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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER: 000-23463
.................
PHILIPS INTERNATIONAL REALTY CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 13-3963667
------------------------------------ -------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
417 FIFTH AVENUE,
NEW YORK, NEW YORK 10016 10016
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(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 545-1100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01
par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [X]
Upon issuance on December 31, 1997, the agreed value of the voting stock
held by non-affiliates of the Registrant was $1,850,000. Such shares of common
stock are not currently listed on a national securities exchange. This
calculation does not reflect a determination that persons are affiliates for any
other purpose.
As of March 1, 1998, 47,660 shares of common stock, $.01 par value, (the
'Common Stock') were outstanding (81,265 shares of Common Stock, as adjusted to
reflect the proposed stock split described herein).
LOCATION OF EXHIBIT INDEX: The index of exhibits is contained in Part IV
herein on page number 27.
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TABLE OF CONTENTS
FORM 10-K
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PAGE
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PART I
Item 1. Business..................................................................................... 1
Item 2. Properties................................................................................... 4
Item 3. Legal Proceedings............................................................................ 10
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 10
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters......................... 10
Item 6. Selected Financial Data...................................................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 13
Item 8. Financial Statements and Supplementary Data.................................................. 16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......... 16
PART III
Item 10. Directors and Executive Officers of the Registrant........................................... 16
Item 11. Executive Compensation....................................................................... 18
Item 12. Security Ownership of Certain Beneficial Owners and Management............................... 21
Item 13. Certain Relationships and Related Transactions............................................... 23
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K............................ 26
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Philips International Realty Corp. (the 'Company') is a self-advised real
estate investment trust ('REIT') formed to continue and expand the shopping
center business of certain affiliated companies owned or controlled by Philip
Pilevsky (the 'Philips Group'). For more than 15 years, the Philips Group has
been engaged in the ownership, acquisition for redevelopment and development of
neighborhood and community shopping centers predominantly concentrated in two
major, densely populated, East Coast metropolitan regions: (i) the New York,
Northern New Jersey, Long Island and Connecticut consolidated metropolitan
statistical area (the 'New York CMSA') and (ii) the Miami-Fort Lauderdale
consolidated metropolitan statistical area (the 'Miami CMSA'). As of December
31, 1997, the Company's portfolio consisted of 13 well-established neighborhood
and community shopping center properties (each a 'Property,' and collectively,
the 'Properties'), encompassing 2.4 million square feet of GLA. Ten of the
Properties were redeveloped or developed by the Philips Group, of which nine are
located in the New York CMSA or the Miami CMSA markets. Eight of the Properties
are anchored by national or regional supermarkets such as Publix Supermarkets,
Inc., Winn-Dixie Stores, Inc., and Waldbaums/APW Supermarkets, Inc. The Company
believes the strength of these grocery retailers, as well as other key anchor
tenants, provide the Properties with consistent consumer traffic and enables the
Company to attract additional quality anchor retailers, as well as quality
national, regional and local non-anchor retailers. As of December 31, 1997, the
Properties were 96.3% leased to 268 tenants with 82.9% of the total GLA leased
to national and regional retailers.
The Company's strategy is to acquire for redevelopment and develop quality
neighborhood and community shopping centers, located in demographically strong,
under-stored markets which serve the daily needs of the surrounding community.
The Company will continue this strategy by focusing its activities primarily in
the New York CMSA, and secondarily in the Miami CMSA. Management believes its
extensive experience, market knowledge and network of industry contacts within
these regions gives the Company a competitive advantage and enhances its ability
to identify and capitalize on acquisitions for redevelopment and development
opportunities. The Company believes that the New York CMSA and Miami CMSA are
both attractive regions in which to own and develop retail properties for
long-term investment. See 'Item 2. Properties--The New York and Miami CMSAs.'
The Company's day-to-day operations are strategically directed by its
executive officers and implemented through a management agreement (the
'Management Agreement') with a property management company affiliated with the
Philips Group (the 'Management Company'). The Management Agreement provides for
the payment of fees, not to exceed prevailing market rates, and can be canceled,
in whole or in part, at any time by the Company as it internalizes property
management services. This agreement enables the Company to utilize the Philips
Group's infrastructure on a cost-effective basis. Going forward, the Company is
committed to internalize property management functions as its portfolio grows.
Based on its current business plan, the Company expects to become a fully
integrated, self-managed operation within 24 months following the consummation
of its proposed public offering of shares of Common Stock (the 'Offering'). See
'Recent Developments.'
Philip Pilevsky, Chairman of the Board of Directors and Chief Executive
Officer, leads a management team whose executive officers have an average of
approximately 15 years experience in acquiring, redeveloping and developing
retail properties. The Philips Group has acquired, redeveloped and/or developed
a total of 66 retail properties encompassing over 5.1 million square feet within
the New York CMSA and Miami CMSA markets. As of March 1, 1998, Mr. Pilevsky and
the other executive officers and directors beneficially owned in the aggregate
approximately 70.4% of the outstanding Common Stock (or interests redeemable
therefor).
The Company was incorporated in Maryland on July 16, 1997. Its executive
offices are located at 417 Fifth Avenue, New York, New York 10016, and its
telephone number is (212) 545-1100.
STRATEGIES FOR GROWTH
The Company's objective is to maximize shareholder value through aggressive
growth of its cash flow per share and through the appreciation of the value of
its portfolio. The Company will seek to accomplish this objective by continuing
its multi-faceted strategy of: (i) acquisition for redevelopment of retail
properties in
1
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demographically strong, under-stored markets and where supply is constrained;
(ii) development of retail properties in similar markets; (iii) expansion of
properties within its portfolio; and (iv) aggressive asset management of its
portfolio.
Management expects that a significant part of the Company's growth will be
achieved through continuing its program of acquiring an optimal, risk-adjusted
mix of additional shopping centers for redevelopment at attractive initial
returns, including: (i) well established, stable properties which the Company
believes are currently leased at below market rents; (ii) underperforming,
poorly managed properties; and (iii) properties with additional land for new
development or expansion. The Company seeks to acquire shopping centers at below
replacement cost in markets with strong demographics, emphasizing locations
where retail demand exceeds supply and the creation of new supply is
constrained. The Company believes there are significant opportunities within the
markets in which it currently operates to acquire such properties, including
opportunities to acquire property portfolios, and it is currently in discussions
with a number of owners to acquire properties. The Company further believes that
the markets in which it operates are mature, established markets in which
property owners may have low tax bases, and therefore exposure to significant
taxable gains upon sale. Management believes that the Company's ability to
acquire properties for Units enabling such sellers to defer taxable gain,
coupled with its extensive market expertise and contacts, as well as its access
to capital as a public company, will enable the Company to successfully execute
its acquisition strategy.
The Company balances its acquisition activities through its selective
development of additional quality neighborhood and community shopping centers,
primarily in the New York CMSA markets. The Company capitalizes on management's
extensive development experience, market knowledge, network of industry contacts
and relationships and its proven track record. In order to minimize the risk and
the commitment of capital for prolonged periods usually associated with
development, the Company will continue to focus on two strategies to secure its
development projects: (i) pursuing requests for proposal ('RFPs') or similar
municipally sponsored development opportunities; and (ii) entering into land
purchase contracts which are subject to the satisfactory resolution of key
development contingencies, such as obtaining approvals and permits.
The Company also will continue to utilize its long-standing asset and
property management practices to maximize cash flow from its existing Properties
and enhance their long-term value through its extensive knowledge of the retail
industry and shopping center operations. During the past five years, the Company
has increased the occupancy rate of the Properties from 88.4% as of December 31,
1993 to 96.3% as of December 31, 1997, while also increasing the total
annualized contractual base rent from $8.93 to $10.44 per leased square foot.
As of December 31, 1997, the Company's debt to total capitalization ratio
was approximately 70%, based on the agreed net asset value per share of $50.00.
After the Offering, the Company intends to maintain a ratio of debt to total
market capitalization (defined as the market value of the outstanding Common
Stock, including interests redeemable therefor, plus the total debt of the
Company) of not more than 50%. However, such objective may be altered without
the consent of the Company's shareholders and the Company's organizational
documents do not limit the amount of indebtedness that the Company may incur.
Based on the assumed public offering price of $20.00 per share, the Company's
ratio of debt to total market capitalization ratio would be approximately 23.3%
(21.5% if the Underwriters' over-allotment option is exercised in full).
EMPLOYEES
As of December 31, 1997, the Company had 26 employees, 20 of whom are
maintenance, security and clerical personnel at the Properties located in
Hialeah, Florida. The Company believes that relations with its employees are
good. None of the employees are unionized.
COMPETITION
Numerous shopping center properties compete with the Properties in
attracting tenants to lease space. Tenants may consider certain of these
competing properties to be newer in appearance, better located or better
maintained than the Properties. The number of competitive commercial properties
in a particular area could have a material effect on the Company's ability to
lease space in the Properties or at newly developed or acquired properties and
on the rents charged. In addition, retailers at the Properties face increasing
competition from other forms of retailing, such as catalogues, discount shopping
clubs and telemarketing.
REGULATIONS
A number of federal, state and local laws exist, such as the Americans with
Disabilities Act, which may require modifications to existing buildings to
improve, or restrict certain renovations by requiring, access to such buildings
by disabled persons. While the Company believes that all of the Properties are
in substantial
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compliance with laws currently in effect, and will review periodically the
Properties to determine continuing compliance with existing laws and any
additional laws that are hereafter promulgated, additional legislation may
impose further requirements on owners with respect to access by disabled
persons.
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances on or in such property.
Such laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's or operator'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. Certain environmental laws impose
liability for release of asbestos-containing materials into the air, and third
parties may seek recovery from owners or operators of real properties for
personal injuries associated with asbestos-containing materials. In connection
with the ownership (direct or indirect), operation, management and development
of real properties, the Company may be considered an owner or operator of such
properties or as having arranged for the disposal or treatment of hazardous or
toxic substances and, therefore, may be potentially liable for removal or
remediation costs, as well as certain other costs, including governmental fines
and injuries to persons and property.
All of the Properties have been subject to a Phase I environmental
assessment (which involves general inspections without soil sampling or ground
water analysis) completed within the last year by independent environmental
consultants. None of these environmental assessments has revealed any
environmental liability that the Company believes would have a material adverse
effect on the Company's financial condition or results of operations taken as a
whole, nor is the Company aware of any material environmental liability.
There are no other laws or regulations which have a material effect on the
Company's operations, other than typical state and local laws affecting the
development and operation of real property, such as zoning laws.
INDUSTRY SEGMENTS
The Company operates in only one industry segment. The Company does not
have any foreign operations and its business is not seasonal. All of the
Company's Properties are retail shopping center properties. As of December 31,
1997, the total annualized contractual base rents due under leases with tenants
at the Company's nine Properties located in the New York CMSA or Miami CMSA
markets represented 91.0% of the total annualized contractual base rents due
under all of the Company's leases.
RECENT DEVELOPMENTS
On December 31, 1997, the Company and certain members of the Philips Group
completed the formation transactions (the 'Formation Transactions'), pursuant to
which the Properties, or partnership or membership interests in the Properties,
were contributed to Philips International Realty, L.P., a Delaware limited
partnership (the 'Operating Partnership') of which the Company is currently the
non-managing general partner, in exchange for limited partnership interests in
the Operating Partnership (the 'Units'). The Units are redeemable, subject to
certain lock-up agreements, beginning on December 31, 1998 (the first
anniversary of the consummation of the Formation Transactions), at the
Unitholder's request; such Units will be redeemed, at the Company's option and
in its sole discretion, either for shares of Common Stock on a one-for-one basis
(subject to certain anti-dilution adjustments and exceptions) and/or cash (based
upon the fair market value of an equivalent number of shares of Common Stock at
the time of redemption). In connection with the Formation Transactions, the
Company entered into: (i) employment agreements with each of Mr. Petra and Ms.
Levine; (ii) the Management Agreement with the Management Company; and (iii) a
non-competition agreement (the 'Non-Competition Agreement') with Mr. Pilevsky,
Ms. Levine and the Management Company. See 'Item 11. Executive
Compensation--Employment Agreements' and 'Item 13. Certain Relationships and
Related Transactions--Management Agreement' and '--Non-Competition Agreement.'
On March 13, 1998, the Company filed a Form S-11 Registration Statement
with the Securities and Exchange Commission ('SEC') under which the Company
intends to sell 7,200,000 shares of Common Stock and contribute the net proceeds
therefrom to the Operating Partnership in exchange for general partnership
interests (resulting in aggregate ownership by the Company of an approximately
74.8% economic interest in the Operating Partnership). Approximately $126.7
million, or 97.8%, of the estimated net proceeds of the Offering is intended to
be used to repay mortgage and other indebtedness (including accrued expenses
incurred in connection
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with the Formation Transactions). Upon consummation of the Offering, total debt
of the Company would constitute approximately 23.3% of its total market
capitalization.
Upon consummation of the Offering, the Company would be the sole general
partner of the Operating Partnership and would conduct substantially all of its
business and will hold substantially all of its interests in the Properties
through the Operating Partnership, either directly or indirectly through
partnerships or limited liability companies holding fee title to the Properties
(collectively, the 'Property Partnerships'). As the sole general partner of the
Operating Partnership, the Company will have exclusive power to manage and
conduct the business of the Operating Partnership, subject to certain customary
exceptions. Upon consummation of the Offering, Mr. Pilevsky and the other
executive officers and directors will beneficially own in the aggregate
approximately 19.4% of the outstanding Common Stock (or interests redeemable
therefor). Although no assurance can be given, the Company intends, subject to
market conditions, to complete the Offering at the earliest time it determines
it is advantageous to do so.
In connection with the Offering, the Company expects to effect a 1.7051 for
1 Common Stock split immediately prior to the Offering (the 'Proposed Stock
Split'). Unless otherwise indicated, all Common Stock information contained
herein reflects the Proposed Stock Split.
FINANCING ACTIVITIES
MORTGAGE FINANCING. As of December 31, 1997, there was a total of
approximately $176.6 million of debt encumbering certain Properties. In
connection with the Offering, the Company expects to repay all of its existing
floating rate mortgage debt. As a result, the total principal amount of
outstanding mortgage debt would be reduced by approximately $116.7 million, and
the Company would have approximately $59.5 million of secured fixed rate debt
with a weighted average interest rate of 7.61% and a weighted average maturity
of 5.25 years. See Note 5 to the Notes to Financial Statements for the Property
Partnerships for a discussion of the debt encumbering the Company's Properties
at December 31, 1997.
CREDIT FACILITY. The Company expects to establish a revolving Credit
Facility (the 'Credit Facility') concurrently with, and conditioned upon, the
consummation of the Offering. The availability of funds under the Credit
Facility will be subject to the Company's compliance with a number of customary
financial and other covenants. The Credit Facility will be used primarily to
finance the Company's acquisition and redevelopment activities. Borrowings under
the Credit Facility are expected to be secured by certain Properties with
recourse to the Company and the Operating Partnership.
THE OFFERING. On March 13, 1998, the Company filed a Form S-11
Registration Statement with the SEC under which the Company intends to sell
7,200,000 shares of Common Stock at a proposed range between $19.00 and $21.00
per share. See 'Recent Developments.'
ITEM 2. PROPERTIES
GENERAL
As of December 31, 1997, the Company owned 100% of 13 well-established
neighborhood and community shopping center Properties, encompassing 2.4 million
square feet of GLA, of which ten were developed or redeveloped by the Philips
Group. Nine of the Properties, representing approximately 80% of the total GLA,
are located in the New York CMSA or the Miami CMSA markets, with the remaining
20% of the total GLA located in neighboring markets.
The Company's community and neighborhood shopping centers usually are
anchored by national or regional retailers. As long-time participants in the
shopping center industry, management has established close relationships with a
large number of major national and regional retailers. As of December 31, 1997,
the Properties were 96.3% leased to 268 tenants with 82.9% of the total GLA
leased to national and regional retailers. Eight of the Properties are anchored
by national or regional supermarkets such as Publix Supermarkets, Inc.,
Winn-Dixie Stores Inc., and Waldbaums/APW Supermarkets, Inc. The Company
believes the strength of these grocery retailers, as well as other key anchor
tenants, provide the Properties with consistent consumer traffic and enable the
Company to attract additional quality anchor retailers, as well as quality
national, regional and local non-anchor retailers.
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PROPERTY SUMMARY DATA
The following table sets forth certain information relating to each of the
Properties at December 31, 1997. All of the Properties are 100% owned by the
Company.
<TABLE>
<CAPTION>
ANNUALIZED CONTRACTUAL
BASE RENT AT 12/31/97(1)
YEAR BUILT/ ------------------------------------
RENOVATED TOTAL % OF % LEASED % OF BASE
-------------- GLA TOTAL AT BASE PORTFOLIO RENT/SQ. FT.
PROPERTY AND LOCATION YR. ACQUIRED (SQ. FT.) GLA 12/31/97 RENT ($000) BASE RENT (2) ($)
- ----------------------------- -------------- --------- ----- -------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NEW YORK CMSA
Forest Avenue Shoppers Town 1957/1996 177,002 7.4 99.1 3,071 12.8 17.51
Forest Avenue 1984
Staten Island, New York
Meadowbrook Commons 1990 173,027 7.2 100.0 3,028 12.6 17.50
Sunrise Highway (3)
Freeport, New York
Merrick Commons 1960/1994 108,066 4.5 98.6 1,724 7.2 16.18
Merrick Road 1985
Merrick, New York
Mill Basin Plaza 1991 80,708 3.4 100.0 2,104 8.8 26.07
Avenue U (3)
Brooklyn, New York
Branhaven Plaza 1971/1996 191,496 8.0 100.0 1,375 5.7 7.18
U.S. 1 1985
Branford, Connecticut
<CAPTION>
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<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL/WEIGHTED AVERAGE 730,299 30.5 99.6 11,302 47.1 15.54
MIAMI CMSA
Mall on the Mile (4) 591,369 24.7 97.0 4,185 17.4 7.30
Palm Springs Mile 1985
Hialeah, Florida
Palm Springs Village (4) 309,380 12.9 91.9 2,657 11.1 9.34
Palm Springs Mile 1985
Hialeah, Florida
The Shops on 49th Street (4) 167,009 7.0 97.7 2,824 11.7 17.30
Palm Springs Mile 1985
Hialeah, Florida
Philips Plaza (4) 109,263 4.6 79.4 887 3.7 10.23
Palm Springs Mile 1985
Hialeah, Florida
<CAPTION>
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<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL/WEIGHTED AVERAGE 1,177,021 49.2 94.1 10,553 43.9 9.53
NEIGHBORING MARKETS
Elm Plaza 1973/1995 168,852 7.1 97.6 584 2.4 3.54
Rte. 220/I-91 1986
Enfield, Connecticut
Millside Plaza 1977 161,128 6.8 98.3 761 3.2 4.81
U.S. 130 1986
Delran, New Jersey
Foxboro Plaza 1982 117,831 4.9 91.2 513 2.1 4.77
Rte. 140/I-95 1986
Foxborough, Massachusetts
The Shoppes at Lake Mary 1985 36,725 1.5 100.0 322 1.3 8.77
Country Club Road 1997
Lake Mary, Florida
<CAPTION>
--------- ----- -------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL/WEIGHTED AVERAGE 484,536 20.3 96.5 2,180 9.0 4.66
PORTFOLIO TOTAL/WEIGHTED AVERAGE 2,391,856 100.0 96.3 24,035 100.0 10.44
<CAPTION>
--------- ----- -------- ----------- --------- ------------
--------- ----- -------- ----------- --------- ------------
<CAPTION>
KEY TENANTS (YEAR OF LEASE
PROPERTY AND LOCATION EXPIRATION/OPTION TERM)
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<S> <C>
NEW YORK CMSA
Forest Avenue Shoppers Town TJ Maxx (The TJX Companies,
Forest Avenue Inc.) (2005/2020); APW
Staten Island, New York Supermarkets, Inc. (Waldbaum,
Inc.) (2001/2011)
Meadowbrook Commons Giant Food Stores, Inc. (2025);
Sunrise Highway Toys 'R' Us, Inc. (2020/2040);
Freeport, New York Marshall's of MA, Inc.
(2001/2016)
Merrick Commons APW Supermarkets, Inc.
Merrick Road (Waldbaum, Inc.) (2013/2041)
Merrick, New York
Mill Basin Plaza Pergament Home Centers, Inc.
Avenue U (2011/2021); Walgreens Co.
Brooklyn, New York (2024)
Branhaven Plaza Caldor, Inc. (2002/2022); APW
U.S. 1 Supermarkets, Inc. (Waldbaum,
Branford, Connecticut Inc.) (2016/2038); CVS
(2001/2011)
TOTAL/WEIGHTED AVERAGE
MIAMI CMSA
Mall on the Mile Builders Square (2002/2022);
Palm Springs Mile Mervyn's (2011/2031); Toys 'R'
Hialeah, Florida Us, Inc. (2002/2017); Publix
Supermarkets, Inc. (2002)
Palm Springs Village Winn-Dixie Stores, Inc.
Palm Springs Mile (2016/2035); Upton, Inc.
Hialeah, Florida (1999/2009); Fabulous Diamonds
of Hialeah, Inc. (2001)
The Shops on 49th Street Smart & Final Stores
Palm Springs Mile Corporation (2016/2021); Pier
Hialeah, Florida One Imports (U.S.) Inc.
(2001/2021)
Philips Plaza Michael's Stores, Inc.
Palm Springs Mile (2006/2016); Ideal Corporation
Hialeah, Florida (2005)
TOTAL/WEIGHTED AVERAGE
NEIGHBORING MARKETS
Elm Plaza Caldor Inc. (2001/2021); APW
Rte. 220/I-91 Supermarkets, Inc. (Waldbaum,
Enfield, Connecticut Inc.) (2014/2034)
Millside Plaza Kmart Corporation (2002/2017);
U.S. 130 Shop Rite (Delran Supermarket,
Delran, New Jersey Inc.) (2001/2016)
Foxboro Plaza Bradlees Stores, Inc.
Rte. 140/I-95 (2002/2022)
Foxborough, Massachusetts
The Shoppes at Lake Mary
Country Club Road
Lake Mary, Florida
TOTAL/WEIGHTED AVERAGE
PORTFOLIO TOTAL/WEIGHTED AVER
</TABLE>
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(1) Total annualized contractual base rent for all leases in place at December
31, 1997. Amount excludes (i) future contractual rent escalations and cost
of living increases; (ii) percentage rent and (iii) additional rent payable
by tenants such as common area maintenance, real estate taxes and other
expense reimbursements.
(2) Total annualized contractual base rent divided by total GLA leased at
December 31, 1997.
(3) Property was developed by the Company.
(4) Development of the Properties commenced in 1958. Substantial redevelopment
and expansion has been ongoing since 1985, when the Properties were acquired
by the Philips Group.
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OCCUPANCY
During the past five years the Company has increased its portfolio
occupancy and total annualized contractual base rent per square foot, as
indicated in the table below:
<TABLE>
<CAPTION>
TOTAL ANNUALIZED
NUMBER OF CONTRACTUAL BASE RENT PER
DATE PROPERTIES % LEASED LEASED SQUARE FOOT ($)(1)
- ------------------------------------------------------------- --------- -------- -------------------------
<S> <C> <C> <C>
December 31, 1997............................................ 13 96.3 10.44
December 31, 1996............................................ 13 95.4 10.26
December 31, 1995............................................ 13 90.7 9.94
December 31, 1994............................................ 13 88.2 9.64
December 31, 1993............................................ 12 88.4 8.93
</TABLE>
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(1) Total annualized contractual base rent for all leases in place at December
31 for the respective years indicated, divided by total GLA leased at such
dates. Amount excludes (i) future contractual rent escalations and cost of
living increases, (ii) percentage rent and (iii) additional rent payable by
tenants such as common area maintenance, real estate taxes and other expense
reimbursements.
LEASE EXPIRATIONS
The following table sets forth all scheduled lease expirations for the
Properties beginning January 1, 1998, assuming that none of the tenants
exercises renewal options or termination rights:
<TABLE>
<CAPTION>
ANNUALIZED
CONTRACTUAL
BASE RENT AT
TOTAL 12/31/97(1)
GLA UNDER ------------
NUMBER EXPIRING
LEASE EXPIRATION OF LEASES LEASES % OF TOTAL BASE RENT
YEAR YEAR EXPIRING (SQ. FT.) EXPIRING GLA ($000)
- ------------------------------------- ---------------- ------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
1.................................... 1998 45 122,975 5.3 1,599
2.................................... 1999 29 113,431 4.9 1,626
3.................................... 2000 31 156,330 6.8 1,747
4.................................... 2001 40 374,792 16.3 3,752
5.................................... 2002 39 505,393 22.0 2,491
6.................................... 2003 12 53,271 2.3 702
7.................................... 2004 9 57,997 2.5 623
8.................................... 2005 12 133,076 5.8 1,485
9.................................... 2006 12 70,132 3.1 1,155
10................................... 2007 8 57,823 2.5 794
11 and after......................... 2008 and after 31 656,654 28.5 8,061
------------- ------------ --------------- ------------
TOTAL/WEIGHTED AVERAGE............................. 268 2,302,324 100.0 24,035
------------- ------------ --------------- ------------
------------- ------------ --------------- ------------
<CAPTION>
% OF
PORTFOLIO BASE RENT/
YEAR BASE RENT SQ. FT.(2)($)
- ------------------------------------- ------------ ----------------
<S> <C> <C>
1.................................... 6.7 13.00
2.................................... 6.8 14.33
3.................................... 7.3 11.17
4.................................... 15.6 10.01
5.................................... 10.4 4.93
6.................................... 2.9 13.08
7.................................... 2.6 10.74
8.................................... 6.2 11.16
9.................................... 4.8 16.47
10................................... 3.3 13.73
11 and after......................... 33.5 12.28
------------ ----------------
TOTAL/WEIGHTED AVERAGE.......... 100.0 10.44
------------ ----------------
------------ ----------------
</TABLE>
- ------------------------
(1) Total annualized contractual base rent for all leases in place at December
31, 1997. Amount excludes (i) future contractual rent escalations and cost
of living increases, (ii) percentage rent and (iii) additional rent payable
by tenants such as common area maintenance, real estate taxes and other
expense reimbursement.
(2) Total annualized contractual base rent divided by total GLA leased at
December 31, 1997.
TAX BASIS AND REAL ESTATE TAXES
The aggregate cost basis of depreciable real property for federal income
tax purposes in the Properties as of December 31, 1997 was approximately $74
million. Depreciation and amortization are provided on the straight line and
double declining balance methods over the estimated useful lives of the assets,
which range from 15 to 39 years. The aggregate real estate tax obligations on
the Properties during the fiscal year ended December 31, 1997 was approximately
$4.7 million, or approximately $1.98 per square foot of GLA. Virtually all of
the Company's leases contain provisions requiring tenants to pay as additional
rent a proportionate share of real estate tax increases, including real estate
tax increases resulting from improvements.
6
<PAGE>
SIGNIFICANT PROPERTIES
Since the 1997 gross revenues for each of (i) the Company's four Properties
located in Hialeah, Florida, aggregated, (ii) Forest Avenue Shoppers Town, and
(iii) Meadowbrook Commons shopping centers amounted to more than 10% of the
aggregate gross revenues for the Properties during such year, additional
information regarding these Properties is provided below.
HIALEAH, FLORIDA PROPERTIES. The Hialeah, Florida Properties consist of
four adjacent Properties, Mall on the Mile, Palm Springs Village, The Shops on
49th Street, and Philips Plaza, with an aggregate of 1.2 million square feet of
GLA. Hialeah is situated in the greater Miami metropolitan area, north of the
Miami International Airport, west of the municipalities of Miami, Miami Beach
and Aventura, and south of Broward County and Fort Lauderdale. The four
Properties form a unique, one-mile retail shopping corridor that fronts both
sides of West 49th Street, locally known as 'Palm Springs Mile.' The collective
90 acres of the four Properties facilitate the expansion or reconfiguration of
existing space, which has been regularly expanded by the Company since 1985.
The following table sets forth the percent leased and total annualized
contractual base rent per leased square foot for Palm Springs Mile as of the
dates indicated:
<TABLE>
<CAPTION>
TOTAL ANNUALIZED CONTRACTUAL BASE
DATE % LEASED RENT PER LEASED SQUARE FOOT($)(1)
- ------------------------------------------------------ -------- -----------------------------------
<S> <C> <C>
December 31, 1997..................................... 94.1 9.53
December 31, 1996..................................... 93.8 9.57
December 31, 1995..................................... 85.5 8.94
December 31, 1994..................................... 85.2 8.63
December 31, 1993..................................... 85.3 8.10
</TABLE>
- ------------------
(1) Total annualized contractual base rent for all leases in place at December
31 for the respective years indicated, divided by total GLA leased at such
dates. Amount excludes (i) future contractual rent escalations and cost of
living increases, (ii) percentage rent and (iii) additional rent payable by
tenants such as common area maintenance, real estate taxes and other expense
reimbursements.
The following table sets forth all scheduled lease expirations for Palm
Springs Mile beginning January 1, 1998, assuming that none of the tenants
exercises renewal options or termination rights:
<TABLE>
<CAPTION>
ANNUALIZED CONTRACTUAL
BASE RENT AT
12/31/97(1)
----------------------
% OF TOTAL % OF
NUMBER OF SQUARE FOOTAGE PROPERTY PROPERTY
LEASE LEASES UNDER EXPIRING BASE RENT BASE
YEAR EXPIRATION YEAR EXPIRING EXPIRING LEASES GLA ($000) RENT
- -------------------------- --------------- --------- ------------------ ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
1........................ 1998 28 76,761 6.9 1,013 9.6
2........................ 1999 14 75,221 6.8 843 8.0
3........................ 2000 14 97,339 8.8 676 6.4
4........................ 2001 21 105,784 9.5 1,382 13.1
5........................ 2002 19 230,852 20.8 1,123 10.6
6........................ 2003 8 40,388 3.6 509 4.8
7........................ 2004 6 43,143 3.9 511 4.8
8........................ 2005 8 84,783 7.7 757 7.2
9........................ 2006 3 33,415 3.0 517 4.9
10........................ 2007 1 5,100 0.5 82 0.8
11 and after.............. 2008 and after 16 314,963 28.4 3,141 29.8
--------- ------------------ ----------- --------- --------
TOTAL/WEIGHTED AVERAGE.... 138 1,107,749 100.0 10,553 100.0
--------- ------------------ ----------- --------- --------
--------- ------------------ ----------- --------- --------
<CAPTION>
BASE RENT/
YEAR SQ. FT.(2)($)
- -------------------------- -------------
<S> <C>
1........................ 13.20
2........................ 11.21
3........................ 6.95
4........................ 13.06
5........................ 4.87
6........................ 12.59
7........................ 11.84
8........................ 8.93
9........................ 15.47
10........................ 16.00
11 and after.............. 9.97
-------------
TOTAL/WEIGHTED AVERAGE.... 9.53
-------------
-------------
</TABLE>
- ------------------
(1) Total annualized contractual base rent for all leases in place at December
31, 1997. Amount excludes (i) future contractual rent escalations and cost
of living increases, (ii) percentage rent and (iii) additional rent payable
by tenants such as common area maintenance, real estate taxes and other
expense reimbursements.
(2) Total annualized contractual base rent divided by total GLA leased at
December 31, 1997.
The aggregate cost basis of depreciable real property for federal income
tax purposes for Palm Springs Mile at December 31, 1997 was approximately $27.0
million. Depreciation and amortization are provided on the straight line and
double declining balance methods over the estimated useful lives of the assets,
which range from 15 to 39 years. The aggregate real estate tax obligations for
Palm Springs Mile during the fiscal year ended December 31, 1997 was
approximately $1.7 million, or approximately $1.45 per square foot of GLA.
In connection with the Formation Transactions, one of the Company's lenders
did not consent to the transfer of interests in the partnerships which own The
Shops on 49th Street and Philips Plaza. If such transfers were determined to
violate the
7
<PAGE>
terms of the mortgage, the lender could be entitled to accelerate the maturity
date of the loan and commence foreclosure proceedings against the mortgaged
Properties. The lender has taken no action with respect to this matter. The
Company intends to repay this loan in full with the net proceeds from the
Offering.
FOREST AVENUE SHOPPERS TOWN. Forest Avenue Shoppers Town is a
grocery-anchored neighborhood shopping center encompassing 177,002 square feet
of GLA, and is located along Forest Avenue in north central Staten Island, New
York. The Company believes that Forest Avenue Shoppers Town is one of the
dominant shopping centers in northern Staten Island, a densely populated
residential area in New York City, which functions as a bedroom community for
Manhattan.
The following table sets forth the percent leased and total annualized
contractual base rent per leased square foot for Forest Avenue Shoppers Town as
of the dates indicated:
<TABLE>
<CAPTION>
TOTAL ANNUALIZED CONTRACTUAL BASE
DATE % LEASED RENT PER LEASED SQUARE FOOT($)(1)
- --------------------------------------------------- -------- ---------------------------------
<S> <C> <C>
December 31, 1997.................................. 99.1 17.51
December 31, 1996.................................. 98.6 16.73
December 31, 1995.................................. 95.0 16.71
December 31, 1994.................................. 86.7 16.91
December 31, 1993.................................. 90.3 12.31
</TABLE>
- ------------------
(1) Total annualized contractual base rent for all leases in place at December
31 for the respective years indicated, divided by total GLA leased at such
dates. Amount excludes (1) future contractual rent escalations and cost of
living increases, (ii) percentage rent and (iii) additional rent payable by
tenants such as common area maintenance, real estate taxes and other expense
reimbursements.
The following table sets forth all scheduled lease expirations for Forest
Avenue Shoppers Town beginning January 1, 1998, assuming that none of the
tenants exercises renewal options or termination rights:
<TABLE>
<CAPTION>
ANNUALIZED CONTRACTUAL
BASE RENT AT
12/31/97(1)
----------------------
% OF TOTAL % OF
LEASE NUMBER OF SQUARE FOOTAGE PROPERTY PROPERTY
EXPIRATION LEASES UNDER EXPIRING BASE RENT BASE
YEAR YEAR EXPIRING EXPIRING LEASES GLA ($000) RENT
- -------------------------- --------------- --------- ------------------ ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
1........................ 1998 -- -- -- -- --
2........................ 1999 6 19,190 10.9 579 18.9
3........................ 2000 2 9,975 5.7 228 7.4
4........................ 2001 4 44,963 25.6 444 14.5
5........................ 2002 2 4,198 2.4 129 4.2
6........................ 2003 -- -- -- -- --
7........................ 2004 1 900 0.5 26 0.8
8........................ 2005 2 40,578 23.1 610 19.9
9........................ 2006 3 22,888 13.0 335 10.9
10........................ 2007 2 15,317 8.7 347 11.3
11 and after.............. 2008 and after 3 17,383 9.9 373 12.1
--------- ------------------ ----------- --------- --------
TOTAL/WEIGHTED AVERAGE.... 25 175,392 100.0 3,071 100.0
--------- ------------------ ----------- --------- --------
--------- ------------------ ----------- --------- --------
<CAPTION>
BASE RENT/
YEAR SQ. FT.(2)($)
- -------------------------- -------------
<S> <C>
1........................ --
2........................ 30.18
3........................ 22.91
4........................ 9.88
5........................ 30.80
6........................ --
7........................ 28.64
8........................ 15.03
9........................ 14.62
10........................ 22.66
11 and after.............. 21.44
-------------
TOTAL/WEIGHTED AVERAGE.... 17.51
-------------
-------------
</TABLE>
- ------------------
(1) Total annualized contractual base rent for all leases in place at December
31, 1997. Amount excludes (i) future contractual rent escalations and cost
of living increases, (ii) percentage rent and (iii) additional rent payable
by tenants such as common area maintenance, real estate taxes and other
expense reimbursements.
(2) Total annualized contractual base rent divided by total GLA leased at
December 31, 1997.
The aggregate cost basis of depreciable real property for federal income
tax purposes for Forest Avenue Shoppers Town at December 31, 1997 was
approximately $5.0 million. Depreciation and amortization are provided on the
straight line and double declining balance methods over the estimated useful
lives of the assets, which range from 15 to 39 years. The aggregate real estate
tax obligations for Forest Avenue Shoppers Town during the fiscal year ended
December 31, 1996 was approximately $0.8 million, or approximately $4.47 per
square foot of GLA.
MEADOWBROOK COMMONS. Meadowbrook Commons is a grocery-anchored
neighborhood shopping center, encompassing 173,027 square feet of GLA, located
in Nassau County, Long Island, one of the most densely populated suburbs in the
New York CMSA. The shopping center is situated on Sunrise Highway, a major
east-west thoroughfare along the south shore of Long Island.
8
<PAGE>
The following table sets forth the percent leased and total annualized
contractual base rent per leased square foot for Meadowbrook Commons as of the
dates indicated:
<TABLE>
<CAPTION>
TOTAL ANNUALIZED CONTRACTUAL BASE
DATE % LEASED RENT PER LEASED SQUARE FOOT($)(1)
- --------------------------------------------------- -------- ---------------------------------
<S> <C> <C>
December 31, 1997.................................. 100.0 17.50
December 31, 1996.................................. 100.0 17.40
December 31, 1995.................................. 100.0 17.27
December 31, 1994.................................. 100.0 16.81
December 31, 1993.................................. 80.0 17.41
</TABLE>
- ------------------
(1) Total annualized contractual base rent for all leases in place at
December 31 for the respective years indicated, divided by total GLA
leased at such dates. Amount excludes (i) future contractual rent
escalations and cost of living increases, (ii) percentage rent and
(iii) additional rent payable by tenants such as common area
maintenance, real estate taxes and other expense reimbursements.
The following table sets forth all scheduled lease expirations for
Meadowbrook Commons beginning January 1, 1998, assuming that none of the tenants
exercises renewal options or termination rights:
<TABLE>
<CAPTION>
ANNUALIZED CONTRACTUAL
BASE RENT AT
12/31/97(1)
----------------------
% OF TOTAL % OF
LEASE NUMBER OF SQUARE FOOTAGE PROPERTY PROPERTY
EXPIRATION LEASES UNDER EXPIRING BASE RENT BASE
YEAR YEAR EXPIRING EXPIRING LEASES GLA ($000) RENT
- -------------------------- -------------------- --------- ------------------ ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
1........................ 1998 -- -- -- -- --
2........................ 1999 1 1,950 1.1 47 1.5
3........................ 2000 2 19,539 11.3 455 15.0
4........................ 2001 3 44,765 25.9 837 27.6
5........................ 2002 2 6,747 3.9 175 5.8
6........................ 2003 -- -- -- -- --
7........................ 2004 -- -- -- -- --
8........................ 2005 -- -- -- -- --
9........................ 2006 -- -- -- -- --
10........................ 2007 2 7,908 4.6 174 5.7
11 and after.............. 2008 and after 3 92,118 53.2 1,340 44.3
--------- ------------------ ----------- --------- --------
TOTAL/WEIGHTED AVERAGE.... 13 173,027 100.0 3,028 100.0
--------- ------------------ ----------- --------- --------
--------- ------------------ ----------- --------- --------
<CAPTION>
BASE RENT/
YEAR SQ. FT.(2)($)
- -------------------------- -------------
<S> <C>
1........................ --
2........................ 24.00
3........................ 23.31
4........................ 18.69
5........................ 25.94
6........................ --
7........................ --
8........................ --
9........................ --
10........................ 21.95
11 and after.............. 14.56
-------------
TOTAL/WEIGHTED AVERAGE.... 17.50
-------------
-------------
</TABLE>
- ------------------
(1) Total annualized contractual base rent for all leases in place at December
31, 1997. Amount excludes (i) future contractual rent escalations and cost
of living increases, (ii) percentage rent and (iii) additional rent payable
by tenants such as common area maintenance, real estate taxes and other
expense reimbursements.
(2) Total annualized contractual base rent divided by total GLA leased at
December 31, 1997.
The aggregate cost basis of depreciable real property for federal income
tax purposes for Meadowbrook Commons at December 31, 1997 was approximately
$14.0 million. Depreciation and amortization are provided on the straight line
and double declining balance methods over the estimated useful lives of the
assets, which range from 15 to 39 years. The aggregate real estate tax
obligations for Meadowbrook Commons during the fiscal year ended December 31,
1997 was approximately $0.8 million, or approximately $4.49 per square foot of
GLA.
THE NEW YORK AND MIAMI CMSAS
Nine of the Company's thirteen properties (representing approximately 80%
of the total GLA) are located in the New York CMSA or Miami CMSA markets. The
New York CMSA, with almost 20 million people, is by far the most densely
populated region in the country, both in terms of absolute population and in
density per square mile. With more than 1,900 people per square mile in 1996,
the New York CMSA's population density was more than 50% higher than the next
most densely populated CMSA. The Miami CMSA is the third most densely populated
CMSA in the country, with 1,114 people per square mile, and the twelfth largest
CMSA by absolute population.
The New York CMSA has a retail gross leasable area per person of only 8.6
square feet, less than half the national average of 19.2 square feet of retail
gross leasable area per person. The Miami CMSA has a population growth rate more
than 1.5 times the national average and a population density third only to the
New York and Chicago CMSAs, yet has a retail gross leasable area per person only
slightly above the national average. From 1992 to 1997, the New York and Miami
CMSAs experienced a steady rate of population growth. The New York CMSA
population increased from 19,650,829 persons in 1992 to an estimated 20,024,228
persons in 1997. The Miami CMSA population increased from 3,305,779 persons in
1992 to an estimated 3,568,600 persons in 1997.
9
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently involved in any litigation nor to its
knowledge is any litigation threatened against the Company or its subsidiaries
that, in management's opinion, would result in any material adverse effect on
the Company's ownership, management or operation of its properties, or which is
not covered by the Company's liability insurance.
In connection with certain real estate activities, certain affiliated
entities of Mr. Pilevsky were involved in proceedings under the federal
bankruptcy laws and/or similar state law proceedings during the 1980s and
earlier 1990s, substantially all of which proceedings have been resolved as of
the date of this Prospectus. From July 1, 1992, such proceedings included eight
foreclosures of, and three bankruptcy filings with respect to, retail shopping
center properties and six foreclosures of, and nine bankruptcy filings with
respect to, non-retail shopping center properties. None of the entities owning
the Company's Properties were involved in any such proceedings, other than the
partnership holding fee title to the Meadowbrook Commons Property. Philips
Freeport Associates, L.P. ('Philips Freeport'), the owner of Meadowbrook
Commons, was party to certain notes with Chemical Bank which notes were secured
by mortgages on such property (the 'Loan'). Although Philips Freeport was able
to service the Loan from the revenues of the property, it was unable to repay
the full principal amount of the Loan upon maturity in November 1992. On January
21, 1994, Philips Freeport voluntarily commenced a proceeding to reorganize
pursuant to Chapter 11 of the Bankruptcy Code. The bankruptcy proceeding
resulted in an agreement between Philips Freeport and Chemical Bank to modify
and restate the Loan pursuant to the Debtor's Second Amended Chapter 11 Plan of
Reorganization (the 'Plan'). The Plan, which also provided for the payment in
full of all trade claims over a two-year period, was confirmed by order of the
Bankruptcy Court dated March 30, 1995 and subsequently modified by orders dated
April 12 and April 28, 1995. The Company intends to repay the Loan in full
with the net proceeds of the Offering.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders in the
fourth quarter of the fiscal year ended December 31, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There has been no active public market for the Common Stock. The Company
has filed an application to list the shares of Common Stock on the New York
Stock Exchange ('NYSE'). Although no assurance can be given, the Company
anticipates that the Common Stock will begin trading on the NYSE upon
consummation of the Offering.
As of March 20, 1998, the approximate number of holders of record of the
shares of the Common Stock was 1,688 and there was one holder of record of the
shares of the Company's Series A Convertible Redeemable Preferred Stock (the
'Series A Preferred Stock').
Subsequent to the Offering, the Company intends to make regular quarterly
distributions to holders of the Common Stock. The Company intends to pay a pro
rata distribution with respect to the period commencing upon the consummation of
the Offering and ending on June 30, 1998, based upon $0.3375 per share for a
full quarter. On an annualized basis, this would be $1.35 per share, or an
annual distribution rate of 6.75%. The Company intends to maintain this
distribution rate for at least twelve months following consummation of the
Offering unless actual results of operations, economic conditions or other
factors change significantly. Distributions by the Company will be determined by
the Board of Directors and will be dependent upon a number of factors. In
addition, in order to maintain its qualification as a REIT under the Internal
Revenue Code of 1986, as amended (the 'Code'), the Company is, in general,
required to distribute currently 95% of its taxable income.
Dividends on the Series A Preferred Stock are cumulative and payable
quarterly in arrears, at a rate per annum of nine percent (9%). If any dividend
is not declared or paid on any scheduled dividend payment date, interest shall
accrue on the amount of such accrued and unpaid dividend at the rate per annum
of nine percent
10
<PAGE>
(9%) until such time as such accrued and unpaid dividend is paid in full, such
interest to be paid concurrently with the payment of such accrued and unpaid
dividends. No cash dividends shall be payable on the Common Stock unless and
until all accrued and unpaid dividends (together with accrued interest thereon)
have been paid in full on the Series A Preferred Stock. The Company expects to
redeem the Series A Preferred Stock with the proceeds of the Offering.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating information
for: (i) Philips International Realty Corp. on an historical basis as of and for
the year ended December 31, 1997 (see footnote 2 to the following table); (ii)
for the Operating Partnership on an historical basis as of December 31, 1997;
(iii) for the combined balance sheet of the Property Partnerships (consisting of
the thirteen Properties) upon consummation of the Formation Transactions as of
December 31, 1997; and (iv) for The Philips Company (consisting of ten
Properties accounted for on a combined basis and two Properties accounted for on
an equity basis) on a combined historical basis. This information should be read
in conjunction with all of the financial statements and the notes thereto
appearing elsewhere in this Report. The audited historical financial information
as of and for the year ended December 31, 1994 and the unaudited historical
financial information as of and for the year ended December 31, 1993 presented
herein are based upon the separate historical financial statements of the
respective entities and the notes thereto which do not appear in this Report.
Pro forma information for the effects of the Offering is included in the
Company's Registration Statement on Form S-11 (Reg. No. 333-47975).
11
<PAGE>
THE COMPANY (HISTORICAL) AND THE PHILIPS COMPANY (COMBINED HISTORICAL)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
COMBINED HISTORICAL
---------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING DATA(1):
Rental revenue:
Base rent............... $19,788 $19,659 $17,311 $16,436 $16,142
Percentage rent......... 1,028 571 852 965 1,490
Expense
reimbursements........ 6,075 5,717 5,024 4,791 4,705
-------- -------- -------- -------- -----------
Total rental revenue..... 26,891 25,947 23,187 22,192 22,337
-------- -------- -------- -------- -----------
Property operating
expenses................ 4,937 5,054 5,008 4,834 4,218
Real estate taxes........ 3,819 3,671 3,591 3,554 3,446
Interest................. 12,966 11,728 11,097 9,695 9,524
Depreciation and
amortization............ 4,015 3,417 3,072 2,896 2,738
General and
administrative
expenses................ 165 306 201 222 270
-------- -------- -------- -------- -----------
Total expenses........... 25,902 24,176 22,969 21,201 20,196
-------- -------- -------- -------- -----------
989 1,771 218 991 2,141
Equity in income (loss)
of investees............ 339 95 54 6 (89)
Other income............. 38 22 35 48 46
-------- -------- -------- -------- -----------
Income before
extraordinary items..... $ 1,366 $ 1,888 $ 307 $ 1,045 $ 2,098
-------- -------- -------- -------- -----------
-------- -------- -------- -------- -----------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------------------------------------------
HISTORICAL(2)
--------------------------------------
PROPERTY OPERATING
PARTNERSHIPS PARTNERSHIP COMPANY COMBINED HISTORICAL(3)
------------ ----------- ------- -------------------------------------------------
1997 1996 1995 1994 1993
-------------------------------------- ---------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Rental properties, at
cost before
accumulated
depreciation............ $ 199,428 $ -- $ -- $ 137,399 $124,892 $118,307 $ 114,953
Investment in Operating
Partnership/
Property Partnerships... -- 13,869 2,287
Total assets............. 195,616 17,978 2,287 129,841 116,856 108,188 109,474
Mortgage notes payable... 176,602 -- -- 133,609 131,740 131,187 132,125
Shareholders'/Owners'
equity (deficit)........ 13,869 12,759 2,203 (11,166) (22,091) (24,611) (25,771)
OTHER DATA:
Funds from
operations(4)........... -- -- -- 5,574 3,590 4,050 --
Net cash provided by
operating activities.... -- -- -- 3,567 3,535 3,639 --
Net cash provided by
(used in) financing
activities.............. -- -- 533 6,086 2,160 (876) --
Net cash (used in)
investing activities.... -- -- (533 ) (9,359) (6,604) (3,354) --
GLA (sq. ft.) (at end of
period)................. 2,391,856 -- -- 2,348,117 2,348,117 2,348,117 2,325,448
Occupancy of Properties
owned (%) (at end of
period) ................ 96.3 -- -- 95.4 90.7 88.2 88.4
</TABLE>
- ------------------
(1) The Company was formed in July 1997 and incurred general and administrative
expenses of $543 for the period ended December 31, 1997. However, it did
not commence operations until the consummation of the Formation
Transactions as of the close of business on December 31, 1997. Therefore,
separate summary historical data for the Company is not presented above.
See Philips International Realty Corp. Statement of Operations, including
the notes thereto, appearing elsewhere in this Report.
(2) Upon consummation of the Offering, the Company will be the sole general
partner of the Operating Partnership and the Property Partnerships. Until
the consummation of the Offering, the Company is required to account for
its interest in these partnerships on the equity method rather than
consolidating the partnerships. Accordingly, (i) the Company's interest in
the Operating Partnership and the Property Partnerships is reflected in its
balance sheet as 'Investment in Operating Partnership/Property
Partnerships,' (ii) the Operating Partnership's balance sheet reflects its
investment in the Property Partnerships and (iii) the Property
Partnerships' balance sheet combines the thirteen Properties. See
'Business--Recent Developments.'
(3) No 1997 historical balance sheet or other data is presented for The Philips
Company as of December 31, 1997 because the Formation Transactions were
consummated as of the close of business on such date and the Properties
were transferred to the Property Partnerships.
(4) The White Paper on Funds from Operations approved by the Board of Governors
of NAREIT in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. The Company believes that Funds from
Operations is helpful to investors as a measure of the performance of an
equity REIT because, along with cash flow from operating activities,
financing activities and investing activities, it provides investors with
an indication of the ability of the Company to incur and service debt, to
make capital expenditures and to fund other cash needs. The Company
computes Funds from Operations in accordance with standards established by
NAREIT which may not be comparable to Funds from Operations reported by
other REITs that do not define the term in accordance with the current
NAREIT definition or that interpret the current NAREIT definition
differently than the Company. Funds from Operations does not represent cash
generated from operating activities in accordance with GAAP and 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 flow 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
cash distributions.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with 'Selected
Financial Data', and the Combined Financial Statements of The Philips Company
and the Combined Statements of Revenues and Certain Expenses of the Merrick
Commons and Mill Basin Plaza Properties, and the notes thereto, included
elsewhere in this Report. For purposes of this discussion, The Philips Company
includes the Merrick Commons and Mill Basin Plaza Properties reflected on the
equity method. Where appropriate, the following discussion includes analysis of
the effects of the Offering and the Formation Transactions.
The Philips Company received income primarily from rental revenue
(including recoveries from tenants) from its shopping centers, and actively
seeks to enhance its property cash flows and values through an ongoing property
redevelopment program. As a result, the financial data generally shows increases
in total revenue from year to year, largely attributable to expansion and
retenanting of The Philips Company's properties during the year and the benefit
of a full period of rental and other revenue from expansions and retenanting
occurring in the preceding year.
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31,
1996. Total revenue increased $944,000 or 3.6% to $26,891,000 for the year
ended December 31, 1997, as compared with $25,947,000 for the year ended
December 31, 1996. This net increase is primarily attributable to growth in base
rental revenues associated with the expansion and leasing of available premises
primarily at the Properties in Hialeah, Florida. Overall occupancy increased
approximately 1% from 95.4% at December 31, 1996 to 96.3% at December 31, 1997.
Property operating expenses decreased $117,000 or 2.3% from $5,054,000 for
the year ended December 31, 1996 to $4,937,000 for the year ended December 31,
1997. This decrease is primarily attributable to a reduction in snow removal
costs incurred with respect to Properties located in the northeastern part of
the country during the respective periods. Property real estate taxes increased
by approximately 4% between the corresponding periods, reflecting the effect of
increased assessments associated with property expansions and renovations,
offset by management's continuing efforts to secure property tax reductions.
Depreciation and amortization expenses increased $598,000 or 17.5% to
$4,015,000 for the year ended December 31, 1997, as compared with $3,417,000 for
the year ended December 31, 1996. This increase reflects the depreciation and
amortization of (i) capital expenditures associated with the recent expansion,
renovation and retenanting of Properties in Hialeah, Florida, Branford and
Enfield, Connecticut, and Staten Island, New York and (ii) costs related to the
acquisition of non-sponsor interests in the Staten Island, Branford and Hialeah
properties.
Interest charges increased $1,238,000 or 10.6% to $12,966,000 for the year
ended December 31, 1997, as compared with $11,728,000 for the year ended
December 31, 1996, primarily representing financing costs on amounts borrowed to
fund The Philips Company's property expansion and renovation programs and the
purchase of certain partnership interests.
In May 1996, The Philips Company acquired a 49% interest in a shopping
center property located in Brooklyn, New York. This investment had the effect of
improving The Philips Company's equity in income of investees from $95,000 for
the year ended December 31, 1996 to $339,000 for the year ended December 31,
1997.
Income before extraordinary items decreased $522,000 to $1,366,000 for the
year ended December 31, 1997, as compared with $1,888,000 for the year ended
December 31, 1996. This decrease reflects increased interest costs associated
with property refinancings, partially offset by higher rents related to
retenanting and leasing efforts and the equity participation in a joint venture
property acquired during 1996.
The extraordinary income of $671,000 for the year ended December 31, 1997
reflects a gain related to the restructuring of a loan encumbering three
Properties in connection with the Formation Transactions. The gain is net of an
extraordinary loss of approximately $265,000 representing the write-off of
deferred financing costs related to the refinancing of debt on certain
properties. The extraordinary income of $2,881,000 for the year ended December
31, 1996 reflects gains related to the settlement of debt obligations on three
of the Properties.
13
<PAGE>
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31,
1995. Total revenue increased $2,760,000 or 11.9% to $25,947,000 for the year
ended December 31, 1996, as compared to $23,187,000 for the year ended December
31, 1995. Growth in base rental revenues comprised the majority of this revenue
growth, increasing $2,067,000 from year to year, as a result of (i) the leasing
of available premises in the portfolio which improved overall occupancy by 4.7%
from 90.7% to 95.4%, and (ii) higher rentals achieved on renewed and
renegotiated leases. Increased tenant expense recoveries associated with (i)
higher occupancy levels and (ii) slightly higher operating costs and real estate
taxes from year to year, as well as other property revenues including real
estate tax refunds, contributed to the balance of the revenue growth.
Property operating expenses for the year ended December 31, 1996 increased
less than 1% to $5,054,000 from $5,008,000 for the year ended December 31, 1995.
Property real estate taxes increased by $80,000 or 2.2% to $3,671,000 during
1996, as compared with $3,591,000 for 1995. This increase in real estate taxes
reflects assessments related to property expansions and renovations in the
portfolio, and generally higher tax rates imposed by various municipalities.
Depreciation and amortization expenses increased $345,000 or 11.2% to
$3,417,000 in 1996 from $3,072,000 in 1995. This increase is primarily
attributable to the amortization of capital expenditures associated with the
recent expansions and renovations of Properties in Hialeah, Florida, Staten
Island, New York and Branford, Connecticut.
Interest expense for the year ended December 31, 1996 increased $631,000 or
5.7% to $11,728,000 as compared to $11,097,000 for the year ended December 31,
1995. This net increase reflects (i) financing costs on amounts expended to fund
recent property expansions and renovations, offset by (ii) decreases associated
with the repayment of $3,397,000 in mortgage indebtedness during the periods.
In May 1996, The Philips Company acquired a 49% interest in a shopping
center property located in Brooklyn, New York. This investment had the effect of
improving The Philips Company's equity in the net income of investees from
$54,000 in 1995 to $95,000 in 1996.
Income before extraordinary items increased $1,581,000 from $307,000 in
1995 to $1,888,000 in 1996. This improved performance is primarily attributable
to leasing activity which resulted in a 4.7% improvement in portfolio occupancy
levels, and higher rents on new and renegotiated leases, which strengthened
operating profitability. The extraordinary item in 1996 is reflective of gains
related to the settlement of debt obligations on three of the Properties.
LIQUIDITY AND CAPITAL RESOURCES
The Philips Company has historically relied on fixed and floating rate
mortgage financing to fund acquisitions and refinance maturing debt. Working
capital and funds necessary for distributions, debt service and capital
expenditures have generally been provided through net cash flows from operations
and, in certain instances, capital contributions of partners and/or additional
borrowing. The ability to refinance debt prior to maturity and to fund
acquisitions have been generally dependent upon interest rates, the general
availability of both mortgage debt and private equity in the marketplace and the
cash flow and value of the asset to be financed or refinanced. Distributions
have been generally made based upon 100% of excess cash over identified,
near-term requirements.
The Company believes the Offering will improve its financial position
principally through substantial reductions in its overall debt and
debt-to-equity ratio. As of December 31, 1997, the Company had outstanding debt
of approximately $176.6 million. In connection with the Offering, the Company
intends to repay all of its existing floating rate mortgage debt. As a result,
the total principal amount of outstanding mortgage debt will be reduced by
approximately $116.7 million. The Company will have approximately $59.5 million
of secured fixed rate debt with a weighted average interest rate of 7.61% and a
weighted average maturity of 5.25 years. This will result in a significant
reduction in annual mortgage interest expense as a percentage of total revenue
and cash from operations required to fund debt service requirements will
decrease substantially. As of December 31, 1997, the Company's debt to total
capitalization ratio was approximately 70%, based on the agreed net asset value
per share of $50.00. Based on the assumed public offering price of $20.00 per
share, the Company's ratio of debt to total market capitalization ratio will be
approximately 23.3% (21.5% if the Underwriters' over-allotment option
14
<PAGE>
is exercised in full). The Credit Facility combined with this reduced leverage
will enhance the Company's ability to pursue its identified growth strategies.
See Note 5 to the Notes to Financial Statements for the Property Partnerships
for a discussion of the debt, including near-term maturities thereof,
encumbering the Company's Properties at December 31, 1997.
Effective upon the Offering, the Company expects to make regular quarterly
distributions from cash available for distributions, which the Company believes
will exceed historical cash available for distributions through the reduction in
debt service associated with the repayment of indebtedness and growth in its
portfolio. The Company expects to invest cash in short-term, investment-grade
interest bearing securities, such as securities of the United States government
or its agencies, high-grade commercial paper and bank deposits.
The Company expects to meet its short-term liquidity requirements generally
through net cash provided by operations. The Company believes that its net cash
provided by operations will be sufficient to allow the Company to make
distributions necessary to enable the Company to continue to qualify as a REIT.
The Company also believes that the foregoing sources of liquidity will be
sufficient to fund its short-term liquidity needs for the forseeable future.
The Company expects to meet its 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 additional equity or debt
securities. The Company also expects to use funds under the Credit Facility, if
available, to finance acquisition and development activities and capital
improvements on an interim basis.
CASH FLOWS
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31,
1996. Net cash provided by operating activities decreased $729,000 to
$2,838,000 for the year ended December 31, 1997, as compared to $3,567,000 for
the year ended December 31, 1996. This net decrease reflects changes in
operating assets and liabilities. Net cash used in investing activities
increased $9,827,000 to $19,186,000 for the year ended December 31, 1997, as
compared to $9,359,000 for the year ended December 31, 1996. This increase is
primarily attributable to the acquisition of non-sponsor partner interests in
certain Properties in connection with the Formation Transactions. Net cash
provided by investing activities increased $9,766,000 to $15,852,000 for the
year ended December 31, 1997, as compared to $6,086,000 for the year ended
December 31, 1996. This increase reflects debt incurred in connection with the
purchase of the aformentioned non-sponsor interests.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31,
1995. Net cash provided by operating activities remained stable between the
years ended December 31, 1996 and 1995, changing only $32,000, or less than 1%.
Net cash used in investing activities increased $2,755,00 to $9,359,000 for the
year ended December 31, 1996, as compared to $6,604,000 for the year ended
December 31, 1995. This increase is primarily attributable to the acquisition of
non-sponsor partner interests in certain of the Properties. Net cash provided by
financing activities increased $3,926,000 to $6,086,000 for the year ended
December 31, 1996, as compared with $2,160,000 for the year ended December 31,
1995. This increase reflects mortgage debt incurred in connection with the
expansion and renovation of certain Properties.
COMPUTER SYSTEMS AND YEAR 2000 ISSUES
The 'Year 2000' issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from the
application of computer programs which have been written using two digits,
rather than four, to define the applicable year of business transactions. The
Company's principal property management systems are licensed from and maintained
by a third party software development company, which company is currently
modifying its real estate products to address the Year 2000 issue. Accordingly,
management does not anticipate any significant costs, problems or uncertainties
associated with becoming Year 2000 compliant. The Company currently is
developing a plan to insure that its other internally generated operating
systems are similarly modified on a timely basis.
15
<PAGE>
INFLATION
Substantially all 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 rentals based on tenants' gross
sales, which generally increase as prices rise, and/or escalation clauses, which
generally increase rental rates during the terms of the leases. Such escalation
clauses are often related to increases in the consumer price index or similar
inflation indices. In addition, many of the Company's leases are for terms of
less than 10 years, which permits the Company to seek to increase rents upon
re-rental at market rates. Most of the Company's leases require the tenant to
pay their share of operating expenses, including common area maintenance, real
estate taxes and insurance, thereby reducing the Company's exposure to increase
in costs and operating expenses resulting from inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by Regulation S-X
are included in this Annual Report on Form 10-K commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information regarding the Company's
directors, executive officers and key employees:
<TABLE>
<CAPTION>
DIRECTOR
TERM
NAME AGE POSITION EXPIRES
- ------------------------------------------ ---- ------------------------------------------ --------
<S> <C> <C> <C>
Philip Pilevsky........................... 51 Director, Chairman of the Board and Chief 2001
Executive Officer
Louis J. Petra............................ 44 Director and President 1999
Sheila Levine............................. 40 Director, Chief Operating Officer, 2000
Executive Vice President and Secretary
Brian J. Gallagher........................ 41 Chief Financial Officer, N/A
Acquisitions Director and Treasurer
Andrew Aberham............................ 40 Leasing Director N/A
Robert Grimes............................. 53 Director 2001
Elise Jaffe............................... 42 Director 1999
Arnold S. Penner.......................... 61 Director 2001
A.F. Petrocelli........................... 54 Director 2000
</TABLE>
Philip Pilevsky. Mr. Pilevsky is Chairman of the Board, Chief Executive
Officer and a Director of the Company, and has served as Chief Executive Officer
and President of Philips International Holding Corp. since its formation in
1982. Mr. Pilevsky has been involved in the real estate business for 25 years,
including the development, leasing, management, operation, acquisition and
disposition of commercial properties. Together with Ms. Levine, he founded the
entities that now comprise Philips International Holding Corp. and its
affiliates. Mr. Pilevsky is a nationally recognized member of the real estate
community, providing the Company with strategic leadership and a broadly-based
network of relationships. Outside the real estate industry he is renowned as an
educator, author in the field of international relations and frequent
commentator for Fox 5 and CNBC. Mr. Pilevsky received a Bachelor of Arts degree
from C.W. Post College and a Masters Degree of Arts and a Masters Degree of
Education from Columbia University.
16
<PAGE>
Louis J. Petra. Mr. Petra is President and a Director of the Company.
Prior to joining the Company, he served as Chief Financial Officer, Vice
President and Treasurer of Kimco Realty Corporation, a public REIT, from July
1984 through June 1997. Mr. Petra has extensive experience in the financial
management, administration and control of public and private real estate
companies, with particular knowledge of the shopping center industry and the
REIT industry. Mr. Petra received a Bachelor of Science in Accounting from St.
John's University and is a member of the American Institute of Certified Public
Accountants and the New York State Society of Certified Public Accountants.
Sheila Levine. Ms. Levine is Chief Operating Officer, Executive Vice
President and a Director of the Company, and has served as Chief Operating
Officer and Executive Vice President of Philips International Holding Corp. Ms.
Levine oversees the daily operations of the Company including acquisitions,
development, property management, finance and asset management, construction,
leasing and marketing for each property in the Company's portfolio. Ms. Levine
is also responsible for overseeing property development, which entails setting
the management direction from pre-construction planning to the marketing and
leasing strategies. She has been involved in the real estate business for 18
years and, together with Mr. Pilevsky, founded the entities that now comprise
Philips International Holding Corp. and its affiliates. Ms. Levine received a
Bachelor of Science in Business Administration from Hofstra University's School
of Business. Ms. Levine is the sister of Mr. Pilevsky.
Brian J. Gallagher. Mr. Gallagher is Chief Financial Officer and
Acquisitions Director of the Company, and served from March 1989 until December
31, 1997 as the Director of Finance of Philips International Holding Corp. Mr.
Gallagher is primarily responsible for capital deployment and capital management
of the Company, including obtaining financing and structuring and negotiating
acquisitions and joint ventures. Since joining the Philips Group, he has been
responsible for transactions valued at over $1 billion. Prior to joining the
Company, Mr. Gallagher held positions in commercial real estate finance with
Credit Alliance Corporation and National Westminister Bank USA where he was
responsible for project finance and major account relationships. He received a
Bachelor of Science and a Master's Degree in City and Regional Planning from
Ohio State University.
Andrew Aberham. Mr. Aberham is Leasing Director of the Company. Mr.
Aberham has been responsible for marketing, development and leasing of the
Philips Group retail portfolio since 1995, including leasing and negotiating
over 300 retail lease transactions. From 1986 to 1995, Mr. Aberham served as
leasing director for BLDG Management Co., Inc., during which time he negotiated
over 500 lease transactions, leasing in excess of 2.5 million square feet. Mr.
Aberham received a Bachelor of Arts degree from the State University of New York
at Oneonta, and has received additional degrees in real estate investment and
construction management from New York University.
Robert Grimes. Mr. Grimes is a Director of the Company. He has served as
President of RS Grimes Co., Inc., an investment company, since September 1987.
Mr. Grimes has also been a Director and Executive Vice President of Auto-By-Tel
Corporation since July 1996. From April 1981 to March 1987, Mr. Grimes was a
partner with the investment firm of Cowen & Company. Mr. Grimes holds a Bachelor
of Science from Wharton School of Commerce and Finance at the University of
Pennsylvania and an L.L.B. from the University of Pennsylvania Law School.
Elise Jaffe. Ms. Jaffe is a Director of the Company. Ms. Jaffe has served
since 1994 as Senior Vice President of Real Estate for Dress Barn, Inc. ('Dress
Barn'), a major women's apparel retailer owning approximately 725 stores within
the United States. She has been with Dress Barn for 16 years and serves on its
Executive Committee. Ms. Jaffe is on the Advisory Board of the International
Council of Shopping Centers/Value Retail News and is Vice President and the
Treasurer of the Paul Taylor Dance Foundation. Ms. Jaffee graduated magna cum
laude from Tufts University with a Bachelor of Arts in English and Psychology.
Arnold S. Penner. Mr. Penner is a Director of the Company. For the past
thirty years Mr. Penner has been active in the real estate market as a real
estate broker and investor in a diverse portfolio of properties, including
office buildings, retail properties and parking facilities. Mr. Penner is a
Director of United Capital Corp. ('United Capital'), an American Stock
Exchange-listed company specializing in the investment and management of real
estate assets and the manufacturing and sale of antenna and transformer products
to a global customer base. Mr. Penner also is involved with several
philanthropic organizations devoted to children's education.
17
<PAGE>
A.F. Petrocelli. Mr. Petrocelli is a Director of the Company. He has
served as Chairman of the Board and Chief Executive Officer of United Capital
since December 1987 and President since 1991. Mr. Petrocelli currently owns over
65% of United Capital and has been a Director of United Capital since 1981. Mr.
Petrocelli also serves on the Board of Directors of Prime Hospitality Corp., a
New York Stock Exchange-listed company, Nathan's Famous, Inc., Metex Corporation
and Boyar Value Fund, Inc.
Directors are divided into three classes serving staggered three-year terms
with each of the directors serving from the date of his or her election until
the annual meeting of shareholders relating to the election of such class of
directors. A director may be removed only for cause and only upon the
affirmative vote of shareholders holding at least two-thirds of the outstanding
shares of Common Stock.
The executive officers are chosen by and serve at the discretion of the
Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE. The Board has established an Audit Committee that
consists of two Independent Directors and does not include any members of
management. The Audit Committee was established to make recommendations
concerning the engagement of independent public accountants, review with the
independent public accountants the plans and results of the audit engagement,
approve professional services provided by the independent public accountants,
review the independence of the independent public accountants, consider the
range of audit and non-audit fees and review any recommendations made by the
Company's auditors regarding the Company's accounting methods and the adequacy
of its systems of internal accounting control. The Audit Committee members are
Mr. Petrocelli and Ms. Jaffe.
COMPENSATION COMMITTEE. The Board has established a Compensation Committee
that consists of three members, including two Independent Directors. The
Compensation Committee determines compensation for the Company's executive
officers, in addition to administering the Stock Option Plan and making
recommendations to the directors with respect to the Company's compensation
policies. The Compensation Committee members are Ms. Levine and Messrs. Penner
and Grimes.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the annual base salary rates and other
compensation expected to be paid in 1998 to the Chief Executive Officer and the
Company's other executive officers who had a total annual compensation in excess
of $100,000. The Company has entered into employment agreements with certain of
its executive officers as described below. Mr. Petra was the only executive
officer who received compensation for the fiscal year 1997, in the amount of
$57,212 for the period September 2, 1997 through December 31, 1997.
<TABLE>
<CAPTION>
1998 BASE OPTIONS
NAME TITLE SALARY RATE GRANTED(1)
- -------------------------------- ------------------------------------------ ------------ ----------
<S> <C> <C> <C>
Philip Pilevsky................. Chairman of the Board and -- 240,000
Chief Executive Officer
Louis J. Petra.................. President $175,000 100,000
Sheila Levine................... Chief Operating Officer, $175,000 100,000
Executive Vice President and Secretary
Brian J. Gallagher.............. Chief Financial Officer, $150,000 25,000
Acquisitions Director and Treasurer
</TABLE>
- ------------------
(1) All options were granted January 1, 1998 pursuant to the Stock Option Plan
and are exercisable at the public offering price.
EMPLOYMENT AGREEMENTS
The summaries of the following employment agreements are qualified in their
entirety by reference to the terms of the respective agreements, copies of which
have been filed as exhibits elsewhere in this Report.
LOUIS J. PETRA EMPLOYMENT AGREEMENT. Mr. Petra entered into an employment
agreement with the Company (the 'Petra Employment Agreement'), effective as of
September 2, 1997, providing for a term of five years four months. Mr. Petra's
initial base salary is $175,000, with an increase to $200,000 for the 2001
calendar
18
<PAGE>
year and $225,000 for the 2002 calendar year. Mr. Petra is also entitled totd
receive a portion of the Company's annual bonus pool to be determined in the
discretion of the Board of Directors. On January 1, 1998, Mr. Petra received
options to purchase 100,000 shares of Common Stock under the Stock Option Plan,
with 25% of the options vesting on December 31 of each of 1999, 2000, 2001 and
2002. In addition, upon closing of the Offering, the Company will lend on a
non-recourse basis to Mr. Petra $1,000,000 (the 'Petra Loan'), the proceeds of
which will be used to simultaneously purchase newly issued Common Stock at the
public offering price. The Petra Loan will be forgiven in two $500,000
installments on December 31, 2000 and December 31, 2002. Mr. Petra is entitled
to receive dividends on the Common Stock purchased with the proceeds of the
Petra Loan, net of interest which accrues on the outstanding balance of such
loan at 6% per annum. If a $100,000,000 public equity offering has not occurred
on or before June 1, 1998, either party may terminate Mr. Petra's employment
between June 1, 1998, and September 1, 1998, in which case Mr. Petra shall
receive a severance payment equal to $7,500 for each month elapsed from August
1, 1997 through the date of termination. Either party may terminate the Petra
Employment Agreement on or after December 31, 2000, in which event Mr. Petra
will receive his accrued but unpaid salary through his termination date, the
balance of his options will fully vest, a pro rata portion (based upon the
number of days Mr. Petra's employment was extended beyond December 31, 2000) of
the $500,000 outstanding balance of the Petra Loan will be forgiven and the
balance, if any, will be immediately payable. If the Company terminates Mr.
Petra's employment other than for cause, or if Mr. Petra terminates his
employment for good reason, in either case between June 1, 1998 and December 31,
2000, Mr. Petra will be entitled to continuation of his salary through December
31, 2000, a pro rata bonus payment and forgiveness of $500,000 of the Petra Loan
and the balance, if any, will be immediately payable. In addition, all options
and restricted share awards will vest and the non-competition provisions will no
longer apply. If Mr. Petra is employed on the date of a change in control, the
outstanding balance of the Petra Loan will be forgiven, all options and
restricted share awards will vest and the noncompetition provisions will no
longer apply. If such a change in control occurs between June 1, 1998 and
December 31, 2000 and Mr. Petra's employment is terminated by the Company or its
successor on or after the date of the change in control, Mr. Petra will also be
entitled to receive a pro rata bonus payment and continuation of his salary
through December 31, 2000. Mr. Petra is subject to a non-compete for a period of
one year following termination of his employment, except as described above.
SHEILA LEVINE EMPLOYMENT AGREEMENT. Ms. Levine entered into an employment
agreement with the Company (the 'Levine Employment Agreement'), effective as of
consummation of the Formation Transactions, providing for an initial term of
three years, subject to automatic one-year extensions. Ms. Levine's annual base
salary is $175,000, with annual increases in the discretion of the Board of
Directors or Compensation Committee of the Board of Directors. Ms. Levine is
also entitled to receive a minimum of 25% of the annual bonus pool, with the
amount of the Company's annual bonus pool to be determined in the discretion of
the Board of Directors. In addition, on January 1, 1998, the Company issued
options which entitle Ms. Levine to acquire 100,000 shares of Common Stock under
the Stock Option Plan, which options vest 33 1/3% on December 31 of each of
1998, 1999 and 2000. If the Company terminates Ms. Levine's employment other
than for cause, if Ms. Levine terminates her employment for good reason or if
there is a change in control, Ms. Levine will be entitled to her annual base
salary and bonus through the end of the contractual employment period. In
addition, in such event, all options and restricted share awards will vest.
Ms. Levine is subject to the Non-Competition
Agreement.
BRIAN J. GALLAGHER EMPLOYMENT AGREEMENT. The Company intends to enter into
an employment agreement with Mr. Gallagher (the 'Gallagher Employment
Agreement'), effective as of consummation of the Formation Transactions,
providing for, among other things: (i) a three year term and an initial base
salary of $150,000; (ii) a minimum of 10% of the annual bonus pool, with the
amount of the Company's annual bonus pool to be determined in the discretion of
the Board of Directors; and (iii) the grant of options to acquire 25,000 shares
of Common Stock under the Stock Option Plan, which options vest 33 1/3% on
December 31 of each of 1998, 1999 and 2000. In addition, upon consummation
of the Offering, the Company intends to lend on a non-recourse basis to
Mr. Gallagher $50,000, the proceeds of which will be used to simultaneously
purchase newly issued Common Stock at the public offering price.
Each of the employment agreements is governed by the laws of the State of
New York. Under New York law, a company cannot specifically enforce an
employment agreement with respect to continued services but may
19
<PAGE>
sue for money damages and seek other relief in the event that an employee
materially breaches its employment agreement.
Although the Company does not expect to enter into an employment agreement
with Mr. Pilevsky, Mr. Pilevsky will have a significant ownership interest in
the Company through his ownership of 18,176 shares of Common Stock and 962,324
Units representing in the aggregate approximately 16.9% of the outstanding
shares of Common Stock (or interests redeemable therefor) after giving effect to
the Offering, and options to purchase 240,000 shares of Common Stock which vest
over a three-year period. In addition, Mr. Pilevsky has agreed to conduct all of
his future retail shopping center activities through the Company, subject to
certain exceptions. See ' Item 13. Certain Relationships and Related
Transactions--Non-Competition Agreement.'
COMPENSATION OF DIRECTORS.
Each director who is not an executive officer of the Company is paid
$10,000 per year plus $750 for attendance in person at each meeting of the Board
of Directors, $500 for attendance in person at each meeting of a committee
thereof, if such meeting is held on a day other than the day of a Board meeting,
and $250 for each telephonic meeting participation. Each director who is not an
executive officer of the Company has also received a grant of options to
purchase 10,000 shares of Common Stock at the public offering price under the
Stock Option Plan, which options vest in three equal installments on January 1,
1999, 2000 and 2001. Executive officers of the Company are not compensated for
their services as directors. Each director will be reimbursed for expenses
relating to attendance at meetings of the Board of Directors or any committee
thereof.
STOCK OPTION PLAN
Effective upon consummation of the Formation Transactions, the Company
adopted the Stock Option Plan for the purpose of attracting, retaining and
maximizing the performance of executive officers, key employees and directors,
providing a direct link between the compensation of such individuals and
increases in shareholder value. A total of 852,550 shares of the authorized
shares of Common Stock (subject to adjustment) have been reserved by the Company
for issuance of awards under the Stock Option Plan. The Stock Option Plan has a
term of ten years.
The Stock Option Plan provides for the grant of 'incentive stock options'
within the meaning of Section 422 of the Code, non-qualified stock options, and
restricted stock awards. The Stock Option Plan will be administered by the
Compensation Committee of the Board of Directors. The exercise price for
incentive stock options and non-qualified options may not be less than 100% of
the fair market value of shares of Common Stock on the date of grant (110% of
fair market value in the case of incentive stock options granted to employees
who hold more than 10% of the voting power of the Company's issued and
outstanding shares of Common Stock).
Options granted under the Stock Option Plan may not have a term of more
than ten years (five years in the case of incentive stock options granted to
employees who hold more than 10% of the voting power of the Company's issued and
outstanding shares of Common Stock) and vest ratably over a five-year period,
unless otherwise provided in an agreement with an optionee. Exercisable options
terminate three months after the optionee's termination of employment by the
Company for any reason other than death, disability or retirement unless
otherwise provided in an agreement with an optionee; non-exercisable options
expire on the date employment terminates. If the optionee's employment
terminates because of death, disability or retirement, then exercisable options
shall remain exercisable for the remainder of their term. Options are subject to
certain restrictions on transfer.
To the extent that the aggregate fair market value of stock with respect to
which 'incentive stock options' (within the meaning of Section 422 of the Code,
but without regard to Section 422(d) of the Code) are exercisable for the first
time by an optionee during any calendar year (under the Stock Option Plan and
all other incentive stock option plans of the Company, any subsidiary and any
parent corporation) exceeds $100,000, such options shall be taxed as
non-qualified stock options. The rule set forth in the preceding sentence shall
be applied by taking options into account in the order in which they were
granted. For this purpose, the fair market value of stock shall be determined as
of the time that the option with respect to such stock is granted.
20
<PAGE>
Effective January 1, 1998, the Board of Directors granted options, each
with a ten-year term, to purchase up to 654,000 shares of Common Stock at the
public offering price to the following directors, executive officers and
employees of the Company and certain senior employees of the Management Company.
The number of options granted and exercise prices of all outstanding options
reflect adjustments made in connection with the Offering.
<TABLE>
<CAPTION>
NAME OPTIONS GRANTED
- ----------------------------------------------------------------------------- ---------------
<S> <C>
Philip Pilevsky.............................................................. 240,000(1)
Louis J. Petra............................................................... 100,000(2)
Sheila Levine................................................................ 100,000(3)
Brian J. Gallagher........................................................... 25,000(3)
Andrew Aberham............................................................... 5,000(1)
A.F. Petrocelli.............................................................. 10,000(1)
Elise Jaffe.................................................................. 10,000(1)
Robert Grimes................................................................ 10,000(1)
Arnold S. Penner............................................................. 10,000(1)
Management Company employees................................................. 136,000(1)(4)
Other employees.............................................................. 8,000(1)
---------------
Total........................................................................ 654,000
---------------
---------------
</TABLE>
- ------------------
(1) Options will vest 33 1/3% on each of the first, second and third
anniversaries of the date of grant.
(2) Options will vest 25% on December 31 of each of 1999, 2000, 2001 and 2002.
(3) Options will vest 33 1/3% on December 31 of each of 1998, 1999 and 2000.
(4) Options granted to certain senior employees of the Management Company whom
the Company anticipates will become employees of the Company upon the
integration of property management services.
The Stock Option Plan also provides for restricted stock awards which
consist of grants of shares of Common Stock subject to a period during which the
restricted shares may not be sold, assigned, transferred, made subject to a
gift, or otherwise disposed of, mortgaged, pledged or otherwise encumbered. At
this time the Board of Directors has not granted, and does not have any plans to
grant, restricted shares of Common Stock.
401(K) PLAN
Effective upon consummation of the Formation Transactions, the Company
established a 401(k) Savings and Retirement Plan (the '401(k) Plan') to cover
eligible employees of the Company and any designated affiliates.
The 401(k) Plan permits eligible employees of the Company (and any
designated affiliate) to defer up to 15% of their annual compensation, subject
to certain limitations imposed by the Code. The employees' elective deferrals is
immediately fully vested and non-forfeitable upon contribution to the 401(k)
Plan. The Company currently does not make matching contributions to the 401(k)
Plan; however, it reserves the right to make matching contributions and/or
discretionary profit sharing contributions in the future.
The 401(k) Plan is qualified under Section 401 of the Code so that
contributions by employees or by the Company to the 401(k) Plan, and income
earned thereon, will not be taxable to employees until withdrawn from the 401(k)
Plan, and so that contributions by the Company, if any, will be deductible by
the Company when made.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables sets forth certain information (i) at March 1, 1998
and (ii) after giving effect to the Offering and the Proposed Stock Split,
regarding the beneficial ownership of shares of Common Stock (including Common
Stock that may be issued upon redemption of Units on an as redeemed basis) for
(a) each person who is, or is expected to be, the beneficial owner of more than
a 5% interest in the Company, (b) each director and executive officer of the
Company who beneficially owns, or will own, Common Stock and (c) the directors
and executive officers of the Company as a group. Except as noted below, each
person has full voting and investment power over the shares indicated. Voting
power includes the power to direct the voting of the shares held, and investment
power includes the power to direct the disposition of shares held. The extent to
which a person will hold Common Stock directly, as opposed to Units, is set
forth in the footnotes below. Except as noted below, the address of each person
named below is the Company's principal executive office.
21
<PAGE>
BENEFICIAL OWNERSHIP AT MARCH 1, 1998
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF PERCENTAGE OF
BENEFICIALLY ALL COMMON ALL COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) STOCK(2) AND UNITS(1)(3)
- --------------------------------------------------------------- ---------------- ------------- ----------------
<S> <C> <C> <C>
Philip Pilevsky................................................ 972,984(4) 95.6% 63.0%
Sheila Levine.................................................. 114,686(5) 67.3 7.4
Norman Stark(6)................................................ 167,639(7) 75.1 10.9
National Properties Investment Trust(8)........................ 32,000(9) 57.5 2.1
Prudential Securities Incorporated(10)......................... 38,800(11) 41.1 2.5
All directors and executive officers as a group (9 persons).... 1,087,670 96.0 70.4
</TABLE>
- ------------------
(1) Does not give effect to the Proposed Stock Split or the Offering. Excludes
options to purchase 261,600 shares of Common Stock granted to executive
officers, directors, employees and consultants of the Company on or prior
to consummation of the Formation Transactions.
(2) Represents 47,660 shares of Common Stock outstanding immediately following
consummation of the Formation Transactions. Assumes that all Units
beneficially held by the identified person (and no other person) are
redeemed for Common Stock, or that all shares of Series A Preferred Stock
beneficially held by the identified person are converted into shares of
Common Stock, as the case may be, and that the outstanding warrants are all
exercised for Common Stock.
(3) Represents a total of 1,544,460 shares of Common Stock outstanding
immediately following consummation of the Formation Transactions (assuming
that all outstanding Units are redeemed for Common Stock (although such
Units are not redeemable until the first anniversary of the issuance
thereof), all shares of Series A Preferred Stock are converted into Common
Stock and the outstanding warrants are all exercised for Common Stock).
(4) Represents 10,660 shares of Common Stock and 962,324 Units prior to the
Offering.
(5) Represents 114,686 Units.
(6) c/o Omni Development & Marketing, 757 Third Avenue, New York, NY 10017.
(7) Represents 167,639 Units.
(8) 32 Hanson Road, Canton Center, CT 06020.
(9) Represents 32,000 shares of Common Stock.
(10) One New York Plaza, New York, NY 10292.
(11) Represents 1,940 shares of Series A Preferred Stock, convertible into
38,800 shares of Common Stock.
BENEFICIAL OWNERSHIP AFTER THE OFFERING
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF PERCENTAGE OF
BENEFICIALLY ALL COMMON ALL COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) STOCK(2) AND UNITS(1)(3)
- --------------------------------------------------------------- ---------------- ------------- ----------------
<S> <C> <C> <C>
Philip Pilevsky................................................ 1,659,035(4) 18.5% 16.9%
Louis J. Petra................................................. 50,000(5) * *
Sheila Levine.................................................. 195,551(6) 2.6 2.0
Brian J. Gallagher............................................. 2,500(5) * *
All directors and executive officers as a group (9 persons).... 1,907,086 20.8 19.4
</TABLE>
- ------------------
* Represents less than 1%.
(1) Assumes that the Proposed Stock Split and the Offering are consummated.
Excludes options under the Stock Option Plan to purchase up to 654,000
shares of Common Stock granted to executive officers, directors and
employees of the Company and certain senior employees of the Management
Company.
(2) Assumes that all Units beneficially held by the identified person (and no
other person) are redeemed for Common Stock, and the warrants are all
exercised for Common Stock.
(3) Assumes that all outstanding Units are redeemed for Common Stock (although
such Units are not redeemable until December 31, 1998) and the warrants are
all exercised for Common Stock.
(4) Represents 18,176 shares of Common Stock and 1,640,859 Units after
consummation of the Offering.
(5) Represents restricted shares. See 'Item 11. Executive
Compensation--Employment Agreements.'
(6) Represents 195,551 Units.
22
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain directors and executive officers of the Company (or members of
their immediate families) and persons who will hold more than 5% of the
outstanding shares of Common Stock (or interests redeemable therefor) have
direct or indirect interests in transactions which have been or will be
consummated by the Company, including the transfer of certain Properties (and
entities owning Properties) to the Company.
The summaries of the following agreements are qualified in their entirety
by reference to the terms of the respective agreements, copies of which have
been filed as exhibits under Item 14.
MANAGEMENT AGREEMENT
Pursuant to the Management Agreement, under the direction of the executive
officers, the Management Company provides property management and leasing
services for the Properties, including, among other things, (i) operating,
leasing and maintaining the Properties; (ii) the collection of rents; and (iii)
overseeing the construction of improvements and additions to the Properties. The
Management Company receives a management fee from the Company equal to 3% of
gross rental collections received from the Properties, leasing commissions (not
to exceed local current market rates) and a construction supervisory fee (up to
10% of the cost of a project) with regard to tenant improvements and
construction matters relating to the Properties. In addition, the Management
Company is reimbursed for out-of-pocket expenses.
The Management Agreement has an initial term of three years, commencing
December 31, 1997, subject to automatic one-year renewals. The Management
Agreement may be terminated by the Company, at any time, (i) in whole or in
part, upon thirty days' written notice, in the event that the Company elects to
perform one or more of such management functions on an 'in-house' basis (with a
commensurate reduction in fees), and (ii) in whole, immediately, upon the
occurrence of certain other events, including upon the gross negligence or
willful misconduct of the Management Company, or if all or substantially all of
the Properties are sold.
This agreement enables the Company to utilize the Philips Group's
infrastructure on a cost-effective basis. Going forward, the Company is
committed to internalize property management functions as its portfolio grows.
Based on the Company's current business plan, the Company expects to become a
fully integrated, self-managed operation within 24 months following the
consummation of the Offering. The Management Company is owned and controlled by
Mr. Pilevsky and Ms. Levine who have agreed not to receive any remuneration or
consideration of any kind in connection with the Company's integration of
property management services.
The Company has granted options under the Stock Option Plan to certain
senior employees of the Management Company who are actively involved in the
management of the Properties and whom the Company anticipates will join the
Company upon integration of the property management services.
EXCLUDED PROPERTIES
Mr. Pilevsky and Ms. Levine have economic interests in certain retail
properties which were not transferred to the Company in the Formation
Transactions (the 'Excluded Properties'). The Excluded Properties were not
included in the Company's portfolio either because of the inability to obtain
necessary partnership and lender consents or the asset profile being
inconsistent with the Company's criteria. The Excluded Properties consist of 17
properties aggregating approximately 2.4 million square feet of GLA located
outside the Company's existing markets and 21 properties aggregating
approximately 1.9 million square feet of GLA and two development sites located
within the Company's existing markets (in each case excluding non-retail
properties and retail properties with less than 10,000 leasable square feet).
The Company believes that only two Excluded Properties, located in Uniondale and
Massapequa, New York, are potentially competitive with two Properties
(specifically, with Merrick Commons and Meadowbrook Commons, respectively).
These properties were not included in the Company's portfolio because
partnership consents could not be obtained. Fourteen of the Excluded Properties
are managed by the Management Company.
Mr. Pilevsky, Ms. Levine and the Management Company will conduct all their
future retail shopping center activities in accordance with the Non-Competition
Agreement. In addition, Mr. Pilevsky has granted the Company a right of first
refusal on the sale or transfer by Mr. Pilevsky of his partnership interest in
any of the
23
<PAGE>
Excluded Properties, except for a transfer of Mr. Pilevsky's interest to an
existing partner of such property or a family member, or a sale of the entire
property, in which case Mr. Pilevsky will use reasonable efforts to cause such
property to be offered to the Company.
NON-COMPETITION AGREEMENT
Mr. Pilevsky, Ms. Levine and the Management Company have agreed pursuant to
the Non-Competition Agreement to conduct all their future retail shopping center
activities through the Company, except for their activities with respect to the
Excluded Properties and retail properties under 10,000 square feet. The Non-
Competition Agreement is in effect until such time as (i) neither Mr. Pilevsky
nor Ms. Levine owns beneficially more than 15% of the outstanding shares of
Common Stock (including interests redeemable therefor) and (ii) one year has
lapsed since the Management Agreement has been terminated and neither Mr.
Pilevsky nor Ms. Levine is a director or executive officer of the Company. In
addition, in the event that at any time after December 31, 2002, Ms. Levine is
neither a director or executive officer of the Company for at least one year,
nor owns beneficially more than five percent of the outstanding shares of Common
Stock (including interests redeemable therefor), then the Non-Competition
Agreement will terminate as to Ms. Levine.
TERMS OF TRANSFERS
The terms of the transfers of the Properties (or entities owning the
Properties) to the Company by the contributing partnerships in the Formation
Transactions were not determined through arm's-length negotiations. Mr. Pilevsky
had a substantial economic interest in the entities transferring the Properties.
REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, the Company has granted the
Unitholders certain 'shelf' registration rights (collectively, the 'Registration
Rights') with respect to the shares of Common Stock acquired upon the redemption
of Units (the 'Registrable Shares'). Subject to certain limitations, the
Registration Rights grant such holders of Registrable Shares the opportunity to
have such Registrable Shares registered by the Company on Form S-3 at any time
commencing one year after the issuance of such Units, as may be appropriate
under the applicable provisions of the Securities Act. The Company will bear
expenses incident to its registration obligations upon exercise of the
Registration Rights, including the payment of federal securities law and state
blue sky registration fees, except that it will not bear any underwriting
discounts or commissions or transfer taxes relating to registration of
Registrable Shares.
PARTNERSHIP AGREEMENT
Concurrently with the consummation of the Formation Transactions, the
Company entered into the Partnership Agreement with the various limited partners
of the Operating Partnership. The Interim Managing General Partner, solely owned
by Mr. Pilevsky, is the managing general partner of the Operating Partnership
and each Property Partnership until the consummation of the Offering. The
limited partners have certain rights with respect to amendments to the
Partnership Agreement. In addition, the written consent of all the limited
partners is required to: (i) increase the obligation of any limited partner to
make contributions to the capital of the Operating Partnership; (ii) modify the
order of certain allocations of distributions among the partners (other than as
specifically provided for therein); (iii) change the Operating Partnership to a
general partnership; (iv) reduce the percentage of limited partners required to
consent to any matter in the Partnership Agreement; (v) amend certain provisions
in any manner that prohibits or restricts the ability of a limited partner to
exercise its redemption rights in full; (vi) amend certain 'fair price'
provisions applicable as a result of a Termination Transaction (as defined in
the Partnership Agreement); or (vii) amend the percentage requirements for
amending the Partnership Agreement. See 'Agreement of Limited Partnership of
Operating Partnership' filed as an exhibit to this Report. Mr. Pilevsky and Ms.
Levine, who are limited partners of the Operating Partnership, are directors and
officers of the Company.
24
<PAGE>
MISCELLANEOUS
Jeffrey Levine, the husband of Ms. Levine, is a partner at the accounting
firm of Chassin Levine Rosen & Company, LLP which firm has in the past provided
accounting and consulting services with respect to the entities owning certain
of the Properties and is likely to provide similar services to the Company and
the Management Company in the future. During the 12-month period ended December
31, 1997, the entities owning the Properties paid an aggregate of approximately
$270,000 in fees to Chassin Levine Rosen & Company, LLP.
Elise Jaffe, a Director of the Company, is also the Senior Executive Vice
President of Real Estate for Dress Barn, Inc., a tenant of certain of the
Properties and of certain of the Excluded Properties. During the 12-month period
ended December 31, 1997, Dress Barn, Inc. paid an aggregate of approximately
$379,000 in rent under leases for certain of the Properties.
Upon consummation of the Offering, pursuant to the Petra Employment
Agreement and Gallagher Employment Agreement, the Company will lend on a
non-recourse basis to Messrs. Petra and Gallagher $1,000,000 and $50,000,
respectively, the proceeds of which will be used to simultaneously purchase
newly issued Common Stock at the public offering price. These loans will be
forgiven in equal installments pursuant to the terms of the respective
employment agreements.
Mr. Pilevsky pledged cash collateral and Units to secure certain interim
financing in connection with the Formation Transactions. Such collateral will be
released upon the consummation of the Offering and the repayment of the related
indebtedness from the net proceeds of the Offering.
BENEFITS OF THE FORMATION TRANSACTIONS TO CERTAIN EXECUTIVE OFFICERS AND THE
PHILIPS GROUP
In connection with the Formation Transactions, Mr. Pilevsky received Units
and Ms. Levine received Units and certain benefits under her employment
agreement with the Company. In addition, Mr. Pilevsky and Ms. Levine received
options under the Stock Option Plan and other members of the Philips Group
received benefits in connection with the Formation Transactions, including
deferral of tax consequences and the release of certain guarantees of assumed
indebtedness.
25
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS AND REPORTS OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS
<TABLE>
<CAPTION>
PAGE(S)
IN
FORM 10-K
---------
<S> <C>
PHILIPS INTERNATIONAL REALTY CORP.
Report of Independent Auditors................................................................. F-1
Balance Sheet as of December 31, 1997.......................................................... F-4
Statement of Operations for the Period July 16, 1997 (Incorporation) to December 31, 1997...... F-5
Statement of Shareholders' Equity for the Period July 16, 1997 (Incorporation) to December 31,
1997.......................................................................................... F-6
Statement of Cash Flows for the Period July 16, 1997 (Incorporation) to December 31, 1997...... F-7
Notes to Financial Statements.................................................................. F-8
PHILIPS INTERNATIONAL REALTY, L.P.
Report of Independent Auditors................................................................. F-2
Balance Sheet as of December 31, 1997.......................................................... F-4
Notes to Financial Statements.................................................................. F-8
PROPERTY PARTNERSHIPS
Report of Independent Auditors................................................................. F-3
Combined Balance Sheet as of December 31, 1997................................................. F-4
Schedule III--Real Estate and Accumulated Depreciation as of December 31, 1997................. F-17
Notes to Combined Financial Statements......................................................... F-8
THE PHILIPS COMPANY
Report of Independent Auditors................................................................. F-19
Combined Balance Sheet as of December 31, 1996................................................. F-20
Combined Statements of Income for the Years Ended December 31, 1997, 1996 and 1995............. F-21
Combined Statements of Owners' Deficit for the Years Ended December 31, 1997, 1996 and 1995.... F-22
Combined Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995......... F-23
Notes to Combined Financial Statements......................................................... F-24
</TABLE>
(A) 2. FINANCIAL STATEMENT SCHEDULES
Schedule III--Real Estate and Accumulated Depreciation as of
December 31, 1997............................................F-17
All other schedules are omitted because they are not required or
the required information is shown in the financial statements or
notes thereto.
26
<PAGE>
(A) 3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Articles of Incorporation of the Company (filed as Exhibit 3.1 to the Company's
Form 8-K dated December 31, 1997 and incorporated herein by reference)
3.2 Articles Supplementary of Series A Preferred Stock (filed as Exhibit 3.2 to the Company's Form 8-K
dated December 31, 1997 and incorporated herein by reference)
3.3 Amended and Restated By-Laws of the Company (filed as Exhibit 3.3 to the Company's Form 8-K dated
December 31, 1997 and incorporated herein by reference)
10.1 Agreement of Limited Partnership of the Operating Partnership (filed as Exhibit 10.1 to the Company's
Form 8-K dated December 31, 1997 and incorporated herein by reference)
10.2 Form of 1997 Stock Option and Long-Term Incentive Plan of the Company (filed as Exhibit 10.2 to the
Company's Registration Statement on Form S-4, Registration No. 333-41431, and incorporated herein by
reference)
10.3 Form of Agreement of Limited Partnership for Property Partnerships (filed as Exhibit 10.3 to the
Company's Registration Statement on Form S-4, Registration No. 333-41431, and incorporated herein by
reference)
10.4 Form of Articles of Incorporation of Philips Subs (filed as Exhibit 10.4 to the Company's Registration
Statement on Form S-4, Registration No. 333-41431, and incorporated herein by reference)
10.5 Form of Bylaws of Philips Subs (filed as Exhibit 10.5 to the Company's Registration Statement on Form
S-4, Registration No. 333-41431, and incorporated herein by reference)
10.6 Contribution and Exchange Agreement, dated August 11, 1997, among National, the Board of Trustees, the
Company, the Operating Partnership and certain contributing partnerships or limited liability
companies associated with a private real estate firm controlled by Philip Pilevsky and certain
partners and members thereof (filed as Exhibit 10.6 to the Company's Registration Statement on Form
S-4, Registration No. 333-41431, and incorporated herein by reference)
10.7 Form of Registration Rights Agreement among the Company and certain holders of limited partnership
interests in the Operating Partnership (filed as Exhibit 10.7 to the Company's Registration Statement
on Form S-4, Registration No. 333-41431, and incorporated herein by reference)
10.8 Amended and Restated Management Agreement, dated as of March 30, 1998, among the Company, the
Operating Partnership and Philips International Management Corp.
10.9 Amended and Restated Non-Competition Agreement, dated as of March 30, 1998, among the Company, the
Operating Partnership, Philip Pilevsky and Sheila Levine
10.10 Employment Agreement between the Company and Louis J. Petra (filed as Exhibit 10.1 to the Company's
Form 8-K dated December 31, 1997 and incorporated herein by reference)
10.11 Employment Agreement between the Company and Sheila Levine (filed as Exhibit 10.2 to the Company's
Form 8-K dated December 31, 1997 and incorporated herein by reference)
10.12 Form of Warrant (filed as Exhibit 10.12 to the Company's Registration Statement on Form S-4,
Registration No. 333-41431, and incorporated herein by reference)
10.13 Amendment No. 1 to Contribution and Exchange Agreement, dated as of December 29, 1997 (filed as
Exhibit 10.13 to the Company's Form 8-K dated December 31, 1997 and incorporated herein by reference)
10.14 Non-Recourse Secured Promissory Note of National Properties Trust (filed as Exhibit 10.14 to the
Company's Form 8-K dated December 31, 1997 and incorporated herein by reference)
10.15 Form of Amended and Restated Mortgage, Assignment of Leases, Security Agreement and Spreader Agreement
and Renewal Promissory Note for Mall on the Mile and Palm Springs Village
21.1 List of Subsidiaries of the Company
</TABLE>
(B) REPORTS ON FORM 8-K
A Report on Form 8-K, dated December 31, 1997, was filed by the Company,
pursuant to which Item 2 and Item 7 were reported.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- ------------------
<S> <C> <C>
/s/ PHILIP PILEVSKY Director, Chief Executive Officer and March 31, 1998
- ------------------------------------------ Chairman of the Board
Philip Pilevsky
/s/ LOUIS J. PETRA Director and President March 31, 1998
- ------------------------------------------
Louis J. Petra
/s/ SHEILA LEVINE Director, Chief Operating Officer, March 31, 1998
- ------------------------------------------ Executive Vice President and Secretary
Sheila Levine
/s/ BRIAN J. GALLAGHER Chief Financial Officer, Acquisitions March 31, 1998
- ------------------------------------------ Director and Treasurer
Brian J. Gallagher
/s/ ARNOLD S. PENNER Director March 31, 1998
- ------------------------------------------
Arnold S. Penner
/s/ A. F. PETROCELLI Director March 31, 1998
- ------------------------------------------
A. F. Petrocelli
/s/ ELISE JAFFE Director March 31, 1998
- ------------------------------------------
Elise Jaffe
/s/ ROBERT GRIMES Director March 31, 1998
- ------------------------------------------
Robert Grimes
</TABLE>
28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Philips International Realty Corp.
We have audited the accompanying balance sheet of Philips International Realty
Corp. as of December 31, 1997 and the related statement of operations,
shareholders' equity and cash flows for the period July 16, 1997 (Incorporation)
to December 31, 1997. These financial statements are the responsibility of the
management of Philips International Realty Corp. Our responsibility is to
express an opinion on these financial statements 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 statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Philips International Realty
Corp. as of December 31, 1997 and the results of its operations and its cash
flows for the period July 16, 1997 to December 31, 1997 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
March 6, 1998
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Philips International Realty Corp.
We have audited the accompanying balance sheet of Philips International Realty,
L.P. as of December 31, 1997. This financial statement is the responsibility of
the management of Philips International Realty, L.P. Our responsibility is to
express an opinion on this 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 statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. 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 audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Philips International Realty, L.P.
as of December 31, 1997 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New York, New York
March 6, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Philips International Realty Corp.
We have audited the accompanying combined balance sheet of Property Partnerships
as of December 31, 1997. We have also audited the financial statement schedule
listed on the Index at Item 14(a). The combined financial statement and
financial statement schedule are the responsibility of the management of
Property Partnerships. Our responsibility is to express an opinion on the
financial statement and financial statement schedule 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 statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents fairly, in
all material respects, the financial position of Property Partnerships as of
December 31, 1997 in conformity with generally accepted accounting principles.
Also, in our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statement taken as a whole,
presents fairly, in all material respects, the information set forth therein.
ERNST & YOUNG LLP
New York, New York
March 6, 1998
F-3
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.,
PHILIPS INTERNATIONAL REALTY, L.P.
AND
PROPERTY PARTNERSHIPS
BALANCE SHEETS
DECEMBER 31, 1997
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PHILIPS PHILIPS
INTERNATIONAL INTERNATIONAL PROPERTY
REALTY CORP. REALTY, L.P. PARTNERSHIPS
------------- ------------- ------------
(COMBINED)
<S> <C> <C> <C>
ASSETS
Rental properties, at cost (Note 5):....................................
Land and improvements................................................. $ $ $ 49,143
Building and improvements............................................. 150,285
------------
199,428
Less accumulated depreciation......................................... (14,556)
------------
184,872
Cash and cash equivalents............................................... 1,779 436
Accounts receivable..................................................... 5,419
Related party receivables............................................... 367
Deferred charges, net (Note 4).......................................... 1,940 2,969
Other assets (Note 4)................................................... 23 1,920
Investment in partnerships (Note 3).....................................
Philips International Realty, L.P..................................... 2,286
Property Partnerships................................................. 1 13,869
------------- ------------- ------------
Total assets............................................................ $ 2,287 $ 17,978 $ 195,616
------------- ------------- ------------
------------- ------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY/PARTNERS' CAPITAL
Liabilities:
Mortgages and notes payable (Note 5).................................. $ $ 3,580 $ 176,602
Accounts payable and accrued expenses................................. 84 84
Related party payables (Notes 8)...................................... 84 1,556 16
Other liabilities..................................................... 1,711
------------- ------------- ------------
Total liabilities....................................................... 84 5,219 181,747
------------- ------------- ------------
Contingencies and other comments (Notes 7, 8 and 9)
Shareholders' Equity/Partners' Capital
Partners' Capital
Preferred units....................................................... 1,940
General Partners...................................................... 346
Limited Partners...................................................... 10,473 13,869
Series A Convertible Redeemable Preferred Stock,
$.01 par value; $1,000 stated value; 30,000,000 shares authorized and
1,940 shares issued and outstanding................................... 1,940
Common Stock, $.01 par value; 150,000,000 shares authorized and 47,660
shares issued and outstanding.........................................
Additional paid in capital.............................................. 806
Deficit................................................................. (543)
------------- ------------- ------------
Total partners' capital................................................. 12,759 13,869
Total shareholders' equity.............................................. 2,203
------------- ------------- ------------
Total liabilities, shareholders' equity and partners' capital........... $ 2,287 $ 17,978 $ 195,616
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
STATEMENT OF OPERATIONS
PERIOD JULY 16, 1997 (INCORPORATION) TO DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
Revenue.................................................................................................. $ --
General and administrative expenses...................................................................... 543
------
Net loss................................................................................................. $ (543)
------
------
</TABLE>
See accompanying notes.
F-5
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
STATEMENT OF SHAREHOLDERS' EQUITY
PERIOD JULY 16, 1997 (INCORPORATION) TO DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
PREFERRED COMMON DISTRIBUTIONS TOTAL
STOCK AT STOCK AT PAID-IN IN EXCESS SHAREHOLDERS'
STATED VALUE PAR VALUE CAPITAL OF NET INCOME EQUITY
------------ --------- ------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net loss......................................... $(543) $ (543)
Sale of stock
Preferred...................................... $ 1,940 1,940
Common......................................... $ 2,133 2,133
Issuance of common stock and warrants............ 461 461
Reallocation of equity to minority partners in
the Operating Partnership...................... (1,788) (1,788)
------------ --------- ------- ------ -------
Balance December 31, 1997........................ $ 1,940 -- $ 806 $(543) $2,203
------------ --------- ------- ------ -------
------------ --------- ------- ------ -------
</TABLE>
See accompanying notes.
F-6
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
STATEMENT OF CASH FLOWS
PERIOD JULY 16, 1997 (INCORPORATION) TO DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
Operating activities
Net loss............................................................................................... $ (543)
Adjustments to reconcile net loss to net cash provided by operating activities:
Non-cash compensation................................................................................ 461
Changes in operating assets and liabilities:
Due to related parties............................................................................... 82
--------
Net cash used in operating activities.................................................................. --
Investing activities:
Investment in Philips International Realty, L.P...................................................... (533)
--------
Net cash used in investing activities................................................................ (533)
--------
Financing activities:
Proceeds from issuance of common stock............................................................... 533
--------
Net cash provided by financing activities.............................................................. 533
--------
Net increase in cash and cash equivalents.............................................................. --
Cash and cash equivalents at beginning of period....................................................... --
--------
Cash and cash equivalents at end of period............................................................. $ --
--------
--------
</TABLE>
Additional non-cash transactions during the period consisted of the
following:
(a) Issuance of Series A Preferred Stock in payment of financial
advisory fee ($1,940). The deferred asset was contributed to Philips
International Realty, L.P. in exchange for Preferred Units.
(b) Acquisition of The Shoppes at Lake Mary, Florida property in
exchange for Common Stock of the Company ($1,600) and assumption of
mortgage debt ($542). The property and mortgage debt were contributed to
Philips International Realty, L.P. in exchange for general partnership
interests.
(c) The investment in Philips International Realty, L.P. and
additional paid in capital were reduced to reflect the dilution ($1,788) of
the Company's interest therein.
See accompanying notes.
F-7
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.,
PHILIPS INTERNATIONAL REALTY, L.P.
AND
PROPERTY PARTNERSHIPS
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. FORMATION TRANSACTIONS AND PROPOSED OFFERING
Philips International Realty Corp. (the 'Company'), a Maryland corporation,
and Philips International Realty, L.P. (the 'Operating Partnership'), a Delaware
limited partnership, were formed in July 1997 for the purpose of combining
certain real estate properties (the 'Properties') which were owned by
partnerships and limited liability companies (the 'Contributing Companies') in
which Philip Pilevsky owned an interest. The Operating Partnership had no
operations in 1997. The Company expects to qualify as a real estate investment
trust ('REIT') under the Internal Revenue Code of 1986, as amended, for the
taxable year ended December 31, 1997. The interests in the Property Partnerships
(see Note 3) were acquired by the Company and the Operating Partnership at the
close of business on December 31, 1997; accordingly, no operations are reflected
in the financial statements relating to such acquisitions for the year then
ended.
Formation Transactions
On December 31, 1997, the partners and members of the Contributing
Companies transferred their shopping center assets or, in certain instances,
their partnership or membership interests in the entities which hold title to
such shopping center assets, to certain newly-formed entities as follows:
o With respect to those partnerships which owned fee title to properties
located in New York or Connecticut, the partnerships contributed such fee
title, together with any existing indebtedness relating thereto, to a
designee of the Operating Partnership, which designee was a newly-formed
limited partnership (in which the Company indirectly owns a 0.01% general
partnership interest), in exchange for Units in the Operating
Partnership;
o With respect to those entities that were partnerships or limited
liability companies and which did not own fee title to properties located
in New York or Connecticut, the partners or members, as the case may be,
of such partnerships contributed all of their partnership interests or
membership interests therein, as the case may be, to the Operating
Partnership in exchange for Units in the Operating Partnership (which
Units, together with those Units described above, comprise a 96.8%
limited partner interest in the Operating Partnership at December 31,
1997);
o The Company purchased a shopping center property in Florida from an
existing unaffiliated seller (the 'Seller') in exchange for 32,000 shares
(54,563 shares after proposed stock split) of Common Stock (which shares
represent approximately 2.1% of the outstanding Common Stock of the
Company and interests redeemable therefor) and the assumption of the
existing mortgage note payable in the amount of $542;
o The trustees of the Seller were issued 5,000 shares (8,526 shares after
proposed stock split) of Common Stock of the Company, plus warrants to
acquire an additional 8,000 shares (13,641 shares after proposed stock
split) of Common Stock of the Company at an exercise price of $25.00 per
share ($14.66 after proposed stock split) (which shares and warrants
represent approximately 0.8% of the outstanding Common Stock of Company
and interests redeemable therefor);
o An individual partner purchased 10,660 shares (18,176 shares after
proposed stock split) of the Company's Common Stock (approximately 0.7%
of the outstanding Common Stock and interests redeemable therefor) for a
total purchase price of $533;
o Prudential Securities Incorporated received, in lieu of the financial
advisory fee payable by the Seller upon consummation of the Formation
Transactions and assumed by the Company under a Contribution and Exchange
Agreement, 1,940 shares of Series A Preferred Stock, convertible into
Common Stock, or approximately 2.5% of the outstanding shares of Common
Stock of the Company (including interests redeemable therefor); and
F-8
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.,
PHILIPS INTERNATIONAL REALTY, L.P.
AND
PROPERTY PARTNERSHIPS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. FORMATION TRANSACTIONS AND PROPOSED OFFERING--(CONTINUED)
o The Company contributed its fee title interest in the Florida property
acquired, together with the cash received from the partner in connection
with the purchase of Common Stock, to the Operating Partnership in
exchange for an approximate 3.2% non-managing general partnership
interest therein.
The Operating Partnership and the Property Partnerships are controlled by
Philips International Realty, LLC, a Delaware limited liability company, of
which Philip Pilevsky is the sole member, until the Company completes public or
private equity offerings of its securities aggregating in excess of $25,000, at
which time the Company will become the sole general partner of the Operating
Partnership and the Property Partnerships.
Proposed Offering
The Company expects to issue shares of its Common Stock through a public
offering (the 'Offering'). The net proceeds from the Offering will be used to
(i) repay approximately $127 million of outstanding indebtedness (including
prepayment penalties and expenses accrued in connection with the Offering and
Formation Transactions) and (ii) redeem the Series A Preferred Stock for $1,940
plus the accrued dividends thereon, with the remaining proceeds to be available
for general corporate purposes.
Credit Facility
The Company expects to establish a revolving credit facility concurrently
with the consummation of the Offering. The availability of funds under the
credit facility will be subject to the Company's compliance with a number of
customary financial and other covenants on an on-going basis. The credit
facility will be used primarily to finance its acquisitions and redevelopment
activities. Borrowings under the credit facility are expected to be
collateralized by certain shopping center properties with recourse to the
Company and the Operating Partnership.
2. SIGNIFICANT ACCOUNTING POLICIES
Equity Method of Accounting
The Company has a 3.2% general partnership interest in the Operating
Partnership, and the Operating Partnership has a 99.989% interest in the
Property Partnerships. Since the Operating Partnership and Property Partnerships
initially are controlled by Philips International Realty, LLC (see Note 1), the
Company and the Operating Partnership account for their investments on the
equity method.
Principles of Combination
The Property Partnerships are not a legal entity but rather a combination
of real estate properties that are currently organized as limited partnerships
and limited liability companies which are under the common control of Philips
International Realty, LLC. All significant inter-company balances have been
eliminated in combination.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Real Estate Properties
Building and improvements will be depreciated on the straight-line method
over the estimated useful lives of the assets which range from fifteen to
thirty-nine years, and tenant improvements (included in buildings and
improvements in the accompanying balance sheet) will be amortized over the lives
of the respective leases using the straight-line method.
In accordance with Statement of Financial Accounting Standards No. 121
('SFAS No. 121'), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, the Company reviews
F-9
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.,
PHILIPS INTERNATIONAL REALTY, L.P.
AND
PROPERTY PARTNERSHIPS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
real estate assets for impairment whenever events or changes in circumstances
indicate that the carrying value of assets to be held and used may not be
recoverable. Impaired assets are required to be reported at the lower of cost or
fair value. Assets to be disposed of are required to be reported at the lower of
cost or fair value less cost to sell. Assets are classified to be disposed when
management has committed to a plan to dispose of the assets. No impairment
losses have been recorded.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with an
original maturity of three months or less from date of purchase.
Banking relationships are maintained with major financial institutions. The
properties are operated through multiple bank accounts to mitigate exposure to
loss of cash balances which may from time to time exceed federally insured
limits.
Revenue Recognition
Minimum revenues from rental property will be recognized on a straight-line
basis over the terms of the respective tenant leases.
Deferred Charges
Costs incurred to obtain tenant leases and long term financing, included in
deferred charges in the accompanying balance sheet, are amortized over the terms
of the related leases or debt agreements, as applicable. Costs incurred in
connection with the proposed Offering will be charged to paid in capital at the
completion of the planned equity offering.
Income Taxes
The Company intends to elect to be taxed as a REIT under section 856(c) of
the Internal Revenue Code of 1986, as amended, commencing with its taxable year
ended December 31, 1997. As a REIT, the Company generally will not be subject to
federal income tax to the extent it distributes its REIT taxable income to its
shareholders and meets certain other requirements. If the Company fails to
qualify as a REIT in any taxable year, the Company will be subject to federal
income tax on its taxable income at regular corporate rates. As a REIT, the
Company may be subject to certain state and local taxes on its income and
property and federal income and excise taxes on any undistributed taxable
income.
Earnings per share:
The Company and the Operating Partnership received their interest in the
Properties at the close of business on December 31, 1997 and had no operations
as a public entity and therefore the Company has not presented earnings (loss)
per share. If the 47,660 shares were outstanding since the Company's
incorporation, the Company's basic and diluted loss per share (as calculated
pursuant to FASB No. 128) would have been ($11.39). Basic earnings per share
excludes any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share includes the dilutive effect of options, warrants and
convertible securities calculated under the treasury stock method. The
anti-dilutive effect of the warrants has not been considered in the diluted
calculation.
The Company has authorized a Common Stock split of 1.7051 to 1 effective
immediately prior to the completion of the Offering. Had this stock split
occurred, basic and diluted loss per share would have been ($6.68).
Preferred Stock
The Series A Preferred Stock is convertible into Common Stock at any time
following the six month anniversary of the date of issuance at a conversion
price of $50.00 per share of Common Stock ($29.32 after proposed stock split),
subject to adjustment for customary anit-dilutive rights. Dividends on the
Series A
F-10
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.,
PHILIPS INTERNATIONAL REALTY, L.P.
AND
PROPERTY PARTNERSHIPS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Preferred Stock are cumulative and payable quarterly in arrears at a rate of 9%.
The Company has the right to redeem all of the Series A Preferred Stock
outstanding upon the occurrance of certain transactions at an amount in cash
equal to the stated value per share plus any accrued but unpaid dividends
hereon.
Upon consummation of the Offering, the Company plans to redeem the Series A
Preferred Stock for $1,940 in cash plus accrued and unpaid dividends from the
net proceeds of the Offering.
The holders of the Series A Preferred Stock have no voting rights.
Segment Disclosure
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (Statement 131), which is effective for years
beginning after December 15, 1997. Statement 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. Management has not completed its review
of Statement 131, but does not anticipate that the adoption of this statement
will have a significant effect on the Company's financial statements.
3. INVESTMENT IN PROPERTY PARTNERSHIPS
The Property Partnerships own the following neighborhood and community
shopping center properties:
Forest Avenue Shoppers Town, Staten Island, New York
Meadowbrook Commons, Freeport, New York
Merrick Commons, Merrick, New York
Mill Basin Plaza, Brooklyn, New York
Branhaven Plaza, Branford, Connecticut
Mall on the Mile, Hialeah, Florida
Palm Springs Village, Hialeah, Florida
The Shops on 49th Street, Hialeah, Florida
Philips Plaza, Hialeah, Florida
Elm Plaza, Enfield, Connecticut
Millside Plaza, Delran, New Jersey
Foxboro Plaza, Foxborough, Massachusetts
The Shoppes at Lake Mary, Lake Mary, Florida
In accordance with Accounting Principles Board Opinion No. 16, the purchase
of the non-sponsor interests in the Property Partnerships were accounted for at
fair market value. The fair market value purchase price is reflective of the
non-sponsor percentage interests acquired in the respective partnership
multiplied by the net asset value for such respective shopping center property,
which aggregated approximately $14,636. The non-sponsors received 292,712 units
(499,103 units proposed stock split) in the Operating Partnership in connection
with the formation transactions. (see Note 1). The sponsor interests
('Sponsors'), comprising Philip Pilevsky and his family members, are recorded at
historical cost.
Had the Company and the Operating Partnership acquired their interest in
the Property Partnerships on January 1, 1997, their share of equity in income of
investees would have been $9 and $265, respectively, and their net (loss) income
would be ($535) and $265, respectively.
F-11
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
PHILIPS INTERNATIONAL REALTY, L.P.
AND
PROPERTY PARTNERSHIPS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
4. DEFERRED COSTS AND OTHER ASSETS
Deferred Costs:
Deferred costs in the accompanying balance sheet are comprised as follows:
<TABLE>
<CAPTION>
PHILIPS INTERNATIONAL
REALTY, L.P. PROPERTY PARTNERSHIPS
--------------------- ---------------------
<S> <C> <C>
Deferred financing....................................................... $ $ 3,145
Deferred leasing......................................................... 1,908
Deferred offering........................................................ 1,940
------- -------
1,940 5,053
Less accumulated amortization............................................ 2,084
------- -------
$ 1,940 $ 2,969
------- -------
------- -------
</TABLE>
Other Assets:
Other assets in the accompanying combined balance sheet of the Property
Partnerships include restricted real estate tax escrows, capital improvement
escrows and tenant security deposits totaling $1,091 as of December 31, 1997.
5. MORTGAGES AND NOTES PAYABLE
As of December 31, 1997, mortgage notes payable aggregated $176,602 and
were collateralized by the shopping center properties. Mortgage payments are due
in monthly installments of principal and/or interest and mature on various dates
through 2004. The loan agreements contain customary representations, covenants
and events of default.
The following table summarizes the Property Partnerships' mortgage
indebtedness as of December 31, 1997:
<TABLE>
<CAPTION>
PROPERTY MORTGAGE NOTES WITH FIXED INTEREST:
- -------------------- ---------------------------------------------
<S> <C> <C>
Millside Plaza First mortgage notes with fixed interest $12,164
Elm Plaza rates of 7.48% due December 31, 2002. The
Foxboro Plaza notes are cross-defaulted and cross-
collateralized. Monthly payments of principle
and interest total $83.
Mall on the Mile First mortgage notes with a life insurance 41,977
Palm Springs Village company with a fixed interest rate of 7.83%
due in February 2004. The notes are cross-
defaulted and cross-collateralized. Monthly
payments of principal and interest total
$322.
Merrick Commons First mortgage note payable to a bank with a 25,762
and Mill Basin Plaza fixed interest rate of 7.28% due in January
2003. The note is collateralized by mortgages
on both properties. Monthly payments of
principal and interest total $178.
---------
TOTAL FIXED RATE NOTES 79,903
---------
</TABLE>
F-12
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
PHILIPS INTERNATIONAL REALTY, L.P.
AND
PROPERTY PARTNERSHIPS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
5. MORTGAGES AND NOTES PAYABLE--(CONTINUED)
<TABLE>
<CAPTION>
PROPERTY MORTGAGE NOTES WITH VARIABLE INTEREST:
- -------------------- ---------------------------------------------
<S> <C> <C>
Forest Avenue On June 27, 1997, the Company refinanced 24,000
Shoppers Town three mortgages collateralized by Forest
Avenue Shopping L.L.C. with a financial
services institution. A Sponsor has
personally guaranteed $6,000 (subject to
reductions as set forth in the agreement) of
the new mortgage note. In addition, all
membership interests in Forest Avenue
Shoppers Town LLC and Branhaven Plaza LLC
have been pledged as collateral. Interest is
at the rate of LIBOR plus 1.75% (7.44% at
December 31, 1997) and the mortgage note has
a maturity date of June 1, 1998; however,
either party can decide to extend the loan on
notice, not less than 30 days or more than 90
days prior to maturity, to either January 1,
2004 or 2007, upon the occurrence of certain
events as disclosed in the mortgage
agreement.
Branhaven Plaza Mortgage provides for variable interest rate 9,415
of the lower of LIBOR plus 3.50% or prime
plus 0.75% (9.22% at December 31, 1997) with
maturity on November 1, 1998, with two
options to extend the maturity date for six
months. The Company is required to make
quarterly amortization payments equal to 50%
of the property's preceding quarter's net
cash flow.
Meadowbrook Commons First mortgage note with variable interest of 25,781
2.5% plus base LIBOR rate (8.22% at December
31, 1997), as defined, or Floating Rate, as
defined, matures on March 31, 1998. The
Company is required to make quarterly
amortization payments of the excess cash flow
from the preceding quarter.
23,975
The Shops on First mortgage note with a variable interest
49th Street rate of LIBOR plus 2.5% (8.22% at December
Philips Plaza 31, 1997), matures on June 1, 1998. Monthly
payments of principal of $37.5 plus interest.
This loan balance is guaranteed by two of the
Sponsors.
Mall on the Mile In connection with the purchase of the 13,000
Palm Springs Village partnership interest in Palm Springs Mile
The Shops on Associates, Ltd., the Company borrowed
49th Street $13,000 from a financial services
Philips Plaza institution. Such notes are collateralized by
(i) the partnership interests so acquired,
(ii) the pledge of all limited partners'
rights to partnership distributions until the
notes are repaid, (iii) the personal
guarantee of the notes by a Sponsor, and (iv)
the pledge of all members' interests in
Forest Avenue Shoppers Town LLC, an
affiliated entity. The notes bear interest at
LIBOR plus 1.75% (7.44% at December 31, 1997)
and mature on the earlier of June 1, 1998 or
the date the Company has raised at least
$40,000 in equity. The notes require monthly
debt service payments of principal and
interest totaling approximately $330.
</TABLE>
F-13
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
PHILIPS INTERNATIONAL REALTY, L.P.
AND
PROPERTY PARTNERSHIPS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
5. MORTGAGES AND NOTES PAYABLE--(CONTINUED)
<TABLE>
<CAPTION>
PROPERTY MORTGAGE NOTES WITH VARIABLE INTEREST:
- -------------------- ---------------------------------------------
The Shoppes at Lake Mortgage payable in monthly installments of 528
Mary $7 of principal plus interest at 2% over
prime on the outstanding balance. The balance
of principal and interest is due in full
October 1998.
<S> <C> <C>
---------
TOTAL VARIABLE RATE INTEREST NOTES 96,699
---------
TOTAL MORTGAGE NOTES PAYABLE $176,602
---------
---------
</TABLE>
One of the Company's lenders did not consent to the transfer of interests
in The Shops on 49th Street and Philips Plaza properties which occurred in
connection with the Formation Transactions. If such transfer were determined to
violate the terms of the mortgage, the lender could be entitled to accelerate
the maturity date of the loan and commence foreclosure proceedings against the
mortgaged properties. The lender has taken no action with respect to this
matter. The mortgage loan on Meadowbrook Commons is scheduled to mature on March
31, 1998. The Company has reached an agreement in principle with the mortgagor
pursuant to which the mortgagor will forebear with respect to such loan for a
90-day period. These mortgages secure floating rate loans that are prepayable
without penalty, at the option of the Company, which are expected to be repaid
in full with proceeds from the Offering.
The Operating Partnership's note payable represents advances under a $10
million line of credit which bears interest at the rate of LIBOR plus 1.75%
(7.69% at December 31, 1997) and is due the earlier of June 1998 or the
completion of the Offering.
The combined aggregate principal maturities of mortgage notes payable
outstanding as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998........................................................................... $ 97,668
1999........................................................................... 1,057
2000........................................................................... 1,140
2001........................................................................... 1,230
2002........................................................................... 12,847
Thereafter..................................................................... 62,660
-------------
$ 176,602
-------------
-------------
</TABLE>
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair values for the financial instruments were determined by
management using market information available as of December 31, 1997 and
appropriate valuation methodologies which included, in the case of debt
instruments, consideration of interest rates available for the issuance of debt
with terms and maturities similar to its currently outstanding indebtedness.
Considerable judgment is necessary to interpret market data and develop
estimated fair values. Accordingly, the estimates are not necessarily indicative
of the amounts that could be realized on disposition of the financial
instruments. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
Although management is not aware of any factors that would significantly affect
its estimates of the fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since
December 31, 1997.
Cash equivalents and mortgage notes payable are reflected in the
accompanying balance sheet at amounts which reasonably approximate their fair
values.
F-14
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
PHILIPS INTERNATIONAL REALTY, L.P.
AND
PROPERTY PARTNERSHIPS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
7. RENTAL INCOME
The shopping center properties are leased to tenants under operating
leases. The minimum rental amounts due under the leases are generally either
subject to scheduled fixed increases or upward adjustments based on certain
inflation indices. The leases generally also require that the tenants reimburse
the Company for increases in certain operating costs and real estate taxes.
The approximate future minimum rents to be received over the next five
years and thereafter, assuming neither renewals nor extensions of leases which
may expire during the period, for leases in effect at December 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998.......................................................... $ 23,133
1999.......................................................... 21,878
2000.......................................................... 20,704
2001.......................................................... 17,925
2002.......................................................... 15,060
Thereafter.................................................... 123,975
--------
$222,675
--------
--------
</TABLE>
8. RELATED PARTY TRANSACTIONS
Management Agreement
The Company has entered into a management agreement with Philips
International Holding Corp., a related party, which provides for the day-to-day
operations, management and leasing services. Fees payable for such services are
(i) a management fee equal to 3% of gross rental collections, (ii) leasing
commissions in amounts not to exceed local current market rates, and (iii)
construction supervisory fees up to 10% of the costs of a project. In addition,
the Management Company will be reimbursed for certain direct out-of-pocket
expenses.
Related Party Payables
Related party payables of the Operating Partnership represent reimbursement
to be made for certain Formation Transaction and Offering costs that were
previously funded by the limited partners.
9. COMMITMENTS AND CONTINGENCIES
Stock Option Plan
On December 31, 1997, the Company adopted the Philips International Realty
Corp. 1997 Stock Option and Long-Term Incentive Plan ('Stock Option Plan'). A
total of 852,550 shares of authorized Common Stock (subject to adjustment) has
been reserved by the Company for issuance of awards under the Stock Option Plan.
Effective
January 1, 1998, the Board of Directors granted options, each with a ten-year
term, to purchase up to 654,000 shares (as adjusted for the proposed stock
split--see Note 2) of Common Stock at the Offering price. The options vest over
three to four years from the date of grant. The options were granted to
directors, executive officers, employees of the Company and the Management
Company.
F-15
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
PHILIPS INTERNATIONAL REALTY, L.P.
AND
PROPERTY PARTNERSHIPS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
9. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Employment Agreements
The Company entered into employment and non-competition agreements with
certain executive officers as described in Item 11 under the caption 'Executive
Compensation--Employment Agreements' and Item 13 under the caption
'Non-Competition Agreement.'
Litigation
The Property Partnerships are subject to various legal proceedings and
claims that arise in the ordinary course of business. These matters are
generally covered by insurance. Management believes that the final outcome of
such matters will not have a material adverse effect on the financial position,
results of operations or liquidity of the Property Partnerships, the Operating
Partnership or the Company.
F-16
<PAGE>
THE PROPERTY PARTNERSHIPS
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED SUBSEQUENT
INITIAL COST TO ACQUISITION
------------------------------------------ ---------------------------
BUILDINGS BUILDINGS
LAND AND AND LAND AND AND
DESCRIPTION ENCUMBRANCES IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS
- ------------------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Millside Plaza $ 4,477 $ 960 $ 5,443 $ 297 $ 719
Delran, NJ
Elm Plaza 3,401 709 4,968 17 *(73)
Enfield, CT
Branhaven Plaza 9,415 1,883 7,646 594 1,013
Branford, CT
Forest Avenue Shoppers Town 24,000 1,984 8,428 1,885 8,634
Staten Island, NY
Meadowbrook Commons 25,781 5,000 -- 2,115 21,387
Freeport, NY
Foxboro Plaza 4,286 655 6,055 194 *(626)
Foxborough, MA
Palm Springs Mile 78,952 12,864 25,767 8,442 35,026
Hialeah, FL (4 properties)
Mill Basin Plaza 13,248 5,107 8,696 1,795 2,682
Brooklyn, NY
The Shoppes at 528 362 2,052 -- --
Lake Mary
Lake Mary, FL
Merrick Commons 12,514 2,257 4,191 2,023 7,975
Merrick, NY
Construction in progress 302
------------ ------------ ------------ ------------ ------------
$176,602 $ 31,781 $ 73,246 $ 17,362 $ 77,039
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
<CAPTION>
GROSS AMOUNTS AT WHICH
CARRIED AT CLOSE OF PERIOD
---------------------------------------------------
BUILDINGS LIFE ON WHICH
LAND AND AND ACCUMULATED DATE DEPRECIATION IS
DESCRIPTION IMPROVEMENTS IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED COMPUTED
- ------------------------------------------ ------------ -------- ----------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Millside Plaza $ 1,257 $ 6,162 $ 7,419 $ 784 12/26/86 31.5 - 39 years
Delran, NJ
Elm Plaza 726 4,895 5,621 743 12/24/86 15 - 39 years
Enfield, CT
Branhaven Plaza 2,477 8,659 11,136 1,286 12/31/85 15 - 39 years
Branford, CT
Forest Avenue Shoppers Town 3,869 17,062 20,931 1,630 11/16/84 15 - 39 years
Staten Island, NY
Meadowbrook Commons 7,115 21,387 28,502 1,111 11/9/89 15 - 39 years
Freeport, NY
Foxboro Plaza 849 5,429 6,278 869 11/24/86 15 - 39 years
Foxborough, MA
Palm Springs Mile 21,306 60,793 82,099 7,100 4/1/85 15 - 39 years
Hialeah, FL (4 properties)
Mill Basin Plaza 6,902 11,378 18,280 360 9/1/94 39 years
Brooklyn, NY
The Shoppes at 362 2,052 2,414 -- 12/30/97 39 years
Lake Mary
Lake Mary, FL
Merrick Commons 4,280 12,166 16,446 673 1/1/86 15 - 39 years
Merrick, NY
Construction in progress 302 302
------------ ------------ -------- -----------
$ 49,143 $150,285 $199,428 $14,556
------------ ------------ -------- -----------
------------ ------------ -------- -----------
</TABLE>
*Purchase accounting adjustment relating to elimination of accumulated
depreciation against cost of property.
F-17
<PAGE>
THE PROPERTY PARTNERSHIPS
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
(DOLLARS IN THOUSANDS)
The changes in real estate for the three years ended December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of period............................................... $137,399 $124,892 $118,288
Property acquisitions and purchase accounting adjustments.................... 20,789 -- --
Improvements................................................................. 41,240 12,507 6,604
-------- -------- --------
Balance at end of period..................................................... $199,428 $137,399 $124,892
-------- -------- --------
-------- -------- --------
</TABLE>
The aggregate cost of land, buildings and improvements for federal income
tax purposes at December 31, 1997 was $134,000.
The changes in accumulated depreciation for the three years ended December
31, 1997 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period.................................................. $ 24,277 $21,315 $18,628
Purchase accounting adjustments................................................. (15,318) -- --
Depreciation for period......................................................... 5,597 2,962 2,687
-------- ------- -------
Balance at end of period........................................................ $ 14,556 $24,277 $21,315
-------- ------- -------
-------- ------- -------
</TABLE>
F-18
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Philips International Realty Corp.
We have audited the accompanying combined balance sheet of The Philips Company
as of December 31, 1996 and the related combined statements of income, owners'
deficit and cash flows for each of the years in the period ended December 31,
1997. These financial statements are the responsibility of The Philips Company's
management. Our responsibility is to express an opinion on these 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 audit 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of The Philips
Company as of December 31, 1996, and the combined results of its operations and
its cash flows for each of the three years in the period ended December 31, 1997
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
March 6, 1998
F-19
<PAGE>
THE PHILIPS COMPANY
COMBINED BALANCE SHEETS
DECEMBER 31, 1996*
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Rental properties, at cost (Note 3)
Land and improvements............................................................................... $ 27,687
Building and improvements........................................................................... 109,712
--------
137,399
Less accumulated depreciation....................................................................... 24,277
--------
113,122
Cash and cash equivalents............................................................................. 785
Accounts receivable................................................................................... 7,832
Related party receivables (Note 6).................................................................... 1,216
Investments in partnerships (Note 2).................................................................. 694
Deferred charges, net (Note 8)........................................................................ 4,605
Other assets (Note 9)................................................................................. 1,587
--------
Total assets.......................................................................................... $129,841
--------
--------
LIABILITIES AND OWNERS' DEFICIT
Liabilities:
Mortgage notes payable (Note 3)..................................................................... $133,609
Accounts payable and accrued expenses............................................................... 3,584
Related party payables (Note 6)..................................................................... 2,067
Other liabilities................................................................................... 1,747
--------
Total liabilities..................................................................................... 141,007
--------
Contingencies and commitments (Notes 6 and 7)
Owners' deficit....................................................................................... (11,166)
--------
Total liabilities and owners' deficit................................................................. $129,841
--------
--------
</TABLE>
* On December 31, 1997, at the close of the Formation Transactions (see Note 1),
all of the assets and liabilities were transferred to entities owned 99.99% by
Philips International Realty, L.P.
See accompanying notes.
F-20
<PAGE>
THE PHILIPS COMPANY
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Minimum and percentage rentals............................................... $ 20,816 $ 20,230 $ 18,163
Expense reimbursements....................................................... 6,075 5,717 5,024
-------- -------- --------
Total revenue (Note 5)......................................................... 26,891 25,947 23,187
-------- -------- --------
Expenses:
Operating expenses (Note 6).................................................. 3,936 4,176 4,193
Real estate taxes............................................................ 3,819 3,671 3,591
Management fees to affiliates (Note 6)....................................... 1,001 878 815
Interest expense (Note 3).................................................... 12,966 11,728 11,097
Depreciation and amortization................................................ 4,015 3,417 3,072
General and administrative expenses.......................................... 165 306 201
-------- -------- --------
Total expenses................................................................. 25,902 24,176 22,969
-------- -------- --------
989 1,771 218
Equity in income of investees (Note 2)......................................... 339 95 54
Other income, net............................................................ 38 22 35
-------- -------- --------
Income before extraordinary items............................................ 1,366 1,888 307
Extraordinary items (Note 8)................................................... 671 2,881 --
-------- -------- --------
Net income................................................................... $ 2,037 $ 4,769 $ 307
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes.
F-21
<PAGE>
THE PHILIPS COMPANY
COMBINED STATEMENTS OF OWNERS' DEFICIT
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Balance at December 31, 1994................................................................. $(24,611)
Distributions.............................................................................. (468)
Contributions.............................................................................. 2,681
Net income................................................................................. 307
--------
Balance at December 31, 1995................................................................. (22,091)
Distributions.............................................................................. (1,101)
Contributions.............................................................................. 7,257
Net income................................................................................. 4,769
--------
Balance at December 31, 1996................................................................. (11,166)
Distributions.............................................................................. (21,489)
Contributions.............................................................................. 24,202
Net income................................................................................. 2,037
--------
Balance at December 31, 1997................................................................. $ (6,416)
--------
--------
</TABLE>
See accompanying notes.
F-22
<PAGE>
THE PHILIPS COMPANY
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income...................................................................... $ 2,037 $ 4,769 $ 307
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.............................................. 4,015 3,417 3,072
Amortization of mortgage discount.......................................... 32 59 56
Extraordinary items........................................................ (671) (2,881) --
Equity in income of investees.............................................. (339) (95) (54)
Changes in operating assets and liabilities:
Accounts receivable........................................................ (588) (574) (411)
Related party receivables.................................................. 3 (357) 722
Deferred charges........................................................... (1,055) (2,957) (1,514)
Other assets............................................................... 1,041 432 527
Accounts payable and accrued expenses...................................... (161) (793) (1,587)
Related party payables..................................................... (1,179) 1,997 249
Other liabilities.......................................................... (297) 550 2,168
------- ------- -------
Net cash provided by operating activities......................................... 2,838 3,567 3,535
------- ------- -------
INVESTING ACTIVITIES
Additions to land, buildings and improvements..................................... (19,186) (9,359) (6,604)
------- ------- -------
Net cash used in investing activities............................................. (19,186) (9,359) (6,604)
------- ------- -------
FINANCING ACTIVITIES
Proceeds from mortgage notes payable............................................ 79,400 14,835 1,719
Payments of mortgage notes payable.............................................. (61,792) (10,742) (1,221)
Contributions from owners....................................................... 18,421 2,635 2,130
Distributions to owners......................................................... (20,177) (642) (468)
------- ------- -------
Net cash provided by financing activities......................................... 15,852 6,086 2,160
------- ------- -------
Net increase (decrease) in cash and cash equivalents.............................. (496) 294 (909)
Cash and cash equivalents at beginning of period.................................. 785 491 1,400
------- ------- -------
Cash and cash equivalents at the end of the period................................ $ 289 $ 785 $ 491
------- ------- -------
------- ------- -------
NONCASH INVESTING AND FINANCING ACTIVITIES
Loans to and from affiliates reclassified as capital contributions and/or
distributions:
Contributions................................................................... $ 1,009 $ 2,524 $ 373
Distributions................................................................... 1,312 459 --
Non cash adjustments relating to purchase of partnership interests (see Note 1):
Increase in rental properties................................................... $ 8,298 $ 3,148 $ --
Decrease in accounts receivable................................................. (2,771) (846) --
Decrease in deferred charges (net).............................................. (755) (204) --
------- ------- -------
Increase in owners' equity...................................................... $ 4,772 $ 2,098 $ --
------- ------- -------
------- ------- -------
Investment in partnerships, included in capital contributions..................... $ -- $ -- $ 178
------- ------- -------
------- ------- -------
</TABLE>
On December 31, 1997, at the close of the Formation Transaction (see Note
1) all of the assets and liabilities were transferred to entities owned 99.99%
by Philips International Realty, L.P.
See accompanying notes.
F-23
<PAGE>
THE PHILIPS COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The Philips Company (the 'Company') was engaged in the ownership,
operation, leasing and development of seven neighborhood and community shopping
center properties (collectively, the 'Properties') located in New York,
Connecticut, New Jersey, Massachusetts and Florida. On December 31, 1997, as
part of the Formation Transactions discussed below, all of the properties were
transferred to entities owned by Philips International Realty, L.P.
Principles of Combination
The Company was not a legal entity, but rather a combination of real estate
properties that were organized as general and limited partnerships and limited
liability companies and which were under the common management and control of
Philip Pilevsky, his family or entities controlled by such parties (the
'Sponsors'). In addition, investments in certain non-controlled limited
partnerships were accounted for under the equity method (see Note 2). All
significant intercompany transactions and balances have been eliminated in
combination.
The specific partnerships and limited liability companies included in the
accompanying combined financial statements are as follows:
<TABLE>
<CAPTION>
ENTITY PROPERTY
- ------------------------------------- -----------------------------------------
<S> <C>
Branhaven Plaza L.L.C. Branhaven Plaza
Palm Springs Mile Associates, Ltd. Mall on the Mile, Palm Springs Village,
The Shops on 49th Street and Philips
Plaza
Forest Avenue Shopping Associates Forest Avenue Shoppers Town
Philips Freeport Associates, L.P. Meadowbrook Commons
Foxborough Shopping L.L.C. Foxboro Plaza
Enfield Shopping L.L.C. Elm Plaza
Delran Shopping L.L.C. Millside Plaza
</TABLE>
Acquisition of Partnership Interests
Certain partnership/membership interests in the above partnerships and
limited liability companies were acquired by the Sponsors in contemplation of
the Formation Transactions, as discussed below, as follows:
FOREST AVENUE SHOPPING ASSOCIATES. In October, 1996, the Sponsors purchased
interests aggregating 65% of the ownership of Forest Avenue Shopping
Associates from three partners in a negotiated transaction for cash
consideration totalling $5,859.
BRANHAVEN PLAZA L.L.C. In June, 1997, the Sponsors purchased interests
aggregating 50% of the ownership of Branhaven Plaza L.L.C. from two parties in
negotiated transactions for cash consideration totalling $1,073.
PALM SPRINGS MILE ASSOCIATES, LTD. ('LIMITED'). In August, 1997, the Sponsors
purchased the interests of four other partners aggregating 51.5% of the
ownership of Limited in a negotiated transaction for $15,881, payable $2,881
in cash and $13,000 in notes. The notes bear interest at LIBOR + 1.75% and are
collateralized by a pledge of certain of the partnership interests in Limited
and Forest Avenue Shopping Associates. The notes are due in June, 1998,
require monthly principal amortization payments of $250 and a default under
these notes will cause a default under the debt encumbering the Forest Avenue
shopping center. See Note 3.
Rental properties, accounts receivable, deferred charges and owners'
deficit reflect the acquisition and purchase accounting related to these
interests acquired in accordance with the push down basis of accounting
F-24
<PAGE>
THE PHILIPS COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
required by the Securities and Exchange Commission's Staff Accounting Bulletin
No. 54. The following reflects the purchase accounting:
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL BOOK ACCOUNTING
VALUE OF NON-SPONSOR ADJUSTMENT
INTEREST AT DATE PURCHASE ------------------
ENTITY OF PURCHASE PRICE 1997 1996
- ----------------------------------- -------------------- -------- ------- -------
<S> <C> <C> <C> <C>
Forest Avenue Shopping Associates.. $ (2,098) $ 5,859 -- $ 7,957
Branhaven Plaza L.L.C.............. (439) 1,073 $ 1,512 --
Palm Springs Mile Associates,
Ltd.............................. (4,334) 15,881 20,215 --
------- -------
$21,727 $ 7,957
------- -------
------- -------
</TABLE>
The purchase adjustments have been allocated as follows:
<TABLE>
<S> <C> <C> <C> <C>
Rental properties..................................................... $25,253 $ 9,008
Accounts receivable................................................... (2,771) (846)
Deferred charges...................................................... (755) (205)
------- -------
$21,727 $ 7,957
------- -------
------- -------
</TABLE>
The results of operations attributable to the interests acquired are
reflected in the combined financial statements from the date the interest was
acquired.
Formation Transactions
On December 31, 1997, the partners and members of the Company and the
Merrick/Mill Basin Properties (see Note 2) transferred their shopping center
assets or, in certain instances, their partnership or membership interests in
the entities which held title to such shopping center assets, to certain
newly-formed entities as follows:
o With respect to those partnerships which owned fee title to
properties located in New York or Connecticut, the partnerships
contributed such fee title, together with any existing indebtedness
relating thereto, to Philips International Realty, L.P. (a
newly-formed 'Operating Partnership') or its designee, which
designee was a newly-formed limited partnership (in which a
subsidiary of Philips International Realty Corp., a new company
intending to qualify as a real estate investment trust (the 'REIT'),
indirectly owns a 0.01% general partnership interest), in exchange
for Units in the Operating Partnership;
o With respect to those partnerships or limited liability companies
which did not own fee title to properties located in New York or
Connecticut, the partners or members, of such partnerships
contributed all of their partnership interests or membership
interests therein, to the Operating Partnership in exchange for
Units in the Operating Partnership (which Units, together with those
Units described above, comprise a 93.9% limited partners' position
in the Operating Partnership and which, upon redemption of such
Units for Common Stock of the REIT, would represent approximately
93.9% of the outstanding Common Stock of the REIT);
o The REIT purchased a shopping center property in Florida from an
unaffiliated seller (the 'Seller') in exchange for 32,000 shares
(54,563 shares after proposed stock split) of Common Stock (which
shares represent approximately 2.1% of the outstanding Common Stock
of the REIT on a fully-diluted basis) and the assumption of an
mortgage note payable in the amount of $542;
o Certain trustees of the Seller were issued 5,000 shares (8,526
shares after the proposed stock split) of Common Stock of the REIT,
plus warrants to acquire an additional 8,000 shares (13,641 shares
after proposed stock split) of Common Stock of the REIT (which
shares and warrants represent approximately 0.8% of the outstanding
Common Stock of the REIT on a fully-diluted basis);
F-25
<PAGE>
THE PHILIPS COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
o An individual partner purchased 10,660 shares (18,176 shares after
proposed stock split) of the REIT's Common Stock (approximately 0.7%
of the outstanding Common Stock on a fully-diluted basis) for a
total purchase price of $533;
o Prudential Securities Incorporated received, in lieu of the
financial advisory fee payable by National upon consummation of the
Formation Transactions and assumed by the Company under the
Contribution and Exchange Agreement, 1,940 shares of Series A
Preferred Stock, convertible into 38,800 shares (66,158 shares after
proposed stock split) of Common Stock, which Series A Preferred
Stock represents approximately 2.5% of the outstanding shares of
Common Stock of the Company (including interests redeemable therefor
and shares of Common Stock issuable upon exercise of outstanding
warrants);
o The REIT contributed its fee title interest in the Florida property,
together with the cash received from the partner in connection with
the purchase of Common Stock, to the Operating Partnership in
exchange for an approximately 3.2% non-managing general partnership
interest therein; and
o The Operating Partnership and the Property-owning partnerships are
controlled by Philips International Realty, LLC, a Delaware limited
liability company, of which Mr. Pilevsky is the sole member, until
such time as the Company completes public or private equity
offerings of its securities aggregating in excess of $25,000, at
which time the REIT will become the sole general partner of the
Operating Partnership and the Property-owning partnerships.
o The REIT has authorized a stock-split of 1.7051 to 1 effective with
the completion of an equity offering.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Real Estate Properties
Buildings and improvements are depreciated on the straight-line method over
the estimated useful lives of the assets which range from fifteen to thirty-nine
years, while tenant improvements (included in buildings and improvements in the
accompanying combined balance sheets) are amortized over the lives of the
respective leases, using the straight-line method.
During 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 ('SFAS No. 121'), Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 121 requires that
the Company review real estate assets for impairment whenever events or changes
in circumstances indicate that the carrying value of assets to be held and used
may not be recoverable. Impaired assets are required to be reported at the lower
of cost or fair value. Assets to be disposed of are required to be reported at
the lower of cost or fair value less cost to sell. Assets are classified to be
disposed when management has committed to a plan to dispose of the assets. Prior
to the adoption of SFAS No. 121, real estate assets were required to be stated
at the lower of cost or net realizable value. No impairment losses have been
recorded in any of the periods presented.
F-26
<PAGE>
THE PHILIPS COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with an
original maturity of three months or less from date of purchase.
Banking relationships are maintained with major financial institutions. The
properties are operated through multiple bank accounts to mitigate exposure to
loss of cash balances which may from time to time exceed federally insured
limits.
Revenue Recognition
Minimum revenues from rental property are recognized on a straight-line
basis over the terms of the respective tenant leases.
Deferred Charges
Costs incurred to obtain tenant leases and long term financing, included in
deferred charges in the accompanying combined balance sheet, are amortized over
the terms of the related leases or debt agreements, as applicable.
Income Taxes
The entities comprising the Company were not taxpaying entities for income
tax purposes and, accordingly, no provision or credit has been made in the
accompanying financial statements for income taxes. Owners'/members' allocable
shares of taxable income or loss are reportable on their respective income tax
returns.
Concentration of Revenue and Credit Risk
Approximately 54%, 51% and 50% of the Company's total revenue for the years
ended December 31, 1997, 1996 and 1995, respectively, was derived from Palm
Springs Mile Associates Ltd. Any adverse change in the operating profitability
of this property may have a material adverse effect on the Company.
Capital Contributions, Distributions and Profits and Losses
Capital contributions, distributions and profits and losses were allocated
in accordance with the terms of the applicable agreements.
2. INVESTMENT IN PARTNERSHIPS
At December 31, 1996, the Company held a limited partnership interest and a
minority general partnership interest in the following two partnerships (the
'Merrick/Mill Basin Properties') which also owned and operated neighborhood and
community shopping centers:
<TABLE>
<CAPTION>
THE PHILIPS COMPANY'S
PARTNERSHIP PROPERTY PERCENTAGE OWNERSHIP
- ----------------------------- ---------------- ----------------------
<S> <C> <C>
Merrick Shopping Associates Merrick Commons 30%
SP Avenue U Associates, L.P. Mill Basin Plaza 49%
</TABLE>
As a limited partner and minority general partner, the Company did not
control the activities of the partnerships. These investments, accounted for
under the equity method, were recorded initially at cost and subsequently
adjusted for equity in the net income or loss of investees and cash
contributions and distributions.
F-27
<PAGE>
THE PHILIPS COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. INVESTMENT IN PARTNERSHIPS--(CONTINUED)
Condensed financial statements of the entities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996
------------
<S> <C>
CONDENSED BALANCE SHEET
Rental properties, net.................................................................... $ 23,955
Cash and cash equivalents................................................................. 96
Related party receivables................................................................. 1,252
Accounts receivable....................................................................... 1,135
Deferred charges, net..................................................................... 1,000
Other assets.............................................................................. 137
------------
Total assets.............................................................................. $ 27,575
------------
------------
Mortgage notes payable.................................................................... $ 26,049
Accounts payable and accrued expenses..................................................... 320
Related party payables.................................................................... 620
Other liabilities......................................................................... --
------------
Total liabilities......................................................................... 26,989
Owners' equity............................................................................ 586
------------
Total liabilities and owners' equity...................................................... $ 27,575
------------
------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
------ ------- ------
<S> <C> <C> <C>
CONDENSED STATEMENTS OF OPERATIONS
Revenues from rental property and other income............................ $4,972 $ 4,959 $4,813
Interest income from affiliate............................................ -- 1,297 --
------ ------- ------
Total revenue............................................................. 4,972 6,256 4,813
------ ------- ------
Operating and other expenses.............................................. 1,463 1,492 1,436
Interest.................................................................. 2,045 3,496 2,054
Depreciation and amortization............................................. 824 576 540
------ ------- ------
Total expenses............................................................ 4,332 5,564 4,030
------ ------- ------
Income before extraordinary item.......................................... 640 692 783
Extraordinary item........................................................ -- (349) --
------ ------- ------
Net income................................................................ $ 640 $ 343 $ 783
------ ------- ------
------ ------- ------
</TABLE>
F-28
<PAGE>
THE PHILIPS COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. MORTGAGE NOTES PAYABLE
As of December 31, 1996, mortgage notes payable aggregated $133,609 and
were collateralized by the Company's properties. Interest rates ranged from 7%
to 14%. Mortgage payments are due in monthly installments of principal and/or
interest and mature on various dates through 2004. The loan agreements contain
customary representations, covenants and events of default. At December 31,
1996, a partner/member in the entities that hold title to the properties had
personally guaranteed the repayment of mortgage loans with a balance of $38,720.
The following table summarizes mortgage indebtedness as of December 31,
1996:
<TABLE>
<CAPTION>
PROPERTY MORTGAGE NOTES WITH FIXED INTEREST:
- -------------------- ---------------------------------------------
<S> <C> <C>
Forest Avenue First mortgage note with a fixed interest $ 12,502
Shoppers Town rate of 9.5% due on August 1, 1997. Payments
$115 each month.
Third mortgage note with a fixed interest 5,000
rate of 14% due on November 1, 1997. Monthly
payments of interest only.
Millside Plaza First mortgage notes with fixed interest 12,164
Elm Plaza rates of 8% originally due on June 30, 1997.
Foxboro Plaza Amended on July 1, 1995 to fixed interest
rates of 9% from July 1, 1995 to June 30,
1999 and 9.375% from July 1, 1999 to July 1,
2000, maturing on July 1, 2000. Further
amended to extend the 9% interest rate from
June 30, 1999 to April 30, 2000. Monthly
payments of interest only. See Note 3(A).
Subordinate mortgages, net of discount, 905
bearing no interest, except if a default
occurs, matures on July 1, 2000. See Note
3(A).
---------------
TOTAL FIXED RATE NOTES 30,571
---------------
MORTGAGE NOTES WITH VARIABLE INTEREST:
---------------------------------------------
Forest Avenue Second mortgage note with variable interest 2,048
Shoppers Town rate based on the prime rate (8.25% at
December 31, 1996), matures on June 30, 1997.
Branhaven Plaza Wrap around mortgage note with a fixed 9,415
interest rate of 14.25% originally was
scheduled to mature on July 31, 1999. In
addition to the above interest, loan bore
contingent interest at the lesser of 15% of
gross rents or 15% of $887. Contingent
interest totaled $101 and $88 for 1994 and
1995, respectively. The underlying mortgage
note with a fixed interest rate of 10%
matured on August 1, 1996. On November 1,
1996, the wrap around mortgage notes were
refinanced to provide for variable interest
rate of the lower of LIBOR plus 3.50% or
prime plus 0.75% with maturity on November 1,
1998, with two options to extend the maturity
date for 6 months. The Company is required to
make quarterly amortization payments equal to
50% of the property's preceding quarter's net
cash flow.
Meadowbrook Commons First mortgage note with variable interest of 26,096
2.5% plus base LIBOR rate (8.03% at December
31, 1996), as defined, or Floating Rate, as
defined, matures on March 31, 1998. The
Company is required to make quarterly
amortization payments of the excess cash flow
from the preceding quarter.
Mall on the Mile First mortgage note collateralized with a 65,479
Palm Springs Village variable interest rate of LIBOR plus 2.5%
The Shops on (8.03% at December 31, 1996), matures on June
49th Street 1, 1998. Monthly payments of principal of
Philips Plaza $37.5 plus interest.
---------------
TOTAL VARIABLE RATE NOTES 103,038
---------------
TOTAL MORTGAGE NOTES PAYABLE $ 133,609
---------------
---------------
</TABLE>
F-29
<PAGE>
THE PHILIPS COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. MORTGAGE NOTES PAYABLE--(CONTINUED)
(A) SCHEDULE OF MORTGAGE NOTES--(CONTINUED)
On February 14, 1997, the Company refinanced its mortgages collateralized
by certain of the properties in Hialeah, Florida with a life insurance company
at a fixed rate of 7.83%, with maturity in February 2004.
In connection with the purchase of the non-sponsor interest in Palm Springs
Mile Associates, Ltd. (see Note 1), the Company issued $13,000 in Notes. Such
notes are collateralized by (i) the partnership interests so acquired, (ii) the
pledge of all limited partners' rights to partnership distributions until the
notes are repaid, (iii) the personal guarantee of the notes by an individual
limited partner, and (iv) the pledge of all members' interests in Forest Avenue
Shopping, LLC, an affiliated entity (see Note 1). The notes bear interest at
LIBOR plus 1.75% and mature on the earlier of June 1, 1998 or the date the
Company has raised at least $40,000 in equity. The notes require monthly debt
service payments of principal and interest totaling approximately $330. In
connection with this transaction, a first mortgage loan encumbering The Shops on
49th Street and Philips Plaza shopping centers was modified to provide for (i) a
concurrent principal paydown of $200, (ii) an acceleration of the maturity date
thereof to June 1, 1998, and (iii) a guarantee of $12,000 of such outstanding
mortgage loan balance by two limited partners, such guarantee to increase to the
full amount of this first mortgage loan if the aforementioned notes are not
repaid by December 31, 1997.
On June 27, 1997, the Company refinanced three mortgages collateralized by
Forest Avenue Shoppers Town with a financial services institution. An individual
that is a member in the entity that owns the property has personally guaranteed
$6,000 (subject to reductions as set forth in the Agreement) of the new mortgage
note. In addition, all membership interests in Forest Avenue Shopping LLC and
Branhaven Plaza LLC have been pledged as collateral. Interest is at the rate of
LIBOR plus 1.75%, with a maturity date of December 1, 1997; however, either
party can decide to extend the loan on notice, not less than 30 days or more
than 90 days prior to maturity, to either January 1, 2004 or 2007, upon the
occurrence of certain events as disclosed in the mortgage agreement.
During November 1997, the Company closed its agreement with the lender of
the Forest Avenue Shopping LLC mortgage (i) to extend the maturity to June 1,
1998, (ii) to extend to June 1, 1998 the option to extend the maturity date
further to June 2004 or 2007, (iii) to suspend mortgage amortization until the
closing of the Formation Transactions, and (iv) for the lender to make a new
$150 second mortgage loan to Forest Avenue Shopping LLC guaranteed by Philip
Pilevsky. The proceeds of the second mortgage were placed in a collateral
account to collateralize the guaranty, which guaranty will be amended to include
repayment of the second mortgage.
During November 1997, the Company closed its agreement with the holder of
the Palm Springs Mile Associates, Ltd. partner notes to suspend scheduled
amortization of $250 per month until the closing of the Formation Transactions.
The lender made an additional loan to the borrower in the amount of $1,000
resulting in a total outstanding principal amount of $13,000 at the closing of
the Formation Transactions. The $1,000 additional loan bears interest at an
annual rate of LIBOR + 1.75% and matures in June 1998. The proceeds of the
$1,000 additional loan were placed in a collateral account to secure the
indebtedness.
On December 31, 1997, the Company closed its agreement with its lender in
connection with the Millside Plaza, Elm Plaza and Foxboro Plaza mortgage (i) to
sever the Wallingford Shopping LLC and the Freehold Shopping LLC mortgages from
the cross-collateralization provisions of the original loan agreement, (ii) to
extend the maturity date to 2002, with an amortization equal to a 30 year term,
(iii) adjust the interest rate to 175 basis points above the 5 year U.S.
Treasury rate and (iv) eliminate the Company's obligation to repay $936 of
second mortgage loans.
F-30
<PAGE>
THE PHILIPS COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. MORTGAGE NOTES PAYABLE--(CONTINUED)
(B) PRINCIPAL MATURITIES
The combined aggregate principal maturities of mortgage notes payable
outstanding as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................................... $ 21,206
1998........................................................................... 36,172
1999........................................................................... 1,796
2000........................................................................... 35,440
2001........................................................................... 784
Thereafter..................................................................... 38,211
-------------
$ 133,609
-------------
-------------
</TABLE>
(C) CAPITALIZED INTEREST
Interest costs capitalized for the years ended December 31, 1996 and 1995,
were $42 and $383, respectively.
(D) INTEREST COST
Interest paid for the years ended December 31, 1997, 1996, 1995 were
$11,357, $10,878 and $8,732, respectively.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair values for the Company's financial instruments were
determined by management using market information available as of December 31,
1996 and appropriate valuation methodologies which included, in the case of debt
instruments, consideration of interest rates available to the Company for the
issuance of debt with terms and maturities similar to its currently outstanding
indebtedness. Considerable judgment is necessary to interpret market data and
develop estimated fair values. Accordingly, the Company's estimates are not
necessarily indicative of the amounts the Company could realize on disposition
of its financial instruments. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts. Although management is not aware of any factors that would
significantly affect its estimates of the fair value amounts, such amounts have
not been comprehensively revalued for purposes of these financial statements
since December 31, 1996.
Cash equivalents and mortgage notes payable with an aggregate carrying
value of $133,609 are reflected in the accompanying combined balance sheet at
amounts which reasonably approximate their fair values.
5. RENTAL INCOME
The Company's shopping center properties are leased to tenants under
operating leases. The minimum rental amounts due under the leases are generally
either subject to scheduled fixed increases or upward adjustments based on
certain inflation indices. The leases generally also require that the tenants
reimburse the Company for increases in certain operating costs and real estate
taxes. Minimum rentals and expense reimbursements represented 96%, 95% and 96%
of revenues from rental properties for the years ended December 1997, 1996 and
1995, respectively.
F-31
<PAGE>
THE PHILIPS COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
5. RENTAL INCOME--(CONTINUED)
The approximate future minimum rents to be received over the next five
years and thereafter, assuming neither renewals nor extensions of leases which
may expire during the period, for leases in effect at December 31, 1996, are as
follows:
<TABLE>
<S> <C>
1998.......................................................... $ 19,132
1999.......................................................... 18,016
2000.......................................................... 16,958
2001.......................................................... 14,594
2002.......................................................... 11,785
Thereafter.................................................... 89,698
--------
$170,183
--------
--------
</TABLE>
6. RELATED PARTY TRANSACTIONS
(A) Management Agreement
Management services for the Company's properties are provided by a related
party, Philips International Holding Corp. Fees paid by the Company for such
services are generally based on 3% to 5% of total revenue.
(B) Advances To/From Partners
Advances to and from partners or members in those entities comprising the
Company and certain affiliated entities are reflected in the financial
statements as related party receivables and payables. Such advances are
generally due upon demand and are non-interest bearing.
(C) Leasing Commissions
Philips International Holding Corp., a related party, provides leasing
services to the Company for fees ranging generally from 2% to 5% of total
contractual rent due pursuant to the tenant leases. Leasing commissions paid to
Philips International Holding Corp. for the years ended December 31, 1997, 1996
and 1995 were $95, $773 and $181, respectively.
In addition, leasing commissions totaling $195 were paid during 1995 to a
partner in one of the entities comprising the Company.
7. CONTINGENCIES
The Company is subject to various legal proceedings and claims that arise
in the ordinary course of business. These matters are generally covered by
insurance. Management believes that the final outcome of such matters will not
have a material adverse effect on the financial position, results of operations
or liquidity of the Company.
8. EXTRAORDINARY ITEMS
The combined statements of income for the years ended December 31, 1997 and
1996 include extraordinary gains of approximately $671 and $2,881, respectively,
in connection with the settlement of debt obligations on the Company's shopping
center properties. The $671 gain for the year ended December 31, 1997, is net of
an extraordinary loss of approximately $265 representing the write-off of
deferred financing costs related to the refinancing of debt on a certain
shopping center properties.
9. OTHER ASSETS
Other assets in the accompanying combined balance sheet include restricted
real estate tax escrows, capital improvement escrows and tenant security
deposits totaling $791 as of December 31, 1996.
F-32
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Articles of Incorporation of the Company (filed as Exhibit 3.1 to the Company's
Form 8-K dated December 31, 1997 and incorporated herein by reference)
3.2 Articles Supplementary of Series A Preferred Stock (filed as Exhibit 3.2 to the Company's Form 8-K
dated December 31, 1997 and incorporated herein by reference)
3.3 Amended and Restated By-Laws of the Company (filed as Exhibit 3.3 to the Company's Form 8-k dated
December 31, 1997 and incorporated herein by reference)
10.1 Agreement of Limited Partnership of the Operating Partnership (filed as Exhibit 10.1 to the Company's
Form 8-k dated December 31, 1997 and incorporated herein by reference)
10.2 Form of 1997 Stock Option and Long-Term Incentive Plan of the Company (filed as Exhibit 10.2 to the
Company's Registration Statement on Form S-4, Registration No. 333-41431, and incorporated herein by
reference)
10.3 Form of Agreement of Limited Partnership for Property Partnerships (filed as Exhibit 10.3 to the
Company's Registration Statement on Form S-4, Registration No. 333-41431, and incorporated herein by
reference)
10.4 Form of Articles of Incorporation of Philips Subs (filed as Exhibit 10.4 to the Company's Registration
Statement on Form S-4, Registration No. 333-41431, and incorporated herein by reference)
10.5 Form of Bylaws of Philips Subs (filed as Exhibit 10.5 to the Company's Registration Statement on Form
S-4, Registration No. 333-41431, and incorporated herein by reference)
10.6 Contribution and Exchange Agreement, dated August 11, 1997, among National, the Board of Trustees, the
Company, the Operating Partnership and certain contributing partnerships or limited liability
companies associated with a private real estate firm controlled by Philip Pilevsky and certain
partners and members thereof (filed as Exhibit 10.6 to the Company's Registration Statement on Form
S-4, Registration No. 333-41431, and incorporated herein by reference)
10.7 Form of Registration Rights Agreement among the Company and certain holders of limited partnership
interests in the Operating Partnership (filed as Exhibit 10.7 to the Company's Registration Statement
on Form S-4, Registration No. 333-41431, and incorporated herein by reference)
10.8 Amended and Restated Management Agreement, dated as of March 30, 1998, among the Company, the
Operating Partnership and Philips International Management Corp.
10.9 Amended and Restated Non-Competition Agreement, dated as of March 30, 1998, among the Company, the
Operating Partnership, Philip Pilevsky and Sheila Levine
10.10 Employment Agreement between the Company and Louis J. Petra (filed as Exhibit 10.1 to the Company's
Form 8-K dated December 31, 1997 and incorporated herein by reference)
10.11 Employment Agreement between the Company and Sheila Levine (filed as Exhibit 10.2 to the Company's
Form 8-K dated December 31, 1997 and incorporated herein by reference)
10.12 Form of Warrant (filed as Exhibit 10.12 to the Company's Registration Statement on Form S-4,
Registration No. 333-41431, and incorporated herein by reference)
10.13 Amendment No. 1 to Contribution and Exchange Agreement, dated as of December 29, 1997 (filed as
Exhibit 10.13 to the Company's Form 8-K dated December 31, 1997 and incorporated herein by reference)
10.14 Non-Recourse Secured Promissory Note of National Properties Trust (filed as Exhibit 10.14 to the
Company's Form 8-K dated December 31, 1997 and incorporated herein by reference)
10.15 Form of Amended and Restated Mortgage, Assignment of Leases, Security Agreement and Spreader Agreement
and Renewal Promissory Note for Mall on the Mile and Palm Springs Village
21.1 List of Subsidiaries of the Company
</TABLE>
<PAGE>
AMENDED AND RESTATED
MANAGEMENT AGREEMENT
THIS AMENDED AND RESTATED MANAGEMENT AGREEMENT ("Agreement") is made
and entered into on March 30, 1998, by and between Philips International
Realty, L.P. (the "Partnership") and Philips International Realty Corp. (the
"Company" and together with the Partnership, the "Owner") and Philips
International Holding Corp. (the "Manager").
WHEREAS, pursuant to the Management Agreement, dated as of December
31, 1997, by and between Manager and Owner (the "Original Agreement"), Manager
agreed to provide certain management services to Owner and the properties of
Owner; and
WHEREAS, Manager and Owner wish to amend and restate the terms and
provisions of the Original Agreement in its entirety, all upon the terms and
provisions, and subject to the conditions, set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein set forth, and for other good and valuable consideration,
Manager and Owner agree as follows:
1. ENGAGEMENT: Owner hereby engages Manager, and Manager
hereby accepts such engagement from Owner, for the term, at the compensation,
and upon all of the other terms and conditions set forth herein as sole and
exclusive manager of its properties , whether now owned or in the future owned
(collectively, the "Properties" and each a "Property").
2. TERM: The initial term of this Agreement ("Initial Term")
shall commence as of December 31, 1997, and shall continue for three (3)
years, provided, however, that the term shall continue for consecutive periods
of one (1) year each unless terminated by any
<PAGE>
party to this Agreement within thirty (30) days prior to the expiration of the
Initial Term or any subsequent annual period.
3. MANAGEMENT FEES: During the term hereof, Manager shall
receive, as compensation for the performance of its services required
hereunder ("Management Fees"), a sum equal to 3% of gross rental income
derived from the Properties for the calendar year. Management Fees shall be
payable on the first day of each month, except that Management Fees for the
first month of the Initial Term shall be payable on the last day of the first
calendar month in which this Agreement is executed and shall be based upon
actual receipts obtained during such calendar month with an adjustment being
made if such calendar month is less that thirty (30) days. Actual receipts for
the first calendar month shall be utilized for purposes of fixing monthly
installments for the first quarterly period of the Initial Term, which monthly
installments shall be reconciled quarterly thereafter based upon actual
receipts for the prior quarterly period. In addition, Manager shall be
entitled to reimbursement of all reasonable out-of-pocket expenses. The
monthly installments may be deducted by Manager from receipts.
3A. LEASING COMMISSIONS: Manager shall also be
entitled to customary
market level leasing commissions ("Leasing Commissions") for space that it
leases at the Properties whether or not Manager is the procuring broker, it
being understood that Manager shall be the exclusive agent for the Property.
3B. CONSTRUCTION SUPERVISORY FEE: Manager shall also
be entitled to a construction supervisory fee at the customary market level
with regard to any tenant improvements and construction matters relating to
the Properties; provided, however, that such fee shall not exceed 10% of the
cost of such project.
2
<PAGE>
4. MANAGEMENT SERVICES AND POWERS: In consideration of the
Management Fees to be paid by Owner hereunder, Manager agrees as follows:
4.1 Under the supervision of the executive officers of
the Owner, Manager shall manage the business and affairs of the Owner and
shall be responsible for the day-to-day operations of the Properties. Manager
shall furnish the services of its organization and exert its reasonable
efforts in operating, maintaining and managing the Properties. Everything done
by Manager in the performance of its obligations hereunder and all expenses
incurred shall be for and on behalf of Owner and for Owner's account, except
as expressly otherwise provided herein, and Owner agrees to reimburse Manager
for all such expenses which are properly incurred hereunder in the performance
of Manager's duties.
4.2 Notwithstanding the authority granted herein,
Manager shall confer fully and freely with Owner in the performance of its
duties, and shall keep Owner informed regarding the Properties. After
consultation with and approval by Owner, Manager shall use its reasonable
efforts to enforce the collection of all rentals and receipts and shall give
receipts for all services or income of any nature from the operation of the
Properties.
4.3 Manager shall, after consultation with and
approval by Owner, oversee the construction of improvements and additions to
the Properties.
4.4 Manager shall market the space at the Properties,
including vacant space, and after consultation and approval by Owner, shall
make all decisions regarding leasing such spaces, including renewing and
terminating leases for such spaces.
4.5 Manager shall enforce all warranties, if any, on
the Properties and/or the manufactured items thereon.
3
<PAGE>
4.6 Except as may be designated by the Owner in
writing from time to time, Manager shall hire, train, discharge, and supervise
all labor and employees necessary to properly maintain and operate the
Properties. The selection, terms of employment and termination thereof,
including rates of employment, and the supervision, direction, training and
assignment of duties of all such employees shall be the duty and
responsibility of and shall be determined by Manager after consultation with
Owner. Subject to Paragraph 5 herein, all costs and expenses of any persons
who are part-time or full-time employees of Manager shall be paid for solely
by Manager.
4.7 Manager, at the expense of Owner, shall cause the
Properties, and their respective appurtenances and grounds, to be operated,
maintained and repaired according to reasonable standards acceptable to Owner,
including, but not limited to, interior and exterior cleaning, painting,
plumbing, heating and ventilating systems, carpentry, masonry, decorating and
such other normal maintenance and repair work as may be necessary and proper.
Furthermore, for an additional charge as agreed upon between Owner and
Manager, Manager shall supervise any extraordinary services with respect to
the improvement of the Properties which Owner may request from time to time.
4.8 In fulfillment of its duties hereunder, Manager,
at the expense of Owner, shall purchase such supplies, equipment and services
as are necessary for the proper operation, maintenance, and repair of the
Properties, and any discounts or rebates received by Manager shall be returned
to Owner; provided, however, that no contract or agreement for this purpose
shall be made in excess of $25,000 for any one item without the consent of
Owner, except monthly or recurring operating charges or as set forth in the
budget referred to in Section 4.21 hereof. Emergency repairs, involving
manifest danger to life or property, or immediately
4
<PAGE>
necessary for the preservation and safety of the Properties, or for the safety
of it tenants or occupants, or required to avoid the suspension of any
necessary service of the Properties, may be made by Manager irrespective of
the cost limitation imposed by this subparagraph. Notwithstanding this
authority as to emergency repairs, it is understood and agreed that Manager
will, if at all possible, confer with Owner regarding such expenditure before
proceeding and in any event, promptly notify Owner of such emergency repair.
4.9 Pursuant to the budget approved by Owner, Manager,
on behalf of Owner, shall contract on favorable terms, quality and service
considered, in the name of Owner, for all services and utilities necessary for
the efficient operation and maintenance of the Properties, including, but not
limited to, security, water, electricity, gas, fuel, telephone, vermin
extermination, rubbish hauling, parking lot sweeping and maintenance, roof
maintenance, landscape maintenance and lighting maintenance. However, any such
contract which is non-cancellable having a term longer than 5 years or
requiring payments in excess of $50,000 per annum must be authorized by Owner.
4.10 Manager shall take such action as may be
necessary or desirable to comply promptly with any and all orders or
requirements affecting the Properties placed thereon by any federal, state,
county, or municipal authority having jurisdiction thereover, subject to the
same limitation contained in Subparagraph 4.8 regarding maximum amounts which
may be disbursed without Owner's written consent. Owner shall execute any and
all applications and other documents necessary for Manager to obtain and
maintain in the name of Owner all licenses and permits required of Owner or
Manager in connection with the operation and/or management of the Properties.
Manager, however, so long as Manager is not subject to civil or criminal
penalty or liability, shall not take any action under this Section so long as
Owner is contesting, or
5
<PAGE>
has, after prompt notification of the facts by Manager, affirmed its intention
to contest any such order or requirement. In such event, the Owner agrees to
indemnify the Manager from any claims, liability and expenses, including
reasonable legal fees and disbursements, resulting from such failure to
comply. Manager shall promptly notify Owner of all such orders and notices or
requirement.
4.11 Manager shall, after consultation with and
approval by Owner and at the expense of Owner, cause to be placed and kept in
force all forms of insurance needed to adequately protect Owner and as
required by law and the underlying mortgages affecting the Properties,
including, where appropriate, but not limited to, worker's compensation
insurance, public liability insurance, auto, flood, plate glass, office
equipment and personal property insurance, boiler insurance, fire and extended
coverage insurance, and burglary and theft insurance. All of the various types
of insurance coverages required for the benefit of Owner shall be placed in
such amounts, with such companies and with such beneficial interests appearing
therein as shall be acceptable to Owner; provided, however, that Manager shall
be named as a named insured in all policies related to public liability
insurance. Proof of all such insurance shall be delivered to Owner in a form
acceptable to Owner. Manager agrees to cooperate with any independent
insurance broker or consultant that Owner may designate or approve and engage
for the purposes of effecting insurance. Manager shall promptly investigate
and make a full written report as to all accidents or claims for damage
relating to the ownership, operation, and maintenance of the Properties,
including any damage or destruction to the Properties, the estimated cost of
repair, and shall cooperate and make any and all reports required by any
insurance company in connection therewith.
6
<PAGE>
4.12 Manager shall establish and maintain, in a bank
of Owner's selection, a bank account for each Property for the deposit of the
monies collected from the Properties ("Bank Account"). Manager shall have the
authority to draw on the Bank Account consistent with the requirements of
Owner for any payments which Manager must make to discharge any liabilities or
obligations incurred pursuant to this Agreement, all of which payments shall
be subject to the limitations of this Agreement.
4.13 From the funds collected and deposited in the
Bank Account, Manager shall cause to be disbursed regularly and punctually all
expenses authorized in this Agreement.
4.14 Manager shall keep accurate, complete and
separate books and records in accordance with accepted accounting standards
and procedures, showing income and expenditures in connection with the
operation and maintenance of the Properties and Owner's business, such that
any accounts payable, other obligations, cash, accounts receivable, and other
assets pertaining thereto can be identified and the amount determined at all
times. Owner shall have the right at any time, through its representatives, to
inspect any books and records of Manager which in its opinion may verify the
financial or monthly reports, including, but not limited to, all checks,
bills, vouchers, statements, cash receipts, correspondence, leases, subleases
and all other books and records in connection with the management of the
Properties.
4.15 Manager shall prepare and deliver to Owner (i)
such financial reports and statements as Owner may reasonably require and (ii)
data and information reasonably necessary for compliance with the requirements
and requests of the Securities and Exchange Commission. Notwithstanding the
foregoing, Manager may designate third party professionals
7
<PAGE>
to assist in the preparation of the foregoing items at Owner's cost and
expense, as Manager may deem necessary.
4.16 Manager shall provide Owner with such general
support services as are reasonably requested by Owner, including without
limitation, general accounting, bookkeeping and back office support services.
4.17 Manager shall, to the extent necessary, refer all
matters requiring legal or accounting services to qualified professionals
approved by Owner.
4.18 Manager shall bill or cause to be billed all
Tenants and occupants for all rent and other charges and when and if directed
by Owner, serve notices upon tenants to quit and surrender their premises.
4.19 Manager shall maintain and submit to the Owner, a
record of all complaints of tenants and consider, and when reasonable and/or
when directed by Owner attend to such complaints.
4.20 Manager shall cause to be prepared and filed when
necessary forms for unemployment insurance, withholding and social security
taxes and all other tax and other forms relating to employment and the
maintenance and operation of the Properties and Owner's business required by
and federal, state or municipal authority.
4.21 Manager shall prepare and submit annually to
Owner for its approval an operating budget setting forth anticipated income
and expenses for the ensuing fiscal year.
4.22 Manager shall ascertain the assessed valuation
for the Properties and after consultation with and approval by Owner,
institute and prosecute with attorneys approved by Owner, tax certiorari
proceedings.
8
<PAGE>
4.23 Manager shall use its reasonable efforts to keep
the space rented to desirable tenants on such terms as may be approved by
Owner. The Manager is authorized to enlist the services of outside brokers on
behalf of the Owner in connection with the rental of such space; provided,
however, that any fees due such outside brokers shall be paid by Owner and the
use of such outside brokers shall not affect Manager's right to receive
Leasing Commissions pursuant to Section 3A of this Agreement.
4.24 Manager may generally do such other acts, not
contrary to the intent of the provisions hereof, as it deems necessary or
desirable for the proper performance of its duties hereunder.
5. COSTS AND EXPENSES:
5.1 Owner shall pay for all ordinary and necessary
expenses of the Properties, including, without
limitation, the following:
(i) all direct payroll and benefits for on-site Owner
employees;
(ii) all maintenance repairs to the Properties;
(iii) all utilities;
(iv) all taxes, principal and interest on all loans
secured by the Properties;
(v) insurance, professional services; and
(vi) all independent contractors (e.g., carpenters,
electricians, landscaping etc.) who are employed to
render services at the Properties.
5.2 Subject to Section 10 hereof, Manager shall not be
liable to any third parties for debts, liabilities or obligations of the
Properties or arising in the course of
9
<PAGE>
business of the Properties or by virtue of its management, supervision,
control or operation of the Properties.
6. RELATIONSHIP OF THE PARTIES: All duties to be performed
by the Manager under this Agreement shall be for and on behalf of Owner, in
the name of Owner and for Owner's account. In taking any action pursuant to
this Agreement, Manager shall be acting as Owner's agent. This Agreement shall
not be construed to create a partnership, joint venture, employer-employee, or
any other relationship by and between Owner and Manager other than that of
principal and agent. Manager shall not bear any portion of the losses, costs
or expenses from the operation of the Properties nor shall it be entitled to
any of the profits therefrom.
7. TERMINATION:
7.1 This Agreement shall immediately terminate, at
Owner's option, upon delivery of written notice thereof to Manager, at any
time after: (a) all or substantially all of the Properties are sold, condemned
or the improvements thereon are destroyed (if destroyed, the termination shall
occur only if Owner decides not to rebuild), (b) Manager is dissolved, becomes
insolvent or is adjudicated bankrupt or makes a general assignment of its
assets for the benefit of its creditors, or (c) Manager commits gross
negligence or willful misconduct in the performance or nonperformance of its
duties hereunder. In addition, Owner shall have the right to terminate this
Agreement at any time upon thirty (30) days written notice to the Manager in
the event that Owner elects to have the services performed by the Manager
pursuant to this Agreement performed by the Owner's own employees (i.e., to
perform such management functions on an "in-house" basis). In the alternative,
Owner may elect to have certain services performed by the
10
<PAGE>
Manager pursuant to this Agreement performed on an "in-house" basis without
termination of this Agreement but rather with an adjustment of the Management
Fees payable hereunder.
7.2 Upon termination of this Agreement, it is agreed
that: (a) all of the books and records in the possession of Manager pertaining
to the operation of the Properties, together with any other property of the
Owner in Manager's possession, shall be immediately delivered to Owner, and
(b) the agency created hereby shall immediately cease, and Manager shall have
no further right to act for Owner.
8. GRANT OF OPTIONS: In connection with the services to be
provided hereunder, the Company agrees to grant to the Manager or its designee
or designees options issued pursuant to the Company's 1997 Stock Option and
Long-Term Incentive Plan (the "Option Plan") to purchase 54,400 shares of the
Company's Common Stock, par value $.01 per share, at an exercise price of
$50.00 per share, subject to re-pricing in the event of a public offering or
certain private offerings of the Company's Common Stock at the per share
offering price. The options will be granted pursuant to the terms and
conditions of the Option Plan and shall expire ten (10) years from the date of
the grant. The options shall vest and become immediately exercisable over
three (3) years with one-third (1/3) of the shares vesting on each of the
first, second and third anniversaries of the date of the grant. In the event
that any option or a portion thereof expires or terminates for any reason
without having been exercised or vested in full, the underlying shares covered
by such option shall be available for future grants under the Option Plan.
9. ASSIGNMENT: Except as herein provided, neither this
Agreement nor any right pursuant hereto or interest herein shall be assignable
by Manager or Owner.
11
<PAGE>
10. INDEMNIFICATION: Owner agrees to indemnify, defend and
save Manager harmless from any loss, cost, damages, liability, penalties or
expenses, statutory or otherwise arising from third party claims (including
reasonable attorney fees and costs incurred by Manager in the defense or
prosecution thereof) in connection with or arising from this Agreement or with
the operation and management of the premises, and from liability for injuries
suffered by Owner's officers, directors, agents and employees or any other
persons on or about the premises, excluding Manager's employees or Manager;
provided, however, that the indemnification provisions set forth in this
Section 10 shall not apply to any such loss, cost, damage, liability, penalty
or expense to the extent it is found in a final judgment by a court of
competent jurisdiction to have resulted directly from the gross negligence or
willful misconduct of Manager. Owner agrees that Manager shall not be liable
for any error of judgment or for any mistake of fact or of law, or for
anything which it may do or refrain from doing hereunder, except in cases of
willful misconduct, gross negligence, or willful failure to comply with the
terms of this Agreement. Owner shall cause Manager to be named as a named
insured under all policies of liability insurance maintained by Owner against
claims arising at the Properties.
If any action, proceeding, or investigation is commenced, as
to which Manager proposes to demand such indemnification, it shall notify
Owner with reasonable promptness; provided, however, that any failure by
Manager to notify Owner shall not relieve Owner from its obligations hereunder
except to the extent that the Owner's ability to defend itself against such
action, proceeding, or investigation is actually, materially prejudiced as a
result of such lack of reasonably prompt notification. If Manager shall seek
indemnification under this Section 10, Owner, in the case of a third party
claim brought against Manager, shall be entitled to participate therein and,
to the extent that it wishes, to assume and direct the defense and settlement
thereof
12
<PAGE>
with counsel reasonably satisfactory to Manager. After notice from Owner to
Manager of its election to assume and direct the defense and settlement of a
third party claim brought against Manager, Owner shall not be liable to
Manager (or any of its affiliates) under this Section 10 for any legal or
other expenses subsequently incurred by Manager in connection with the defense
thereof other than reasonable costs of investigation; except that Manager
shall have the right to employ counsel to represent it if, in its reasonable
judgment, it is advisable for Manager to be represented by separate counsel,
and in that event the fees and expenses of such separate counsel shall be paid
by Manager. Notwithstanding the foregoing provisions of this Section 10, the
Owner shall not, without the prior written consent of Manager, effect any
settlement of any pending or threatened proceeding in respect of which Manager
is, or with reasonable foreseeability, could have been a party and indemnity
could have been sought hereunder by Manager for a third party claim brought
against Manager, unless such settlement includes an unconditional release of
Manager from all liability arising out of such proceeding.
11. NON-SOLICITATION: Manager agrees that during the Initial
Term and for an additional one (1) year commencing immediately thereafter,
Manager shall not, directly or indirectly, solicit any of the non-clerical
employees, agents or independent contractors of Owner, its subsidiaries or its
affiliates to end their relationship with Owner, its subsidiaries or its
affiliates, it being understood that Owner shall have the right to hire
employees of Manager.
12. BINDING: This Agreement shall inure to and be binding on
all the parties, their estates, heirs, personal representatives and assigns.
13. HEADINGS: The article and section headings in no way
define, limit, extend or interpret the scope of this Agreement, or any
particular article or section.
13
<PAGE>
14. NUMBER: When the context in which the words are used in
this Agreement indicates that such is the intent, word in singular number
shall include the plural and vice-versa.
15. VALIDITY: If any provision of this Agreement is held to
be invalid, the same shall not affect in any respect whatsoever the validity
of the remainder of this Agreement.
16. AMENDMENTS: This Agreement may be amended only by a
written instrument signed by all parties hereto.
17. ENTIRE AGREEMENT: This Agreement contains the entire
agreement between the parties hereto with respect to the matters covered
hereby, and supersedes all prior and contemporaneous oral and written
arrangements and understandings between the parties with respect to such
matters. No other agreement, statement, or promise made by either party hereto
with respect to the matters covered hereby which is not contained herein shall
be binding or valid.
18. GOVERNING LAW: This Agreement shall be construed in
accordance with the laws of the State of New York without giving effect to the
principles of conflicts of laws thereof.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first written above.
MANAGER: Philips International Holding Corp.
By: /s/ Philip Pilevsky
--------------------------
Name: Philip Pilevsky
Title: President
OWNER: Philips International Realty, L.P.
By: Philips International Realty Corp.,
a general partner
By: /s/ Louis J. Petra
--------------------------
Name: Louis J. Petra
Title: President
Philips International Realty Corp.
By: /s/ Louis J. Petra
--------------------------
Name: Louis J. Petra
Title: President
15
<PAGE>
AMENDED AND RESTATED
NON-COMPETITION AGREEMENT
THIS AMENDED AND RESTATED NON-COMPETITION AGREEMENT (this
"Agreement") is made and entered into as of the 30th day of March, 1998, by
and among Philips International Realty, L.P. (the "Partnership"), Philips
International Realty Corp., a general partner of the Partnership (the
"Corporation" and together with the Partnership, the "Owner"), Philips
International Holding Corp. (the "Managing Company"), Philip Pilevsky, the
Chairman of the Board of Directors and Chief Executive Officer of the
Corporation and the sole member of the managing general partner of the
Partnership ("Mr. Pilevsky"), and Sheila Levine, a director and executive
officer of the Corporation ("Ms. Levine," and together with the Managing
Company and Mr. Pilevsky, the "Managers").
WHEREAS, pursuant to the Amended and Restated Management
Agreement by and between the Managing Company and Owner dated as of the date
hereof (the "Management Agreement"), the Managing Company provides certain
management services to Owner and the properties of Owner (the "Owner's
Properties") and, in such capacity, is engaged in, among other things, the
acquisition, ownership, management, leasing, renovation, development and
redevelopment of commercial real estate in the United States.
WHEREAS, the Managing Company acknowledges that its
engagement by Owner creates a relationship of confidence and trust and it will
obtain confidential information with regard to the business of Owner and its
affiliates and clients;
WHEREAS, the Managing Company acknowledges that, as a result
of its obtaining confidential information as to Owner and its affiliates and
clients, Owner and its affiliates will suffer substantial damage, which would
be difficult to ascertain if the Managing
<PAGE>
Company enters into competition with Owner or any affiliate and that it is
necessary for Owner to be protected by the prohibition against competition and
the confidentiality restrictions set forth herein;
WHEREAS, Mr. Pilevsky and Ms. Levine acknowledge that their
position with the Corporation creates a relationship of confidence and trust
and they will obtain confidential information with regard to the business of
Owner, and its affiliates and clients;
WHEREAS, Mr. Pilevsky and Ms. Levine acknowledge that, as a
result of their obtaining confidential information as to Owner and its
affiliates and clients, Owner and its affiliates will suffer substantial
damage, which would be difficult to ascertain, if Mr. Pilevsky or Ms. Levine
enters into competition with Owner or any affiliate;
WHEREAS, the Managers and Owner entered into that certain
Non-Competition Agreement, dated as of December 31, 1997 (the "Original
Agreement"), which provided for Owner to be protected by the prohibition
against competition and the confidentiality restrictions set forth therein;
and
WHEREAS, the Managers and Owner wish to amend and restate
the terms and provisions of the Original Agreement in its entirety, all upon
the terms and provisions, and subject to the conditions, set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants herein set forth, and for other good and valuable
consideration, the Managers and Owner agree as follows:
1. Non-competition.
1(a) Non-competition. Except as expressly provided
herein, each of the Managers agrees that during the period commencing on
December 31, 1997 and until such time
2
<PAGE>
as (i) one year after such time as the Management Agreement is terminated
and neither Mr. Pilevsky nor Ms. Levine is a director or executive officer of
the Corporation, and (ii) the date on which neither Mr. Pilevsky nor Ms.
Levine beneficially owns more than fifteen (15%) percent of the outstanding
shares of common stock of the Corporation on a fully diluted basis (including
Partnership units redeemable for shares of common stock of the Corporation
(the "Non-Competition Period"), neither Mr. Pilevsky, Ms. Levine, the Managing
Company nor any affiliate of the Managing Company (within the meaning of Rule
12(b)-2 of the Securities Exchange Act of 1934) (an "Affiliate" and together
with Mr. Pilevsky, Ms. Levine and the Managing Company, the "Managing Group")
shall engage in any way, directly or indirectly, in the acquisition,
ownership, operation, development, management, renovation or leasing of any
retail shopping center properties (or mixed properties which are primarily
known as retail shopping center properties based upon the relative square
footage of each use) or any improvements thereof located in the United States,
except for (i) the Managing Company in its capacity as a manager of the
Owner's Properties, (ii) Mr. Pilevsky or Ms. Levine in his or her capacity as
a director, officer or employee of the Managing Company but solely in the
Managing Company's capacity as manager of the Owner's Properties, or (iii) Mr.
Pilevsky or Ms. Levine in his or her capacity as an employee, director,
trustee, officer or equity owner of the Corporation; provided, however, that
this Section 1(a) shall not apply to (i) the activities of the Managing Group
with respect to any property listed in Exhibit A (the "Excluded Properties")
attached hereto; (ii) the expansion of the Excluded Properties which expansion
is contiguous to such property and (a) will not increase the existing gross
leaseable area of the property by more than 20%; or (b) is the result of the
exercise of the fiduciary duty of Mr. Pilevsky or Ms. Levine after discussion
with their partners or members, as the case may be; and (iii) the acquisition,
operation,
3
<PAGE>
development, management or leasing of any retail shopping center property
located anywhere in the Continental United States by the Managing Group
provided that the retail shopping center portion of such property shall not
exceed ten thousand (10,000) square feet. In the event five (5) years from the
date hereof Ms. Levine has ceased being a director and an executive officer of
the Corporation for at least one year and beneficially owns less than five
(5%) percent of the outstanding shares of common stock of the Corporation on a
fully diluted basis (including Partnership units redeemable for shares of
common stock of the Corporation), then notwithstanding anything to the
contrary herein, with respect to Ms. Levine only, this Agreement shall be
deemed terminated and of no further force or effect.
Nothing contained in this Agreement shall in any
way be construed as a restriction or limitation, now or in the future, on the
ability of Mr. Pilevsky's father, Fred Pilevsky, or brother, Allen Pilevsky,
to own, develop, operate or manage retail shopping centers.
1(b) Reasonable and Necessary Restrictions. Each of
the Managers acknowledges that the restrictions, prohibitions and other
provisions of this Section 1 are reasonable, fair and equitable in scope,
terms and duration, are necessary to protect the legitimate business interests
of Owner, and are a material inducement to Owner's engagement of the Managing
Company and the Corporation's retention of Mr. Pilevsky and Ms. Levine.
1(c) Non-Solicitation. Each of the Managers agrees
that during the Non-Competition Period, none of the members of the Managing
Group will directly or indirectly solicit any of Owner's or its affiliates'
non-clerical employees, agents or independent contractors to end their
relationship with Owner or its affiliates.
1(d) Confidential Information. Each of the members
of the Managing Group shall hold in a fiduciary capacity for the benefit of
the Partnership and the Corporation all
4
<PAGE>
trade secrets and confidential information, knowledge or data relating to
Owner and its business and investments, which shall have been obtained by the
Managing Company during its engagement by Owner or Mr. Pilevsky or Ms. Levine
during his or her service as a director or officer of the Corporation, and
which is not generally available public knowledge (other than by acts by
members of the Managing Group in violation or this Agreement). Each member of
the Managing Group shall not, without the prior written consent of the
Partnership or Corporation or as may otherwise be required by law or any legal
process, or as is necessary in connection with any adversarial proceeding
against the Partnership or Corporation (in which case the members of the
Managing Group shall cooperate with the Partnership and/or Corporation, at the
expense of the Partnership and/or Corporation, in the Partnership and/or
Corporation seeking to obtain a protective order against disclosure by a court
of competent jurisdiction), communicate or divulge any such trade secrets,
information, knowledge or data to anyone other than the Partnership and/or
Corporation in furtherance of its or his business or to perform duties
hereunder.
1(e) Removal of Documents. All records, files,
drawings, documents, models, equipment, and the like relating to the business
of the Partnership or Corporation which any member of the Managing Group has
control over shall not be removed from the premises of the Partnership or
Corporation without the written consent of the Partnership or Corporation, as
the case may be, unless such removal is in the furtherance of the business of
the Partnership or Corporation and, if so removed, shall be returned to the
Partnership or Corporation, as the case may be, promptly after termination of
the employment of Mr. Pilevsky or Ms. Levine or engagement of the Managing
Company by the Partnership and/or Corporation, as the case may be, or
otherwise promptly after removal if such removal occurs following termination
of employment or engagement. Rolodexes, telephone directories and similar type
items, and
5
<PAGE>
furniture, art works and property owned by members of the Managing Group or
otherwise not owned by the Partnership or Corporation shall not be deemed
property of the Partnership or Corporation and shall not be covered by this
Section 1(e). The Partnership and/or Corporation shall be the owner of all
trade secrets and other products relating to the Partnership's and/or
Corporation's business developed by members of the Managing Group alone or in
conjunction with others as part of the Managing Company serving as manager for
Owner.
1(f) Specific Performance. Each of the Managers
acknowledges that the Partnership and Corporation will have no adequate remedy
at law if any of the Managers shall fail to perform any of its or his
obligations hereunder, and each of the Managers therefore confirms that the
right of the Partnership and Corporation to specific performance of the terms
of this Section 1 is essential to protect the rights and interests of the
Partnership and Corporation. Accordingly, in addition to any other remedies
that the Partnership and Corporation may have at law or in equity, the
Partnership and Corporation shall have the right to have all obligations,
agreements and other provisions of this Section 1 specifically performed by
the Managers, and the Partnership and Corporation shall have the right to
obtain preliminary injunctive relief to secure specific performance and to
prevent a breach of this Section 1 by the Managers without a requirement to
post any bond.
1(g) If, at the time of enforcement of this Section
1, a court shall hold that the duration, scope, area or other restriction
stated herein is unreasonable, the parties hereto agree that reasonable
maximum duration, scope, area or other restriction may be substituted by such
court for the stated duration, scope, area or other restriction.
2. Miscellaneous.
6
<PAGE>
2(a) Integration; Amendment. This Agreement
supersedes and renders of no force and effect all prior understandings and
agreements with respect to the matters set forth herein. No amendments or
additions to this Agreement shall be binding unless in writing and signed by
all of the parties.
2(b) Assignment. No rights or obligations of the
Partnership or Corporation under this Agreement may be assigned or
transferred, except in connection with a merger, consolidation or sale of all
or substantially all of the assets of the Partnership or Corporation, as the
case may be, where the successor of the Partnership or Corporation, as the
case may be, expressly assumes and agrees to perform this Agreement in the
same manner and to the same extent that the Partnership or Corporation, as the
case may be, would be required to perform it if no such succession had taken
place; provided that the forgoing shall not serve as a release of the
Partnership or Corporation, as the case may be. None of the Managers may
assign this Agreement or any right or interest therein, whether by operation
of law or otherwise, without the prior written consent of the Partnership
and/or Corporation, as the case may be.
2(c) Severability. Whenever possible, each
provision and term of this Agreement shall be interpreted in such manner as to
be effective and valid under applicable law, but if any provision or term of
this Agreement shall be held to be prohibited by or invalid under such
applicable law, then, subject to the provisions of Section 1(g) above, such
provision or term shall be ineffective only to the extent of such prohibition
or invalidity, without invalidating or affecting in any manner whatsoever the
remainder of such provision or term or the remaining provisions or terms of
this Agreement. In addition, in place of such invalid or unenforceable
provision, there shall automatically be added hereto a provision as similar to
such invalid or unenforceable provision as may be possible and still be valid
and enforceable.
7
<PAGE>
2(d) Waivers. The failure or delay of any party at
any time to require performance by any other party of any provision of this
Agreement, even if known, shall not affect the right of such party to require
performance of that provision or to exercise any right, power, or remedy
hereunder, and any waiver by any party of any breach of any provision of this
Agreement shall not be construed as a waiver of any continuing or succeeding
breach of such provision, a waiver of the provision itself, or a waiver of any
right, power or remedy under this Agreement. No notice to or demand on any
party in any case shall, of itself, entitle such party to other or further
notice or demand in similar or the circumstances.
2(e) Burden and Benefit. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective heirs, executors, personal and legal representatives, successors
and, subject to Section 2(b) above, assigns.
2(f) Governing Law; Headings. This Agreement and
its construction, performance, and enforceability shall be governed by, and
construed in accordance with, the laws of the State of New York without regard
to provisions of conflict of laws. Headings and titles herein are included
solely for convenience and shall not affect, or be used in connection with,
the interpretation of this Agreement.
2(g) Notices. All notices called for under this
Agreement shall be in writing and shall be deemed to be sufficient if
contained in a written instrument delivered (i) in person, (ii) by first class
registered or certified mail, postage prepaid and return receipt requested,
(iii) by overnight delivery by a recognized courier service providing a
receipt, or (iv) by facsimile transmission confirmed by transmission report,
addressed to the intended recipient at the address set forth on the signature
page hereof (or at such other address for a party as shall be specified by
like notice). Any notice delivered to the party hereto to whom it is addressed
shall
8
<PAGE>
be deemed to have been given on the day it was received; provided,
however, that if such day is not a business day, then the notice shall be
deemed to have been given and received on the business day next following such
day. If the other party is aware that the intended recipient is not at the
notice location, either permanently or temporarily, notice also shall be sent
to such location as the notifying party becomes aware (after reasonable
inquiry) that the intended recipient is then located.
2(h) Counterparts. This Agreement may be executed
in one or more counterparts, each of which counterparts shall be deemed to be
an original, and all such counterparts shall constitute one and the same
instrument.
2(i) Number and Gender. When the context in which
the words are used in this Agreement indicates that such is the intent, words
in singular number shall include the plural and vice-versa. All terms and
words used in this Agreement, regardless of the sex or gender in which they
are used shall be deemed to include each other sex and gender unless the
context requires otherwise.
9
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement, or caused this Agreement to be duly executed on their behalf, as of
the date first above written.
PHILIPS INTERNATIONAL REALTY CORP.
By: /s/ Louis J. Petra
--------------------------
Name: Louis J. Petra
Title: President
Address: 417 Fifth Avenue
New York, NY 10016
PHILIPS INTERNATIONAL REALTY, L.P.
By: PHILIPS INTERNATIONAL REALTY CORP.
a general partner
By: /s/ Louis J. Petra
--------------------------
Name: Louis J. Petra
Title: President
Address: 417 Fifth Avenue
New York, NY 10016
PHILIPS INTERNATIONAL HOLDING CORP.
By: /s/ Philip Pilevsky
--------------------------
Name: Philip Pilevsky
Title: President
Address: 417 Fifth Avenue
New York, NY 10016
/s/ Philip Pilevsky
--------------------------
Philip Pilevsky, individually
Address: 417 Fifth Avenue
New York, NY 10016
/s/ Sheila Levine
--------------------------
Sheila Levine, individually
Address: 417 Fifth Avenue
New York, NY 10016
10
<PAGE>
PROPERTY ADDRESS: Hialeah, Dade County, Florida
================================================================================
---------------------------------
AMENDED AND RESTATED
MORTGAGE, ASSIGNMENT OF
LEASES, SECURITY
AGREEMENT AND SPREADER AGREEMENT
---------------------------------
Dated: February 14, 1997
================================================================================
PREPARED BY AND
RECORD AND RETURN TO:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attention: Walter F. Schleimer, Esq. (jtb)
- -----------------
NOTE TO RECORDING AUTHORITY: THIS AMENDED AND RESTATED MORTGAGE SECURES A
RENEWAL PROMISSORY NOTE UPON WHICH NO ADDITIONAL DOCUMENTARY STAMP TAXES OR
NONRECURRING INTANGIBLE PERSONAL PROPERTY TAXES ARE PAYABLE AND EVIDENCES A
QUALIFYING RENEWAL UNDER SECTION 201.09, FLORIDA STATUTES, AND SECTION 199.145
(4) (a), FLORIDA STATUTES. ALL DOCUMENTARY STAMP TAXES AND NONRECURRING
INTANGIBLE PERSONAL PROPERTY TAXES HAVE BEEN PAID UPON THE MORTGAGES DESCRIBED
ON SCHEDULE C ATTACHED HERETO AND INCORPORATED HEREIN BY REFERENCE.
<PAGE>
AMENDED AND RESTATED MORTGAGE, ASSIGNMENT OF LEASES,
SECURITY AGREEMENT AND SPREADER AGREEMENT
THIS AMENDED AND RESTATED MORTGAGE, ASSIGNMENT OF LEASES, SECURITY
AGREEMENT AND SPREADER AGREEMENT (this "Mortgage"), is made this 14 day of
February, 1997, by and between PALM SPRINGS MILE ASSOCIATES, LTD., a Florida
limited partnership, having an address at c/o Philips International Holding
Corp., 417 Fifth Avenue, New York, NY 10016 (hereinafter referred to as
"Mortgagor") and AIG LIFE INSURANCE COMPANY, a Delaware corporation and AMERICAN
INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK, a New York corporation, both
having an address at c/o AIG Mortgage Finance Co., Inc., One Chase Manhattan
Plaza, New York, New York 10005 (hereinafter collectively referred to as
"Mortgagee")
WITNESETH
WHEREAS, First Union National Bank of North Carolina, a national banking
association ("Original Mortgagee") and Mortgagor have previously entered into a
Modification and Disbursement Agreement dated as of November 30, 1991 (the "1991
Loan Agreement") pursuant to which Original Mortgagee agreed to modify, renew
and extend certain existing loans to Mortgagor in the aggregate principal amount
of up to $65,852,000 (the "Loans") to finance each of the four (4) components
(the "Components") of the Palm Springs Mile Shopping Center in Hialeah, Florida;
and
WHEREAS, the 1991 Loan Agreement has subsequently been further modified,
renewed and extended pursuant to the terms of: (i) a Modification and
Reaffirmation Agreement dated as of November 30, 1994 among Mortgagor, Philip
Pilevsky, as Guarantor ("Guarantor"), and Original Mortgagee, and various
documents executed in connection therewith; (ii) a Second Modification and
Reaffirmation Agreement dated as of April 30, 1995 among Mortgagor, Guarantor
and Original Mortgagee and various documents executed in connection therewith;
(iii) a Third Modification and Reaffirmation Agreement dated as of January 31,
1996 among Mortgagor, Guarantor and Original Mortgagee and various documents
executed in connection therewith; and (iv) a Fourth Modification and
Reaffirmation Agreement dated as of October 10, 1996 among Mortgagor and
Original Mortgagee, and various documents executed in connection therewith (the
"Fourth Modification" and, together with the 1991 Loan Agreement and all of the
other modification documents referenced above, the "Prior Loan Agreement").
Pursuant to the Prior Loan Agreement, the Loans were evidenced by the
following instruments, each dated January 31,
<PAGE>
1996 and as modified by the Fourth Modification (collectively, the "Prior
Renewal Notes"):
(a) Renewal Note (Component No. 1) from Mortgagor to Original Mortgagee in
the original principal amount of $30,194,727.87;
(b) Renewal Note (Component No. 2) from Mortgagor to Original Mortgagee in
the original principal amount of $16,669,107.16;
(c) Renewal Note (Component No. 3) from Mortgagor to Original Mortgagee in
the original principal amount of $4,583,350.09; and
(d) Renewal Note (Component No. 4) from Mortgagor to Original Mortgagee in
the original principal amount of $14,404,814.58; and
WHEREAS, the Prior Renewal Notes, which superseded all prior notes, were
secured, inter alia, by prior Renewal Mortgage and Security Agreements as more
fully set forth on Schedule C attached hereto and incorporated herein by
reference (the "Prior Renewal Mortgages") on each of the Components, prior
Renewal Lease Assignments (the "Prior Renewal Lease Assignments") on each of the
Components, certain assignments and the guarantee agreement of the Guarantor.
The Prior Loan Agreement, Prior Renewal Notes, Prior Renewal Mortgages, Prior
Lease Assignments and the other documents executed in connection with the Prior
Loan Agreement are hereinafter collectively referred to as the "Prior Loan
Documents"; and
WHEREAS, Mortgagor arranged, with Original Mortgagee's consent, to
refinance the Loans on Component Nos. 1 and 2 with Mortgagee and requested
Original Mortgagee modify, renew and extend its Loans on Component Nos. 3 and 4;
and
WHEREAS, in connection therewith, Mortgagor and Original Mortgagee have
performed the following actions with respect to the Loans:
(i) Consolidated the Prior Renewal Notes, together with an Additional Note
of even date from Mortgagor to Original Mortgagee (the "Additional
Note"), in accordance with the terms of a Consolidated Modified
Renewal Note (the "Consolidated Renewal Note") of even date from
Mortgagor to Original Mortgagee in the principal amount of
$68,650,000;
<PAGE>
(ii) Split the Consolidated Renewal Note into four (4) separate Renewal
Notes (collectively, the "New Renewal Notes") of even date from
Mortgagor to Original Mortgagee, one relating to each Component as
follows: (a) New Renewal Note (Component No. 1) in the principal
amount of $25,300,000, (b) New Renewal Note (Component No. 2) in the
principal amount of $17,100,000, (c) New Renewal Note (Component No.
3) in the principal amount of $8,250,000 and (d) New Renewal Note
(Component No. 4) in the principal amount of $16,500,000;
(iii) Modified and renewed the Prior Renewal Mortgages and the Prior
Renewal Lease Assignments on Component Nos. 1 and 2, respectively,
pursuant to Renewal Mortgages and Security Agreements on Component
Nos. 1 and 2, respectively, each dated February 14, 1997, (unless
otherwise specifically identified hereinafter, collectively referred
to as the "Original Mortgages"), and Renewal Lease Assignments on
Component Nos. 1 and 2, respectively (unless otherwise specifically
identified, hereinafter collectively referred to as the "Original
Lease Assignments"), of even date between Mortgagor and Original
Mortgagee, as security for the Original Notes;
(iv) Modified and renewed the Prior Renewal Mortgages and the Existing
Renewal Lease Assignments on Component Nos. 3 and 4, respectively,
pursuant to Renewal Mortgages and Security Agreements (the "Original
Mortgagee Mortgages") and Renewal Lease Assignments (the "Original
Mortgagee Lease Assignments") as security for the Renewal Notes on
Component Nos. 3 and 4 (such Renewal Notes on Component Nos. 3 and 4
being hereinafter collectively referred to as the "Original Mortgagee
Notes";
(v) Assigned Original Mortgagee's right, title and interest in and to the
New Renewal Notes related to Component Nos. 1 and 2 to Mortgagee (such
New Renewal Notes on Component Nos. 1 and 2 assigned or to be assigned
to Mortgagee being hereinafter collectively referred to as the
"Original Notes") pursuant to that certain Assignment
<PAGE>
of Mortgage Instruments (the "Assignment"); and
(vi) Assigned to Mortgagee, Original Mortgagee's right, title and interest
in and to the Original Mortgages, and the Original Assignments
pursuant to the Assignment; and
WHEREAS, Mortgagee is the owner and holder of the Original Mortgage on
Component No. 1; and
WHEREAS, the Original Mortgage on Component No. 1 secures the Original Note
related to Component No. 1 and encumbers, inter alia, the real property
described in Schedule A-1 attached hereto and made a part hereof (the "Original
Land"); and
WHEREAS, Mortgagor and Mortgagee have agreed to renew the Original Note on
Component No. 1 pursuant to that certain Renewal Promissory Note (the "Renewal
Note") of Mortgagor payable to Mortgagee dated the date hereof in the original
principal amount of Twenty-Five Million Three Hundred Thousand and No/l00
($25,300,000.00) (the "Loan") and to amend and restate the terms and conditions
of the Original Mortgage on Component No. 1 as more particularly described
below.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the Indebtedness, as
hereinafter defined, and all other sums payable under the provisions of this
Mortgage or the Renewal Note, of the execution and delivery by Mortgagor to
Mortgagee of the Renewal Note, and of Mortgagee's acceptance of the Renewal
Note, of the respective representations, covenants and agreements hereinafter
contained, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Mortgagor and Mortgagee hereby agree
as follows, Mortgagee's agreement being evidenced by its acceptance of this
Mortgage:
a. All of the foregoing recitations are true and correct and are hereby
incorporated herein by reference.
b. Under no circumstances shall this Mortgage or any portion hereof
constitute or be deemed to constitute a novation of the Original Mortgage. The
Original Mortgage, as hereby amended and restated, secures the Renewal Note with
the same priority of lien as if this instrument had been executed and recorded
at the same time as the Original Mortgage was executed and recorded.
c. Mortgagor hereby acknowledges, represents and confirms unto Mortgagee
that:
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(i) The Mortgage secures the Renewal Note, and any modifications,
amendments, increases, consolidations, extensions and renewals thereof
(collectively, the "Note") securing the payment of the principal of,
prepayment premium, if any, interest on the Note and all other amounts
and payments due under the Note (and any modifications, extensions and
renewals thereof) and secured by this Mortgage (hereinafter sometimes
collectively called the "Indebtedness"),
(ii) Mortgagor does not now have, nor at any prior time had any defenses
(including, without limitation, the defense of usury), claims,
counterclaims, cross-actions or equities, or rights of rescission,
setoff, abatement or diminution, with respect to the Original Mortgage
as hereby amended and restated, or the Security Documents, as
hereinafter defined, or the enforcement of Mortgagee's rights
thereunder, and Mortgagor further waives and releases any and all such
defenses, claims, counterclaims, cross-actions and equities, and
rights of rescission, setoff, abatement and diminution, with respect
thereto;
(iii) the Security Documents are valid, binding and free from any infirmity
of any nature whatsoever, and are enforceable in accordance with their
respective terms;
(iv) the Original Mortgage as hereby amended and restated constitutes a
valid, binding and enforceable first lien against the Property as
hereinafter defined;
(v) no payments of interest or any other charges have been made to
Original Mortgagee or Mortgagee which would result in excess of the
maximum legal rate of interest permitted under the laws applicable
thereto;
(vi) no waiver or modification of any provision of the Security Documents
shall be valid or enforceable against Mortgagee unless in writing and
signed by a duly authorized representative of Mortgagee; and
(vii) the terms and conditions of the Original Mortgage are amended and
restated in their entirety as follows:
Mortgagor, does hereby irrevocably give, grant, bargain, sell, warrant,
alien, release, remise, release, convey,
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assign, transfer, mortgage, hypothecate, deposit, pledge, set over and confirm
unto Mortgagee, its successors and assigns, in fee simple, all right, title and
interest of Mortgagor now owned, or hereafter acquired, in and to each and all
of the following:
THE fee simple interest in the Original Land and the fee simple interest in
the land as more fully described in Schedule A-2 attached hereto and made a part
hereof (hereinafter the "Additional Land"; the Additional Land together with the
original Land, the "Land");
TOGETHER WITH all right, title and interest of Mortgagor in and to, and
remedies under (a) any and all leases, subleases, license agreements,
concessions, tenancies and other use or occupancy agreements (whether oral or
written), or any part thereof, now or hereafter existing or acquired, covering
or affecting any or all of the property encumbered by this Mortgage, all
extensions and renewals thereof, and all modifications, amendments and
guaranties thereof (each of which is hereinafter referred to as a "Lease" and
collectively referred to as the "Leases"), and (b) any and all rents, income,
receipts, revenues, royalties, issues, profits, contract rights, accounts
receivable, termination payments, payments in lieu of rents or cancellation or
general intangibles growing out of or in connection with the Leases, and other
payments, payable to Mortgagor pursuant to any Lease, including, without
limitation, cash or securities deposited under any Lease to secure performance
by the tenants of their obligations under the Leases, whether such cash or
securities are to be held until the expiration of the term of such Leases or are
to be applied to one or more of the installments of rent coming due immediately
prior to the expiration of such terms (all of which are hereinafter referred to
collectively as the "Rents"), and
TOGETHER WITH any and all rights, alleys, ways, tenements, hereditaments,
easements, passages, waters, water rights, water courses, riparian rights,
liberties, licenses, franchises, privileges, appurtenances and advantages, now
or hereafter to the same belonging or in any way appertaining, as well as any
after-acquired right, title, interest, franchise, license, reversion and
remainder, and
TOGETHER WITH all right, title and interest, including any after-acquired
right, title or reversion, in and to the beds of the ways, streets, avenues and
alleys, open or proposed, located wholly or partially within the boundary of the
Land or adjacent thereto, and
TOGETHER WITH all buildings, structures, surface parking and other
improvements of every kind and description now or hereafter erected or placed on
the Land, all additions, alterations and replacements thereto or thereof, and
all
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<PAGE>
materials now or hereafter acquired by Mortgagor and intended for the operation,
construction, reconstruction, alteration and repair thereof, all of which
materials shall be deemed to be included within the property encumbered by this
Mortgage, immediately upon the delivery thereof to the Land (all of which are
hereinafter referred to collectively as the "Improvements"), and
TOGETHER WITH all of the walks, fences, shrubbery, driveways, fixtures,
machinery, apparatus, equipment, fittings, and other goods of every kind and
description whatsoever, now owned or hereafter acquired by Mortgagor and
attached to or contained in and used for any present or future operation or
management of the Land or the Improvements, including, without limitation, all
lighting, laundry, incinerating and power equipment; all engines, boilers,
machines, motors, furnaces, compressors and transformers; all generating
equipment; all pumps, tanks, ducts, conduits, wires, switches, fans,
switchboards, and other electrical equipment and fixtures; all telephone
equipment; all piping, tubing, plumbing equipment and fixtures; all heating,
refrigeration, air conditioning, cooling, ventilating, sprinkling, water, power
and communications equipment, systems and apparatus; all water coolers and water
heaters; all fire prevention, alarm and extinguishing systems and apparatus; all
cleaning equipment; all lift, elevator and escalator equipment and apparatus;
all partitions, shades, blinds, awnings, screens, screen doors, storm doors,
exterior and interior signs, gas fixtures, stoves, ovens, refrigerators, garbage
disposals and compactors, dishwashers, cabinets, mirrors, mantles, floor
coverings, carpets, rugs, draperies and other furnishings and furniture
installed or to be installed or used or usable in any way in the operation of
any Improvements or appurtenant facilities erected or to be erected in or upon
the Land; and every renewal, replacement or substitution therefor, whether or
not the same are now or hereafter attached to the Land in any manner; all except
for any right, title or interest therein held by any tenant of any or all of the
Land or the Improvements, or by any other person, so long as such tenant or
other person is not a party hereto or bound, with respect to such right, title
or interest, by the provisions hereof (it being agreed and understood by the
parties hereto that all personal property owned by Mortgagor and placed by it on
the Land shall, so far as permitted by law, be deemed to be affixed to the Land,
appropriated to its use, and covered by this Mortgage), and
TOGETHER WITH all of Mortgagor's right, title and interest in and to any
and all easements and appurtenances, including, without limitation, (i) any
drainage ponds or other like drainage area not located on the Land which may be
required for water run-off, (ii) any easements necessary to obtain access from
the Land to such drainage areas, or to any other location to which Mortgagor has
a right to drain water or sewage, (iii) any
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<PAGE>
land required to be maintained as undeveloped land by the zoning rules and
regulations applicable to the property encumbered by this Mortgage, and (iv) any
easements and agreements which are or may be established to allow satisfactory
ingress to, egress from and operation of the Land, and
TOGETHER WITH any and all judgments, awards of damages (including but not
limited to severance and consequential damages), payments, proceeds, settlements
or other compensation heretofore or hereafter made, including interest thereon,
and the right to receive the same, as a result of, in connection with, or in
lieu of (a) any condemnation, either temporarily or permanently, (b) any change
or alteration of the grade or widening of any street or road, and (c) any other
damage, destruction, or injury to, or decrease in value of, the property
encumbered by this Mortgage, or any part thereof, to the extent of all
Indebtedness which may be secured by this Mortgage at the date of receipt by
Mortgagee of any such judgment, award of damages, payment, proceeds, settlement
or other compensation, including interest thereon, and of the reasonable counsel
fees, costs and disbursements, if any, incurred by Mortgagee in connection with
the collection of such judgment, award of damages, payment, proceeds, settlement
or other compensation, including interest thereon, and
TOGETHER WITH any and all payments, proceeds, settlements or other
compensation heretofore or hereafter made, including any interest thereon, and
the right to receive the same, from any and all insurance policies covering the
property encumbered by this Mortgage or any portion thereof, and
TOGETHER WITH all plans and specifications, surveys, reports, diagrams,
drawings, service contracts, accounting records, invoices, change orders,
licenses, authorizations, certificates, variances, amounts, approvals and other
permits necessary or appropriate to permit the construction, reconstruction,
repair or alteration, addition, improvement, use, operation and management of
the property encumbered by this Mortgage, and
TOGETHER WITH all of Mortgagor's cash, bank accounts, notes and other
instruments, documents, accounts, accounts receivable, contract rights, permits,
receipts, sales and promotional literature and forms, advertising materials and
the like, trademarks, names, logos, copyrights and other items of intangible
personal property now or hereafter owned or acquired by Mortgagor relating to
the ownership, operation, development, leasing or management of the property
encumbered by this Mortgage, and
All of the foregoing, including the Land, the Improvements, fixtures,
personal property, tenements,
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<PAGE>
hereditaments, appurtenances and other interests being hereinafter referred to
as the "Property."
TO HAVE AND TO HOLD the Property and any and all other interests described
above unto Mortgagee, its survivors or other successor or successors in trust
and their assigns, in fee simple,
To secure to Mortgagee the prompt payment and performance of Mortgagor's
obligations, including the payment when due of the Indebtedness and Mortgagor's
obligations hereunder, including without limitation (a) the prompt performance
of, observance of and compliance with, by Mortgagor, all of the terms,
covenants, conditions, stipulations and agreements, express or implied,
contained in the Security Documents, and (b) the reimbursement to Mortgagee, and
any purchaser or grantee under any sale made under the provisions of this
Mortgage, of all money which may be advanced as provided herein and all expenses
(including attorneys' fees) incurred or paid by Mortgagee on account of any
litigation which may arise under this Mortgage, the Note or the Property, or in
obtaining possession of the Property as hereinafter provided; and
PROVIDED, HOWEVER, that until the occurrence of a default or an Event of
Default hereunder as more specifically set forth herein, Mortgagor shall have
the right to remain in quiet and peaceful possession of the Property, and to
collect, receive and retain the Rents; and
PROVIDED, FURTHER, that if Mortgagor pays or causes to be paid to Mortgagee
all sums secured by this Mortgage on the dates and in the manner provided in the
Note and in this Mortgage, and observes and performs or causes to be observed
and performed all of the terms and conditions contained in this Mortgage, the
Note, and any of the other Security Documents, then upon proof being given to
the satisfaction of Mortgagee that the Indebtedness has been paid or satisfied
in full according to the terms of the Note, and that all of Mortgagor's
obligations under this Mortgage have been fully satisfied, and upon payment of
all fees, costs, charges and liabilities chargeable to or incurred by Mortgagee
or otherwise provided for in this Mortgage, Mortgagee shall, on receipt of a
written request therefor from Mortgagor, and at Mortgagor's sole expense (a)
release and discharge the lien of this Mortgage and (b) cause this Mortgage to
be cancelled and marked "satisfied" of record.
TO PROTECT THE SECURITY OF THIS MORTGAGE, MORTGAGOR HEREBY COVENANTS,
AGREES AND WARRANTS AS FOLLOWS:
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<PAGE>
Section 1. Definitions; Construction; Representations.
1.1. Definitions. Certain terms used in this Mortgage are defined in this
Section 1.1. When used herein, such terms shall have the meanings given to them
in this Section 1.1, unless specifically provided otherwise or unless the
context clearly indicates otherwise.
1.1.1. "Act of Bankruptcy" means the filing of a petition in bankruptcy
under the Bankruptcy Code, an assignment by Mortgagor for the benefit of
creditors or the commencement of a proceeding by or against Mortgagor, as debtor
under any other applicable law concerning insolvency, reorganization or
bankruptcy.
1.1.2. "Assessment" means all real estate taxes, bonds, assessments,
levies, water charges or rents, ground rents, sewer charges or rents, excise
taxes, benefit charges assessed for water and sewer facilities, public dues,
fines, impositions, and any other taxes or charges levied or assessed by any
Governmental Authority against Mortgagor or upon any or all of the Property,
including, by way of example, but not by way of limitation, all taxes to which
Mortgagor and any other person in which the title to any or all of the Property
may hereafter vest or may now or hereafter be liable under any Legal
Requirements of any Governmental Authority, which under the provisions of such
Legal Requirements may become a lien (including federal tax liens) upon the
Property or be first distributable, allowable or payable, before any amount
evidenced by the Note, out of the proceeds of any judicial foreclosure or any
sale by power of sale of the Property, excluding, however, Mortgagee's income,
franchise or similar taxes.
1.1.3. "Awards" means all awards or payments for direct, consequential or
severance damages, and all other compensation, including settlement proceeds
paid on account of any Condemnation.
1.1.4. "Bankruptcy Code" means the United States Bankruptcy Code, 11 U.S.C.
ss.101 et seq., and all future acts supplemental thereto or amendatory thereof.
1.1.5. "Casualty" means any act or occurrence of any kind or nature,
whether or not insured, which results in damage, loss or destruction to any or
all of the Property or any interest therein.
1.1.6. "Casualty Proceeds" means any insurance proceeds payable on account
of any Casualty.
1.1.7. "Condemnation" means any taking of title, of use, or of any other
property interest for public or private
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use, or an actual or threatened action, under the exercise of the power of
eminent domain by any governmental or quasi-governmental authority affecting any
or all of the Property or any interest therein.
1.1.8. "Default Rate" means the lesser of (i) eighteen (18%) percent per
annum or (ii) the highest rate of interest permitted under the laws of the State
or Commonwealth where the Property is situated.
1.1.9. "Event of Default" means any one or more of the events or
circumstances described in Section 13 of this Mortgage.
1.1.10. "Fiscal Records" means the financial books and records of Mortgagor
prepared in accordance with generally accepted accounting principles applied on
a consistent basis from year to year.
1.1.11. "Governmental Authority" means any federal, state, or local
governmental or quasi-governmental subdivision, authority, agency, commission,
board, person or other instrumentality thereof asserting or exercising
jurisdiction over the Property.
1.1.12. "Legal Requirements" means every federal, state and local statute,
law, ordinance, regulation, rule, order, restriction, or other requirement of
any court or Governmental Authority applicable to or affecting the Property or
the use, condition or occupancy of the Property, whether now or hereafter
enacted or adopted.
1.1.13. "Major Leases" means those leases that have been executed with
Publix, Walgreen's, Toys R' Us, Kids R' Us, Mervyn's, Circuit City, UA Theaters,
Winn Dixie, Eckerds and Uptons.
1.1.14. "Mortgage" means this Mortgage as originally executed between
Mortgagor and Mortgagee, together with any and all modifications, amendments,
extensions, renewals, increases, consolidations or supplements thereto.
1.1.15. "Mortgagee" shall mean "Mortgagee" and any subsequent holder of the
Note.
1.1.16. "Mortgagor" means the person named as the "Mortgagor" in the first
paragraph of this Mortgage, until a successor or assign shall have become such
pursuant to the applicable provisions of this Mortgage, and thereafter
"Mortgagor" shall mean such successor or assign.
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<PAGE>
1.1.17. "Other Loan" means a loan in the sum of up to $17,100,000 made by
Mortgagee to Mortgagor secured by the Property.
1.1.18. "Other Mortgagor Properties" means other real and personal
properties owned by Mortgagor as more particularly set forth on Schedule B
attached hereto and made a part hereof.
1.1.19. "Permitted Encumbrances" means as of any particular time (a) the
instruments and matters affecting title to the Land enumerated in the policy of
title insurance insuring the lien of this Mortgage issued to Mortgagee by
Lawyers Title Insurance Corporation under number N-2775, (b) this Mortgage and
(c) liens for Assessments not delinquent or being contested in good faith by
appropriate proceedings.
1.1.20. "Person" means any natural person, corporation, receiver, trust,
partnership, joint venture, unincorporated organization, association or other
legal or commercial entity.
1.1.21. "Security Documents" means the Note, this Mortgage, any financing
statements, or any other security agreement or instrument evidencing or securing
the lien of this Mortgage upon the Property and any and all documents or
instruments collateral thereto and executed and delivered or hereafter executed
and delivered to secure the Indebtedness or any part thereof, or in connection
therewith, together with all amendments, modifications, extensions, renewals,
supplements and substitutions thereto.
1.2. Construction.
1.2.1. All references made (a) in the neuter, masculine or feminine gender
shall be deemed to have been made in all such genders, (b) in the singular or
plural number shall be deemed to have been made, respectively, in the plural or
singular number as well.
1.2.2. The terms "agree" and "agreements" contained herein are intended to
include and mean "covenant" and "covenants."
1.3. Representations and Warranties by Mortgagor. Mortgagor represents and
warrants to Mortgagee:
1.3.1. Due Organization. Mortgagor is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of Florida and
is licensed or qualified to do business and is in good standing in each
jurisdiction in which the character of the properties owned by it
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<PAGE>
therein or in which the transaction of its business makes such qualification
necessary.
1.3.2. Due Authorization. Mortgagor (a) is in compliance with all Legal
Requirements applicable to it, and (b) has all requisite power and authority and
all necessary licenses and permits to own and operate the Property and to carry
on its business as now being conducted and has the necessary power and authority
to execute and deliver the Security Documents and to incur and perform the
obligations provided for herein and therein, all of which have been duly
authorized by all proper and necessary corporate and partnership action, as
applicable. No consent or approval of limited partners, stockholders or of any
other person or public authority or regulatory body is required as a condition
to the validity or enforceability of this Mortgage or any of the other Security
Documents, or if required the same has been duly obtained.
1.3.3. No Litigation. Except as set forth as Exhibit D of that certain
Certificate of Borrower of even date herewith executed by Mortgagor for the
benefit of Mortgagee, there is no litigation or proceeding pending, or to the
best knowledge of Mortgagor threatened, against or affecting Mortgagor, or its
general partners or the Property in any court, or administrative agency or
before any Governmental Authority or arbitration board or tribunal which involve
the possibility of materially and adversely affecting the Property, business,
prospects, profits or condition (financial or otherwise) of Mortgagor or its
general partners to perform their obligations under the Security Documents which
is not fully covered by insurance, or which, in any way, could adversely affect
the validity or enforceability of the Security Documents.
1.3.4. Security Documents Are Legal and Authorized. (a) The execution and
delivery by Mortgagor of the Security Documents and compliance by Mortgagor with
all of the provisions thereof (i) are within the power of Mortgagor, (ii) will
not conflict with or result in any violation of, breach of any of the provisions
of, or constitute a default under, or result in the creation of any lien, charge
or encumbrance upon the Property, under the provision of, any agreement, charter
document, by-law or other instrument or agreement to which Mortgagor is a party
or by which they or the Property may be bound, or any applicable license,
judgment, decree, or other Legal Requirement applicable to Mortgagor or any of
its activities or the Property, and (iii) have been properly executed and duly
authorized by all necessary corporate and partnership action, as applicable, on
the part of Mortgagor; and (b) the Security Documents are valid and binding
obligations of Mortgagor enforceable against Mortgagor in accordance with their
respective terms.
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<PAGE>
1.3.5. Governmental Consent. Neither Mortgagor, its general partners nor
any of their businesses or the Property, nor any relationship between Mortgagor
and any other person, nor any circumstances in connection with the execution,
delivery and performance by Mortgagor of the Security Documents, is such as to
require the consent, approval or authorization of, or the filing, registration
or qualification with, any Governmental Authority on the part of Mortgagor,
other than those already obtained, made or done.
1.3.6. Title to Property. Mortgagor is the owner of good and marketable fee
simple legal title to and is lawfully seized and possessed of the Property, free
and clear of all liens, encumbrances or restrictions, except for the Permitted
Encumbrances. Mortgagor does hereby warrant and agree to defend the Property and
the title thereto, whether now owned or hereafter acquired, against all claims
and demands by any person claiming by, through or under Mortgagor. The Property
consists of approximately 54.84 acres of land located in Hialeah, Florida.
Mortgagor also represents and warrants that (i) Mortgagor is now, and after
giving effect to this Mortgage will be in, a solvent condition, (ii) the
execution and delivery of this Mortgage by Mortgagor does not constitute a
"fraudulent conveyance" or a "fraudulent transfer" within the meaning of Title
11 of the United States Code as now constituted or under any other applicable
statute, and (iii) no bankruptcy or insolvency proceedings are pending against
Mortgagor or contemplated by Mortgagor.
1.3.7. No Defaults or Restrictions. At the time of the execution and
delivery of this Mortgage, no event has occurred and no condition exists that
constitutes an Event of Default under this Mortgage or the Security Documents or
which, with the lapse of time or with the giving of notice or both, would become
an Event of Default under this Mortgage or the Security Documents. Mortgagor is
not in default with respect to any order of any court, or other Governmental
Authority or in violation in any material respect of any agreement, charter
document, by-law or other instrument to which it is a party or by which it may
be bound.
1.3.8. Compliance with Legal Requirements. Mortgagor is not in violation of
any Legal Requirement to which it is subject and has not failed to obtain any
licenses, permits, franchises or other authorizations of any Governmental
Authority necessary to the ownership of the Property or to the conduct of its
business, the failure of which could have a material adverse effect. The
Property, its operation and use, comply in all material respects with all Legal
Requirements.
1.3.9. Full Disclosure. Neither this Mortgage, nor any Security Document
furnished by Mortgagor in connection
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with the Loan, contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements contained
herein and therein not misleading. There is no fact which Mortgagor has not
disclosed to the Lender in writing which materially and adversely affects the
business, prospects or condition (financial or otherwise) of Mortgagor, or the
operation and use of the Property, or performance under the Security Documents.
1.3.10. Free of Hazardous Materials. (a) All federal, state or local laws,
ordinances, rules, regulations or policies governing the use, storage,
treatment, transportation, manufacture, refinement, handling, production, or
disposal of Hazardous Materials ("Environmental Laws") have been complied with
in all material respects by Mortgagor. For purposes hereof, "Hazardous
Materials" shall mean any flammable substances, explosives, radioactive
materials, hazardous wastes, toxic substances, pollutants, pollution, or related
materials specified as such in, or regulated under, any of the Environmental
Laws including without limitation any "hazardous waste" as defined by the
Resource Conservation and Recovery Act of 1976, as amended from time to time,
and regulations promulgated thereunder and any "hazardous substance" as defined
by the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended from time to time, and regulations promulgated thereunder.
Further, Mortgagor has not, and to the best of their knowledge, no prior owner
or current or prior tenant, subtenant or other occupant of all or any portion of
the Property has used such Hazardous Materials on, from or affecting the
Property in violation of Environmental Laws (or, if any prior owner or tenant
has used Hazardous Materials as aforesaid, any such Hazardous Materials have
been removed or remediated in accordance with Environmental Laws) and, to the
best of their knowledge, except as disclosed in that Phase I Environmental
Report prepared by Professional Services Industries, Inc., dated December 11,
1996, no Hazardous Materials have been disposed of upon the Property in
violation of Environmental Laws.
(b) Mortgagor represents and warrants that to the best of its knowledge,
except as may have been expressly disclosed in writing to Mortgagee, there are
no underground storage tanks located on the Property. Any underground storage
tanks located on the Property shall be properly registered and all tanks, fuel
lines and dispensing equipment shall be maintained in compliance with all
Environmental Laws pertaining to underground storage tanks and dispensing of any
product therefrom.
1.3.11. Asbestos. (a) Except as disclosed in that Phase I Environmental
Report prepared by Professional Services Industries, Inc., dated December 11,
1996, to the best of Borrower's knowledge, the Property does not contain, and
has not in the past contained, any asbestos or asbestos containing
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material in friable form, and (b) there is no current or potential airborne
contamination of the Property by asbestos fiber including, without limitation,
any potential contamination that would be caused by maintenance or tenant finish
activities in the Improvements.
1.3.12. Environmental Indemnification. Mortgagor shall defend and indemnify
Mortgagee and hold Mortgagee harmless from and against all loss, liability,
damage and expense, including reasonable attorneys' fees and disbursements
suffered or incurred by Mortgagee, whether as holder of the Note secured by this
Mortgage, as mortgagee in possession, or as successor-in-interest to Mortgagor
by foreclosure deed or deed in lieu of foreclosure, under or on account of the
Environmental Laws or any similar laws or regulations, including the assertion
of any lien thereunder, (i) with respect to the presence of any Hazardous
Materials or asbestos in violation of Environmental Laws or the threat thereof
affecting the Property, whether or not the same originates or emanates from the
Property or any contiguous real estate including any loss of value of the
Property from the appraised value of the Property as of the date of this
Mortgage as a result of the foregoing so long as no such loss, liability, damage
and expense is attributable to any hazard resulting from actions on the part of
Mortgagee; and (ii) with respect to any other matter affecting the Property
within the jurisdiction of the Environmental Protection Agency, any other
federal agency, or any state or local agency charged with enforcement of
Environmental Laws. Mortgagor's obligations under this Section shall arise upon
the discovery of the presence of any Hazardous Materials or asbestos, whether or
not the Environmental Protection Agency, any other federal agency or any state
or local agency charged with enforcement of Environmental Laws has taken or
threatened any action in connection with the presence of any such Hazardous
Materials or asbestos.
1.3.13. Rights of Mortgagee. Upon the occurrence of any event resulting in
the presence of any Hazardous Materials or asbestos or the threat thereof
affecting the Property in violation, of Environmental Laws, whether or not the
same originates or emanates from the Property or any contiguous real estate, or
if Mortgagor shall fail to comply with any of the requirements of the
Environmental Laws, Mortgagee may, at its election, but without the obligation
to do so, (i) give such notices and/or cause such work to be performed at the
Property or (ii) take any and all other actions, as in each case Mortgagee shall
deem necessary or advisable in order to abate the hazard, remove the Hazardous
Materials or asbestos to cure noncompliance. Any amounts so paid by Mortgagee
pursuant to this Section, together with interest thereon at the Default Rate
from the date of payment by Mortgagee, shall be immediately due and payable by
Mortgagor to Mortgagee and until paid shall be added to and
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become a part of the Indebtedness hereunder and shall be secured by this
Mortgage.
1.3.14. Survival. The provisions of Sections 1.3.12 and 1.3.13 shall
survive the repayment of the Indebtedness, the performance of Mortgagor's
obligations hereunder and the release and discharge of the lien of this Mortgage
and the satisfaction hereof of record.
1.3.15. Parking. There are 3,734 parking spaces located on the Property,
which amount is sufficient to meet all applicable zoning and other Legal
Requirements, and there always will be a sufficient amount of parking spaces to
meet all applicable zoning and other Legal Requirements.
Section 2. Payment of Principal, Prepayment Premium, and Interest.
Mortgagor shall duly and punctually pay or cause to be paid to Mortgagee the
principal of, prepayment premium, if any, and interest on the Note, as and when
the same shall become due and payable in the manner provided in the Note.
Section 3. Payment of Additional Sums. Mortgagor shall duly and punctually
repay or cause to be repaid to Mortgagee according to the terms of this
Mortgage, any additional sums advanced or expended by Mortgagee for Mortgagor's
account, together with interest therein at the Default Rate.
Section 4. Performance of Security Documents. Mortgagor shall observe,
perform and discharge all covenants, conditions and obligations of Mortgagor
contained in the provisions of the Security Documents in accordance with their
respective terms.
Section 5. Insurance. During the term of the Loan, Mortgagor shall obtain
and maintain, without interruption, the insurance coverages stipulated
hereunder.
5.1. Types of Insurance.
5.1.1. Property and Related Insurance. The Property shall be insured for
the benefit of Mortgagee on a Replacement Cost basis, which is the estimate of
the full replacement cost of the Property but in no event for an amount less
than $43,900,000. The policy shall provide that the amount determined to be the
replacement cost shall not be reduced and the release of the insurance proceeds
after a loss shall not be contingent upon the building of the Improvements upon
the Land, and the insured shall not be unreasonably restricted from applying
such proceeds to the building of the Improvements at such other location as the
insured shall elect. Full replacement cost is defined as the cost of replacing
the Improvements, together with appurtenances and betterments, in compliance
with
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the prevailing building codes and the personal property without deduction for
physical depreciation thereof. The policy will also contain an Agreed Amount
Endorsement.
5.1.2. Rent Loss/Business Interruption. Mortgagor shall maintain rent
loss/business interruption insurance sufficient to prevent Mortgagee from being
a coinsurer under the terms of the policy and in an amount equal to twelve (12)
months' projected gross income from the Property less non-continuing expenses.
5.1.3. Builder's Risk. During the period of any construction, repair,
restoration or replacement of the Improvements or Property, Mortgagor shall
obtain and maintain a completed value "All Risk" Builder's extended coverage
policy (non-reporting form) or an equivalent type policy providing substantially
similar coverages in the amount of one hundred percent (100%) of the replacement
cost of the Property.
5.1.4. Liability.
(a) Mortgagor shall obtain and maintain Commercial General Liability
insurance on the broadest forms issued by the respective insurer and consistent
with other properties of like size, type and locality and written on an
"occurrence policy form" against all claims for bodily injury, death, property
damage, including personal injury and contractual liability (deleting any
exclusion restricting coverage for contractual obligations for claims occurring
on, in or about the Property and adjoining premises) in an amount not less than
$5,000,000. If liability coverage for the Property is included under Mortgagor's
blanket policy written on an aggregate form, then the annual aggregate limit of
insurance must not be less than $10,000,000. The policy shall be endorsed to
include Mortgagee as an additional insured subject to the benefits stipulated
under Section 5.3.4 hereof.
(b) During any period of construction, repair, restoration, maintenance or
replacement of Improvements on the Land, or with respect to the space of any
concessionaire, Mortgagor shall (i) cause the general contractor to require its
subcontractors of any tier to provide confirmation of adequate commercial
general liability and completed operations coverage and name Mortgagee and
Mortgagor as additional insured, it being agreed and understood that if a
subcontractor is unable or unwilling to name Mortgagee as an additional insured,
because such practice is not customary, then so long as the general contractor
names Mortgagee as an additional insured under its policies containing adequate
commercial general liability and completed operations coverage, then Mortgagor
shall be deemed to have complied with this subparagraph 5.1.4(b) (i), and (ii)
upon
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demand by Mortgagee, provide evidence satisfactory to Mortgagee that Mortgagor
has complied with this covenant.
5.1.5. Flood Insurance. If at any time all or any part of the Property is
in an area that has been identified by the Federal Insurance Administration as
having special flood and mudslide hazards, and in which the sale of flood
insurance has been made available under the National Flood Insurance Act of
1968, Mortgagor shall purchase and maintain a flood insurance policy
satisfactory to Mortgagee with limits not greater than the maximum amounts
available under the National Flood Program. In the event that the Property is
not in an area having special flood and mudslide hazards, Mortgagor shall
deliver to Mortgagee on or prior to the date hereof and thereafter upon request,
a certificate or letter in a form satisfactory to Mortgagee stating that the
Property is not in such a flood or mudslide hazard area.
5.1.6. Worker's Compensation. During any period of construction, repair,
restoration or replacement of Improvements on the Land, Mortgagor shall (a)
cause the general contractor (including Mortgagor, if Mortgagor acts as a
contractor and/or subcontractor of any tier) to obtain and maintain all such
worker's compensation or similar insurance to the fullest extent required under
the laws of the State or Commonwealth where the Property is situated, which
insurance shall cover all employees of the general contractor of Mortgagor, (b)
cause the general contractor to require its subcontractors of any tier to
provide confirmation that worker's compensation or similar insurance to the
fullest extent required under the laws of the State or Commonwealth where the
Property is situated is maintained for their respective employees, and (c) upon
demand by Mortgagee, provide evidence satisfactory to Mortgagee that Mortgagor
has complied with this covenant.
5.1.7. Other Insurance. In addition to the above, Mortgagor shall also
maintain all insurance required to be maintained by Mortgagor as landlord under
the Leases, if any, and, when and to the extent required by Mortgagee, any other
risks or hazards which now or hereafter are customarily insured against by
persons operating properties of like size and type in the locality of the
Property in such amounts and for such periods as Mortgagee may from time to time
require and approve.
5.2. Blanket Policies. Notwithstanding anything to the contrary contained
in subsections 5.1.2, 5.1.3, 5.1.4, 5.1.6 and 5.1.7, if any of the insurance
required to be maintained by Mortgagor pursuant to such subsections is included
under blanket policies carried by Mortgagor, such policies shall include
warranties of the right to reinstate policy limits of not less than the amount
specified in this Section, if any.
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5.3. Specific Requirements With Respect to Insurance. The following
provisions shall apply with respect to the insurance coverage required by this
Section 5.
5.3.l. Insurance Companies. All insurance required shall be carried with
responsible insurance companies selected by Mortgagor and reasonably approved by
Mortgagee in its reasonable discretion, and may be effected by endorsement of
blanket insurance policies, provided, however, that all policies of insurance
shall be written by companies of recognized standing which are authorized to do
business in the State having a rating of at least A+:VIII in Best's Key Rating
Guide, and provided each such policy shall not have more than a $25,000
deductible for any single casualty, it being agreed and understood that the
policy covering windstorms shall not have more than a deductible for any single
casualty in the amount of the greater of (i) two percent (2%) of the total
insured value or (ii) $300,000.
5.3.2. Evidence of Insurance. Mortgagor shall deliver to Mortgagee,
promptly upon the execution and delivery of this Mortgage and thereafter before
the expiration date of each such policy, original policies (or renewals or
extensions of the insurance afforded thereby) or duplicates thereof, or binders
evidencing such insurance, or endorsed certificates thereof in form and content
satisfactory to Mortgagee including, without limitation, a certification that
the full amount of insurance required hereby will continually be available to
Mortgagee and that the specific coverages requested are not contributory nor
excess over any other valid and collectible insurance, together with receipts
satisfactory to Mortgagee evidencing payment of the current annual or
installment premiums therefor and Mortgagor shall deliver to Mortgagee, at least
thirty (30) days prior to the expiration or cancellation of, or material change
in, any such insurance, additional policies or duplicates thereof, or binders
evidencing the renewal of such insurance, or a certificate thereof accompanied
by a certified copy of such renewal or extension with a receipt evidencing
payment of the current annual or installment premium therefor. All binders,
original policies or certified copies of policies, endorsements, copies of
certificates, and cancellation notices are to be sent to Mortgagee at the
following address: Corporate Risk and Insurance Department, 23rd Floor, 70 Pine
Street, New York, New York 10270.
5.3.3. Mortgagee and Loss Payee Clauses. The property insurance policies as
required under subsections 5.1.1, 5.1.2, 5.1.3, 5.1.4, 5.1.6, 5.1.7 and 5.1.8
shall have attached thereto a standard non-contributing, non-reporting mortgagee
clause in favor of and entitling Mortgagee a first priority to collect directly
from the insurers, the proceeds payable under such insurance as its interest may
appear, and stipulating that this entitlement will in no way be adversely
affected by any act,
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error or omission of Mortgagor which may void any or all coverages provided. The
policies will also contain a standard waiver of subrogation endorsement.
5.3.4. Cancellation. Mortgagor will immediately notify Mortgagee of any
cancellation of or material change in any insurance policy, and each such
insurance policy to be provided hereunder shall contain an agreement by the
insurer that it will not materially modify or cancel such policy except upon at
least thirty (30) calendar days' prior written notice to Mortgagee, and that any
loss otherwise payable thereunder shall be payable notwithstanding any act or
negligence of Mortgagee or Mortgagor which might, absent such agreement, result
in a forfeiture of all or a part of such insurance payment.
5.3.5. Payment of Premiums; Failure of Mortgagor to Effect Insurance.
Mortgagor shall be solely responsible for, and promptly pay when due, any and
all premiums on all such insurance. On each yearly anniversary of the date
hereof or prior to the expiration date of the required insurance, Mortgagor
shall deliver to Mortgagee, a certificate, dated as of such date, to the effect
that there is then in force all such insurance which is then required to be
maintained by Mortgagor. Should Mortgagor fail to effect, maintain or renew any
of the insurance required hereunder in the required amounts, or to pay the
premiums therefor, or to deliver to Mortgagee any evidence of such insurance or
payment therefor as required hereunder, then in any of such events Mortgagee, at
its option, but without obligation so to do, may procure such insurance, and any
sums expended by it to procure any such insurance shall be payable by Mortgagor
with interest, on demand, as provided in Section 12 hereof; however, it is
expressly understood that procurement by Mortgagee of any of such insurance
shall not be deemed to waive or release the default of Mortgagor, or the right
of Mortgagee, at its option, to exercise the remedies hereinafter set forth upon
the occurrence of an Event of Default. Mortgagee shall not be responsible for
obtaining or maintaining any insurance required under the provisions of this
Section 5, and shall not, by reason of accepting, rejecting, approving or
obtaining any such insurance, incur any liability for the existence,
nonexistence, form or legal sufficiency thereof, the solvency of any insurer or
the payment of any losses, and Mortgagor hereby expressly assumes full
responsibility therefor and liability, if any, thereunder.
5.3.6. Sale Under the Mortgage. In the event of a sale of all or any part
of the Property pursuant to the provisions of this Mortgage, or if the title to
any or all of the Property is transferred in extinguishment of the Indebtedness,
Mortgagee shall succeed to all the rights and interest of Mortgagor, including
any right of Mortgagor to unearned premiums, in and to all such policies of
insurance.
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5.3.7. Separate Insurance. Mortgagor shall not take out separate insurance
concurrent in form or contributing in the event of loss with that required
hereunder.
5.3.8. Contravention of Insurance. Mortgagor will not do or permit anything
to be done on or about the Property that will materially and adversely affect,
impair or contravene any policies of insurance that may be carried on the
Property, or any part thereof, or the use thereof, against loss, damage or
destruction by fire, casualty, public liability, or otherwise.
5.3.9. Reinsurance. For all policies for which the insurer has purchased
reinsurance, Mortgagor shall obtain a "cut-through" clause allowing recovery
directly from the reinsurer in the event of the insurer's insolvency or
cessation of insurance operations.
5.4. Notice of Transfer or Casualty. Upon a change in ownership or
occupancy of the Property, Mortgagor shall immediately notify in writing all
insurers of the Property (provided, that nothing herein shall be construed to
permit such change in ownership if otherwise prohibited under the provisions
hereof) and, if a Casualty occurs prior to a change in ownership, Mortgagor will
give immediate written notice to Mortgagee of the Casualty and Mortgagee may,
but is not obligated to, make proof of such Casualty if not made promptly by
Mortgagor.
5.5. Mortgagee's Rights. Mortgagor hereby authorizes Mortgagee, at
Mortgagee's option, to collect, adjust and compromise, and agrees to make
available to Mortgagee within five (5) days of receipt thereof, any Casualty
Proceeds claimed under any insurance Mortgagor is required to maintain under
subsection 5.1 of this Mortgage and, after deducting the costs of such
collection, adjustment and compromise, at Mortgagee's option: (a) to apply the
Casualty Proceeds as a credit towards the Indebtedness in such manner as
Mortgagee deems appropriate, provided that if such proceeds are applied by
Mortgagee to reduce the outstanding principal balance of the Loan, such
application will cause a pro rata reduction in debt service payments to maintain
the interest rate and amortization rate set forth in the Note, or (b) to apply
the Casualty Proceeds to the restoration of the Property (in which event
Mortgagee shall not be obligated to see to the proper application of the
Casualty Proceeds nor shall the amount so released or used be deemed a payment
on the Indebtedness), or (c) to deliver the Casualty Proceeds to the owner of
the Property, without a reduction of the Indebtedness.
Mortgagor shall provide that all policies covering the Property shall be
for the benefit of, and be first payable in case of loss, to Mortgagee except
that if Mortgagor is not in default under the Security Documents, and if no
event has
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occurred which, with the giving of notice or passage of time, or both, would
constitute a default thereunder, and if (i) the insurance proceeds are less than
twenty percent (20%) of the original principal balance of the Loan and the Other
Loan or (ii) the current Major Leases and/or affected leases require the repair
and restoration of the Improvements, such proceeds shall be paid to Mortgagee
and be held in trust and used for the purposes of restoring the Property;
provided, however, that Casualty Proceeds from a casualty in the amount of
$200,000 or less shall be paid directly by the insurer to Mortgagor for purposes
of promptly restoring the Improvements and Mortgagor shall provide evidence to
Mortgagee of such restoration. As additional conditions for the release of any
Casualty Proceeds from Mortgagee to Mortgagor, Mortgagor shall also comply with
the following: (i) the contractor restoring the Property shall be reasonably
acceptable to the Mortgagee and payment of all obligations arising from such
restoration shall be in amounts reasonably acceptable to Mortgagee; (ii) the
final plans and specifications for such restoration shall have been reviewed and
reasonably approved in writing by Mortgagee and all restoration shall be
performed pursuant to such plans and specifications; (iii) Mortgagee shall be
entitled, at the expense of Mortgagor, to consult with architects, engineers and
such other professionals as Mortgagee reasonably deems necessary to determine
the total costs of restoring the Property; (iv) Mortgagee shall have received
evidence that the applicable tenants' leases for the damaged space, or any other
space, have not and will not terminate, (v) if Mortgagee deems necessary,
Mortgagee shall be in receipt of a certificate from an engineer satisfactory to
Mortgagee stating that the Improvements are capable of being repaired or
restored within twelve (12) months after the Casualty; (vi) projected stabilized
net cash flow, as determined by Mortgagee, after completion of the restoration
will be at a level at least equal to the level immediately preceding such
casualty and such net cash flow provides for a sufficient debt coverage ratio of
1.45 to 1 with respect to the Loan and the Other Loan as determined by
Mortgagee; and, (vii) the casualty occurs before the seventy-second (72nd) month
following the disbursement of the Loan or if applicable, due to the extension of
the Loan to the extended Maturity Date, the one hundred eighth (108th) month. To
the extent that the engineer's certificate indicates that the amount of
insurance proceeds will not be sufficient to repair or restore the Property,
Mortgagor shall pay, prior to the disbursement of any insurance proceeds, the
amount of such deficit to Mortgagee to be held in trust. If Mortgagor is unable
to satisfy all of the foregoing conditions, Mortgagee shall determine the
application of any Casualty Proceeds, as set forth in the first paragraph of
this Section 5.5.
Notwithstanding the foregoing, if Mortgagor is unable to satisfy the
foregoing conditions, or if the Property is not
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fully restored within one year of the occurrence of the Casualty, the casualty
proceeds shall be applied towards the reduction of the principal balance of the
Loan or towards repair and restoration, as Mortgagee shall elect in its sole and
absolute discretion. If Mortgagor is in default under the Security Documents or,
of any event has occurred with which, the giving of notice or the passage of
time, or both, would constitute a default, Mortgagee shall have the option of
applying all insurance proceeds to the curing of the default or to the reduction
of the principal balance of the Loan or both.
Section 6. Payment of Assessments; Payments by Mortgagee.
6.1. Payment by Mortgagor.
6.1.1. Mortgagor shall (a) before delinquency, duly pay or discharge, or
cause to be paid or discharged all Assessments; (b) upon demand pay any ad
valorem or excise tax or other public charge (other than any tax in the nature
of an income tax) imposed or levied upon the Security Documents, including any
interest and penalties incurred in connection therewith; and (c) before
delinquency, submit to Mortgagee evidence satisfactory to Mortgagee of the
payment of each Assessment. To better secure this covenant, Mortgagor shall
deposit with Mortgagee, concurrently with the payment of the installments of the
principal of (prepayment premium, if any) and interest on the Note, an amount
equal to one-twelfth of the annual Assessments on the Property, as reasonably
estimated by Mortgagee, and Mortgagee shall hold all such sums. If necessary,
Mortgagee shall make an adjustment according to the actual charge for such
Assessments and, if the deposits made by Mortgagor are insufficient to pay such
charges in full, Mortgagor shall deposit with Mortgagee the amount of such
deficiency before such Assessments become due. Mortgagee shall credit any excess
deposits against the next installments falling due. All deposits shall be
retained by Mortgagee without interest and free of trust except to the extent,
if any, that applicable law shall require otherwise.
6.1.2. Mortgagor shall have the right to contest, in good faith, the
amount, applicability or validity of any Assessment by appropriate judicial or
other proceedings conducted promptly and at Mortgagor's sole expense, provided
(i) Mortgagor shall have first given Mortgagee such security as it may request,
in its good faith judgment, to insure such payment (in the event of a
determination of such contest adversely to Mortgagor) and to secure and
indemnify Mortgagee against any cost, expense, loss or damage in connection with
such contest or such postponement of payment; (ii) Mortgagor shall not postpone
payment if Mortgagee would thereby be subject to potential fine or penalty or
prosecution for a crime, or the Property or any part thereof
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might thereby be condemned, foreclosed upon, sold, forfeited or vacated, or the
value of the Property might thereby, in the good faith judgment of Mortgagee, be
impaired; and (iii) such proceedings shall not relieve Mortgagor of its covenant
hereunder to pay such Assessments at the time and in the manner herein provided,
or to extend the time for such payment, unless such judicial proceedings operate
to prevent or suspend the collection of the Assessments so contested and the
sale of the Property for or on account of the non-payment thereof.
6.2. Tax Service Reports. At the option of Mortgagee, Mortgagor shall
furnish Mortgagee with a tax service contract for the term of the Loan that
shall provide Mortgagee with reports prepared by a tax reporting agency
acceptable to Mortgagee. Mortgagor shall pay all fees and expenses incurred in
connection with annual tax service contracts, and, if Mortgagee elects to
conduct such tax searches itself or through agents it employs for such purpose,
Mortgagor shall promptly reimburse Mortgagee for the fees and expenses incurred
in connection therewith upon written demand by Mortgagee.
6.3. Tax on Indebtedness. The principal and interest accrued on the Note
shall become immediately due and payable ninety (90) days after written notice
to Mortgagor, if, after the date of this Mortgage any Legal Requirement is
enacted or promulgated and becomes effective, (i) changing in any way the laws
for the taxation of mortgages or debts secured by mortgages for federal, state
or local purposes, or the manner of the collection of any such Assessments, so
as to materially adversely affect this Mortgage, or (ii) requiring internal
revenue or other documentary stamps to be purchased for or placed on this
Mortgage or the Note by Mortgagee; provided, however, that Mortgagee's right to
accelerate the payment of the Indebtedness shall be unavailing and the Note and
this Mortgage shall remain in effect as though such Legal Requirement had not
been enacted or promulgated or such decision had not been rendered if,
notwithstanding such Legal Requirement or decision, Mortgagor lawfully pays when
due and payable all such Assessments, including all interest and penalties
accrued thereon, to or for Mortgagee.
6.4. Payment by Mortgagee. Whether or not an Event of Default exists, if,
in Mortgagee's sole judgment, any payment is necessary or desirable to protect
the security interest intended to be created by this Mortgage, Mortgagee is
authorized, in Mortgagor's place, (a) to pay any Assessment, sale, forfeiture,
tax lien, or title or claim thereof made against the Property, and to make such
payment according to any bill, statement or estimate procured from the
appropriate Governmental Authority without inquiring into the accuracy of such
bill, statement or estimate or into the validity of such Assessment, sale,
forfeiture, tax lien, or title or claim thereof; or (b) to make
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any payment necessary to remove any apparent or threatened adverse title, lien,
statement of lien, encumbrance, claim or charge, and to be the sole judge of the
legality or validity thereof; or (c) to pay the expense of any repair or
replacement of any of the Property, and to be the sole judge of its state of
repair and of the necessity for incurring the expense of any such repair or
replacement; or (d) to make any other payment for any other purpose herein and
hereby authorized, but not enumerated in this subsection. Prior to the
occurrence of an Event of Default, Mortgagee shall not take any of the actions
set forth herein until after Mortgagee has given notice to Mortgagor of its
intent to do so.
Section 7. Further Assurances. Within fifteen (15) days after Mortgagee
requests Mortgagor to do so, Mortgagor shall execute, acknowledge, deliver and
cause to be recorded and rerecorded, or filed and refiled, all further
instruments, deeds, financing statements, renewals, continuation statements,
transfers, assignments, or other documents that are necessary, in Mortgagee's
sole opinion, (a) to correct any defect, error or omission which may be
discovered in the contents of any of the Security Documents or in the execution
or acknowledgement thereof, (b) to create, perfect, preserve, continue and
protect the lien and security interest of this Mortgage on the Property, whether
now owned or hereafter acquired by Mortgagor, (c) to secure the rights and
remedies of Mortgagee hereunder or under the provisions of the Note, or (d) to
better assure, assign and confirm to Mortgagee the Leases and Rents. Mortgagor
shall pay to Mortgagee on demand all expenses, charges and taxes reasonably
incurred by Mortgagee in preparing, executing, recording, rerecording, filing or
refiling of any such document. Upon any failure by Mortgagor to do so, Mortgagee
may make, execute and record any and all such instruments, certificates and
documents for and in the name of Mortgagor, and at the sole expense of
Mortgagor, and Mortgagor hereby irrevocably appoints Mortgagee the agent and
attorney-in-fact of Mortgagor to do so, this appointment being coupled with an
interest. Mortgagee may, at its option, advance the expenses incurred in making,
executing and recording any and all such instruments, certificates and
documents, and such sums advanced, with interest, will be repaid to Mortgagee by
Mortgagor as provided in Section 12 hereof.
Section 8. Maintenance and Use of Property.
8.1. Obligations and Prohibitions. Mortgagor shall (a) keep and maintain
the Property in good condition, repair and working order and supplied with all
necessary equipment; (b) effect such repairs of the Property as Mortgagee may
reasonably require; (c) from time to time make all needed and proper
replacements to the Property so that the Property will at all times be in good
condition, fit and proper for the purposes for which it was originally erected
or installed; (d) not permit,
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commit or suffer any waste of the Property; (e) not enter into a lease with (i)
a massage parlor; (ii) an adult book or video store or book or video store
catering to pornographic interests; or (iii) an abortion clinic or planned
parenthood or other family planning or gynecological service having the direct
or indirect result, whether intentional or not, of terminating a pregnancy; (f)
not sell, abandon, assign, lease, transfer, encumber (except for Permitted
Encumbrances) or otherwise dispose of any or all of the Property or any interest
therein, except as otherwise permitted in this Mortgage, without, in each
instance, obtaining Mortgagee's prior written consent thereto; (g) except for
the replacement of fixtures, personal property and non-structural elements of
the Improvements made for the purpose of enhancing the economic viability of the
Property, and by fixtures, personal property and nonstructural elements which
are of at least like quality, not permit the removal, demolition or material
alteration of any Improvement covered by the lien of this Mortgage, without, in
each instance, obtaining Mortgagee's prior written consent to such alteration,
and any such approved alteration shall be and become a part of the Property and
subject to the lien and security interest of this Mortgage unless otherwise
agreed to in writing by Mortgagee; (h) promptly repair, restore, replace or
rebuild any part of the Property now or hereafter subject to the lien of this
Mortgage which may be damaged or destroyed by any Casualty whatsoever or which
may be affected by any Condemnation, provided however, that if Mortgagor is
entitled to a disbursement of Casualty Proceeds or an Award under this Mortgage,
Mortgagor's obligations under this subsection (h) shall be conditional upon the
receipt by Mortgagor of such Casualty Proceeds or Award as and when required
under this Mortgage; (i) obey and comply in all material respects with all Legal
Requirements whether or not any such Legal Requirement shall necessitate
structural changes or improvement to the Property including, but not limited to,
those Legal Requirements relating to the discharge and removal of Hazardous
Materials and shall pay immediately when due the cost of removal of any such
Hazardous Materials; (j) not install or permit the installation of any friable
asbestos or any substance containing asbestos and deemed hazardous by Legal
Requirements respecting such material; (k) observe and comply in all material
respects with all conditions and requirements necessary to preserve and extend
any and all rights, licenses, permits (including, by way of example rather than
of limitation, all zoning variances, special exceptions and non-conforming
uses), privileges, franchises and concessions which are applicable to the
Property or are granted to or contracted for by Mortgagor for any existing or
contemplated use of the Property; (1) obey and carry out every covenant,
agreement, restriction and encumbrance contained in any instrument recorded
among the Land Records in which this Mortgage is recorded or known to Mortgagor,
which may from time to time be in force and apply to or affect the Property or
Mortgagor's interest therein, and not use or permit the use of any or all of
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the Property in contravention thereof; and (m) permit Mortgagee, Mortgagee, and
their agents or employees to enter upon and inspect the Property at any
reasonable time during normal business hours.
8.2. Management of the Property. The Property shall constantly be operated
and managed by Mortgagor, or by a managing agent, approved in writing by
Mortgagee, pursuant to a management agreement, approved in writing by Mortgagee,
which management agreement shall be in form and substance satisfactory to
Mortgagee and its counsel, and shall not be materially modified or amended or
cancelled or terminated without Mortgagee's prior written approval.
Section 9. Transfers, Liens and Encumbrances.
9.1. Liens and Encumbrances. Mortgagor shall not, without, in each
instance, the prior consent of Mortgagee, which consent in any and all
circumstances may be withheld in the sole and absolute discretion of Mortgagee,
create, assume or incur or suffer to be created, assumed or incurred or to exist
(i) any lien, encumbrance or charge against the Property or any interest of
Mortgagor in the Property (except for Permitted Encumbrances), by or pursuant to
any mortgage, security agreement or other instrument, as security for the
repayment of any debt or the performance of any obligation or undertaking by
Mortgagor or any other person; or (ii) any other lien, encumbrance or security
interest. Mortgagor shall keep and maintain the Property free from the claims of
all persons supplying labor or materials in connection with the construction or
reconstruction of any Improvements on the Property, regardless of by whom such
labor or materials may have been contracted.
9.2. Transfers and Encumbrances. No part of the Property nor any interest
of any nature whatsoever therein nor any interest of any nature whatsoever in
Mortgagor, directly or indirectly (whether partnership, stock, equity,
beneficial, profit, loss or otherwise) shall in any manner be encumbered, sold,
transferred, assigned or conveyed, or permitted to be encumbered, sold,
transferred, assigned or conveyed, without the prior consent of Mortgagee, which
consent in any and all circumstances may be withheld in the sole and absolute
discretion of Mortgagee. The provisions of the foregoing sentence of this
Section shall apply to each and every such encumbrance, sale, transfer,
assignment or conveyance, regardless of whether or not Mortgagee has consented
to, or waived by its action or inaction its rights hereunder with respect to,
any such previous encumbrance, sale, transfer, assignment or conveyance, and
irrespective of whether such further encumbrance, sale, transfer, assignment or
conveyance is voluntary, by reason of operation of law or is otherwise made.
Notwithstanding any provision to the contrary contained in this Section, so long
as that no Event of
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Default exists under the Security Documents (or circumstances which, with the
giving of notice or passage of time, or both, would constitute such an Event of
Default), Mortgagor may request that Mortgagee consent to a transfer or
conveyance otherwise prohibited by this Mortgage and Mortgagee shall have the
right (in addition to its absolute right to refuse to consent to such transfer)
to condition its consent upon such conditions as Mortgagee may in its sole and
absolute discretion require including that Mortgagor and it proposed transferee
execute any and all documents and instruments required by Mortgagee. At least
thirty (30) days prior to such a proposed transfer Mortgagor must provide
Mortgagee with all of the material provisions of such transfer, including,
without limitation, the proposed date of transfer, and the name, net worth,
background and address of the proposed transferee. Such notice shall be
accompanied by the payment to Mortgagee of a nonrefundable fee in the amount of
one-percent (1%) of the then outstanding indebtedness (including principal and
interest), in cash or certified check to be retained by Mortgagee in
consideration of Mortgagee's efforts in processing the materials submitted and
in considering the proposed transferee. If the proposed transfer is not accepted
by Mortgagee, the fee less $5,000 will be returned to Mortgagor.
9.3. Further Provisions. Notwithstanding any provision to the contrary
contained in this Section, so long as no default exists under the Security
Documents (or circumstances which, with the giving of notice or passage of time
would constitute a default or Event of Default under the Security Documents),
and provided that either (i) Philips International (as currently owned and
controlled), (ii) Westbild Holdings Ltd. (as currently owned and controlled) or
(iii) another manager approved by Mortgagee in its sole and absolute discretion
manages the Property, any current partner may transfer any or all of its
interest in Mortgagor to: (a) any other current partner(s) of Mortgagor or any
affiliated entity of such partner, which is at least 51% owned by and which is
controlled by such partner (or is at least 51% owned by and under common control
with such partner) or (b) any family member (i.e. children, parents or spouse)
or trust having a family members as the sole beneficiaries, in connection with
estate planning purposes. Mortgagor shall notify Mortgagee in writing of any
such change within thirty (30) days after each such transfer of partnership
interests in Mortgagor, it being agreed and understood that any transfer as
permitted herein shall not release any current partner(s) from its/their
liabilities and obligations under the Security Documents. Moreover,
notwithstanding the foregoing, provided that no default exists under the
Security Documents (or circumstances which with the giving of notice or the
passage of time would constitute a default or an Event of Default under the
Security Documents), the current partners of Mortgagor may transfer, in a
one-time transaction, their interests in Mortgagor to unaffiliated third
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parties provided that (i) at least thirty (30) days prior to the anticipated
transfer, Mortgagor gives notice to Mortgagee of the proposed transfer, together
with all documentation effecting such transfer and all information, financial,
background and otherwise, regarding the proposed transferees and such proposed
documentation and such proposed transferees are reasonably acceptable to
Mortgagee, (ii) Philip Pilevsky or a wholly owned and controlled affiliate of
Philip Pilevsky continues to own at least a 40% interest in Mortgagor and
continues to control the operation of Mortgagor and Sheila Levine, Philip
Pilevsky or a wholly owned and controlled affiliate of Sheila Levine or Philip
Pilevsky continues to own the entire stock of the sole general partner of
Mortgagor, Palm Mile Corp., (iii) either (x) Philips International (as currently
owned and controlled), (y) Westbild Holdings Ltd. (as currently owned and
controlled) or (z) another manager approved by Mortgagee in its sole and
absolute discretion manages the Property, (iv) Mortgagor provides to Mortgagee
such documents, instruments and other items such as title endorsements and legal
opinions, as Mortgagee may reasonably require to permit the transfer, it being
agreed and understood that any transfer as permitted herein shall not release
any current partner(s) from its/their liabilities and obligations under the
Security Documents, and (v) Mortgagor pays all third party fees and expenses
incurred in connection with the transfer, including reasonable attorneys fees
and costs. Moreover, notwithstanding the foregoing, Mortgagee shall consent to a
transfer of the Property to a real estate investment trust or operating
partnership that has a real estate investment trust as its general partner (such
entity, a "REIT"), provided that (i) Philip Pilevsky and his current partners
and/or employees constitute the majority of the members of the governing board
of the REIT as officers and/or directors of the REIT, (ii) that Philip Pilevsky
at the time of transfer has a substantial ownership interest in the REIT, as
determined by Mortgagee, it being agreed that nothing contained in this Section
9 shall restrict the conversion of operating partnership interests in the REIT
to REIT shares, (iii) copies of all documentation effecting the transfer shall
be delivered to Mortgagee for its approval, which shall not be unreasonably
withheld, at least 30 days before the proposed transfer, (iv) all financial and
other information regarding the structure and composition of the REIT is
delivered to Mortgagee in such detail as is reasonably acceptable to Mortgagee
at least 30 days before the proposed transfer and the financial statements of
the REIT indicate a total debt (both secured and unsecured) owing by the REIT as
of the date of the transfer of not greater than 60% of the value of the
properties owned by the REIT as reasonably demonstrated to and/or estimated by
Mortgagee (the "Debt/Value Ratio") and the financial statements are otherwise
acceptable to Mortgagee, (v) that after the transfer of the Property to the
REIT, the REIT shall be bound by the provisions of Section 9(A) and 9(B),
without the benefit of any rights to transfer or encumber the Property otherwise
permitted in Section
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9(C), (vi) Mortgagor provides to Mortgagee an endorsement to the title policy
insuring the lien of the Mortgage, confirming that the lien and the lien
priority of the Mortgage is unaffected by the transfer, and such modifications
to the existing loan documentation and such other items, including a substantive
nonconsolidation opinion, as Mortgagee may reasonably require, (vi) Mortgagor
pays all third party fees and expenses incurred by Mortgagee in connection with
the transfer, including attorneys fees and costs and (vii) Mortgagor pays to
Mortgagee a transfer fee of $100,000.
Section 10. Assignment of Leases and Rents.
10.1. Assignment. As further and additional security for the due
performance and observance of the covenants and conditions to be performed and
observed by Mortgagor under the provisions of the Note and Mortgagor under this
Mortgage, Mortgagor hereby assigns and transfers to Mortgagee (a) all
Mortgagor's right, title and interest in and to all Leases, and (b) the
immediate and continuing right to collect and receive all of the Rents payable
to Mortgagor pursuant to each Lease; provided, that Mortgagor shall have a
license, terminable by Mortgagee upon the occurrence of a default or event which
with the passage of time or notice or both would constitute an Event of Default,
to collect any or all of the Rents when due, to hold them as a trust fund for
the sole benefit of Mortgagee, and before using the Rents for any other purpose,
to apply them to pay in such order and at such times as Mortgagee shall elect
(1) any Assessment having priority over the lien created by this Mortgage, (2)
the premiums for insurance which Mortgagor is obligated to pay pursuant to the
terms of this Mortgage, (3) the principal of (prepayment premium, if any),
interest on the Indebtedness and any other sums then due and secured by this
Mortgage, and (4) any other expense or cost which Mortgagor is obligated to pay
under the terms of this Mortgage. Upon the occurrence of default, which with the
passage of time or notice or both would constitute an Event of Default
hereunder, the license granted to Mortgagor hereunder shall be automatically and
immediately revoked. Upon the revocation of such license, Mortgagee may notify
all tenants under the Leases that Mortgagee will thereafter collect all Rents
directly and not through Mortgagor. The foregoing general assignment of Leases
and Rents shall have priority over any future specific assignment of any of the
Leases and the Rents to any person other than Mortgagee.
10.2. Approval. Mortgagor agrees that it will not enter into any leases
without the prior written consent of Mortgagee, which consent may be withheld in
Mortgagee's sole and absolute discretion. Notwithstanding the foregoing, if a
proposed lease (i) is on a standard form approved by Mortgagee without material
variation therefrom, (ii) is for a term of seven (7) years or less, (iii)
provides for rent in an amount not less
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than $14 per square foot, plus its full pro rata share of estimated common area
maintenance and real estate taxes, (iv) is for an area of less than 14,000
square feet and (v) is with a bona fide tenant that is not an affiliate of
Mortgagor, such lease may be entered into without Lender's prior written
approval. Mortgagor further covenants and agrees to assign and transfer to
Mortgagee any and all future leases upon all or any part of the Property and to
execute and deliver, at the request of Mortgagee, all such further assurances
and assignments with respect thereto as Mortgagee shall from time to time
require.
10.3. Subordination. Mortgagee may require that any or all of the Leases
now or hereafter affecting the Property be made subject, subordinate, junior and
inferior in all respects to the lien of and provisions contained in the
Mortgage. Any agreement to pay leasing commissions (a) shall provide that the
obligation to pay such commissions will not be enforceable against any party
other than the party who entered into such agreement, (b) shall be subordinate
to the Mortgage, and (c) shall not be enforceable against Mortgagee. Mortgagee
shall be furnished with evidence of the foregoing satisfactory to it in form,
scope and substance.
Section 11. Condemnation.
11.1. Right to Contest. Mortgagee may, at its option, in its own name (a)
appear or proceed in any Condemnation proceeding, and (b) make any compromise or
settlement thereof. Mortgagor shall give Mortgagee immediate notice of the
initiation of any Condemnation, and a copy of every paper served in any
Condemnation. Upon request, Mortgagor shall make, execute and deliver to
Mortgagee, free, clear and discharged of any encumbrance of any kind whatsoever,
such further assignments and every other instrument deemed necessary, in
Mortgagee's discretion, validly and sufficiently to assign each such Award to
Mortgagee (including the assignment of any Award from the United States
Government at any time after the allowance of any claim therefor, the
ascertainment of the amount thereof and the issuance of the warrant for payment
thereof) for any permanent or temporary Condemnation.
11.2. Application of Award. Mortgagor hereby agrees that all Awards paid by
reason of a Condemnation, whether the rights to such Award or under such
Condemnation accrued before or after the date of this Mortgage, are hereby
assigned and shall be paid directly to Mortgagee, or if any such Award is
received by Mortgagor, same shall be paid over to Mortgagee within five (5) days
of Mortgagor's receipt thereof, and Mortgagee shall apply the Award as follows,
in the order of priority indicated: (a) to reimburse Mortgagee for all costs and
expenses, including attorneys fees incurred in connection with the collection of
the Award; (b) to the payment of accrued and unpaid interest on the
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Note; (c) to the prepayment of the last maturing installments of unpaid
principal on the Note; (d) to the payment of the balance of the unpaid
Indebtedness; and (e) the balance, if any, of the Award to Mortgagor. If the
Property is sold at any foreclosure proceeding brought under this Mortgage
before Mortgagee's receipt of any such Award, Mortgagee shall have the right to
receive out of such Award the difference between the proceeds derived from such
sale and the amount of the Indebtedness secured hereby and all interest and
other amounts accruing hereunder, whether or not a deficiency judgment on this
Mortgage has been sought, recovered or denied, plus any attorneys' fees, costs
and disbursements incurred by Mortgagee in collecting such Award.
Notwithstanding the foregoing, if Mortgagor is not in default under the
Security Documents and if no event has occurred which, with the giving of notice
or passage of time, or both, would constitute a default thereunder, and if (A)
condemnation proceeds are less than twenty percent (20%) of the original
principal balance of the Loan and the Other Loan or (ii) the current Major
Leases and/or affected leases require the repair and restoration of the
Improvements, such proceeds shall be paid to Mortgagee and be held in trust and
used for the purposes of restoring the Property; provided, however, that
Condemnation Proceeds in the amount of $200,000 or less shall be paid directly
by the condemning authority to Mortgagor for purposes of properly restoring the
Improvements and Mortgagor shall provide evidence of such restoration to
Mortgagee. As a condition for the release of any condemnation proceeds by
Mortgagee to Mortgagor, Mortgagor shall also comply with each of the following:
(i) the contractor restoring the Property shall be reasonably acceptable to
Mortgagee and payment of all obligations arising from such restoration shall be
in amounts reasonably acceptable to Mortgagee; (ii) the final plans and
specifications for such restoration shall have been reviewed and approved in
writing by Mortgagee and all restoration shall be performed pursuant to such
plans and specifications; (iii) Mortgagee shall be entitled, at the expense of
Mortgagor, to consult with architects, engineers and such other professionals as
the Mortgagee deems necessary to determine the total costs of restoring the
Property; (iv) Mortgagee shall be in receipt of a certificate from an engineer
satisfactory to Mortgagee stating that the Improvements are capable of being
repaired or restored within twelve (12) months after the Condemnation; (v)
Mortgagee shall have received evidence that the applicable tenants' leases for
the damaged space, or any other space, have not and will not terminate, (vi)
projected stabilized net cash flow, as determined by Mortgagee, after completion
of the restoration will be at a level at least reasonably equal to the level
immediately preceding such condemnation and such net cash flow provides for a
debt coverage ratio of 1.45 to 1 with respect to the Loan and the Other Loan as
determined by Mortgagee; and (vii) the Condemnation occurs before
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the seventy-second (72nd) month following the disbursement of the Loan.
To the extent that the engineer's certificate indicates that the amount of
Award will not be sufficient to repair or restore the Property, Mortgagor shall
pay, prior to the disbursement of any insurance proceeds, the amount of such
deficit to Mortgagee to be held in trust. If Mortgagor is unable to satisfy all
of the foregoing conditions, or if the Property is not fully restored within one
year, the Award shall be applied towards the reduction of the principal balance
of the Loan or towards repair and restoration, as Mortgagee shall elect in its
sole and absolute discretion. If Mortgagor is in default under the Loan
Documents or, if any event has occurred with which, the giving of notice or the
passage of time, or both, would constitute a default, Mortgagee shall have the
option of applying all condemnation proceeds to the curing of the default or to
the reduction of the principal balance of the Loan or both.
Section 12. Payment of Mortgagee's Costs.
12.1. If Mortgagee incurs or expends any sums, including attorneys' fees,
in any action at law or in equity or in any other proceeding, to sustain the
lien of this Mortgage or its priority, to protect or enforce any of its rights
hereunder, to perform any of Mortgagor's covenants hereunder, or to recover any
of the Indebtedness, all such sums so advanced or paid by Mortgagee, together
with interest thereon at the Default Rate, shall be (a) paid to Mortgagee by
Mortgagor immediately upon its receipt of notice and demand therefor, (b) a lien
upon the Property before any right or title to, interest in, or claim upon the
Property which is subordinate to the lien of this Mortgage, and (c) secured by
this Mortgage and evidenced by the Note. In any action or proceeding to
foreclose this Mortgage or to recover or collect the Indebtedness secured
hereby, the provisions of law respecting the recovery of costs, disbursements
and allowances shall prevail unaffected by this covenant.
12.2. Mortgagor shall save Mortgagee harmless from all expenses
(including, by way of example rather than of limitation, those of attorneys'
fees and disbursements and of any title search, continuation or abstract, or
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 (including, by way of
example rather than of limitation, any bankruptcy, administration or other
proceeding in which proof of claim is by law required to be filed or in which it
becomes necessary to defend or uphold the terms of and the lien created by this
Mortgage), and all money expended by Mortgagee in that regard, together with
interest thereon from date of such payment at the Default Rate, shall constitute
additional Indebtedness
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secured hereby and shall be immediately and without notice due and payable by
Mortgagor to Mortgagee.
Section 13. Events of Default. The occurrence of any one or more of the
following events shall be deemed an "Event of Default" for purposes of the
provisions of this Mortgage and the other Security Documents:
13.1. If Mortgagor fails to pay any installment of the principal of
interest on the Note, or fails to pay any other sum evidenced by the Note or
secured by this Mortgage including, without limitation, prepayment premiums,
real estate taxes and insurance on or before the fifth (5th) day after which the
same becomes due and payable, or if Mortgagor fails to repay the entire
Indebtedness on the Maturity Date, as defined in the Note; or
13.2. If Mortgagor fails to observe or perform any of the terms, covenants
or conditions on Mortgagor's part contained in this Mortgage (except a term,
covenant or condition in whose observation or whose performance is otherwise
specifically dealt with in this Section); and such failure continues for a
period of thirty (30) days from the date of such failure, provided however, if
Mortgagor has commenced in good faith to cure such default during the aforesaid
thirty (30) day period and proceeds with due diligence and continuity to
completion of such cure, Mortgagor shall have a maximum of ninety (90) days to
cure such default; or
13.3. If (a) Mortgagor fails to observe or perform any other term, covenant
or condition contained in any other Security Document, and such failure
continues beyond the permissible grace period, if any, specified in any such
Security Document or (b) an Event of Default occurs under any of the other
Security Documents; or
13.4. If Mortgagor fails to pay or perform any obligation contained in any
other mortgage, deed of trust, security agreement or other instrument that
creates a lien or encumbrance upon the title to the Property, whether superior
to or inferior to the lien of this Mortgage, and such failure continues beyond
the permissible grace period, if any, specified in any such instrument; or
13.5. If any representation or warranty made by Mortgagor in any of the
Security Documents or any statement or representation made by or on behalf of
Mortgagor in any certificate, report or opinion (including legal opinions),
financial statement or other instrument proves to be false or misleading in any
material respect as of the effective date of such representation or warranty; or
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13.6. If an Act of Bankruptcy occurs with respect to Mortgagor and any
petition or proceeding in connection therewith is not dismissed, vacated,
discharged, stayed or denied within ninety (90) days; or
13.7. If Mortgagor shall (a) become generally unable to pay their debts as
they become due, or (b) be dissolved as a result of any adversary suit or
proceeding; or
13.8. If (a) any execution or attachment is levied against any or all of
the Property and such execution or attachment is not set aside, discharged or
stayed within thirty (30) days after it is levied or filed, or (b) an order,
judgment or decree is entered by any court of competent jurisdiction on the
application of a creditor adjudicating Mortgagor bankrupt, appointing a
receiver, trustee or liquidator of Mortgagor of any or all of the Property, or
of all or substantially all of the other assets of Mortgagor and such order,
judgment or decree continues in effect for a period of sixty (60) days or is not
discharged within ten (10) days after the expiration of any stay thereof; or
13.9. If any mechanics' liens are established against the Property and are
not caused to be discharged or fully bonded against by Mortgagor within thirty
(30) days after it receives notice of the establishment thereof, it being agreed
and understood that Mortgagor shall not be required to discharge or bond a
mechanic's lien established against the Property if Mortgagor provided to
Mortgagee alternate assurances to address the mechanic's lien, such as escrows
satisfactory to Mortgagee, it being further agreed and understood that Mortgagor
shall be required to discharge or bond such mechanic's lien if in Mortgagee's
reasonable opinion, judgment is about to be entered on the mechanics lien or the
Property is in danger of being foreclosed;
13.10. If Mortgagor fails to comply with any requirement of any
Governmental Authority having jurisdiction over the Property or Mortgagor within
thirty (30) days after notice in writing of such requirement shall have been
given to Mortgagor by that Governmental Authority or any longer period expressly
permitted by that Governmental Authority; or if any proceeding is commenced or
action taken by that Governmental Authority or a private party to enforce any
remedy for a violation of any Governmental Authority requirement or any
restrictive covenant affecting the Property or any part thereof, and such
violation is not corrected within thirty (30) days after such commencement or
the taking of such actions; or
13.11. If, except as provided in Section 9 of this Mortgage, Mortgagor
sells, transfers, encumbers, leases or otherwise disposes of, or permits the
sale, transfer,
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encumbrance, lease or other disposal of, in any transaction or series of
transactions, all or any portion of the Property without the prior written
consent of Mortgagee, which consent may be withheld in Mortgagee's sole and
absolute discretion; or
13.12. If, except as provided in Section 9 of this Mortgage, Mortgagor,
without obtaining Mortgagee's prior written consent thereto, which consent may
be withheld in Mortgagee's sole and absolute discretion, transfers by merger,
sale, consolidation, assignment, operation of law or otherwise any or all of the
Property or an interest therein, or the persons who are Mortgagor's shareholders
as of the date hereof transfer, assign or hypothecate any stock, partnership or
interest in Mortgagor;
13.13. If any change in any zoning ordinance or any other public
restriction is enacted, limiting or defining the uses which may be made of the
Property or any part thereof, such that Mortgagor's use of the Property as
contemplated on the date hereof would be in violation of such restriction or
zoning change, unless a variance or other zoning ordinance or restriction
permitting the continued use of the Property for such use by Mortgagor and any
subsequent purchasers of the Property is obtained prior to the date such change
becomes binding upon Mortgagor; or
13.14. If Mortgagor pursuant to Florida Statutes 697.04(1)b), as amended
from time to time, files for record a notice limiting the maximum amount which
may be secured by this Mortgage.
13.15. If any breach of the provisions of Section 22.22 of this Mortgage
shall occur.
13.16. If any default after the expiration of applicable grace or cure
periods shall occur under the Other Loan or any documents or instruments now or
hereafter entered into in connection therewith.
Section 14. Mortgagee's Rights Upon Event of Default. If an Event of
Default occurs, then Mortgagee may, without further notice to or demand upon
Mortgagor or any other party having an interest in the Property, and without
regard to the value of the Property held as security for the Indebtedness or the
solvency of any person liable for the payment of such Indebtedness, at
Mortgagee's option and whether or not electing to declare the whole Indebtedness
due and payable, do any or all of the following:
14.1. Declare the entire Indebtedness which is then unpaid, including any
other unpaid sums accruing under the Note, and any other amounts payable under
the provisions of this
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Mortgage or of any other Security Document, to be, and the Indebtedness, and the
Note evidencing the Indebtedness, and all other sums payable hereunder, under
the Note or under any Security Document shall thereupon become, immediately due
and payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived by Mortgagor, and Mortgagor shall
forthwith pay to Mortgagee the entire outstanding Indebtedness and all such
other amounts.
14.2. Terminate the license granted to Mortgagor under the provisions of
Section 10 of this Mortgage and, either personally or by any attorney or agent
without bringing any action or proceeding, or by a receiver (who may be an
officer, employee or agent of, or attorney for Mortgagee) appointed as permitted
in subsection 14.3 hereof, enter upon and take possession of any or all of the
Property. Upon such entry, Mortgagee shall have the right (a) to exclude
Mortgagor, and its agents, officers and employees, wholly from the Property, and
to have, hold, manage, lease, use, operate and control the Property on such
terms and for such periods of time as Mortgagee may deem proper in its sole and
absolute discretion, and (b) to collect and receive all Rents, for which this
Mortgage shall be sufficient authority whether or not any such Lease or sublease
has been assigned to Mortgagee. Upon every such entry, Mortgagee, at the expense
of Mortgagor, may from time to time, without resort to judicial process, (i)
take such steps and expend such sums as Mortgagee deems necessary to preserve
and protect the Property, including without limitation, employment of watchmen
or other protective services, (ii) make all necessary and proper repairs,
renewals, replacements and useful or required alterations and improvements to
the Property as, in Mortgagee's sole and absolute judgment, may be necessary or
desirable. Any disbursement of funds for these purposes shall be deemed a
disbursement pursuant to this Mortgage and secured hereby. In addition, if
Mortgagee disburses any amounts in order to accomplish such purposes, Mortgagor
agrees to reimburse Mortgagee for such amount, together with interest thereon at
the Default Rate. Mortgagee may, in its sole discretion, terminate or change any
action initiated by Mortgagee under this Mortgage, and neither this Mortgage nor
any action taken hereunder shall impose any obligation upon Mortgagee to act or
continue to act on Mortgagor's or Mortgagor's behalf or otherwise to fulfill any
obligation of Mortgagor or Mortgagor.
After deducting the expenses of or incident to managing and operating the
Property, conducting the business thereof, making any repairs, maintenance,
renewals, replacements, alterations and improvements thereto, taking and
retaining possession of the Property, and keeping it properly insured, Mortgagee
may apply the residue of the Rents, if any, to the payment of the following
items, in such order or priority as Mortgagee may determine, any statute, law,
custom, or use to the
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contrary notwithstanding (a) any Assessment which may have priority in lien over
the lien of this Mortgage, (b) premiums for insurance which Mortgagee deems
necessary or desirable, with interest thereon, (c) the interest, prepayment
premium, if any, and principal due and secured by this Mortgage, and (d) all
costs and attorneys' fees and disbursements incurred in connection therewith.
14.3. Mortgagee may apply for the appointment of a receiver of the Property
or the Rents of the Property, without notice except as explicitly required by
law, and shall be entitled to the appointment of the receiver as a matter of
right, without consideration of the value of the Property, the solvency of any
person liable for the payment of the Note, the ability of Mortgagor to manage
the Property or the Rents, or the effect of the receivership on the operation of
the Property or Mortgagor's business thereon.
14.4. Cure any Event of Default without releasing Mortgagor from any
obligations therefore under the Note or Mortgagor from any obligations therefore
under this Mortgage or any other of the Security Documents.
14.5. Commence and maintain one or more actions at law or in equity or by
any other appropriate proceedings (a) to protect and enforce Mortgagee's legal
or equitable rights, whether for the specific performance of any covenant or
agreement contained in this Mortgage or the other Security Documents (which
covenants and agreements, Mortgagor agrees shall be specifically enforceable by
injunctive or other appropriate equitable remedy), or (b) to collect any sum
then due hereunder, or (c) to aid the exercise of any power herein granted, or
(d) to institute proceedings for the complete or partial foreclosure of this
Mortgage, or (e) to sell, by power of sale or otherwise, upon default hereunder,
any or all of the Property, without regard to whether or not any sum secured by
this Mortgage is then due and payable, or (f) to enjoin any acts or things which
may be unlawful or in violation of the rights of Mortgagee.
14.6. Have access to and inspect, examine and make copies of the Fiscal
Records and any and all accounts and similar data of Mortgagor with respect to
the Property.
14.7. In the case of any receivership, insolvency, bankruptcy,
reorganization, arrangements adjustment, composition, seizure of the Property by
any Governmental Authority, or other judicial proceedings affecting the
Mortgagor, any endorser, comaker, surety, or guarantor of the Indebtedness, or
any of their respective properties, the Mortgagee, to the extent permitted by
law, shall be entitled to file such proofs of claim and other documents as may
be necessary or advisable in order to have its claim allowed in such proceedings
for the entire unpaid
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Indebtedness at the date of the institution of such proceedings, and for any
additional amounts which may become due and payable after such date.
Section 15. Foreclosure/Sale.
15.1. If any or all of the Property or any estate or interest therein is to
be sold under the provisions of this Mortgage, by virtue of a judicial sale or
otherwise, such Property or estate or interest therein may at the sole and
absolute discretion of Mortgagee be sold at public auction, as an entirety or in
one or more parcels or in several interests or portions by one sale or by
several sales held at one time or at different times and in any order or manner
with such postponement of any such sale as Mortgagee may deem appropriate and
without regard to any right of Mortgagor or any other person to the marshalling
of assets. Mortgagee shall hold such sale or sales at such time or times and at
such place or places, and shall make sales upon such terms and conditions and
after such previous public notice as required by law and as Mortgagee may deem
appropriate. Mortgagee may bid and become the purchaser at any such sale, and
shall, upon presentation of the Note or a true copy thereof at such sale, be
credited for the unpaid balance due under the Note and any interest accrued and
unpaid thereon, or such portion of such unpaid balance or interest as Mortgagee
may specify, against any price bid by Mortgagee thereat. The terms of sale being
complied with, Mortgagee shall convey to and at the cost of the purchaser at
such sale Mortgagor's interest in so much of the Property as is so sold, free of
and discharged from all estate, right, title or interest of Mortgagor at law or
in equity, such purchaser being hereby discharged from all liability to see to
the application of the purchase money.
15.1.1. Upon any sale of Mortgagor's interest in any or all of the
Property, whether under the assent to a decree or power of sale herein granted,
or by other foreclosure or judicial proceedings, Mortgagee shall apply the
proceeds of such sale, together with any other sum then held as security
hereunder or due under any of the provisions hereof as part of the Property
(after paying all expenses of sale, including reasonable attorneys' fees and
disbursements and a commission to the party making the sale equal to the
commission allowed to trustees for making sales of property under orders or
decrees of a court having competent jurisdiction, and all Assessments which
Mortgagee deems it advisable or expedient to pay and all sums advanced, with
interest thereon, as herein provided) to the payment of the aggregate
Indebtedness then secured hereby and interest thereon to the date of payment,
paying over the surplus, if any, less the expense, if any, of obtaining
possession, to Mortgagor or any person entitled thereto upon the surrender and
delivery to the purchaser of possession of the Property.
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Section 16. Surrender of Possession. During the continuance of any Event of
Default and pending the exercise by Mortgagee of its right to exclude Mortgagor
from all or any part of the Property, Mortgagor agrees to pay the fair and
reasonable rental value for the use and occupancy of the Property or any portion
thereof which are in its possession for such period and, upon default of any
such payment, will vacate and surrender possession of the Property to Mortgagee
or to a receiver, if any, and in default thereof may be evicted by any summary
action or proceeding for the recovery or possession of property for nonpayment
of rent, however designated.
Section 17. Coordinate Liens. Mortgagor and Mortgagee shall, upon their
mutual agreement to do so, execute such documents as may be necessary in order
to effectuate the modification of this Mortgage, including the execution of
substitute mortgages, so as to create two or more liens on the Property in such
amounts as may be mutually agree upon but in no event to exceed, in the
aggregate, the sum of the Indebtedness. In such event, Mortgagor covenants and
agrees to pay the reasonable fees and expenses of Mortgagee and its counsel in
connection with any such modification. Provided, however, Mortgagee shall pay
any intangibles tax or documentary stamps that are incurred as a direct result
of Mortgagee requiring Mortgagor to sever this Mortgage.
Section 18. Fiscal Records. As soon as reasonably possible and in any event
not later than ninety (90) days after the close of Mortgagor's fiscal or
calendar years, Mortgagor shall furnish to Mortgagee a financial statement (to
include balance sheet, profit and loss statement, sources and uses of funds
statements and cash flow projections), in form and detail satisfactory to
Mortgagee, showing the complete results of the operations of its business for
the immediately preceding fiscal or calendar year, certified as true and correct
by an independent certified public accountant (who shall have been approved in
advance by Mortgagee) and prepared after audit in accordance with generally
accepted accounting principles applied on a consistent basis from year to year.
Mortgagor shall also furnish to Mortgagee, at the same time as it furnishes such
financial statement, a statement certified as true and correct by an officer of
the general partner of Mortgagor, in form and detail satisfactory to Mortgagee,
listing the Leases then in effect, the space or unit occupied by each tenant,
the gross income derived from each such tenant, the term of each such Lease and
the security deposit held under such Lease. If any such statement is not
received by Mortgagor within the period hereinabove set forth Mortgagee shall be
entitled to have the same prepared at Mortgagor's expense by a certified public
accountant selected by Mortgagee. Mortgagor shall permit Mortgagee or its
representatives to examine the Fiscal Records and all supporting vouchers and
data at any time during normal business hours, at
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Mortgagor's offices as hereinabove identified or at such other location as the
parties may mutually agree upon, and to make copies therefrom. In addition,
Mortgagor shall promptly provide to Mortgagee from time to time such other
financial information regarding Mortgagor and the Property as Mortgagee shall
reasonably require.
Notwithstanding the foregoing, for so long as title to the Property remains
with Palm Springs Mile Associates, Ltd. and there is no default under the
Security Documents, or any state of facts which, with the passage of time or
giving notice, or both, would constitute a default under the Security Documents
or Mortgagor is otherwise notified by Mortgagee, the financial statements, in
form and substance satisfactory to Mortgagee, need not be audited and may be
certified by the chief financial officer or an authorized general partner of
Mortgagor.
Section 19. Security Agreement. Notwithstanding the agreement and
declaration hereinabove expressed that certain articles of personal property
form a part of the realty covered by this Mortgage and are appropriated to its
use, to the extent that such agreement and declaration may be ineffective and
that any of such articles of personal property may constitute goods, this
Mortgage shall also constitute a "Security Agreement" within the meaning of the
Uniform Commercial Code for the State or Commonwealth where the Property is
located and pursuant thereto, and in order better to secure the repayment of the
Indebtedness and the performance and observation of the obligations intended to
be secured by this Mortgage, Mortgagor does hereby create and grant to
Mortgagee, a security interest in and to such part of the personal property not
deemed or permitted by law to be fixtures, and the proceeds (cash and non-cash)
thereof, including the proceeds of any and all insurance policies in connection
therewith. Mortgagee shall have all of the rights with respect to such personal
property afforded to it as a secured party by the provisions of the applicable
Uniform Commercial Code, in addition to, but not in limitation of, the other
rights afforded Mortgagee by the provisions of this Mortgage. Upon the
occurrence of an Event of Default, Mortgagee is hereby authorized and empowered
to enter upon the Property or other place where the personal property referred
to herein above may be located, without legal process, and to take possession of
the personal property without notice or demand, which hereby are waived to the
maximum extent permitted by the laws of the State of Florida.
Section 20. Estoppel Certificates. Mortgagor shall, within fifteen (15)
days after Mortgagor's receipt of written request to such effect from Mortgagee,
certify to Mortgagee or to any party designated by Mortgagee, by a writing duly
acknowledged, the amount of principal and interest then owing under the Note and
such other matters as may be reasonably requested by Mortgagee.
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Section 21. Notices. All notices, demands or requests required or permitted
by this Mortgage to be given by or to Mortgagor, or Mortgagee (a) shall be in
writing, and (b) until otherwise specified in a written notice by the respective
parties or any of them, shall be sent to the parties at their following
respective addresses:
21.1. If to Mortgagor:
Palm Springs Mile Associates, Ltd.
c/o Philips International Holding Corp.
417 Fifth Avenue
New York, New York 10016
Attention: Ms. Sondra Myer
with a copy to:
Kotite & Kotite LLP
805 Third Avenue
28th Floor
New York, New York 10022
Attention: Edward A. Kotite, Esq.
21.2. If to Mortgagee:
AIG Life Insurance Company and
American International Life Assurance
Company of New York
c/o AIG Mortgage Finance Company, Inc.
One Chase Manhattan Plaza
57th Floor
New York, New York 10005
Attention: Director of Real Estate
Investments
with a copy to:
Battle Fowler LLP
Park Avenue Tower
75 East 55th Street
New York, New York 10022
Attention: Walter F. Schleimer, Esq. (jtb)
Each such notice, demand or request shall be deemed to have been properly served
for all purposes if personally delivered or deposited into the United States
Mail registered or certified mail, and return receipt requested, or by Federal
Express or other similar overnight delivery service, postage prepaid, to its
addressee at its address as set forth hereinabove in this Section. Each such
notice, demand or request so mailed by
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Mortgagor or Mortgagee shall be deemed to have been received by its addressee on
the next business day after the day of mailing.
Section 22. General.
22.1. Amendment. This Mortgage may be amended or supplemented only by a
written agreement executed and, if necessary, acknowledged by the party against
whom enforcement of such amendment or supplement is sought.
22.2. Applicable Law. This Mortgage and the rights and Indebtedness secured
hereby shall, without regard to the place of contract or the place of payment of
any sum paid hereunder, be governed by and construed by application of the laws
of the State or Commonwealth where the Property is situated.
22.3. Covenants to Run With Land. The grants, terms, covenants, provisions
and conditions hereof shall run with the land and shall be binding upon
Mortgagor, its permitted successors and assigns, and any subsequent owner of the
Property, and shall inure to the benefit of Mortgagee and its successors or
assigns.
22.4. Time of Essence. Time shall be of the essence of this Mortgage.
22.5. Headings. The Section and subsection headings herein are for
convenience only and shall not affect the construction hereof.
22.6. Exhibits. Each writing or plat referred to in this Mortgage as being
attached hereto as an exhibit or otherwise designated in this Mortgage as an
exhibit hereto is hereby made a part of this Mortgage.
22.7. Severability. Nothing in the provisions of this Mortgage and no
transaction related hereto shall operate or be construed to require Mortgagor to
make any payment or do any thing contrary to any applicable Legal Requirement.
No determination by any court or Governmental Authority that any provision in
this Mortgage is invalid, illegal or unenforceable in any instance shall affect
the validity, legality or enforceability of (a) any other provision thereof, or
(b) such provision in any circumstance not controlled by such determination.
Each such provision shall be valid and enforceable to the fullest extent allowed
by, and shall be construed wherever possible as being consistent with,
applicable Legal Requirements.
22.8. No Limitation of Rights. No right or remedy conferred in this
Mortgage upon or reserved to Mortgagee is
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intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given under this Mortgage or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy. Should any
right or remedy granted herein be held to be unlawful, Mortgagee shall be
entitled to every other right and remedy provided in this Mortgage or by law or
in equity.
22.9. Waiver. Any failure by Mortgagee to insist upon Mortgagor's strict
performance of any of its obligations hereunder shall not be deemed to be a
waiver of Mortgagee's right to such performance and no waiver, amendment,
release or modification of this Mortgage shall be established by conduct, custom
or course of dealing, but solely by an instrument in writing duly executed by
Mortgagee. Notwithstanding any such failure, Mortgagee shall have the right
thereafter to insist upon Mortgagor's strict performance of any and all of its
obligations hereunder. Neither Mortgagor nor any other person now or hereafter
obligated for the payment of any or all of the Indebtedness secured by this
Mortgage shall be relieved of such obligation by reason of (a) Mortgagee's, or
any other person's failure to comply with any request of Mortgagor or to take
any action to foreclose this Mortgage or otherwise enforce any of the provisions
of the Security Documents, (b) the release, regardless of consideration, of any
or all of the Property, or (c) the agreement or stipulation, by any subsequent
owner of any or all of the Property and Mortgagee, extending the time of payment
or modifying the terms of the Security Documents without the prior written
consent of Mortgagor or such other person, and in the event of any such
agreement or stipulation, Mortgagor and each such other person shall continue to
be liable to make such payments according to the terms of any such agreement of
extension or modification unless expressly released and discharged in writing by
Mortgagee. In case any proceedings taken by Mortgagee on account of any default
shall have been discontinued or abandoned for any reason, or shall have been
determined adversely to Mortgagee then and in every such case, Mortgagee and
Mortgagor shall be restored to their former positions and rights hereunder,
respectively, and all rights, remedies and powers of Mortgagee shall continue as
though no such proceeding has been taken.
22.10. Joint and Several Liability. If there exists more than one
Mortgagor, all liabilities under this Mortgage shall be joint and several with
respect to the mortgagors.
22.11. Waiver of Statutory Rights. Mortgagor shall not and will not apply
for or avail itself of any appraisement, valuation, stay, extension or exemption
laws, or any so-called
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"Moratorium Laws", now existing or hereafter enacted, in order to prevent or
hinder the enforcement or foreclosure of this Mortgage, but hereby waives the
benefit of such laws to the full extent that Mortgagor may do so under
applicable law. Mortgagor hereby waives for itself and all who may claim through
or under it, and to the full extent Mortgagor may do so under applicable law,
any and all rights of redemption from sale under any order or decree of
foreclosure of this Mortgage or granted under any statute now existing or
hereafter enacted.
22.12. Usury Laws. This Mortgage and the Note are subject to the express
condition that at no time shall Mortgagor be obligated or required to pay
interest on the principal balance due under the Note at a rate which could
subject the holder of the Note to either civil or criminal liability as a result
of being in excess of the maximum interest rate which Mortgagor is permitted by
law to contract or agree to pay. If by the terms of this Mortgage or the Note,
Mortgagor is at any time required or obligated to pay interest on the principal
balance due under the Note at a rate in excess of such maximum rate, the rate of
interest under the Note shall be deemed to be immediately reduced to such
maximum rate and the interest payable shall be computed at such maximum rate and
all prior interest payments in excess of such maximum rate shall be applied and
shall be deemed to have been payments in reduction of the principal balance of
the Note.
22.13. Sole Discretion of Mortgagee. Except as may otherwise be expressly
provided to the contrary, wherever pursuant to the Note, this Mortgage, or the
other Security Documents Mortgagee exercises any right given to it to consent or
not consent, or to approve or disapprove, or any arrangement or term is to be
satisfactory to Mortgagee, the decision of Mortgagee to consent or not consent,
or to approve or disapprove or to decide that arrangements or terms are
satisfactory or not satisfactory, shall be in the sole and absolute discretion
of Mortgagee and shall be final and conclusive.
22.14. Reasonableness. If at any time Mortgagor believes that Mortgagee
has not acted reasonably in granting or withholding any approval or consent
under the Note, this Mortgage or the other Security Documents, as to which
approval or consent either Mortgagee has expressly agreed to act reasonably, or
absent such agreement, a court of law having jurisdiction over the subject
matter would require Mortgagee to act reasonably, then Mortgagor's sole remedy
shall be to seek injunctive relief or specific performance and no action for
monetary damages or punitive damages shall in any event or under any
circumstance be maintained by Mortgagor against Mortgagee, to the extent such
equitable relief is available to Mortgagor. Mortgagee agrees that injunctive
relief and specific performance are necessary and appropriate remedies if
Mortgagee has not acted reasonably in the
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circumstances set forth in this Section, to the extent such equitable relief is
available to Mortgagor.
22.15. Authority. Mortgagor (and the undersigned representative of
Mortgagor, if any) has full power, authority and legal right to execute this
Mortgage, and to mortgage, give, grant, bargain, sell, alien, enfeoff, warrant,
assign, confirm and convey the Property pursuant to the terms hereof and to keep
and observe all of the terms of this Mortgage on Mortgagor's part to be
performed.
22.16. Assignability. This Mortgage and the other Security Documents may be
assigned by Mortgagee at any time and from time to time, and shall inure to the
benefit of and be enforceable by Mortgagee and its successors and assigns and
any other person or entity to whom Mortgagee may grant an interest in
Mortgagor's obligations to Mortgagee, and shall be binding and enforceable
against Mortgagor and Mortgagor's successors and assigns. Mortgagor agrees that
all documentation, financial statements, appraisals and other data, or copies
thereof, relevant to Mortgagor or the Property may be exhibited to and retained
by any assignee or prospective assignee of Mortgagee or participant or
prospective participant of Mortgagee. Mortgagor shall cooperate with Mortgagee
to effect any assignment of or participation in the Loan, which cooperation
shall include Mortgagor's agreement, at its own cost and expense, to split the
Note, this Mortgage or the other Security Documents into one or more separate
portions evidenced by one or more notes and secured by one or more mortgages;
provided, however, Mortgagee shall pay any intangibles tax or documentary stamps
that are incurred as a direct result of Mortgagee requiring Mortgagor to sever
this Mortgage.
22.17. Offsets, Counterclaims and Defenses. Any assignee of this Mortgage
and the Note shall take the same free and clear of all offsets, counterclaims or
defenses of any nature whatsoever which Mortgagor may have against any assignee
of this Mortgage and the Note other than such offsets, counterclaims or defenses
of which assignee has actual knowledge, and no such offset, counterclaim or
defense shall be interposed or asserted by Mortgagor in any action or proceeding
brought by any such assignee upon this Mortgage or the Note and any such right
to interpose or assert any such offset, counterclaim or defense in any such
action or proceeding is hereby expressly waived by Mortgagor it being agreed and
understood that Mortgagor may pursue its rights and remedies with respect to
claims against the original mortgagee to the extent permissible under this
Mortgage and the other Security Documents.
22.18. Documentary Stamps. If at any time the United States of America, any
state thereof, or any governmental subdivision of any such state, shall require
revenue or other
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stamps to be affixed to the Note or this Mortgage, Mortgagor will pay for the
same, with interest and penalties thereon, if any.
22.19. Exculpation. Anything contained in any provision of the Note or this
Mortgage to the contrary notwithstanding, if any foreclosure proceeding is
brought under the provisions of this Mortgage or otherwise to enforce the
provisions of the Note or this Mortgage or if Mortgagor is otherwise in default
in performing its obligations under the Note, Mortgagee shall not be entitled to
take any action to enforce any money judgment in personam or any deficiency
decree against Mortgagor or any general or limited partner of Mortgagor, or any
director, officer, shareholder, employee or representative of Mortgagor or any
partner directly or indirectly comprising Mortgagor, it being understood and
agreed by Mortgagee's acceptance of the delivery of the Note that just recourse
hereunder and under this Mortgage shall be limited to the enforcement of the
lien created by this Mortgage and to the collateral and other security held by
Mortgagee; provided, that nothing in the provisions of this Section shall be
deemed to alter or impair the enforceability of the rights and remedies of
Mortgagee under the Note or under any of such provisions of the Mortgage or the
other Security Documents, against the Property, or against any other property
which may from time to time be given to Mortgagee as security for the
performance of Mortgagor's obligations under the Note or under the provisions of
this Mortgage or any other Security Document.
Notwithstanding the foregoing, the provisions of this Section shall be null
and void and of no force and effect and Mortgagor and Philip Pilevsky, shall be
fully liable for, and subject to, judgments and deficiency decrees arising from
and to the extent of any loss suffered by Mortgagee as a result of (a)
Mortgagor, its general partner, its limited partner, or any director, officer,
shareholder, partner, employee, agent or representative of Mortgagor or any
partner directly or indirectly comprising Mortgagor, misapplying any
Condemnation Awards or Casualty Proceeds (as defined in the Mortgage), (b) any
act of fraud or material breach of any material representation or warranty of
Mortgagor, its general partner, its limited partner, or any director, officer,
shareholder, partner, employee or representative of Mortgagor or any partner
directly or indirectly comprising Mortgagor, contained in the Security Documents
or any other agreement, certificate or instrument delivered pursuant to or in
connection therewith, (c) Mortgagor, its general partner, its limited partner,
or any director, officer, shareholder, partner, employee, agent or
representative of Mortgagor or any partner directly or indirectly comprising
Mortgagor, collecting Rents and other payments payable to Mortgagor pursuant to
any Leases in advance or failing to apply the same in the manner and for the
purposes provided in the Security Documents, (d) Mortgagor, its general partner,
its limited partner, or any
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director, officer, shareholder, partner, employee, agent or representative of
Mortgagor or any partner directly or indirectly comprising Mortgagor,
misapplying any security deposits paid by tenants at the Property, (e) except
during any time that Mortgagee or a receiver has taken possession of the
Property, if the gross revenues from the Property when and as collected are
sufficient to pay any portion of the Indebtedness, operating and maintenance
expenses, insurance premiums or other sums required by the Security Documents
next due, and Mortgagor, its general partner, its limited partner or any partner
directly or indirectly comprising Mortgagor, fail to make such payments or
deposits when due, (f) Mortgagor failing to comply with the provisions of
Section 1.3.12. of the Mortgage relating to Hazardous Materials, or failing to
indemnify Mortgagee with respect to any liability arising in connection with
same, as required thereunder, or (g) any diminution in value of the Property or
other collateral or security for the Loan evidenced hereby, arising from the
intentional waste (either actual or permissive, financial or otherwise), or any
waste arising following a default of Mortgagor, its general partner, its limited
partner, or any director, officer, shareholder, partner, employee, agent or
representative of Mortgagor or any partner directly or indirectly comprising
Mortgagor. Further, notwithstanding anything to the contrary set forth in the
Note, this Mortgage or the other Security Documents, nothing contained in the
Note, this Mortgage or the other Security Documents shall be deemed to limit,
vary, modify, qualify or amend any obligation owed to Mortgagee under any
guaranty or indemnification agreement executed and delivered in connection with
the Loan, including, without limitation, the personal recourse obligations of
Mortgagor, its general partner and Philip Pilevsky under the Hazardous Materials
Agreement.
22.20. Future Advances. This Mortgage is given to secure not only existing
indebtedness, but also such future advances, whether such advances are
obligatory or are to be made at the option of Mortgagee, or otherwise, as are
made within twenty (20) years from the date hereof, to the same extent as if
such future advances were made on the date of the execution of this Mortgage.
The total amount of the indebtedness that may be secured hereby may decrease or
increase from time to time, but the total unpaid balance so secured at any one
time shall not exceed $50,600,000 plus interest thereon, and any disbursements
made for the payment of taxes, levies, insurance or the completion of any
improvements on the Property, with interest on such disbursements at the Default
Rate.
22.21. Spreader Agreement. The lien and effect of this Mortgage is hereby
spread so that this Mortgage shall also constitute a valid first lien on the
Additional Land, and the Additional Land shall constitute a part of the "Land"
as defined
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herein. The Note is secured by this Mortgage as spread hereby as a first lien on
the Property. The lien of this Mortgage is paripassu with the lien of that
certain Amended and Restated Mortgage, Assignment of Leases, Security Agreement
and Spreader Agreement dated the date hereof which secures the Other Loan.
22.22. WAIVER OF TRIAL BY JURY. MORTGAGOR HEREBY KNOWINGLY, IRREVOCABLY AND
UNCONDITIONALLY WAIVES, AND MORTGAGEE BY ITS KNOWINGLY AND VOLUNTARY ACCEPTANCE
OF THIS MORTGAGE IRREVOCABLY AND UNCONDITIONALLY WAIVES, ANY AND ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION, SUIT OR COUNTERCLAIM ARISING IN CONNECTION WITH,
OUT OF OR OTHERWISE RELATING TO THE NOTE, THIS MORTGAGE OR OTHER SECURITY
DOCUMENTS.
22.23. Additional Covenants Regarding Other Mortgagor Properties. Mortgagor
represents that Mortgagor owns the Other Mortgagor Properties in addition to the
Property. Unless Mortgagee consents otherwise in writing, which consent shall be
given or denied in the sole and absolute discretion of Mortgagee, Mortgagor
shall cause the debt on the Other Mortgagor Properties to be no greater than 75%
of the value of the Other Mortgagor Properties. Unless otherwise agreed to by
Mortgagee, all debt on the Other Mortgagor Properties shall be conventional
institutional financing, defined as interest only or amortizing debt without any
participation or equity features. The value of the Other Mortgagor Properties
shall be determined by an MAT appraiser reasonably acceptable to Mortgagee. The
determination as to whether the test set forth in this Section as to loan to
value with respect to the Other Mortgagor Properties is met shall be made on
every date that the Other Mortgagor Properties (or either component of the Other
Mortgagor Properties) are refinanced.
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IN WITNESS WHEREOF, Mortgagor has executed this Mortgage the day and year
first above written.
PALM SPRINGS MILE ASSOCIATES, LTD, a
Florida limited partnership
By: Palm Mile Corp., a New York
corporation, its general partner
By: /s/ SONDRA MYER
------------------------
Name: Sondra Myer
Title VP
Witnesses:
/s/ KIMBERLY A. GRISSO
- -------------------------------
Print Name: Kimberly A. Grisso
/s/ SEAN JEFFRIES
- -------------------------------
Print Name: Sean Jeffries
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STATE OF NEW YORK )
) SS:
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 13th day of
February, 1997, by Sondra Myer, as Vice President of Palm Mile Corp., a New York
corporation, on behalf of PALM SPRINGS MILE ASSOCIATES, LTD., a Florida limited
partnership, on behalf of the limited partnership who is personally known to me
or who has produced a drivers license as identification.
/s/ MELISSA B. BUTCHEN
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NOTARY PUBLIC
Print Name:
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Serial No.:
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My Commission Expires:
MELISSA B. BUTCHEN
Notary Public State of New York
No.01BU5043995
Qualified in Nassau County
Commission Expires May 22, 1997
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RENEWAL PROMISSORY NOTE
$25,300,000 Dade County, Florida
February 14, 1997
FOR VALUE RECEIVED, PALM SPRINGS MILE ASSOCIATES, LTD., a Florida limited
partnership (hereinafter referred to as "Maker"), hereby promises to pay to AIG
LIFE INSURANCE COMPANY, a Delaware corporation and AMERICAN INTERNATIONAL LIFE
ASSURANCE COMPANY OF NEW YORK, a New York corporation (hereinafter collectively
referred to as "Payee"), or order, the principal sum of TWENTY-FIVE MILLION
THREE HUNDRED THOUSAND AND 00/100 DOLLARS ($25,300,000), together with interest
thereon from and including the date of this Note to and including the date this
Note is paid in full calculated in the manner hereinafter set forth.
1. Definitions. The following terms as used in this Note shall have the
following meanings:
(i) The term "Business Day" means a day other than a Saturday, Sunday
or bank holiday in the State of New York and observed as such by Payee.
(ii) The term "Default Rate" shall mean the lesser of (i) eighteen
(18%) percent per annum or (ii) the highest rate of interest permitted
under the laws of the State of Florida.
(iii) The term "Interest Rate" shall mean the rate of 7.83% per annum.
The Interest Rate shall be calculated on the basis of a 360 day year and a
30 day month, except that interest payable on the first day of the first
calendar month following the date hereof shall be based on the actual days
elapsed from and including the date hereof, to, but not including, the
first day of the first calendar month following the date hereof.
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THIS NOTE RENEWS AND RESTATES IN FULL, AS PROVIDED HEREIN, THAT CERTAIN RENEWAL
NOTE (COMPONENT NO. 1) DATED THE DATE HEREOF, IN THE PRINCIPAL SUM OF
$25,300,000.00 GIVEN BY MAKER TO PAYEE, UPON WHICH NO ADDITIONAL DOCUMENTARY
STAMP TAXES OR NONRECURRING INTANGIBLE PERSONAL PROPERTY TAXES ARE PAYABLE AND
EVIDENCES A QUALIFYING RENEWAL UNDER SECTION 201.09, FLORIDA STATUTES, AND
SECTION 199.145(4) (A), FLORIDA STATUTES. ALL DOCUMENTARY STAMP TAXES AND
NONRECURRING INTANGIBLE PERSONAL PROPERTY TAXES HAVE BEEN PAID UPON THE
MORTGAGES DESCRIBED ON EXHIBIT A ATTACHED HERETO AND INCORPORATED HEREIN BY
REFERENCE.
<PAGE>
(iv) The term "Loan" shall mean the loan in the principal sum of
$25,300,000 made by Payee to Maker, which Loan is evidenced by this Note
and is secured by the Mortgage and the Other Loan Documents.
(v) The term "Maturity Date" shall mean February 1, 2004.
(vi) The term "Mortgage" shall mean a certain Amended and Restated
Mortgage, Assignment of Leases, Security Agreement and Spreader Agreement
dated the date hereof given by Maker to Payee covering the fee estate of
Maker in the Property and intended to be duly recorded in the Public
Records of Dade County, Florida.
(vii) The term "Property" shall mean certain real and personal
property located in Hialeah, Dade County, Florida, as more particularly
described in the Mortgage.
(viii) The term "Other Loan Documents" shall mean all and any of the
documents other than this Note and the Mortgage now or hereafter executed
by Maker, or any of its partners, or others, and by or in favor of Payee,
which are now or hereafter entered into in connection with this Note.
(ix) The term "Other Loan" shall mean a loan in the sum of up to
$17,100,000 made by Payee to Maker secured by the Property.
(x) The term "Principal Balance" shall mean the outstanding principal
balance of this Note from time to time.
2. Interest Rate; Payments. Subject to the terms and provisions of this
Note hereinafter set forth, interest on the Principal Balance shall accrue at
the Interest Rate. Interest on the Principal Balance from and including the date
hereof through and including the last day of this month shall be paid on the
first day of the first calendar month following the date hereof. Equal
consecutive installments of interest and a portion of the Principal Balance
owing under this Note in an aggregate amount equal to ONE HUNDRED NINETY-TWO
THOUSAND FOUR HUNDRED TWENTY-NINE 00/100 DOLLARS ($192,429) (the "Installment
Amount") each shall be due and payable on the first day of the second calendar
month following the date hereof and on the first day of each calendar month
thereafter to and including the Maturity Date (each such day an "Installment Due
Date"). Subject to Section 6 of this Note, each installment of interest and a
portion of the Principal Balance owing under this Note shall be applied first to
the payment in full of interest accrued and unpaid on the Principal Balance
calculated in the manner herein set forth and then in reduction of the Principal
Balance.
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<PAGE>
3. Maturity. This Note shall mature and the entire unpaid Principal
Balance, all accrued and unpaid interest thereon and all other sums evidenced by
this Note shall be due and payable on the Maturity Date (if not paid earlier or
accelerated by reason of a default).
4. Method of Payment. The Principal Balance, accrued interest and all other
sums evidenced by this Note are payable in lawful money of the United States
which is legal tender for the payment of all debts and dues, public and private,
at the time of payment.
5. Manner of Payment. Maker shall make all payments of the Principal
Balance, accrued interest or other sums payable on this Note either (i) during
regular business hours at the office of Payee at One Chase Manhattan Plaza, 57th
Floor, New York, New York 10005 or at such other place as Payee may from time to
time designate in writing, or (ii) by wire transfer in immediately available
funds, as directed and set forth by Payee from time to time, provided, however,
that any payment of principal, interest or other sums payable on this Note
received by Payee at such office or such other place, or deposited into Payee's
account by wire transfer, as applicable, after eleven o'clock a.m. on any day
shall be deemed to have been received by Payee on the next Business Day
thereafter. Any payment tendered other than in coin or currency as set forth
above shall be accepted by Payee subject to collection.
6. Application of Payments. All payments made hereunder shall be applied
first to late penalties or other sums owing Payee, next to accrued interest, and
then to the Principal Balance, or during the continuance of any default under
this Note, the Mortgage or the Other Loan Documents in such other order or
proportion as Payee, in its sole discretion, may determine.
7. Default Interest Rate; Late Payments.
(a) If any payment due hereunder is not paid on or before the fifth (5th)
day after the date on which the same is due and payable, such payment shall
continue as an obligation of Maker, with interest thereon from the due date of
such payment until paid in full at the Default Rate. From and after the earlier
to occur of the Maturity Date of this Note or the date the indebtedness owing
under this Note is accelerated by Payee, the entire unpaid Principal Balance and
all unpaid interest accrued thereon and all other sums evidenced by this Note
shall bear interest at the Default Rate.
(b) In addition, Maker shall pay (a) a late charge in an amount equal to
five percent (5%) of any sum which is not paid on or before the fifth (5th) day
after the date on which the same
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<PAGE>
is due and payable, and (b) all costs of collection, including reasonable
attorneys' fees and disbursements if this Note is referred to an attorney after
the occurrence of a default.
8. Waivers. Maker hereby waives all applicable exemption rights, whether
under any state constitution, homestead laws or otherwise, valuation and
appraisement, presentment of this Note for payment, protest and demand, dishonor
and notice of protest, demand or dishonor and nonpayment under this Note, and
agrees that, without giving notice to or obtaining the consent of Maker or any
other person, Payee may extend the time of payment, release any party liable for
any obligation hereunder, release any of the security for this Note, accept
other security therefor, and otherwise modify the terms of payment of any or all
of the debt evidenced by this Note, with or without having been requested to do
so by any other person liable hereon, and such consent shall not alter nor
diminish the liability of Maker or any other person hereunder, except if and to
the extent that Payee may otherwise agree with, respectively, Maker or such
other person, expressly and in writing.
9. Prepayment.
(a) Maker is granted the privilege to prepay this Note in whole but not in
part at any time during the period commencing on March 1, 1998 ending on
February 1, 2004 (or the extended Maturity Date as provided in Section 30 of
this Note), upon at least fifteen (15) days' prior irrevocable written notice to
Payee. Any prepayment shall be made only on an Installment Due Date and shall be
at a prepayment price equal to the then outstanding Principal Balance, together
with unpaid interest thereon accrued to the date fixed for prepayment, plus any
other sums then due and payable to Payee and accompanied by a prepayment fee
equal (i) to the amount prepaid multiplied by (ii) the difference in yield
between the outstanding Principal Balance of the Loan at the then current
Interest Rate and a Treasury Note in the amount of the prepayment proceeds with
a term equal to the remaining term of the Loan, or if no Treasury Note of equal
term is available, based upon an interpolation of the yield of Treasury Notes
having the next longer and the next shorter term multiplied by (iii) the number
of days remaining through the Maturity Date, divided by 360. Such method of
computation as aforesaid is hereinafter referred to as the "Treasury Note
Yield." If prepayment is made pursuant to this Section 9, then the remaining
term of the Loan shall be the length of time between the prepayment date and the
Maturity Date. The calculation of the Treasury Note Yield will be determined by
reference to the yield quoted in the Federal Reserve Weekly Release H15 (or its
successor or replacement publication if said Weekly Release H15 is no longer
issued or published at such time) for the date that is two weeks prior to the
prepayment date.
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<PAGE>
(b) Notwithstanding the provisions of Section 9(a) above, if the
acceleration of the indebtedness owing under this Note after the occurrence of
an Event of Default (as such term is defined in the Mortgage) occurs at any time
from the date hereof to but not including March 1, 1998, a tender of payment of
all or part of the outstanding Principal Balance shall constitute an evasion of
the prepayment terms under this Note and shall be deemed to be a voluntary
prepayment under this Note, and such prepayment, to the extent permitted by law,
shall include a prepayment premium in an amount equal to one (1%) percent of the
then outstanding Principal Balance plus the Treasury Note Yield. Any prepayment
occurring from and after March 1, 1998 after the occurrence of an Event of
Default shall be accompanied by a tender of the applicable prepayment premium
specified in Section 9(a) above. Upon an acceleration or other exercise of
remedies by Payee under the Mortgage after the occurrence of an Event of
Default, the Indebtedness evidenced by this Note shall include the prepayment
premium that would have been payable if Maker had tendered the sums set forth in
this Note.
(c) The prepayment fee set forth in Sections 9(a) and 9(b) shall be due and
payable whether such prepayment is voluntary or involuntary, including but not
limited to prepayment resulting from a default and the acceleration of the
indebtedness, or any tender of payment by or on behalf of Maker of an amount
necessary to satisfy all of the indebtedness and Maker's obligations hereunder
or the obligations under the Mortgage made at any time before or at any
foreclosure sale or sale pursuant to the power of sale contained in the
Mortgage.
(d) Notwithstanding the provisions of Sections 9 (a), 9(b) and 9(c) above,
no prepayment premium shall be due to the extent Payee applies the proceeds from
a Condemnation or Casualty (both as defined in the Mortgage) to repayment of
this Note in accordance with the provisions of the Mortgage. Such payments shall
be applied in accordance with Sections 5.5 and 11 of the Mortgage.
(e) Notwithstanding the foregoing, Maker may prepay the Loan in full, but
not in part, without a prepayment premium, at any time within ninety (90) days
preceding the Maturity Date, upon at least fifteen (15) days' prior written
notice thereof to Payee.
(f) All payments hereunder shall be applied first to late charges and other
fees, costs and charges, if any, next to accrued and unpaid interest, and the
remainder against the Principal Balance.
(g) Except as expressly set forth in this Section 9, Maker will not be
entitled to prepay this Note in full or in part.
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<PAGE>
(h) Notwithstanding the foregoing, Maker may not prepay the Loan without
also prepaying the Other Loan.
10. Payment of Costs. If, after any default hereunder, under the Mortgage
or under the Other Loan Documents, any suit or action is instituted to collect
any or all of the Principal Balance, any interest accrued thereon or any other
sums due under the provisions of this Note, or if this Note is placed in the
hands of an attorney for collection, or if any other action is taken by Payee
with the desire to or in an attempt to collect the sums owing under this Note,
the Mortgage or the Other Loan Documents or otherwise pursuing rights and
remedies available under this Note, the Mortgage or other Loan Documents,
including, without limitation, conversations or written correspondence with
Maker, Maker hereby agrees to pay all costs thereby incurred by Payee, including
that of reasonable attorneys' fees and disbursements, all of which shall be
added to and become part of the debt evidenced hereby.
11. Security. This Note is given to evidence a loan in the amount of
$25,300,000 made to Maker by Payee (Maker's receipt of which from Payee is
hereby acknowledged), and is secured by the Mortgage. This Note renews and
restates that certain Renewal Note (Component No. 1) of even date from Maker to
First Union National Bank of North Carolina, a national banking association
("FUNB"), said Renewal Note (Component No. 1) having been assigned and endorsed
by FUNB to Payee pursuant to that certain Allonge to Renewal Note (Component No.
1) of even date and that certain Assignment of Mortgage Instruments of even
date. The Mortgage contains a more particular description of the real and
personal property, equipment and fixtures covered by the Mortgage, provisions
for the acceleration of indebtedness evidenced by this Note upon the occurrence
of an Event of Default and provisions setting forth the rights of Payee in
respect of such security and certain other rights and remedies, all of which are
incorporated in this Note by reference to the same extent and with the same
force and effect as if they were fully set forth herein.
12. Acceleration. Upon the occurrence of any default under this Note or
Event of Default under the Mortgage, the Principal Balance, together with all
unpaid interest accrued thereon and all other sums evidenced hereby or secured
by the Mortgage, shall at Payee's option become immediately due and payable.
13. Applicable Law. This Note shall be construed, interpreted and enforced
in accordance with the laws of the State of Florida.
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<PAGE>
14. Joint and Several Liability. If there exists more than one Maker, all
liabilities and obligations under this Note shall be joint and several with
respect to the Makers.
15. Usury Laws. The Mortgage and this Note are subject to the express
condition that at no time shall Maker be obligated or required to pay interest
on the Principal Balance due under this Note at a rate which could subject the
holder of this Note to either civil or criminal liability as a result of being
in excess of the maximum interest rate which Maker is permitted by law to
contract or agree to pay. If by the terms of the Mortgage or this Note, Maker is
at any time required or obligated to pay interest on the Principal Balance due
under this Note at a rate in excess of such maximum rate, the rate of interest
under this Note shall be deemed to be immediately reduced to such maximum rate
and the interest payable shall be computed at such maximum rate and all prior
interest payments in excess of such maximum rate shall be applied and shall be
deemed to have been payments in reduction of the Principal Balance.
16. Time of the Essence. Maker agrees that time is strictly of the essence
hereof with respect to each and every provision of this Note.
17. Notices. Any notice, demand, approval, authorization, consent or
request required or permitted by this Note to be given by or to Maker or Payee
(a) shall be in writing, and (b) until otherwise specified in a written notice
by Maker or Payee, shall be sent to the parties at their following respective
addresses:
If to Maker:
Palm Springs Mile Associates, Ltd.
c/o Philips International Holding Corp.
417 Fifth Avenue
New York, NY 10016
Attention: Ms. Sondra B. Myer
with a copy to:
Kotite & Kotite LLP
805 Third Avenue
28th Floor
New York, New York 10022
Attention: Edward A. Kotite, Esq.
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<PAGE>
If to Payee:
AIG Life Insurance Company and
American International Life Assurance
Company of New York
c/o AIG Mortgage Finance Company, Inc.
One Chase Manhattan Plaza
57th Floor
New York, New York 10005
Attention: Director of Real Estate
Investments
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attention: Walter F. Schleimer, Esq. (jtb)
Each such notice, demand, approval, authorization, consent or request shall be
hand delivered or sent by Federal Express or other reputable courier service or
by postage prepaid registered or certified mail, return receipt requested, and
shall be deemed given (i) when received at the above stated address or when
delivery is refused, if hand delivered or sent by Federal Express or other
reputable courier service and (ii) five (5) business days after being postmarked
if sent by registered or certified mail, return receipt requested.
18. Extensions. The Maturity Date of this Note and any other date by which
payment is required to be made hereunder may be extended by Payee from time to
time in its sole discretion, without in any way altering or impairing Maker's
liability or Payee's rights hereunder.
19. Estoppel Certificate. Maker agrees to furnish to Payee at any time and
from time to time, within fifteen (15) days after written request therefor, a
written estoppel certificate, duly executed and acknowledged, setting forth the
amount then due under this Note, and whether any claim, offset or defense then
exists hereunder, and such other matters as may be reasonably requested by
Payee.
20. Assignability; Other Matters. This Note may be assigned by Payee or any
subsequent Payee at any time and from time to time, and shall inure to the
benefit of and be enforceable by Payee and its successors and assigns and any
other person or entity to whom Payee may grant an interest in Maker's
obligations to Payee, and shall be binding and enforceable against Maker and
Maker's successors and assigns. Maker agrees that all documentation, financial
statements, appraisals and other data, or copies thereof relevant to Maker or
the property
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<PAGE>
encumbered by the Mortgage may be exhibited to and retained by any assignee or
prospective assignee of Payee or participant or prospective participant in the
Loan or any purchaser of all or any portion of the property encumbered by the
Mortgage at a foreclosure sale or otherwise. Maker shall cooperate with Payee to
effect any assignment of or participation in the Loan. Maker agrees that Payee
shall have the right to have this Note, the Mortgage or the Other Loan Documents
severed into one or more separate portions evidenced by one or more notes
(provided that Maker shall continue to make payments as provided herein to AIG
Mortgage Finance Company, Inc. on behalf of Payee, or to such successor thereto
as Payee shall designate from time to time) and secured by one or more
mortgages, and Maker shall promptly execute all documents necessary, and shall
otherwise cooperate with Payee, in connection with effecting such severance,
provided that if any additional intangibles tax or documentary stamps are
incurred as the direct result of such severance, Payee shall be responsible for
the payment of such intangibles tax or documentary stamps.
21. Invalidity of Any Part. If any provision or part of any provision of
this Note shall be for any reason held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision hereof, and this Note shall be construed as if such provision or
part thereof had never been contained herein, but only to the extent of its
invalidity, illegality or unenforceability.
22. Changes to this Note. This Note may only be modified, amended, changed
or terminated by an agreement in writing signed by Payee and Maker. No waiver of
any term, covenant or provision of this Note shall be effective unless given in
writing by Payee and if so given by Payee shall only be effective in the
specific instance in which given.
23. Obligations Absolute and Unconditional. Maker acknowledges that this
Note and Maker's obligations under this Note are and shall at all times continue
to be absolute and unconditional in all respects, and shall at all times be
valid and enforceable irrespective of any other agreements or circumstances of
any nature whatsoever which might otherwise constitute a defense to this Note
and the obligations of Maker under this Note or the obligations of any other
person or party relating to this Note or the obligations of Maker hereunder or
otherwise with respect to the Loan. This Note sets forth the entire agreement
and understanding of Payee and Maker, and Maker absolutely, unconditionally and
irrevocably waives any and all right to assert any defense, setoff, counterclaim
or crossclaim of any nature whatsoever with respect to this Note (except for
compulsory counterclaims) or the obligations of Maker under this Note or the
obligations of any other person or party relating to
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<PAGE>
this Note or the obligations of Maker hereunder or otherwise with respect to the
loan evidenced by this Note in any action or proceeding brought by Payee to
collect the indebtedness evidenced by this Note, or any portion thereof, or to
enforce, foreclose and realize upon the liens and security interests created by
the Mortgage and the Other Loan Documents. Maker acknowledges that no oral or
other agreements, understandings, representations or warranties exist with
respect to this Note or with respect to the obligations of Maker under this
Note, except those specifically set forth in this Note.
24. Delay Not Waiver. No delay on the part of Payee in exercising any right
or remedy under this Note, the Mortgage or the Other Loan Documents or failure
to exercise the same shall operate as a waiver in whole or in part of any such
right or remedy. No notice to or demand on Maker shall be deemed to be a waiver
of the obligation of Maker or of the right of Payee to take further action
without further notice or demand as provided in this Note, the Mortgage, or the
Other Loan Documents.
25. Personal Jurisdiction. Maker hereby irrevocably submits to the
non-exclusive jurisdiction of any state or federal court sitting in the State of
Florida, over any suit, action or proceeding arising out of or relating to this
Note, and Maker hereby agrees and consents that, in addition to any methods of
service of process provided for under applicable law, all service of process in
any such suit, action or proceeding in any such Florida state or federal court,
may be made by certified or registered mail, return receipt requested, directed
to Maker at Maker's address indicated in Section 17 of this Note, and service so
made shall be complete five (5) days after the same shall have been so mailed.
Any agreements of Maker contained in this Section or any rights granted to Payee
under this Section are in addition to, and not in lieu of, all rights and
remedies available to Payee under applicable law.
26. Power and Authority. Maker (and the undersigned representative of
Maker, if any) represents that Maker has full power, authority and legal right
to execute and deliver this Note and that the indebtedness hereunder constitutes
a valid and binding obligation of Maker.
27. TRIAL BY JURY. MAKER HEREBY KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY
WAIVES, AND PAYEE BY ITS ACCEPTANCE OF THIS NOTE KNOWINGLY, IRREVOCABLY AND
UNCONDITIONALLY WAIVES, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT
OR COUNTERCLAIM ARISING IN CONNECTION WITH, OUT OF OR OTHERWISE RELATING TO THE
LOAN EVIDENCED BY THIS NOTE, THIS NOTE, THE MORTGAGE, OR THE OTHER LOAN
DOCUMENTS.
28. Definition of "Payee" and "Maker". Whenever used, the singular number
shall include the plural, the plural the
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singular, and the words "Payee" and "Maker" shall include their respective
successors and assigns, provided, however, that Maker shall in no event or under
any circumstance have the right without obtaining the prior written consent of
Payee to assign or transfer its obligations under this Note, the Mortgage, or
the Other Loan Documents, in whole or in part, to any other person, party or
entity.
29. Exculpation. Anything contained in any provision of this Note or the
Mortgage to the contrary notwithstanding, if any foreclosure proceeding is
brought under the provisions of the Mortgage or otherwise to enforce the
provisions of this Note or the Mortgage or if Maker is otherwise in default in
performing its obligations under this Note, Payee shall not be entitled to take
any action to enforce any money judgment in personam or any deficiency decree
against Maker or any general or limited partner of Maker, or any director,
officer, shareholder, employee or representative of Maker or any partner
directly or indirectly comprising Maker, it being understood and agreed by
Payee's acceptance of the delivery of this Note that just recourse hereunder and
under the Mortgage shall be limited to the enforcement of the lien created by
the Mortgage and to the collateral and other security held by Payee; provided,
that nothing in the provisions of this Section shall be deemed to alter or
impair the enforceability of the rights and remedies of Payee under this Note or
under any of such provisions of the Mortgage or Other Loan Documents, against
the Property, or against any other property which may from time to time be given
to Payee as security for the performance of Maker's obligations under this Note
or under the provisions of the Mortgage or any Other Loan Document.
Notwithstanding the foregoing, the provisions of this Section 29 shall be
null and void and of no force and effect and Maker and Philip Pilevsky, shall be
fully liable for, and subject to, judgments and deficiency decrees arising from
and to the extent of any loss suffered by Payee as a result of (a) Maker, its
general partner, its limited partner, or any director, officer, shareholder,
partner, employee, agent or representative of Maker or any partner directly or
indirectly comprising Maker, misapplying any Condemnation Awards or Casualty
Proceeds (as defined in the Mortgage), (b) any act of fraud or material breach
of any material representation or warranty of Maker, its general partner, its
limited partner, or any director, officer, shareholder, partner, employee or
representative of Maker or any partner directly or indirectly comprising Maker,
contained in the Security Documents (as defined in the Mortgage) or any other
agreement, certificate or instrument delivered pursuant to or in connection
therewith, (c) Maker, its general partner, its limited partner, or any director,
officer, shareholder, partner, employee, agent or representative of Maker or any
partner directly or indirectly comprising Maker, collecting Rents (as
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defined in the Mortgage) and other payments payable to Maker pursuant to any
Leases (as defined in the Mortgage) in advance or failing to apply the same in
the manner and for the purposes provided in the Security Documents, (d) Maker,
its general partner, its limited partner, or any director, officer, shareholder,
partner, employee, agent or representative of Maker or any partner directly or
indirectly comprising Maker, misapplying any security deposits paid by tenants
at the Property, (e) except during any time that Payee or a receiver has taken
possession of the Property, if the gross revenues from the Property when and as
collected are sufficient to pay any portion of the Indebtedness (as defined in
the Mortgage), operating and maintenance expenses, insurance premiums or other
sums required by the Security Documents next due, and Maker, its general
partner, its limited partner or any partner directly or indirectly comprising
Maker, fail to make such payments or deposits when due, (f) Maker failing to
comply with the provisions of Section 1.3.12. of the Mortgage relating to
Hazardous Materials (as defined therein), or failing to indemnify Payee with
respect to any liability arising in connection with same, as required
thereunder, or (g) any diminution in value of the Property or other collateral
or security for the Loan evidenced hereby, arising from the intentional waste
(either actual or permissive, financial or otherwise), or any waste arising
following a default of Maker, its general partner, its limited partner, or any
director, officer, shareholder, partner, employee, agent or representative of
Maker or any partner directly or indirectly comprising Maker. Further,
notwithstanding anything to the contrary set forth in this Note, the Mortgage or
the Other Loan Documents, nothing contained in this Note, the Mortgage or the
Other Loan Documents shall be deemed to limit, vary, modify, qualify or amend
any obligation owed to Payee under any guaranty or indemnification agreement
executed and delivered in connection with the Loan, including, without
limitation, the personal recourse obligations of Maker, its general partner and
Philip Pilevsky under the Hazardous Materials Agreement (as defined in the
Mortgage)
30. Extension Option. Maker shall have the right to request an extension of
the Maturity Date of the Loan for an additional period of thirty-six (36)
months, and thereby establish an extended maturity date of February 1, 2007 in
accordance with the following terms and conditions:
(a) No later than May 1, 2003 (the "Extension Option Date"), Maker shall
notify Payee of Maker's desire to extend the Maturity Date from February 1, 2004
to February 1, 2007. The notice from Maker to Payee to extend the Maturity Date
shall be accompanied by a (i) current rent roll for the Property, (ii) a current
financial statement in the form required under the Mortgage and other property
related information as may be reasonably requested by Payee. The request to
extend the Loan
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shall be accompanied by a request to extend the Other Loan in accordance with
the terms and conditions applicable thereto.
(b) No later than June 1, 2003 (the "Payee Notification Date"), Payee shall
notify Maker in writing if a thirty-six (36) month extension of the Maturity
Date is available, and, if so, (x) the applicable interest rate index and the
rate spread, which rate spread shall be the available rate spread charged by
Payee for properties similar to the Property, which would be utilized in setting
a revised interest rate for the Loan, all as determined solely by Payee, and (y)
the date on which the revised interest rate shall be calculated, which date
shall be within five days before or after July 1, 2003 as determined by Payee,
(the "Rate Calculation Date") Notwithstanding anything to the contrary contained
in this Section 30, Maker shall be entitled to obtain such extension of the
original Maturity Date, if the following conditions are fully satisfied, as of
the Extension Option Date and the effective date of the extension, in the sole
judgment of Payee:
(i) A minimum of ninety percent (90%) of the total square feet
comprising the Improvements (as defined in the Mortgage) shall be occupied
by retail tenants that are in full monetary compliance with the terms of
arms-length third party leases;
(ii) For the twelve (12) month period immediately preceding the Payee
Notification Date, the operating cash flow from the Property, as determined
in accordance with the Payee's standard underwriting guidelines, generates
a debt service coverage factor of at least 1.45 to 1 on the aggregate
outstanding balance of the Loan and the Other Loan. Such annual debt
service payment, for purposes of calculating the debt service coverage
under this Section 30 (b) (ii), shall be the then-calculated annual debt
service on the extended thirty-six (36) month Loan and Other Loan (assuming
that the applicable interest rate for the extension period was (x) the
interest rate in effect on the Payee Notification Date or (y) a 10%
constant, whichever is higher). An eighteen (18) year amortization
schedule shall be used to determine the debt service payments during the
extended Loan term.
(iii) There has been no material adverse change in the financial
condition of Maker.
(iv) There has been no material adverse change in the physical
condition of the Property, ordinary wear and tear excepted.
(v) No Event of Default or default shall have occurred under this
Note, the Mortgage or Other Loan
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<PAGE>
Documents, and no circumstance shall have occurred which, with the giving
of notice or passage of time, or both, would constitute a default or Event
of Default under this Note, the Mortgage or Other Loan Documents.
(vi) Payee shall, at its option, have received an updated
environmental report which report shall be acceptable to Payee in all
respects.
(vii) There shall be no existing law, rule, regulation, or guideline
applicable to Payee, which shall preclude Payee's investment in or
origination or modification of mortgage loans.
(c) Within fifteen (15) days following receipt by Maker of notification
from Payee pursuant to Section 30(b) above that an extension of the Maturity
Date to February 1, 2007 is available, Maker shall provide written notification
to Payee as to whether Maker desires to extend the Maturity Date of the Loan
based upon the terms advised by Payee on the Payee Notification Date. If Maker
desires to extend the Loan, Maker shall, with said written notification, pay an
extension fee to Payee in the amount of $63,250 (the "Extension Fee"), which
amount Maker hereby expressly acknowledges to be a reasonable fee for Payee to
charge to compensate Payee for its time and effort in evaluating the Loan
extension. If Maker extends the Loan, Maker shall concurrently therewith extend
the Other Loan in accordance with the terms and provisions pertaining thereto.
Upon receipt of Maker's notice and payment of the Extension Fee, Payee shall,
pursuant to Section 30(b), lock the interest rate and provide notice thereof to
Maker. Maker's acceptance of such terms shall constitute a binding commitment on
the part of Maker to extend the Maturity Date of the Loan and the Extension Fee
shall be considered earned and non-refundable unless any of the conditions
stated in Section 3O(b) above are not satisfied, in the sole judgement of Payee,
as of the effective date of the extension, in which event the Extension Fee
shall be returned to Maker, less (i) the sum of $10,000 as partial compensation
for Payee's review of Maker's extension request and (ii) the amount of any
reasonable legal fees and other third-party costs incurred by Payee in
connection with the proposed loan extension, and the Loan shall be due and
payable in full on the original Maturity Date (i.e., February 1, 2004).
(d) In the event that Maker shall elect to prepay the Loan after having
accepted the terms advised by Payee on the Payee Notification Date (but before
the Rate Calculation Date) then Maker shall pay a prepayment fee, in addition to
any prepayment fee due through the original Maturity Date in accordance with
Section 9 hereof, in the amount of one percent (1%) of the outstanding balance
of the Loan as a condition for obtaining the release of the Mortgage. Any
prepayment of the
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<PAGE>
Loan by Maker on or after the Rate Calculation Date shall be subject to payment
of a prepayment fee calculated in the manner described in Section 9 hereof
through the extended Maturity Date.
(e) Payee shall advise Maker in writing of the revised interest rate and
revised amortization schedule for the Loan within five (5) days following the
Rate Calculation Date. The new "Interest Rate" and "Installment Amount" quoted
by Payee shall become the Interest Rate and Installment Amount for the Loan
effective from February 1, 2004, without further act or instrument. In
confirmation of the foregoing, Maker agrees to execute any and all documentation
required by law or in the judgment of Payee's counsel to extend the Maturity
Date of the Loan and preserve the lien priority of the Mortgage.
(f) If Maker shall fail to respond in writing within the time period
provided in Section 30 (c) above after receiving notice of the terms of any
extension of the Loan from Payee, the Loan shall be due and payable in full on
the original Maturity Date without any prepayment penalty.
(g) From and after the Extension Option Date, Maker agrees to pay all
reasonable costs and fees incurred in connection with the extension of the
Maturity Date of the Loan, whether or not the Loan is extended, unless due to
the fault of Payee, including, but not limited to, Payee's reasonable attorneys'
fees, cost of any necessary endorsements to the mortgagee's title insurance
policy, recording fees, and other expenses to perfect and insure Payee's lien
and security interests.
31. Effect of Renewal Note. This Note renews and restates in full that
certain Renewal Note (Component No. 1) dated of even date herewith in the
principal amount of Twenty-Five Million Three Hundred Thousand Dollars
($25,300,000.00) made by Borrower in favor of First Union National Bank of North
Carolina, a national banking association ("FUNB"), which note ("FUND Note") was
assigned by FUNB to Payee by that certain Assignment of Mortgage Instruments
executed by FUNB in favor of Payee of even date herewith. All documentary stamp
taxes and nonrecurring intangible personal property taxes have been paid upon
the mortgages described on Exhibit A attached hereto and incorporated herein by
reference.
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<PAGE>
IN WITNESS WHEREOF, Maker, intending to be legally bound, has duly executed
and delivered this Note on the day and year first written above.
PALM SPRINGS MILE ASSOCIATES, LTD,
a Floride limited partnership
By: Palm Mile Corp., a New York
corporation, its general partner
By: /s/ SONDRA MYER
-------------------------
Name: Sondra Myer
Title: VP
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<PAGE>
STATE OF NEW YORK )
) SS:
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 13th day of
February, 1997, by Sondra Myer, as Vice President of Palm Mile Corp., a New York
corporation, on behalf of the corporation as the general partner of PALM SPRINGS
MILE ASSOCIATES, LTD., a Florida limited partnership, on behalf of the
partnership (__) who is personally known to me or who has produced drivers
license as identification.
/s/ MELISSA B. BUTCHEN
----------------------------------
NOTARY PUBLIC
Print Name:
----------------------
Serial No.:
----------------------
My Commission Expires:
MELISSA B. BUTCHEN
Notary Public State of New York
No.01BU5043995
Qualified in Nassau County
Commission Expires May 22, 1997
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<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
LIST OF SUBSIDIARIES
PHILIPS FOREST ASSOCIATES, L.P.
PHILIPS MERRICK ASSOCIATES, L.P.
PHILIPS BRANHAVEN ASSOCIATES, L.P.
PHILIPS ENFIELD ASSOCIATES, L.P.
PHILIPS MEADOWBROOK ASSOCIATES, L.P.
PHILIPS AVENUE U ASSOCIATES, L.P.
PHILIPS LAKE MARY ASSOCIATES, L.P.
PALM SPRINGS MILE ASSOCIATES, LTD
FOXBOROUGH SHOPPING L.L.C.
DELRAN SHOPPING L.L.C.
PHILIPS FOREST SUB-I, INC.
PHILIPS MERRICK SUB-II, INC.
PHILIPS BRANHAVEN SUB-III, INC.
PHILIPS ENFIELD SUB-IV, INC.
PHILIPS MEADOWBROOK SUB-V, INC.
PHILIPS AVENUE U SUB-VI, INC.
PHILIPS LAKE MARY SUB-VII, INC.
PHILIPS PALM SPRINGS SUB-VIII, INC.
PHILIPS FOXBOROUGH SUB-IX, INC.
PHILIPS DELRAN SUB-X, INC.
