
in accordance with this Note (all installment payments and any
remaining payment due on the Call Date, or if the Call Date has
already passed, on the Maturity Date) discounted at the
Reinvestment Yield for the number of months remaining from the
date of prepayment to the Call Date, or if the Call Date has
already passed, to the Maturity Date.
(c) Subtract the amount of the prepaid proceeds from the Present
Value of the Mortgage as of the date of prepayment. Any resulting
positive differential shall be the premium.
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As set forth above, the U.S. Treasury Issue applicable for each
prepayment period is as follows:
PREPAYMENT PERIOD U.S. TREASURY ISSUE
----------------- -------------------
To March 15, 2005 February 2005n 7 1/2
March 15, 2005 to February 15, 2011 *
*At this time there is not a U.S. Treasury Issue for this prepayment
period. At the time of prepayment, holder shall select in its sole and
absolute discretion a U.S. Treasury Issue with similar remaining time to
the end of the applicable prepayment period.
3. The undersigned agrees that if the holder of this Note accelerates the
whole or any part of the principal sum evidenced hereby, or applies any
proceeds as if such application had been made as a result of such
acceleration, pursuant to the provisions of the Mortgage and Security
Agreement of even date herewith between the undersigned and Principal
Mutual Life Insurance Company, the undersigned waives any right to prepay
said principal sum in whole or in part without premium and agrees to pay,
as yield maintenance protection and not as a penalty, the "Make Whole
Premium" defined herein.
Time is of the essence with respect to the payment of this note.
4. If any payment of principal, interest or premium is not made when due,
damages will be incurred by the holder of this Note, including additional
expense in handling overdue payments, the amount of which is difficult
and impractical to ascertain. The undersigned therefore agrees to pay,
upon demand, the sum of four cents ($.04) for each one dollar ($1.00) of
each said payment which becomes overdue as a reasonable estimate of the
amount of said damages, subject, however, to the limitations contained in
the second immediately succeeding paragraph.
5. If any payment of principal, interest or premium is not made for a period
exceeding ten (10) days after due under this Note or the Other Note, or
if any Event of Default has occurred and is continuing under any
instrument by which this Note or the Other Note are, or may hereafter be,
secured, the entire principal balance, interest then accrued, and
premium, whether or not otherwise then due, shall at the option of the
holder of this Note, become immediately due and payable without demand or
notice, and whether or not the holder of this Note has exercised said
option, interest shall accrue on the entire principal balance, interest
then accrued, and any premium then due, at a rate equal to the lesser of
(i) four percent (4%) per annum above the then applicable rate of
interest payable under this Note or (ii) the maximum rate allowed by
applicable law until fully paid or if the holder of this Note has not
exercised said option, for the duration of such Event of Default.
6. Notwithstanding anything herein or in any of the Loan Documents to the
contrary, no provision contained herein or therein which purports to
obligate the undersigned to pay any amount of
<PAGE>
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interest or any fees, costs or expenses which are in excess of the
maximum permitted by applicable law, shall be effective to the extent it
calls for the payment of any interest or other amount in excess of such
maximum. All agreements between the undersigned and the holder hereof,
whether now existing or hereafter arising and whether written or oral,
are hereby limited so that in no contingency, whether by reason of demand
for payment or acceleration of the maturity hereof or otherwise, shall
the interest contracted for, charged or received by the holder hereof
exceed the maximum amount permissible under applicable law. If, from any
circumstance whatsoever, interest would otherwise be payable to the
holder hereof in excess of the maximum lawful amount, the interest
payable to the holder hereof shall be reduced to the maximum amount
permitted under applicable law; and if from any circumstance the holder
hereof shall ever receive anything of value deemed interest by applicable
law in excess of the maximum lawful amount, an amount equal to any
excessive interest shall, at the option of the holder hereof, be refunded
to the undersigned or be applied to the reduction of the principal hereof
and not to the payment of interest or, if such excessive interest exceeds
the unpaid balance of principal hereof such excess shall be refunded to
the undersigned. This paragraph shall control all agreements between the
undersigned and the holder hereof.
7. The undersigned and any endorsers or guarantors waive presentment,
protest and demand, notice of protest, demand and dishonor and
nonpayment, and agree the due date of this Note or any installment may be
extended without affecting any liability hereunder, and further promise
to pay all reasonable costs and expenses, including attorney's and
paralegal's fees, incurred by the holder hereof in connection with any
default or in any proceeding (whether incurred in any trial, appellate,
bankruptcy, condemnation or any other proceeding) to interpret and/or
enforce any provision of this Note or any instrument by which it is
secured. No release of the undersigned from liability hereunder shall
release any other maker, endorser or guarantor hereof.
8. This Note is secured by instruments and agreements of even date herewith
executed and delivered by the undersigned to Principal Mutual Life
Insurance Company creating among other things legal and valid
encumbrances on and an assignment of all of the undersigned's interest in
any leases of certain Premises located in the County of Palm Beach, State
of Florida. Terms used herein which are defined in such instruments or
agreements and not otherwise defined herein have the same definition as
in such instruments and agreements. In no event shall such documents be
construed inconsistently with the terms of this Note, and in the event of
any discrepancy between any such documents and this Note, the terms
hereof shall govern. The proceeds of this Note are to be used for
business, commercial, investment or other similar purposes, and no
portion thereof will be used for any personal, family or household use.
This Note shall be governed by and construed in accordance with the laws
of the State where the Premises is located.
9. (a) Notwithstanding any provision to the contrary in this Note, the
Mortgage of even date herewith, or any other instrument or agreement
by which this Note is secured (collectively referred to herein as
the "Loan Documents"), and except as otherwise provided in this
paragraph, the liability of the undersigned under the Loan Documents
shall be limited to the
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interest of the undersigned in the Premises and the rents, issues,
proceeds and profits thereof. In the event of foreclosure of the
liens evidenced by the Loan Documents, no judgment for any
deficiency upon the indebtedness evidenced by the Loan Documents
shall be sought or obtained by the holder of this Note against the
undersigned. Nothing contained in this paragraph shall:
(i) limit or impair the right of the holder of this Note to declare
an Event of Default under the Loan Documents in the event of
the failure of the undersigned to make any payment or to
perform any obligation under any of the Loan Documents within
the time periods provided therein;
(ii) be construed as limiting the obligations of the undersigned to
any tenant under any lease of the Premises;
(iii) in any way limit or impair the lien or enforcement of the Loan
Documents pursuant to the terms thereof; or
(iv) limit the obligations of any indemnitor or guarantor, if any,
of obligations of the undersigned under the Loan Documents.
(b) Notwithstanding subparagraph (a) above, the undersigned shall be
personally liable to the holder of this Note for:
(i) failure of the undersigned to comply with paragraphs 2 (taxes
and assessments) and 3 (insurance) of the Mortgage;
(ii) any event or circumstance for which the undersigned indemnifies
the holder of this Note under paragraph 1(m) (environmental
indemnity) of the Mortgage or under any separate Environmental
Indemnity Agreement;
(iii) failure of the undersigned to pay utilities on or before the
date such payments are due;
(iv) operation and maintenance of the Premises;
(v) any sums expended by the holder of this Note in fulfilling the
obligations of the undersigned as lessor under any lease of the
Premises prior to a sale of the Premises pursuant to
foreclosure or power of sale, a bona fide sale (permitted by
the terms of paragraph 1(l) of the Mortgage or consented to in
writing by the holder of this Note) to an unrelated third party
or upon conveyance to the holder of this Note of the Premises
by a deed acceptable to the holder of this Note in form and
content (each of which shall be referred to as a "Sale" for
purposes of this paragraph) or expended by
<PAGE>
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the holder of this Note after a Sale of the Premises for
obligations of the undersigned which arose prior to a Sale of
the Premises;
(vi) any rents or other income regardless of type or source of
payment (including, but not limited to, CAM charges, lease
termination payments, refunds of any type, prepayment of rents,
settlements of litigation, or settlements of past due rents)
from the Premises which the undersigned has received or has a
right to receive after an Event of Default under the Loan
Documents or an event which with the passage of time, the
giving of notice or both would constitute an Event of Default,
either or both of which have occurred and are continuing, and
which are not applied to (A) expenses of operation and
maintenance of the Premises and the taxes, assessments, utility
charges and insurance of the Premises, taking into account
sufficient reserves for the same and for replacements and
recurring items, and (B) payment of principal, interest and
other charges when due under the Loan Documents; provided that
any payments to parties related to the undersigned shall be
considered expenses of operation only if they are at market
rates or fees consistent with market rates or fees for the same
or similar services;
(vii) any security deposits of tenants, together with any interest
on such security deposits required by law or the leases, not
turned over to the holder of this Note upon conveyance of the
Premises to the holder of this Note pursuant to foreclosure or
power of sale or by a deed acceptable to the holder of this
Note in form and content;
(viii) misapplication or misappropriation of tax reserve accounts,
tenant improvement reserve accounts, security deposits, prepaid
rents or other similar sums paid to or held by the undersigned
or any other entity or person in connection with the operation
of the Premises;
(ix) any waste committed or allowed by the undersigned with respect
to the Premises; and
(x) any insurance or condemnation proceeds or other similar funds
or payments applied by the undersigned in a manner other than
as expressly provided in the Loan Documents.
(c) Notwithstanding anything to the contrary in the Loan Documents, the
limitation on liability contained in subparagraph (a) above SHALL
BECOME NULL AND VOID and shall be of no further force and effect in
the event:
(i) of any breach or violation of paragraph 1(l) (due on sale or
encumbrance) of the Mortgage, other than the filing of a
nonmaterial mechanic's lien affecting the Premises, the
granting of any utility or other nonmaterial easement or
servitude burdening the Premises, or any other transfer or
encumbrance not in the nature of a
<PAGE>
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transfer, reduction or impairment of any material economic
interest in the Premises; or
(ii) of any fraud or willful misrepresentation by the undersigned
regarding the Premises, the making or delivery of any of the
Loan Documents or in any materials or information provided by
the undersigned in connection with the loan.
10. If more than one, all obligations and agreements of the undersigned are
joint and several.
11. This Note may not be changed or terminated orally, but only by an
agreement in writing and signed by the party against whom enforcement of
any waiver, change, modification or discharge is sought. All of the
rights, privileges and obligations hereunder shall inure to the benefit
of the heirs, successors and assigns of the holder hereof and shall bind
the heirs, successors and assigns of the undersigned.
The parties hereto intend and believe that each provision of this Note
comports with all applicable law. However, if any provision in this Note
is found by a court of law to be in violation of any applicable law, and
if such court should declare such provision of this Note to be unlawful,
void or unenforceable as written, then it is the intent of all parties
hereto that such provision shall be given full force and effect to the
fullest possible extent that it is legal, valid and enforceable, that the
remainder of this Note shall be construed as if such unlawful, void or
unenforceable provision were not contained herein, and that the rights,
obligations and interests of the undersigned and the holder hereof under
the remainder of this Note shall continue in full force and effect.
AFTER CONSULTING WITH COUNSEL AND CAREFUL CONSIDERATION, THE UNDERSIGNED
AND THE HOLDER (BY ITS ACCEPTANCE HEREOF) KNOWINGLY, VOLUNTARILY, AND
INTENTIONALLY WAIVE THE RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY
WITH RESPECT TO ANY LITIGATION ARISING OUT OF THIS NOTE OR ANY OTHER
INSTRUMENT OR AGREEMENT BY WHICH THIS NOTE IS, OR MAY HEREAFTER BE,
SECURED, OR OUT OF ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(ORAL OR WRITTEN), OR
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ACTIONS OF THE UNDERSIGNED OR THE HOLDER. THIS WAIVER IS A MATERIAL
INDUCEMENT TO THE HOLDER'S ACCEPTANCE OF THIS NOTE.
EQUITY ONE (LANTANA) INC., a
Florida corporation
By /s/ DORON VALERO
--------------------------
Name: Doron Valero
Title: Vice President
EXHIBIT 23.1
Consent of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.
We hereby consent to the reference to our name under the caption "Legal Matters"
in the prospectus comprising a part of the Registration Statement. In giving
such consent, we do not thereby admit that we are included within the category
of persons whose consent is required under Section 7 of the Act or the rules and
regulations promulgated thereunder.
/S/ GREENBERG TRAURIG HOFFMAN LIPOFF ROSEN & QUENTEL, P.A.
-----------------------------------------------------------
Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.
March 26, 1998
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 4 to Registration Statement
333-33977 of Equity One, Inc. and subsidiaries on Form S-11 of our report dated
February 27, 1998 (March 6, 1998 as to Note 10) relating the consolidated
financial statements of Equity One, Inc. as of December 31, 1997 and 1996 and
for each of the three years in the period ended December 31, 1997 appearing in
the Prospectus, which is part of this Registration Statement, and of our report
dated February 27, 1998 relating to the financial statement schedule appearing
elsewhere in this Registration Statement.
We also consent to the reference to us under the headings "Summary
Consolidated Financial Data", "Selected Consolidated Financial Data" and
"Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Miami, Florida
March 26, 1998
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 4 to Registration Statement
333-33977 of Equity One, Inc. and subsidiaries on Form S-11 of our report dated
March 17, 1998 relating to the statement of revenues and certain expenses of
Lantana Village Square for the year ended December 31, 1997 appearing elsewhere
in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Miami, Florida
March 26, 1998
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 4 to Registration Statement
333-33977 of Equity One, Inc. and subsidiaries on Form S-11 of our report dated
March 18, 1998 relating to the statement of revenues and certain expenses of
Summerlin Square for the year ended December 31, 1997 appearing elsewhere in
the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Miami, Florida
March 26, 1998
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,598
<SECURITIES> 45
<RECEIVABLES> 892
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 126,441
<DEPRECIATION> 7,191
<TOTAL-ASSETS> 126,903
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 69
<OTHER-SE> 53,511
<TOTAL-LIABILITY-AND-EQUITY> 126,903
<SALES> 0
<TOTAL-REVENUES> 20,545
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,666
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,681
<INCOME-PRETAX> 6,198
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,198
<EPS-PRIMARY> .96
<EPS-DILUTED> .87
</TABLE>
EXHIBIT 99.2
CONSENT OF RONALD CHASE
The undersigned, a nominee for director of Equity One, Inc., a Maryland
corporation (the "Company"), hereby (i) consents to being nominated for the
position of director of the Company and agrees to serve as such if elected, and
(ii) consents to being named as a prospective director and/or director nominee
in the Company's Registration Statement on Form S-11 relating to the Company's
initial public offering of its common stock, and in the Prospectus contained
therein proposed to be circulated in connection with such offering, and all
amendments thereto.
Executed this 26th day of March, 1998.
Ronald Chase
