<PAGE> 1
================================================================================
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 12-31-94 Commission file number 1-6249
-------- ------
First Union Real Estate Equity and Mortgage Investments
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-6513657
------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 1900, 55 Public Square
Cleveland, Ohio 44113-1937
------------------------------- -----------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (216) 781-4030
-----------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Shares of Beneficial Interest
(Par Value $1 Per Share) New York Stock Exchange
------------------------------- ------------------------
Securities registered pursuant to Section 12(g) of the Act:
None
--------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
Yes /X/ No / /
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
As of January 31, 1995, 18,017,377 Shares of Beneficial Interest were held by
non-affiliates, and the aggregate market value of such shares was approximately
$148,643,360.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
18,262,725 Shares of Beneficial Interest were outstanding as of January 31, 1995
--------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K into which the document is incorporated: (1) Any annual
report to security holders; (2) Any proxy or information statement; and (3) Any
prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of
1933. The listed documents should be clearly described for identification
purposes.
Annual Report to Shareholders for the year ended December 31, 1994
(Parts II and IV).
Proxy Statement dated March 8, 1995 for the Annual Meeting of
Shareholders to be held on April 11, 1995 (Part III).
<PAGE> 2
<TABLE>
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
CROSS REFERENCE SHEET PURSUANT TO ITEM G,
GENERAL INSTRUCTIONS TO FORM 10-K
<CAPTION>
ITEM OF FORM 10-K LOCATION
------------------------------------------------ -------------------------
(page or pages)
<S> <C>
PART I
------
1. Business . . . . . . . . . . . . . . . . . . . . 3 through 5
2. Properties . . . . . . . . . . . . . . . . . . . 6 through 12
3. Legal Proceedings. . . . . . . . . . . . . . . . 13
4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . 13
PART II
-------
5. Market for Registrant's Common Equity and
Related Stockholder Matters. . . . . . . . . . 14; Annual Report, 1
6. Selected Financial Data. . . . . . . . . . . . . 14; Annual Report,
18 and 19
7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . . . . . 14; Annual Report,
30 and 31
8. Financial Statements . . . . . . . . . . . . . . 14; Annual Report,
20 through 29
9. Changes in and disagreements with Accountants
and Financial Disclosure . . . . . . . . . . . 14
PART III
--------
10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . . 15 and 16; Proxy
Statement, 1 through 5
11. Executive Compensation . . . . . . . . . . . . . 16; Proxy Statement,
5 and 8 through 13
12. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . 16; Proxy Statement, 7 and 8
13. Certain Relationships and Related Transactions . 16
PART IV
-------
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a) Financial Statements and Financial
Statement Schedules. . . . . . . . . . . . 16 and 17 and 22 through
26; Annual Report,
20 through 29
(b) Exhibits . . . . . . . . . . . . . . . . . . 17 and 18; Exhibit
Index, 27
(c) Reports on Form 8-K. . . . . . . . . . . . . 18
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. BUSINESS.
The registrant is an unincorporated association in the form of a business
trust organized in Ohio under a Declaration of Trust dated August 1, 1961, as
amended from time to time through July 25, 1986 (the "Declaration of Trust"),
which has as its principal investment policy the purchase of interests in real
estate equities. The registrant qualifies as a real estate investment trust
under Sections 856 through 860 of the Internal Revenue Code.
In order to encourage efficient operation and management of its property, and
after receiving a ruling from the Internal Revenue Service with respect to the
proposed form of organization and operation, the registrant, in 1971, caused a
management company to be organized pursuant to the laws of the State of
Delaware under the name First Union Management, Inc. (the "Management
Company"), to lease property from the registrant and to operate such property
for its own account as a separate taxable entity. The registrant presently net
leases 31 of its properties to the Management Company. The shares of the
Management Company are held in trust, with the shareholders of the registrant,
as exist from time to time, as contingent beneficiaries. For financial
reporting purposes, the financial statements of the Management Company are
combined with those of the registrant.
The registrant owns regional enclosed shopping malls, large downtown office
buildings and apartment complexes. Its portfolio is diversified by type of
property, geographical location, tenant mix and rental market. As of December
31, 1994, the registrant owned (in fee or pursuant to long-term ground leases
under which the registrant is lessee) seven office buildings, 15 shopping
malls, 50% interests in two shopping malls, seven apartment complexes, a
1,100-car parking garage, and a 300-car parking facility, as well as other
miscellaneous properties (see Item 2 - Properties). The investment portfolio
also includes two mortgage loans secured by an office building and an apartment
complex.
Currently, the registrant intends to concentrate its portfolio in retail and
apartment properties while investments in office buildings will be
de-emphasized. Although not presently seeking new mortgage investments, the
registrant intends to hold its remaining two mortgage investments as long-term
investments.
The registrant's office buildings compete for tenants principally with office
buildings throughout the respective areas in which they are located. In most
areas where the registrant's office buildings are located, there has been
extensive new office building construction and competition for tenants has been
and continues to be intense on the basis of rent, location and age of the
building. High vacancy rates in the cities in which the registrant has
properties continue to negatively impact the registrant's occupancy rates and
its ability to raise rental rates. All of the registrant's shopping malls
compete for tenants on the basis of the rent charged and location, and
encounter competition from other retail properties in their respective market
areas, and some of the registrant's shopping malls compete with other shopping
malls in the environs. However, the principal competition for the registrant's
shopping malls may come from future shopping malls locating in their market
areas. In four markets in which the registrant competes, overbuilding of
retail projects has caused occupancy levels to be negatively impacted.
Additionally, the overall economic health of retail tenants impacts the
registrant's shopping malls. The registrant's apartment complexes compete with
other apartments and residential
3
<PAGE> 4
housing in the immediate areas in which they are located and may compete with
apartments and residential housing constructed in the same areas in the
future. The registrant's parking facilities compete with other parking
facilities in the immediate areas in which they are located and may compete
with new parking facilities constructed in the same areas in the future.
Additionally, the registrant's mortgage investments are collateralized by an
office building and an apartment complex. Risks inherent with the registrant's
portfolio are applicable to the collateral securing the mortgage investments.
These risks may impair the realizability of the mortgage investments.
The registrant also experiences considerable competition when attempting to
acquire equity interests in desirable real estate at operating yields below the
registrant's cost of funds. The competition is provided by other real estate
investment trusts, insurance companies, private pension plans and private
developers.
Additionally, the opportunity for mortgage and public debt financing have
increased from the prior year, although, available financing requires
restrictive covenants and conservative loan-to-value ratios. Moreover, the
increase in publicly traded real estate investment trusts during 1993 and 1994
may effect the registrant's competitive position in the public capital markets.
Finally, the increase in interest rates during the second half of 1994 will
make new property financings and public offerings less attractive.
The federal government and a number of states have adopted handicapped
facilities and energy laws and regulations relative to the development and use
of real estate. Such laws and regulations may operate to reduce the number and
attractiveness of investment opportunities available to the registrant. The
registrant has reviewed the properties which it owns or in which it has a
leasehold interest to determine the extent and amount of capital expenditures
to comply with the requirements for handicapped facilities. While the
registrant is and will continue to make modifications to the properties which
it owns, the amount is not expected to be material. The registrant is not
aware of any other requirements to make capital expenditures to comply with
such laws and regulations. Other effects upon the registrant's investments of
the application of such laws and regulations cannot be predicted.
Additionally, under various federal, state and local laws, ordinances and
regulations, an owner of real estate generally is liable for the costs of
removal or remediation of certain hazardous or toxic substances located on or
in, or emanating from, its property, as well as related costs of investigation
and property damage. These laws often impose such liability without regard to
whether the owner 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 registrant's
ability to sell or lease a property or to borrow using such real estate as
collateral. Other federal and state laws require the removal or encapsulation
of asbestos-containing material in poor condition in the event of remodeling or
renovation. Other statutes may require the removal of underground storage
tanks that are out of service or out of compliance.
Certain environmental laws impose liability on a previous owner of property
to the extent that hazardous or toxic substances were present during the prior
ownership period. A transfer of the property does not relieve an owner of such
liability. Thus, the registrant may have liability with respect to properties
previously sold but is not aware of any such liability.
Environmental site assessments have been implemented with respect to 10
properties. However, no assessments have been implemented with respect to any
4
<PAGE> 5
other properties. The registrant has no reason to believe that any
environmental contamination or violation of any applicable law, statute,
regulation or ordinance governing hazardous or toxic substances has occurred or
is occurring. However, no assurance can be given that hazardous or toxic
substances are not located on any of the properties. The registrant will also
endeavor to protect itself from acquiring contaminated properties or properties
with significant compliance problems by obtaining site assessments and property
reports at the time of acquisition when it deems such investigations to be
appropriate. There is no guarantee, however, that these measures will
successfully insulate the registrant from all such liabilities.
The number of persons employed by the registrant is 39.
5
<PAGE> 6
<TABLE>
ITEM 2. PROPERTIES
------- ----------
The following table sets forth certain information relating to the registrant's investments at December 31, 1994:
<CAPTION>
Square Year Total
Date of Ownership feet(1) Occupancy construction cost
Direct equity investments Location acquisition percentage (000) rate(2) completed (000)
------------------------- -------- ----------- ---------- ------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Shopping Malls:
Eastern
-------
Middletown (4) Fairmont, WV 12/03/70 50% 471 74% 1970 $ 6,446
Wyoming Valley (4) Wilkes Barre, PA 6/12/72 50 906 97 1972 12,172
Mountaineer Morgantown, WV 1/29/78 100 674(5) 79 1975 33,880
Fingerlakes Auburn, NY 9/28/81 100 404 82 1980 26,039
Fairgrounds Square Reading, PA 9/30/81 100 529(7) 98 1980 29,783
Wilkes Wilkesboro, NC 5/04/83 100 359 66 1982 18,708
-------
127,028
-------
Midwestern
----------
North Valley Denver, CO 12/03/69 100 452 70 1967 11,295
Crossroads St. Cloud, MN 1/01/72 100 733(9) 98 1966 23,747
Two Rivers Clarksville, TN 9/26/75 100 233 47(11) 1968 8,284
Crossroads Fort Dodge, IA 4/22/77 100 425(12) 84 1967 11,477
Westgate Towne Centre Abilene, TX 4/22/77 100 386(13) 37(14) 1962 9,816
Kandi Willmar, MN 3/12/79 100 451 82 1973 19,061
------
83,680
------
Western
-------
Valley North Wenatchee, WA 8/30/73 100 171 95 1966 4,266
Mall 205 Portland, OR 3/01/75 100 434(15) 95 1970 13,736
Plaza 205 Portland, OR 4/26/78 100 168 100 1970 4,359
Peach Tree Marysville, CA 12/19/79 100 436 51(16) 1972 13,948
Valley Yakima, WA 5/01/80 100 419(17) 92 1972 11,912
-------
48,221
-------
258,929
-------
Apartments:
Midwestern
----------
Somerset Lakes Indianapolis, IN 11/10/88 100 360 units 96 1975 20,163
Meadows of Catalpa Dayton, OH 7/11/89 100 323 units 97 1972 10,159
------
30,322
------
Southeastern
------------
Briarwood Fayetteville, NC 6/30/91 100 273 units 92 1968-70 7,804
Woodfield Gardens Charlotte, NC 6/30/91 100 132 units 89 1974 3,629
Windgate Place Charlotte, NC 6/30/91 100 196 units 93 1974-78 5,826
Walden Village Atlanta, GA 6/01/92 100 380 units 93 1973 13,129
Beech Lake Durham, NC 8/19/94 100 345 units 97 1986 19,500
------
49,888
------
80,210
------
<CAPTION>
Mortgage Loans
------------------------------------------------------
Balance Principal
Original at repayment
balance(s) 12/31/94 for 1995 Interest Year of
(000) (000) (000) rate maturity
--------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Shopping Malls:
Eastern
-------
Middletown (4) $ 2,950 $ 908 $ ---(4) ---%(4) ---(4)
Wyoming Valley (4) 8,509(3) 3,774 ---(4) --- (4) ---(4)
Mountaineer 14,447(3) 9,805(6) 820(6) --- (6) ---(6)
Fingerlakes --- --- --- --- ---
Fairgrounds Square --- ---(8) --- --- ---
Wilkes --- --- --- --- ---
------ ------ ------
25,906 14,487 820
------ ------ -----
Midwestern
----------
North Valley 2,037 612 133 7.750 1999
Crossroads 35,000(3) 34,266 650 ---(10) 2003(10)
Two Rivers --- --- --- --- ---
Crossroads --- --- --- --- ---
Westgate Towne Centre --- --- --- --- ---
Kandi --- ---(8) --- --- ---
------ ------ -----
37,037 34,878 783
------ ------ -----
Western
-------
Valley North --- --- --- --- ---
Mall 205 --- --- --- --- ---
Plaza 205 1,716 710 124 8.500 1999
Peach Tree --- --- --- --- ---
Valley 5,300 563 563 8.250 1995
------ ------ -----
7,016 1,273 687
------ ------ -----
69,959 50,638 2,290
------ ------ -----
Apartments:
Midwestern
----------
Somerset Lakes 12,000(3) 12,000 12,000(18) 9.875 1995
Meadows of Catalpa 8,000(3) 7,863 70 8.750 2002
------ ------ ------
20,000 19,863 12,070
------ ------ ------
Southeastern
------------
Briarwood 2,542 --- --- --- ---
Woodfield Gardens 1,074 907 58 8.875 2005
Windgate Place 1,794 1,548(19) 86(19) ---(19) ---(19)
Walden Village 3,342 2,628(20) 323(20) ---(20) ---(20)
Beech Lake --- --- --- --- ---
------ ------ ------
8,752 5,083 467
------ ------ ------
28,752 24,946 12,537
------ ------ ------
</TABLE>
6
<PAGE> 7
<TABLE>
ITEM 2. PROPERTIES
------- ----------
Continued
<CAPTION>
Square Year Total
Date of Ownership feet(1) Occupancy construction cost
Direct equity investments Location acquisition percentage (000) rate(2) completed (000)
------------------------- -------- ----------- ---------- ------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Office Buildings:
Midwestern
----------
55 Public Square Cleveland, OH 1/15/63 100% 398 89 1959 $29,471
Circle Tower Indianapolis, IN 10/16/74 100 104 76 1930 3,841
Rockwell Avenue Cleveland, OH 4/30/79 100 237 64 1916 12,680
300 Sixth Avenue Pittsburgh, PA 5/01/79 100 227 83 1906 8,386
Ninth Street Plaza Cleveland, OH 10/11/85 100 147 63 1981 7,142
Henry C. Beck Shreveport, LA 8/30/74 100 185 82 1958 7,561
Landmark Towers Oklahoma City, OK 10/01/77 100 259 67 1967-71 14,482
-------
83,563
-------
Other:
Land-Huntington Bldg. Cleveland, OH 10/25/61 100(22) --- -- --- 4,501
Parking Garage Cleveland, OH 12/31/75 100 1,100 spcs. -- 1969 6,905
Parking Facility Cleveland, OH 9/19/77 100 300 spcs. -- --- 2,286
-------
13,692
-------
Total equity investments $436,394
=======
</TABLE>
<TABLE>
<CAPTION>
Mortgage Loans
---------------------------------------------------------
Balance Principal
Original at repayment
balance(s) 12/31/94 for 1995 Interest Year of
(000) (000) (000) rate maturity
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Office Buildings:
Midwestern
----------
55 Public Square $ --- $ ---(8) $ --- ---% ---
Circle Tower --- --- --- --- ---
Rockwell Avenue --- --- --- --- ---
300 Sixth Avenue 1,003(21) 969 3 10.000 2031
Ninth Street Plaza --- --- --- --- ---
Henry C. Beck --- --- --- --- ---
Landmark Towers 2,909 1,098 260 8.375 1998
------- ------ ------
3,912 2,067 263
------- ------ ------
Other:
Land-Huntington Bldg. --- --- --- --- ---
Parking Garage 9,300(3) 9,132 199 8.550 2014
Parking Facility --- --- --- --- ---
------- ------ ------
9,300 9,132 199
------- ------ ------
Total equity investments $111,923 $86,783 $15,288
======= ------ ------
Senior debt underlying
wraparound mortgage
loan investments 4,012 271
------ ------
$90,796 $15,560
====== ======
</TABLE>
7
<PAGE> 8
Item 2. Properties
------ ----------
- Continued
NOTES
-----
(1) The square footage shown represents gross leasable area for shopping
malls and net rentable area for office buildings. The apartments are
shown as number of units. The parking garage and parking facility are
shown as number of parking spaces.
(2) Occupancy rates shown are as of December 31, 1994, and are based on the
total square feet at each property, except apartments which are based
on the number of units.
(3) The registrant obtained mortgages on the following properties
subsequent to acquisition: Wyoming Valley Mall in the amount of
$259,000 in 1982; Somerset Lakes Apartments in the amount of
$12,000,000 in 1990; Meadows of Catalpa Apartments in the amount of
$8,000,000 in 1992; Crossroads Shopping Center (St. Cloud, MN) in the
amount of $35,000,000 in 1993; Huntington Parking Garage in the amount
of $9,300,000 in 1993; and Mountaineer Mall in the amount of $4,600,000
in 1994.
(4) The registrant sold these two joint venture investments in January 1995.
(5) The total mall contains 674,000 square feet; the registrant owns
616,000 square feet, the balance being ground leased to Giant Eagle
Markets, Inc.
(6) This property has two mortgages. Interest rates are 9.10% and 8.25%.
The mortgages mature in 2002 and 2009. The 9.10% mortgage, in the
principal amount of $5,298,000, has a principal payment for 1995 of
$650,000. The 8.25% mortgage, in the principal amount of $4,507,000,
has a principal payment for 1995 of $170,000.
(7) The total mall contains 529,000 square feet; the registrant owns
431,000 square feet, the balance being separately ground leased to
Boscov Department Store, Inc.
(8) These properties are the collateral for the registrant's $60 million
revolving line of credit.
(9) The total mall contains 733,000 square feet; the registrant owns
625,000 square feet, the balance being separately owned by Target
Stores.
(10) The mortgage has a variable interest rate which was 8.97% at December
31, 1994. The interest is tied to LIBOR with a maximum rate of 9.5%.
At maturity in 2003, a lump sum payment will be due of approximately
$25,682,000.
(11) A major tenant declared bankruptcy and vacated 60,000 square feet
during 1994. The registrant is seeking replacement tenants.
(12) The total mall contains 425,000 square feet; the registrant owns
328,000 square feet, the balance being separately owned by an unrelated
third party with Sears, Roebuck and Co. as tenant.
(13) The total mall contains 386,000 square feet; the registrant owns
291,000 square feet, the balance being separately owned by Montgomery
Ward & Co., Incorporated.
8
<PAGE> 9
Item 2. Properties
------- ----------
- Continued
(14) Highly competitive market conditions have made leasing space difficult.
The registrant continues to seek tenants and alternative retail
strategies for this property.
(15) The total mall contains 434,000 square feet; the registrant owns
257,000 square feet, the balance being separately owned by Montgomery
Ward Development Corporation.
(16) The property was inundated by a flood which occurred in February 1986.
The mall was subsequently rebuilt and re-opened in November 1986. In
May 1992, a 60,000 square foot supermarket opened. Additionally, a
temporary tenant occupied approximately 70,000 square feet as of
December 31, 1994. The Trust is pursuing a mixed use strategy for this
former retailing facility.
(17) The total mall contains 419,000 square feet; the registrant owns
309,000 square feet, the balance being separately ground leased to
Sears, Roebuck and Co.
(18) This mortgage is interest only until maturity in December 1995.
(19) This property has two mortgages. Interest rates are 8.875% and 9.375%.
The mortgages mature in 2005 and 2007, respectively. The 8.875%
mortgage, in the principal amount of $881,000, has a principal
repayment for 1995 of $56,000. The 9.375% mortgage, in the principal
amount of $667,000, has a principal repayment for 1995 of $30,000.
(20) This property has two mortgages. Interest rates are 8.50% and 9.25%,
and both mature in 2000. The 8.50% mortgage, in the principal amount of
$1,388,000, has a principal repayment for 1995 of $208,000. The 9.25%
mortgage, in the principal amount of $1,240,000, has a principal
repayment for 1995 of $115,000.
(21) Represents a long-term leasehold estate interest which was capitalized
in accordance with Statement of Financial Accounting Standards No. 13.
(22) The registrant has ground leased the land until October 30, 2011, with
seven 10-year renewal options.
9
<PAGE> 10
Item 2. Properties
------- ----------
- Continued
As of December 31, 1994, the registrant owned in fee its interests in
Middletown Mall, Crossroads Center (St. Cloud, Minnesota), Wyoming Valley Mall,
Mall 205, Crossroads Mall (Ft. Dodge, Iowa), Westgate Towne Centre, Mountaineer
Mall, Plaza 205, Peach Tree Mall, Valley Mall, Fingerlakes Mall, Fairgrounds
Square Mall, Wilkes Mall, 55 Public Square Building, Henry C. Beck Building,
Landmark Towers, Ninth Street Plaza, Somerset Lakes Apartments, Meadows of
Catalpa Apartments, Briarwood Apartments, Woodfield Gardens Apartments,
Windgate Place Apartments, Walden Village Apartments, Beech Lake Apartments,
Land - Huntington Building, and the Parking Facility. The registrant holds a
leasehold estate or estates, or a fee interest and one or more leasehold
estates in North Valley Mall, Valley North Mall, Two Rivers Mall, Kandi Mall,
Circle Tower Building, Rockwell Avenue Building, 300 Sixth Avenue Building and
the Parking Garage.
10
<PAGE> 11
Item 2. Properties
------- ----------
- Continued
<TABLE>
RENTALS FROM NET LEASES
The following table sets forth the rentals payable to the registrant for the
year ended December 31, 1994, under net leases of the properties indicated:
<CAPTION>
Annual
Property Base Rent Percentage Rents
-------- --------- ----------------
<S> <C> <C>
SHOPPING MALLS:
Eastern
-------
Middletown $ 682,000(2) 25% of gross receipts in excess of
$1,502,146
Wyoming Valley 1,292,583(2) First $8,000 of gross receipts in
excess of $2,985,488 plus 25% of
gross receipts in excess of
$2,993,488
Mountaineer (1) 705,000 45% of gross receipts in excess of
$1,506,000
Fingerlakes (1) 968,000 40% of gross receipts in excess of
$2,505,000
Fairgrounds Square (1) 2,850,000 55% of gross receipts in excess of
$3,944,000
Wilkes (1) 507,000 55% of gross receipts in excess of
$931,000
Midwestern
----------
North Valley (1) --- 5% of gross receipts
Crossroads
(St. Cloud, Mn.) (1) 3,300,000 60% of gross receipts in excess of
$4,868,000
Two Rivers (1) 125,000 20% of gross receipts in excess of
$625,000
Crossroads
(Ft. Dodge, Iowa) (1) 736,000 55% of gross receipts in excess of
$1,302,000
Westgate Towne Centre (1) --- 10% of gross receipts (3)
Kandi (1) 712,000 45% of gross receipts in excess of
$1,631,000
Western
-------
Valley North (1) 543,000 55% of gross receipts in excess of
$976,000
Mall 205 (1) 1,232,000 55% of gross receipts in excess of
$2,146,000
Plaza 205 (1) 276,000 60% of gross receipts in excess of
$463,000
Peach Tree (1) 292,000 45% of gross receipts in excess of
$672,000
Valley (1) 463,000 50% of gross receipts in excess of
$898,000
</TABLE>
11
<PAGE> 12
<TABLE>
Item 2. Properties
------- ----------
- Continued
<CAPTION>
Annual
Property Base Rent Percentage Rents
-------- --------- ----------------
<S> <C> <C>
APARTMENTS:
Midwestern
----------
Somerset Lakes (1) $971,000 55% of gross receipts in excess of
$1,744,000
Meadows of Catalpa (1) 900,000 35% of gross receipts in excess of
$2,300,000
Southern
--------
Briarwood (1) 335,000 35% of gross receipts in excess of
$1,000,000
Woodfield Gardens (1) 100,000 20% of gross receipts in excess of
$500,000
Windgate Place (1) 135,000 20% of gross receipts in excess of
$700,000
Walden Village (1) 850,000 55% of gross receipts in excess of
$1,545,000
Beech Lake (1) 952,000 55% of gross receipts in excess of
$1,756,000
OFFICE BUILDINGS:
Midwestern
----------
55 Public Square (1) 1,550,000 40% of gross receipts in excess of
$3,400,000 (4)
Circle Tower (1) 189,000 25% of gross receipts in excess of
$709,000
Rockwell Avenue (1) 157,000 35% of gross receipts in excess of
$1,261,000 (5)
300 Sixth Avenue (1) --- 25% of gross receipts
Ninth Street Plaza (1) 322,000 25% of gross receipts in excess of
$1,288,000
Henry C. Beck (1) 179,000 25% of gross receipts in excess of
$784,000
Landmark Towers East (1) --- 15% of gross receipts
Landmark Towers Center (1) 56,000 15% of gross receipts in excess of
$408,000
Landmark Towers West (1) 56,000 15% of gross receipts in excess of
$347,000
OTHER:
Land-Huntington Building 170,000 First $130,000 plus 50% of all additional
rental, as defined, received by registrant
as landlord under a net lease of the
building and improvements situated on the land
Parking Garage (1) 800,000 70% of gross receipts in excess of
$1,168,000
Parking Facility (1) 217,000 70% of gross receipts in excess of
$416,000
<FN>
(1) Leased to the Management Company.
(2) Includes mortgage interest and principal amortization paid by lessee.
(3) An additional net lease for an 8,000 square foot office building adjacent to
the mall, the Social Security Building, provides for a base rent of $17,000
and a percentage rent of 40% of gross receipts in excess of $46,000.
(4) An additional net lease for the 55 Public Square Building garage provides for
a base rent of $281,000 and a percentage rent of 70% of gross receipts in excess
of $537,000.
(5) An additional net lease for the Rockwell Avenue Building garage provides for
a base rent of $316,000 and percentage rent of 70% of gross receipts in excess
of $397,000.
</TABLE>
12
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS.
------- ------------------
Registrant vs. The State of California
--------------------------------------
The Trust has pursued legal action against the State of California associated
with the 1986 flood of Peach Tree Mall. In September 1991, the court ruled in
favor of the Trust on the liability portion of this inverse condemnation suit,
which the State of California appealed. The Trust is proceeding with its
damage claim in Superior Court of the State of California. No recognition of
potential income has been made in the accompanying financial statements.
Registrant vs. Richard M. Osborne, et. al.
------------------------------------------
On February 3, 1995, the registrant filed a lawsuit in the United States
District Court for the Northern District of Ohio (the "Lawsuit"). The
defendants in the Lawsuit, as amended, include Turkey Vulture Fund XIII, Ltd.,
and its Managing Partner, Richard M. Osborne, who at the time the Lawsuit was
filed, claimed to own 5.2% of the Company's shares. Other defendants are The
Wolstein Group, Bert Wolstein, Scott Wolstein, Heritage Capital Corporation,
Developers Diversified Realty Corporation, and Mark P. Escaja (all collectively
the "Defendants"). The Lawsuit, as amended, alleges that the Defendants have
violated Sections 10(b), 13(d), 14(a), 14(d), 14(e) and 20(a) of the Securities
Exchange Act of 1934 and the rules and regulations promulgated thereunder,
Section 1707.041 of the Ohio Revised Code, and the registrant's Amended
Declaration of Trust and By-Laws. The Lawsuit, as amended, seeks preliminary
and permanent injunctive relief against the Defendants, damages, costs, and
such other and further relief as may be just and proper.
Richard M. Osborne and Turkey Vulture Fund XIII, Ltd., filed a Counterclaim
against the registrant on February 10, 1995 (the "Osborne Counterclaim"). The
Osborne Counterclaim, as amended, alleges, among other things, that the
registrant's Rights Agreement and certain of the registrant's By-Laws violate
certain provisions of the registrant's Amended Declaration of Trust; that the
registrant has violated its fiduciary duties; and that the registrant committed
abuse of process.
On March 6, 1995, Mark P. Escaja filed a Counterclaim for abuse of process
against the registrant (the "Escaja Counterclaim").
On March 10, 1995, Heritage Capital Corporation, The Wolstein Group,
Developers Diversified Realty Corporation, Bert Wolstein and Scott Wolstein
filed a counterclaim for abuse of process against the registrant and a
counterclaim for defamation against the registrant and its President and Chief
Executive Officer, James C. Mastandrea (the "Wolstein Counterclaim").
The Osborne Counterclaimants seek declaratory relief against the registrant,
damages, judgment in their favor, their costs and attorney's fees, and such
other and further relief as the Court deems proper and just. The Escaja
Counterclaim seeks punitive and compensatory damages from the registrant, in
addition to interest, attorneys' fees and costs. The Wolstein Counterclaim
seeks punitive and compensatory damages from the registrant and Mr. Mastandrea,
costs, attorneys' fees, and such other further relief as the Court may deem
appropriate.
The registrant denies that any of the counterclaimants are entitled to
relief, and is vigorously defending against all of the counterclaims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
------- ----------------------------------------------------
None.
13
<PAGE> 14
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
------ ----------------------------------------------------------------------
MARKET PRICE AND DIVIDEND RECORD.
--------------------------------
"Market Price and Dividend Record" presented on page 1 of registrant's 1994
Annual Report to Shareholders is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
------ -----------------------
"Selected Financial Data" presented on pages 18 and 19 of registrant's
1994 Annual Report to Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------ ---------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" presented on pages 30 and 31 of registrant's 1994 Annual Report
to Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS.
------ --------------------
The "Combined Balance Sheets" as of December 31, 1994 and 1993, and the
"Combined Statements of Income, Combined Statements of Changes in Cash,
Combined Statements of Shareholders' Equity" for the years ended December 31,
1994, 1993 and 1992, of the registrant, "Notes to Combined Financial
Statements" and "Report of Independent Public Accountants" are presented on
pages 20 through 29 of registrant's 1994 Annual Report to Shareholders and are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL
------ -----------------------------------------------------------
DISCLOSURE.
----------
None.
14
<PAGE> 15
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
------- --------------------------------------------------
(a) Directors.
---------
"Election of Trustees" presented on pages 1 through 5 of
registrant's 1995 Proxy Statement is incorporated herein by reference.
(b) Executive Officers.
------------------
<TABLE>
<CAPTION>
Period
of
Name Age Positions, Offices and Business Service
------------------ --- ------------------------------- -------
Experience
----------
<S> <C> <C> <C>
James C. Mastandrea 51 Chairman, President and Chief 1993 to date
Executive Officer since January
1994 and President and Chief
Operating Officer from July 1993
to December 1993. President and
Chief Executive Officer of Triam
Corporation, Chicago, Illinois, an
investment adviser to various real
estate investment funds, from 1991
to 1993. Chairman, President and
Chief Executive Officer of Midwest
Development Corporation, Buffalo
Grove, Illinois from 1978 to 1991.
Served in various capacities in the
field of commercial and real estate
lending from 1971 to 1978, including
Vice President of Continental Bank,
Chicago, Illinois, and with Mellon
Bank, Pittsburgh, Pennsylvania.
Gregory D. Bruhn 47 Executive Vice President and 1994 to date
Chief Financial Officer since March
1994. Executive Vice President, Real
Estate, Bank of America, Los Angeles,
from April 1992 to February 1994.
Executive Vice President, Real Estate,
Security Pacific National Bank, Los
Angeles, from July 1991 to April 1992.
Executive Vice President, Real Estate,
Union Bank, Los Angeles, from 1989 to
1991. Senior Vice President, Real Estate,
Union Bank, Los Angeles, from 1987 to
1989. Vice President, Real Estate,
Continental Bank, Chicago, from 1977 to
1987; and various capacities involving
real estate from 1971 to 1977.
Paul F. Levin 48 Senior Vice President, General 1989 to date
Counsel and Secretary since
December 1994. Vice President, General
Counsel and Secretary since May 1989.
Principal of Schwarzwald, Robiner, Rock &
Levin, a Legal Professional Association,
from 1981 to 1989. Associate of Gaines,
Stern, Schwarzwald & Robiner Co., L.P.A.
from 1979 to 1980.
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C>
Assistant Director of Law, City of
Cleveland, Ohio, from 1975 to 1978.
John J. Dee 43 Senior Vice President and Con- 1978 to date
roller since July 1992. Vice
President and Controller from December
1986 to July 1992, Controller from April
1981 to December 1986, Assistant Con-
troller from December 1979 to April 1981,
Accounting Manager from August 1978 to
December 1979.
Steven M. Edelman 40 Senior Vice President, Asset 1980 to date
Management since July 1992. Vice
President, Aquisitions from December 1985
to June 1992. Assistant Vice President,
Aquisitions from January 1985 to November
1985. Aquisition Analyst from February
1984 to December 1985. Assistant Controller
from July 1982 to January 1984. Internal
Auditor from June 1980 to June 1982.
Auditor with Touche Ross & Co. from 1978
to 1980.
<FN>
The above-named executive officers of the registrant hold office at
the pleasure of the Trustees of the registrant, and until their successors are
chosen and qualified.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION.
------- ----------------------
"Compensation of Trustees" and "Executive Compensation", presented on
page 5 and pages 8 through 13, respectively, of registrant's 1995 Proxy
Statement are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
------- --------------------------------------------------------------
"Security Ownership of Trustees, Officers and Others" presented on
pages 7 and 8 of registrant's 1995 Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
------- ----------------------------------------------
None.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
------- ----------------------------------------------------------------
(a) Financial Statements and Financial Statement Schedules.
------------------------------------------------------
(1) Financial Statements:
--------------------
Combined Balance Sheets - December 31, 1994 and 1993
(incorporated by reference to page 20 of registrant's
1994 Annual Report to Shareholders).
Combined Statements of Income - For the Years Ended
December 31, 1994, 1993 and 1992 (incorporated by
reference to page 21 of registrant's 1994 Annual Report
to Shareholders).
16
<PAGE> 17
Combined Statements of Changes in Cash - For the Years
Ended December 31, 1994, 1993 and 1992 (incorporated by
reference to page 22 of registrant's 1994 Annual Report
to Shareholders).
Combined Statements of Shareholders' Equity - For the
Years Ended December 31, 1994, 1993 and 1992
(incorporated by reference to page 23 of registrant's
1994 Annual Report to Shareholders).
Notes to Combined Financial Statements (incorporated by
reference to pages 24 through 29 of registrant's 1994
Annual Report to Shareholders).
Report of Independent Public Accountants (incorporated by
reference to page 29 of registrant's 1994 Annual Report
to Shareholders).
(2) Financial Statement Schedules:
-----------------------------
Report of Independent Public Accountants on Financial
Statement Schedules.
Schedule III - Real Estate and Accumulated Depreciation.
------------
Schedule IV - Mortgage Loans on Real Estate.
-----------
All Schedules, other than III and IV, are omitted, as the
information is not required or is otherwise furnished.
(b) Exhibits.
--------
Exhibit (10)(a) - Share Purchase Agreement dated as of
December 31, 1983 between registrant and First Union
Management, Inc., (incorporated by reference to
Registration Statement No. 2-88719).
Exhibit (10)(b) - First Amendment to Share Purchase
Agreement dated as of December 10, 1985 between
registrant and First Union Management, Inc.,
(incorporated by reference to Registration Statement No.
33-2818).
Exhibit (10)(c) - Second Amendment to Share Purchase
Agreement dated as of December 9, 1986 between registrant
and First Union Management, Inc., (incorporated by
reference to Registration Statement No. 33-11524).
Exhibit (10)(d) - Third Amendment to Share Purchase
Agreement dated as of December 2, 1987 between registrant
and First Union Management, Inc., (incorporated by
reference to Registration Statement No. 33-19812).
Exhibit (10)(e) - Fourth Amendment to Share Purchase
Agreement dated as of December 7, 1988, between
registrant and First Union Management, Inc.,
(incorporated by reference to Registration Statement No.
33-26758).
Exhibit (10)(f) - Fifth Amendment to Share Purchase
Agreement dated as of November 29, 1989, between
registrant and First Union Management, Inc.,
(incorporated by reference to Registration Statement No.
33-33279).
Exhibit (10)(g) - Sixth Amendment to Share Purchase
Agreement dated as of November 28, 1990, between
registrant and First Union Management, Inc.,
(incorporated by reference to Registration Statement No.
33-38754).
17
<PAGE> 18
Exhibit (10)(h) - Seventh Amendment to Share Purchase
Agreement dated as of November 27, 1991, between
registrant and First Union Management, Inc.,
(incorporated by reference to Registration Statement No.
33-45355).
Exhibit (10)(i) - Eighth Amendment to Share Purchase
Agreement dated as of November 30, 1992, between
registrant and First Union Management, Inc.,
(incorporated by reference to Registration Statement No.
33-57756).
Exhibit (10)(j) - $60 million credit agreement.
Exhibit (11) - Statements Re: Computation of Per Share
Earnings.
Exhibit (12) - Statements Re: Computation of Ratios.
Exhibit (13) - 1994 Annual Report to Shareholders.
Exhibit (23) - Consent of Independent Public Accountants.
Exhibit (24) - Powers of Attorney
(c) Reports on Form 8-K.
-------------------
None.
18
<PAGE> 19
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
FIRST UNION REAL ESTATE EQUITY AND
MORTGAGE INVESTMENTS
By: /s/ James C. Mastandrea
----------------------------------
James C. Mastandrea, Chairman,
President and Chief Executive
Officer
March 30, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Principal Executive Officer Chairman, President March 30, 1995
and Chief Executive
Officer
/s/ James C. Mastandrea
---------------------------
James C. Mastandrea
Principal Financial Officer Executive Vice- March 30, 1995
President and Chief
Financial Officer
/s/ Gregory D. Bruhn
---------------------------
Gregory D. Bruhn
Principal Accounting Officer Senior Vice President- March 30, 1995
Controller
/s/ John J. Dee
---------------------------
John J. Dee
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
<S> <C> <C>
TRUSTEES: ) Date
) ----
)
*Otes Bennett, Jr. )
)
*Kenneth K. Chalmers )
)
*William E. Conway ) March 30, 1995
)
*Daniel G. DeVos )
)
*Allen H. Ford )
)
*Stephen R. Hardis )
)
*James C. Mastandrea )
)
)
)
*By: /s/ Paul F. Levin )
--------------------------------- )
Paul F. Levin, Attorney-in-fact )
</TABLE>
20
<PAGE> 21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
-------------------------------------------
FINANCIAL STATEMENT SCHEDULES
-----------------------------
To First Union Real Estate Equity
and Mortgage Investments:
We have audited in accordance with generally accepted auditing
standards, the combined financial statements included in the registrant's 1994
Annual Report to Shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 1, 1995. Our audit was made for
the purpose of forming an opinion on those combined statements taken as a
whole. The schedules listed under Item 14(a)(2) on page 17 are the
responsibility of management and are presented for purposes of complying with
the Securities and Exchange Commission's rules and are not part of the basic
combined financial statements. These schedules have been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic combined financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
February 1, 1995.
21
<PAGE> 22
<TABLE>
Schedule III
-------------
REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------
AS OF DECEMBER 31, 1994
-----------------------
(IN THOUSANDS)
<CAPTION>
Cost
capitalized
Initial cost to subsequent to Gross amount at which
Registrant acquisition carried at close of
------------------ ------------- period
Buildings Land ----------------------------
Encum- and and Buildings and
Description brances Land Improvements Improvements Land Improvements Total
----------------------------------- ------- ---- ------------ ------------ ---- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Shopping Malls:
Eastern
-------
Middletown, Fairmont, WV (A) $ 908 $ 250 $ 5,591 $ 605 $ 250 $ 6,196 $ 6,446
Wyoming Valley, Wilkes Barre, PA (A) 3,774 544 10,997 631 525 11,647 12,172
Mountaineer, Morgantown, WV 9,805 1,450 12,693 19,737 1,615 32,265 33,880
Fingerlakes, Auburn, NY -- 1,300 23,698 1,041 1,370 24,669 26,039
Fairgrounds Square, Reading, PA -- 2,400 22,635 4,748 2,369 27,414 29,783
Wilkes, Wilkesboro, NC -- 1,168 13,891 3,649 1,168 17,540 18,708
------ ----- ------ ------ ----- ------- -------
14,487 7,112 89,505 30,411 7,297 119,731 127,028
------ ----- ------ ------ ----- ------- -------
Midwestern
----------
North Valley, Denver, CO 612 -- 7,666 3,629 -- 11,295 11,295
Crossroads, St. Cloud, MN 34,266 1,680 8,303 13,764 2,855 20,892 23,747
Two Rivers, Clarksville, TN -- -- 3,206 5,078 -- 8,284 8,284
Crossroads, Ft. Dodge, IA -- 1,151 2,792 7,534 1,327 10,150 11,477
Westgate Towne Centre, Abilene, TX -- 1,425 3,050 5,341 1,485 8,331 9,816
Kandi, Willmar, MN -- --- 5,035 14,026 -- 19,061 19,061
------ ----- ------ ------ ------ ------ ------
34,878 4,256 30,052 49,372 5,667 78,013 83,680
------ ----- ------ ------ ------ ------ ------
Western
-------
Valley North, Wenatchee, WA -- 405 2,916 945 473 3,793 4,266
Mall 205, Portland, OR -- 1,228 6,140 6,368 1,228 12,508 13,736
Plaza 205, Portland, OR 710 -- 1,677 2,682 695 3,664 4,359
Peach Tree, Marysville, CA -- 985 3,622 9,341 985 12,963 13,948
Valley, Yakima, WA 563 -- 8,731 3,181 623 11,289 11,912
------ ------ ------- ------- ------ ------- -------
1,273 2,618 23,086 22,517 4,004 44,217 48,221
------ ------ ------- ------- ------ ------- -------
$50,638 $13,986 $142,643 $102,300 $16,968 $241,961 $258,929
------ ------ ------- ------- ------ ------- -------
<CAPTION>
Accumu- Year
lated construc-
depreci- tion Date
Description ation completed Acquired Life
----------------------------------- ------- --------- -------- ----
<S> <C> <C> <C> <C>
Shopping Malls:
Eastern
-------
Middletown, Fairmont, WV (A) $ 2,980 1970 12-03-70 50
Wyoming Valley, Wilkes Barre, PA (A) 5,375 1972 06-12-72 49
Mountaineer, Morgantown, WV 6,808 1975 01-29-78 60
Fingerlakes, Auburn, NY 6,822 1980 09-28-81 50
Fairgrounds Square, Reading, PA 6,587 1980 09-30-81 57
Wilkes, Wilkesboro, NC 4,105 1982 05-04-83 50
------
32,677
------
Midwestern
----------
North Valley, Denver, CO 4,057 1967 12-03-69 60
Crossroads, St. Cloud, MN 6,326 1966 01-01-72 64
Two Rivers, Clarksville, TN 2,359 1968 09-26-75 50
Crossroads, Ft. Dodge, IA 3,206 1967 04-22-77 57
Westgate Towne Centre, Abilene, TX 2,226 1962 04-22-77 60
Kandi, Willmar, MN 5,125 1973 03-12-79 55
------
23,299
------
Western
-------
Valley North, Wenatchee, WA 2,012 1966 08-30-73 40
Mall 205, Portland, OR 4,482 1970 03-01-75 59
Plaza 205, Portland, OR 1,224 1970 04-26-78 47
Peach Tree, Marysville, CA 3,411 1972 12-19-79 50
Valley, Yakima, WA 2,979 1972 05-01-80 54
------
14,108
------
$70,084
------
</TABLE>
22
<PAGE> 23
<TABLE>
Schedule III
------------
Continued
<CAPTION>
Cost
capitalized
Initial cost to subsequent to Gross amount at which
Registrant acquisition carried at close of
------------------ ------------- period
Buildings Land -----------------------------
Encum- and and Buildings and
Description brances Land Improvements Improvements Land Improvements Total
----------------------------------- ------- ---- ------------ ------------ ---- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Apartments:
Midwestern
----------
Somerset Lakes, Indianapolis, IN $12,000 $ 2,172 $16,400 $1,591 $2,172 $17,991 $20,163
Meadows of Catalpa, Dayton, OH 7,863 1,270 7,955 934 1,270 8,889 10,159
------ ----- ------ ----- ----- ------ ------
19,863 3,442 24,355 2,525 3,442 26,880 30,322
------ ----- ------ ----- ----- ------ ------
Southeastern
------------
Briarwood, Fayetteville, NC -- 495 6,614 695 495 7,309 7,804
Woodfield Gardens, Charlotte, NC 907 171 3,087 371 171 3,458 3,629
Windgate Place, Charlotte, NC 1,548 353 4,818 655 353 5,473 5,826
Walden Village, Atlanta, GA 2,628 2,768 9,288 1,073 2,768 10,361 13,129
Beech Lake, Durham, NC -- 3,760 15,707 33 3,760 15,740 19,500
------ ------ ------ ----- ------ ------ ------
5,083 7,547 39,514 2,827 7,547 42,341 49,888
------ ------ ------ ----- ------ ------ ------
24,946 10,989 63,869 5,352 10,989 69,221 80,210
------ ------ ------ ----- ------ ------ ------
Office Buildings:
Midwestern
----------
55 Public Square, Cleveland OH -- 2,500 19,055 7,916 2,500 26,971 29,471
Circle Tower, Indianapolis, IN -- 270 1,609 1,962 270 3,571 3,841
Rockwell Avenue, Cleveland, OH -- 1,964 6,160 4,556 1,969 10,711 12,680
300 Sixth Avenue, Pittsburgh, PA 969(B) 144 2,667 5,575 144 8,242 8,386
Ninth Street Plaza, Cleveland, OH -- 710 5,718 714 710 6,432 7,142
Henry C. Beck, Shreveport, LA -- 717 3,906 2,938 717 6,844 7,561
Landmark Towers, Oklahoma City, OK 1,098 1,940 7,234 5,308 1,940 12,542 14,482
----- ------ ------ ------ ----- ------ ------
2,067 8,245 46,349 28,969 8,250 75,313 83,563
----- ------ ------ ------ ----- ------ ------
Other:
Land-Huntington Bldg., Cleveland, OH -- 4,501 -- -- 4,501 -- 4,501
Parking Garage, Cleveland, OH 9,132 1,600 4,407 898 1,600 5,305 6,905
Parking Facility, Cleveland, OH -- 2,030 -- 256 2,286 -- 2,286
------ ------ ------- ------- ------ ------- -------
9,132 8,131 4,407 1,154 8,387 5,305 13,692
------ ------ ------- ------- ------ ------- -------
Totals, December 31, 1994 $86,783 $41,351 $257,268 $137,775 $ 44,594 $391,800 $436,394(C)
====== ====== ======= ======= ====== ======= =======
<CAPTION>
Accumu- Year
lated construc-
depreci- tion Date
Description ation completed Acquired Life
----------------------------------- -------- --------- -------- ----
<S> <C> <C> <C> <C>
Apartments:
Midwestern
----------
Somerset Lakes, Indianapolis, IN $3,047 1975 11-10-88 40
Meadows of Catalpa, Dayton, OH 1,493 1972 07-11-89 40
-----
4,540
-----
Southeastern
------------
Briarwood, Fayetteville, NC 750 1968-70 06-30-91 40
Woodfield Gardens, Charlotte, NC 395 1974 06-30-91 40
Windgate Place, Charlotte, NC 678 1974-78 06-30-91 40
Walden Village, Atlanta, GA 748 1973 06-01-92 40
Beech Lake, Durham, NC 152 1986 08-19-94 40
-----
2,723
-----
7,263
-----
Office Buildings:
Midwestern
----------
55 Public Square, Cleveland OH 15,016 1959 01-15-63 63
Circle Tower, Indianapolis, IN 1,772 1930 10-16-74 40
Rockwell Avenue, Cleveland, OH 4,459 1916 04-30-79 40
300 Sixth Avenue, Pittsburgh, PA 2,723 1906 05-01-79 52
Ninth Street Plaza, Cleveland, OH 1,371 1981 10-11-85 50
Henry C. Beck, Shreveport, LA 2,872 1958 08-30-74 51
Landmark Towers, Oklahoma City, OK 4,086 1967-71 10-01-77 60
------
32,299
------
Other:
Land-Huntington Bldg., Cleveland, OH -- --- 10-25-61 --
Parking Garage, Cleveland, OH 2,084 1969 12-31-75 53
Parking Facility, Cleveland, OH 242 --- 09-19-77 10
-------
2,326
-------
Totals, December 31, 1994 $111,972
=======
<FN>
(A) Registrant's ownership represents an undivided 50% interest. The registrant sold its 50% interests in these malls in January
1995.
(B) Represents long-term leasehold estate interest which has been capitalized in accordance with Statement of Financial Accounting
Standards No. 13.
(C) Aggregate cost for federal tax purposes is $417,012,000.
</TABLE>
23
<PAGE> 24
<TABLE>
SCHEDULE III
------------
- CONTINUED
The following is a reconciliation of real estate assets and accumulated depreciation for the years ended December 31, 1994,
1993 and 1992:
<CAPTION>
(IN THOUSANDS)
Years ended December 31,
-----------------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Asset Reconciliation:
Balance, beginning of period $409,060 $397,493 $377,218
Additions during the period:
Property acquisitions 20,017 67 12,080
Improvements 7,570 11,974 9,013
Equipment and Appliances 787 822 1,247
Deductions during the period:
Sales of Real Estate ( 13) (416)
Other - Write-Off of Assets and
certain fully depreciated
Tenant alterations (1,040) (1,283) (1,649)
-------- -------- --------
Balance, end of period $436,394 $409,060 $397,493(A)
======== ======== =========
Accumulated depreciation
Reconciliation:
Balance, beginning of period $101,824 $ 92,426 $ 83,801
Additions during the period:
Depreciation 11,188 10,681 10,274
Deductions during the period:
Write-Off of Assets and
certain fully depreciated
tenant alterations (1,040) (1,283) (1,649)
-------- -------- --------
Balance, end of period $111,972 $101,824 $ 92,426(A)
======== ======== =========
<FN>
(A) Certain amounts for 1992 have been restated to conform with the presentation
of 1994 balances. At December 31, 1994, 1993 and 1992,
building and improvements included $10.3 million, $9.5 million and $9.5
million, respectively, of leasing costs. Also included in building and
improvements were Equipment and Appliances of $4.5 million, $3.7
million and $2.9 million at December 31, 1994, 1993 and 1992,
respectively.
Accumulated depreciation at December 31, 1994, 1993 and 1992, has also
been restated for $4.6 million, $4.1 million and $3.9 million,
respectively, of depreciation for leasing costs. Accumulated
depreciation for Equipment and Appliances of $1.9 million, $1.4 million
and $1 million for December 31, 1994, 1993 and 1992, respectively, was
also included in accumulated depreciation.
</TABLE>
24
<PAGE> 25
<TABLE>
Schedule IV
-----------
MORTGAGE LOANS ON REAL ESTATE
-----------------------------
AS OF DECEMBER 31, 1994
-----------------------
(IN THOUSANDS, EXCEPT FOR PAYMENT TERMS AND FOOTNOTES)
<CAPTION>
Current
effective Final
rate on net maturity
Description investment date Periodic payment terms
--------------- ----------- -------- -----------------------------
<S> <C> <C> <C>
First Mortgage
Loan:
Secured by 10% 10-31-11 Interest calculated at stated
office bldg. rate of 9.65%, with install-
in Cleveland, ments of principal and interest
Ohio payable monthly through maturity;
$13,013,000 due at maturity;
prepayment without penalty sub-
ject to certain conditions.
Wraparound Mortgage
Loan:
Secured by 14% 11-30-99 Monthly installments of interest
garden payable through November 1999;
apartments difference between interest paid
in Atlanta, and interest calculated at the
Georgia stated rate of 10% will increase
registrant's equity investment
until January 1998; equity invest-
ment and deferred interest total-
ing $22,434,000 due at maturity;
prepayment without penalty.
Totals, December 31, 1994
<CAPTION>
Face Carrying
amount of amount of Prior Net
Description mortgage mortgage liens investment
--------------- --------- --------- ------ ----------
<S> <C> <C> <C> <C>
First Mortgage
Loan:
Secured by $11,387 $19,440 $ --- $19,440
office bldg.
in Cleveland,
Ohio
Wraparound Mortgage
Loan:
Secured by 18,060 16,321 4,012 12,309
garden
apartments
in Atlanta,
Georgia
------ ------ ----- ------
$29,447 $35,761(A) $4,012 $31,749
====== ====== ===== ======
<FN>
(A) Aggregate cost for federal tax purposes is $40,184,000.
</TABLE>
25
<PAGE> 26
<TABLE>
Schedule IV
-----------
- Continued
The following is a reconciliation of the carrying amounts of the mortgage loans
outstanding for the years ended December 31, 1994, 1993 and 1992:
<CAPTION>
(In thousands)
Years Ended December 31,
----------------------------------------
1994 1993 1992
------------ ------------ ----------
<S> <C> <C> <C>
Balance, beginning of period $35,550 $39,573 $61,903
Additions during the period:
---------------------------
Deferred interest on wrap-
around mortgage loans, net:
Secured by wraparound mortgages
on garden apartments in
Atlanta, Georgia 357 401 387
Deductions during the period:
----------------------------
Collection of principal (146) (4,424) (11,326)
Transfer from mortgage investments
to investments in real estate
resulting from Deed in lieu of
foreclosure of a wraparound
mortgage secured by a garden
apartment complex in Atlanta, Georgia -- -- (11,391)
------ ------ --------
Balance, end of period $35,761 $35,550 $39,573
====== ====== ======
</TABLE>
26
<PAGE> 27
EXHIBIT INDEX
-------------
EXHIBIT
-------------
EXHIBIT (10)(A) - Share Purchase Agreement dated as of December 31, 1983
between Registrant and First Union Management, Inc., (Incorporated
by reference to Registration Statement No. 2-88719)................
EXHIBIT (10)(B) - First Amendment to Share Purchase Agreement dated as
of December 10, 1985 between Registrant and First Union Management,
Inc., (Incorporated by reference to Registration Statement
No. 33-2818).......................................................
EXHIBIT (10)(C) - Second Amendment to Share Purchase Agreement dated as
of December 9, 1986 between Registrant and First Union Management,
Inc., (Incorporated by reference to Registration Statement
No. 33-11524).....................................................
EXHIBIT (10)(D) - Third Amendment to Share Purchase Agreement dated as
of December 2, 1987 between Registrant and First Union Management,
Inc., (Incorporated by reference to Registration Statement
No. 33-19812).....................................................
EXHIBIT (10)(E) - Fourth Amendment to Share Purchase Agreement dated as
of December 7, 1988 between Registrant and First Union Management,
Inc., (Incorporated by reference to Registration Statement
No. 33-26758).....................................................
EXHIBIT (10)(F) - Fifth Amendment to Share Purchase Agreement dated as
of November 29, 1989 between Registrant and First Union Management,
Inc., (Incorporated by reference to Registration Statement
No. 33-33279)......................................................
EXHIBIT (10)(G) - Sixth Amendment to Share Purchase Agreement dated as
of November 28, 1990 between Registrant and First Union Management,
Inc., (Incorporated by reference to Registration Statement
No. 33-38754)......................................................
EXHIBIT (10)(H) - Seventh Amendment to Share Purchase Agreement dated as
of November 27, 1991 between Registrant and First Union Management,
Inc., (Incorporated by reference to Registration Statement
No. 33-45355)......................................................
EXHIBIT (10)(I) - Eighth Amendment to Share Purchase Agreement dated as
of November 30, 1992 between Registrant and First Union Management,
Inc., (Incorporated by Reference to Registration Statement
No. 33-57756)......................................................
EXHIBIT (10)(J) - $60 Million Credit Agreement.............................
EXHIBIT (11) - Statements RE: Computation of Per Share Earnings............
EXHIBIT (12) - Statements RE: Computation of Ratios........................
EXHIBIT (13) - 1994 Annual Report to Shareholders..........................
EXHIBIT (23) - Consent of Independent Public Accountants...................
EXHIBIT (24) - Powers Of Attorney..........................................
<PAGE> 1
FINAL
EXHIBIT 10(J)
==================================================================
CREDIT AGREEMENT
BY AND AMONG
FIRST UNION REAL ESTATE EQUITY AND
MORTGAGE INVESTMENTS
("BORROWER")
FIRST UNION MANAGEMENT, INC. (THE "MANAGEMENT COMPANY")
AND
NATIONAL CITY BANK
(THE "BANK")
DATED AS OF DECEMBER 5, 1994
==================================================================
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1. INTERPRETATION.. . . . . . . . . . . . . . . . . . . . 1
Section 1.1 General . . . . . . . . . . . . . . . . . . 1
Section 1.2 Definitions . . . . . . . . . . . . . . . . 1
ARTICLE 2. THE LOANS . . . . . . . . . . . . . .. . . . . . . . . 15
Section 2.1 The Credit Commitment . . .. . . . . . . . 15
Section 2.2 Making the Loans . . . . . . . . . . . . . 15
Section 2.3 The Note . . . . . . .. . . . . . . . . . . 16
Section 2.4 Interest Payable on the Loans . . . . . . . 16
Section 2.5 Prepayments . . . . . . . . .. . . . . . . 20
Section 2.6 Payments and Computations . .. . . . . . . 20
Section 2.7 Payments to be Free of Deductions . . . . . 22
Section 2.8 Use of Proceeds. . . . . . . . . . . . . . . 22
Section 2.9 Libor Break Funding Costs. . . . . . . . . . 23
Section 2.10 Additional Costs. . . . . . . . . . . . . . 23
Section 2.11 Indemnification for Losses . . . . . . . . . 25
Section 2.12 Statements by the Bank . . . . . . . . . . . 25
Section 2.13 Requests for Advances . . . . . . . . . . . 26
Section 2.14 The Letters of Credit . . . . . . . . . . . 26
ARTICLE 3. CONDITIONS PRECEDENT TO DISBURSEMENTS . . . . . . . . . 30
Section 3.1 Conditions Precedent to Initial Closing. . . 30
Section 3.2 Conditions Precedent to Subsequent Loans
and to Letters of Credit. . . . . . . . . . . 34
ARTICLE 4. GENERAL REPRESENTATIONS AND WARRANTIES . . . . . . . . 37
Section 4.1 Organization, Existence . . . . . . . . . . 37
Section 4.2 Due Authorization . . . . . . . . . . . . . 37
Section 4.3 Enforceability of Documents . . . . . . . . 39
Section 4.4 No Default . . . . . . . . . . . . . . . . . 39
Section 4.5 Financial Statements . . . . . . . . . . . . 39
Section 4.6 No Adverse Changes . . . . . . . . . . . . . 40
Section 4.7 Title to Assets . . . . . . . . . . . . . . 40
Section 4.8 Litigation . . . . . . . . . . . . . . . . . 40
Section 4.9 No Materially Adverse Contracts . . . . . . 41
Section 4.10 Tax Returns. . . . . . . . . . . . . . . . . 41
Section 4.11 Contracts with Affiliates . . . . . . . . . 41
Section 4.12 Employee Benefit Plans . . . . . . . . . . . 41
(i)
<PAGE> 3
Section 4.13 Governmental Regulation . . . . . . . . . 41
Section 4.14 Securities Activities . . . . . . . . . . 42
Section 4.15 Disclosure . . . . . . . . . . . . . . . . 42
Section 4.16 No Material Default . . . . . . . . . . . 42
Section 4.17 Environmental Conditions . . . . . . . . . 42
Section 4.18 Licenses and Permits . . . . . . . . . . . 43
ARTICLE 5. AFFIRMATIVE COVENANTS OF BORROWER . . . . . . . . . . 44
Section 5.1 Reports and Other Information . . . . . . 44
Section 5.2 Maintenance of Property; Insurance . . . . 46
Section 5.3 Priority of Mortgages . . . . . . . . . . 47
Section 5.4 Security Interests . . . . . . . . . . . . 47
Section 5.5 Maintenance of Existence . . . . . . . . . 48
Section 5.6 Compliance with Laws . . . . . . . . . . . 48
Section 5.7 Notice of Litigation: Judgments . . . . . 49
Section 5.8 Notice of Other Events . . . . . . . . . . 49
Section 5.9 Inspections . . . . . . . . . . . . . . . 50
Section 5.10 Payment of Taxes and Other Claims . . . . 50
Section 5.11 Payment of Indebtedness . . . . . . . . . 50
Section 5.12 Payment of Fees . . . . . . . . . . . . . 51
Section 5.13 Performance of Obligations Under the Loan
Documents . . . . . . . . . . . . . . . . 51
Section 5.14 Governmental Consents and Approvals . . . 51
Section 5.15 Employee Benefit Plans and Guaranteed
Pension Plans . . . . . . . . . . . . . . 52
Section 5.16 Further Assurances . . . . . . . . . . . . 52
Section 5.17 [Deliberately Omitted] . . . . . . . . . . 52
Section 5.18 Financial Covenants . . . . . . . . . . . 52
Section 5.19 Additional Mortgaged Properties; Substitute
Mortgaged Properties. . . . . . . . . . . 53
ARTICLE 6. NEGATIVE COVENANTS OF BORROWER . . . . . . . . . . . 56
Section 6.1 Limitation on Nature of Business . . . . . 56
Section 6.2 Limitation on Consolidation and Merger . . 56
Section 6.3 Limitation on Distributions, Dividends
and Return of Capital . . . . . . . . . . 57
Section 6.4 Acquisition of Margin Securities . . . . . 58
Section 6.5 Limitation on Indebtedness . . . . . . . . 58
(ii)
<PAGE> 4
Section 6.6 Transactions with Affiliates . . . . . . . 59
Section 6.7 Limitation on Certain Actions . . . . . 59
ARTICLE 7. EVENTS OF DEFAULT; REMEDIES . . . . . . . . . . . . . 59
Section 7.1 Events of Default . . . . . . . . . . . . 59
Section 7.2 Termination of Commitments and
Acceleration of Obligations . . . . . . . 61
Section 7.3 No Implied Waiver; Rights Cumulative . . 62
ARTICLE 8. PROVISIONS OF GENERAL APPLICATION . . . . . . . . . 63
Section 8.1 Duration . . . . . . . . . . . . . . . . 63
Section 8.2 Notices . . . . . . . . . . . . . . . . 63
Section 8.3 Survival of Representations . . . . . . 64
Section 8.4 Amendments . . . . . . . . . . . . . . . 64
Section 8.5 Costs, Expenses, Taxes and Indemnification 64
Section 8.6 Binding Effect; Assignment . . . . . . . 66
Section 8.7 Governing Law; Jurisdiction and Venue . 67
Section 8.8 WAIVER OF JURY TRIAL . . . . . . . . . . 67
Section 8.9 Waivers . . . . . . . . . . . . . . . . 67
Section 8.10 Integration of Schedules and Exhibits . 67
Section 8.11 Headings . . . . . . . . . . . . . . . . 67
Section 8.12 Counterparts . . . . . . . . . . . . . . 67
Section 8.13 Severability . . . . . . . . . . . . . . 67
Section 8.14 One General Obligation . . . . . . . . . 67
Section 8.15 Liability of Borrower's Trustees, Etc. 68
(iii)
<PAGE> 5
MATERIALS ANNEXED TO THIS AGREEMENT
-----------------------------------
A. SCHEDULES TO THIS AGREEMENT:
-------------------------------
1. SCHEDULE 1.1
------------
List of the Mortgaged Properties (showing the initial Market
Constant and the Coverage Factor attributable to each) as at
the date of the Credit Agreement, together with legal
descriptions of each such Mortgaged Property.
2. SCHEDULE 1.1(A)
---------------
A legal description of the Kandi Mall Property, showing the
initial Market Constant and the Coverage Factor that the parties
anticipate will be applicable to such property as at the date
that such property becomes a Mortgaged Property under this
Credit Agreement as contemplated by Section 3.2(h).
3. SCHEDULE 4.1(C)
---------------
List of all of Borrower's ownership interests (direct or
indirect, and legal or equitable) in excess of one percent
(1%) in other corporations, partnerships, business trusts,
joint ventures or trade or business enterprises.
4. SCHEDULE 4.7
------------
List of any Property or asset (other than those disposed of in
the ordinary course of business) shown on Borrower's balance
sheet but not owned or leased by Borrower or a Consolidated
Subsidiary of Borrower.
5. SCHEDULE 4.8
------------
List of all litigation, proceedings and investigations pending
or, to Borrower's knowledge, threatened against Borrower or in
which Borrower is a participant.
6. SCHEDULE 4.12
-------------
List of Borrower's Employee Benefit Plans and Guaranteed
Pension Plans.
<PAGE> 6
B. EXHIBITS TO THIS AGREEMENT:
--------------------------
Exhibit A - Form of Assignment of Rents and Leases
Exhibit B - Form of Borrower's Compliance Certificate
Exhibit C - Form of Environmental Indemnity Agreement
Exhibit D - Form of Mortgage
Exhibit E - Form of Note
Exhibit F - Form of Payment Authorization
Exhibit G - Form of Request for Advance
Exhibit G-2 - Form of Request for Issuance of Letter of
Credit
Exhibit H - Form of Borrower's Counsel's Opinion
<PAGE> 7
THIS CREDIT AGREEMENT (this "Agreement") dated as of December 5, 1994,
by and among FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS, a real
estate investment trust organized under the laws of the State of Ohio
(hereinafter, "Borrower"), and FIRST UNION MANAGEMENT, INC., a Delaware
corporation (the "Management Company"), and NATIONAL CITY BANK, a national
banking association (the "Bank").
ARTICLE 1
---------
INTERPRETATION
--------------
Section 1.1 GENERAL. For the purposes of this Agreement the
following general rules of interpretation shall apply to the extent they are
not clearly inconsistent with the context or the subject matter of specific
provisions hereof:
(a) The expression "this Agreement" shall mean this
Credit Agreement (including all of the Schedules and Exhibits annexed hereto)
as originally executed, or, if supplemented, amended or restated from time to
time, as so supplemented, amended or restated;
(b) Singular nouns shall include the plural and vice
versa, and all references to dollars shall mean United States Dollars;
(c) Accounting terms not otherwise defined herein shall
have the meanings assigned to them in accordance with Generally Accepted
Accounting Principles (as hereinafter defined); and
(d) All Schedules and Exhibits to this Credit Agreement shall
be deemed to be incorporated herein by reference.
Section 1.2 DEFINITIONS. In addition to terms defined
elsewhere in this Agreement, the terms set forth below shall have the following
meanings for the purpose of this Agreement:
"ACCOUNTANTS" means Arthur Andersen & Co., or another "Big
Six" firm of certified public accountants selected by Borrower from time to
time as its auditing and accounting firm.
"ADJUSTED PRIME RATE" means, as to Prime Rate Loans which are
Tier 3 Obligations, the sum of the Prime Rate plus one-quarter of one percent
(0.25%) (except as otherwise provided in Section 2.4(c)(ii)).
"AFFILIATE" means, in relation to any Person (herein, an
"Affiliated Person"), any Person (other than a Subsidiary) which (directly or
indirectly) controls or is controlled by or is under common control with such
Affiliated Person. For the purposes of this definition, the term "control"
shall mean the possession (directly
<PAGE> 8
2
or indirectly) of the power to direct or to cause the direction of the
management or the policies of a Person, whether through the ownership of shares
of any class in the capital or any other voting securities of such Person, by
contract or otherwise.
"AGGREGATE BORROWING BASE" means, as at any time during the
pendency of this Agreement, the sum of the Borrowing Bases for each Mortgaged
Property then included in the Eligible Real Estate, provided, however, that
until such time as Borrower shall have complied with the terms of Section
3.2(h) (or shall have submitted Additional Properties as Mortgaged Properties
as contemplated by Section 5.19) the Aggregate Borrowing Base shall not exceed
Fifty Million Dollars ($50,000,000).
"AGGREGATE MEASURED CREDIT RISK" means, as at any time during
the pendency of this Agreement that a Swap Agreement is in effect, the amount
determined by the Bank in accordance with the terms of such Swap Agreement as
being Borrower's measured credit risk thereunder at such time. The amount of
the Aggregate Measured Credit Risk shall not exceed Three Million Dollars
($3,000,000) at any time.
"APPRAISED VALUE" means, as to each Additional Property or
Substitute Property, the fair market value of such property as determined by an
appraiser who is a member of the American Institute of Real Estate Appraisers
(or has a corresponding professional designation acceptable to the Bank),
pursuant to an appraisal acceptable to the Bank prepared and delivered in
conformity with any and all regulations and legal requirements applicable to
the Bank with respect to real property collateral.
"ASSIGNMENTS" mean, collectively, the Assignments of Rents and
Leases now or hereafter executed and delivered by Borrower and the Management
Company to the Bank, substantially in the form of EXHIBIT A hereto.
"BORROWING BASE" shall mean, with respect to each Mortgaged
Property comprised within the Eligible Real Estate, the value ascribed to such
Mortgaged Property for certain purposes in respect of the transactions
contemplated by this Agreement, and shall be calculated and reported,
quarterly, by dividing such Mortgaged Property's Property NOI by the product
resulting from the multiplication of such Mortgaged Property's Coverage Factor
by its Market Constant, to-wit:
PROPERTY NOI
____________________________________
Borrowing Base = (Coverage Factor) x (Market Constant)
"BUSINESS DAY" means any day other than a Saturday or Sunday
on which commercial banking institutions are open for business in Cleveland,
Ohio.
"CLOSING DATE" means the day on which the initial Loan is made
pursuant to this Agreement.
<PAGE> 9
3
"CODE" means the United States Internal Revenue Code of 1986,
as amended from time to time, or any successor federal tax code, and any
reference to any statutory provision shall be deemed to be a reference to any
successor provision or provisions.
"COLLATERAL" means any and all rights and interests in or to
property now or hereafter pledged, given or granted as security for the
Obligations pursuant to any of the Loan Documents, including, without
limitation, those Mortgaged Properties which are more particularly described in
SCHEDULE 1.1 hereto.
"COMMITMENT FEE" means a fee, payable to the Bank, equal to
three-eighths of one percent (3/8%) per annum (computed on the basis of a
360-day year for the actual number of days elapsed) on the average daily unused
portion of $60,000,000 (without regard to whether the full amount of the credit
facility provided hereunder is then available to Borrower).
"COMPLIANCE CERTIFICATE" means a certificate, substantially in
the form of EXHIBIT B, evidencing Borrower's compliance with the requirements
imposed upon it by this Agreement, to be furnished to the Bank quarterly.
"CONTINGENT OBLIGATION" means any direct or indirect
liability, contingent or otherwise, with respect to any Indebtedness, lease,
dividend, letter of credit, banker's acceptance or other obligation of another
Person incurred to provide assurance to the obligee of such obligation that
such obligation will be paid or discharged, that any agreements relating
thereto will be complied with, or that the holders of such obligation will be
protected (in whole or in part) against loss in respect thereof. Contingent
Obligations shall include, without limitation, (i) the direct or indirect
guaranty, endorsement (otherwise than for collection or deposit in the ordinary
course of business), co-making, discounting with recourse or sale with recourse
by any Person of the obligation of another Person; (ii) any liability for the
obligations of another Person through any agreement (contingent or otherwise)
(A) to purchase, repurchase or otherwise acquire such obligation or any
security therefor, or to provide funds for the payment or discharge of such
obligation (whether in the form of loans, advances, stock purchases, capital
contributions or otherwise), (B) to maintain the solvency of any balance sheet
item, level of income or financial condition of another, or (C) to make
take-or-pay, pay-or-play or similar payments if required regardless of
nonperformance by any other party or parties to an agreement, if in the case of
any agreement described under subclauses (A), (B) or (C) of this sentence the
purpose or intent thereof is to provide the assurance described above. The
amount of any Contingent Obligation shall be equal to the amount of the
obligation so guaranteed or otherwise supported.
"COVERAGE FACTOR" shall mean the factor, determined by the
Bank with respect to each respective Mortgaged Property included as Eligible
Real Estate, by which the Market Constant for such
<PAGE> 10
4
Mortgaged Property shall be multiplied to determine the denominator used to
calculate the Borrowing Base attributable to such Mortgaged property. The
Coverage Factor for each initial Mortgaged Property is set forth on SCHEDULE
1.1.
"CREDIT COMMITMENT" shall mean the Bank's agreement and
undertaking to make Loans to and to issue Letters of Credit to or for the
account of Borrower in accordance with, and subject to, the terms and
conditions of this Agreement.
"DECLARATION OF TRUST" means Borrower's Amended Declaration of
Trust, dated July 25, 1986, as the same may hereafter be amended from time to
time.
"DEFAULT" means any event or occurrence which, with the giving
of notice or the passage of time, or both, would constitute an Event of
Default.
"DEFAULT INTEREST RATE" means an annual rate of interest equal
to the lesser of (i) two and one-fourth percent (2-1/4%) above the Prime Rate;
or (ii) the maximum rate of interest which may lawfully be charged in respect
of the Obligations.
"DISTRIBUTION" means:
(i) The declaration or payment of any dividends or other
distributions on or in respect of capital stock or other
equity interests, including but not limited to certificates of
beneficial interest (except distributions in such equity
interests); or
(ii) The redemption, acquisition or other retirement of
Securities, except such redemptions, acquisitions or other
retirements made as a part of the same transaction from the
net proceeds of the sale of such Securities.
"DRAW DATE" means, in relation to any Loan, the day on which
such Loan is made or to be made to Borrower pursuant to this Agreement.
"EBITDA" means, for any fiscal quarter of Borrower, Borrower's
Net Income for such fiscal quarter, increased by the sum for such period of
interest expense, income and franchise tax expense, and amortization and
depreciation (in each case as determined in accordance with GAAP) deducted in
determining Net Income for such period.
"ELIGIBLE REAL ESTATE" means all of the Mortgaged Properties.
"EMPLOYEE BENEFIT PLAN" means an "employee benefit plan" as
defined in Section 3(3) of ERISA.
<PAGE> 11
5
"ENVIRONMENTAL INDEMNITY AGREEMENTS" means the environmental
indemnity agreements now or hereafter executed and delivered by Borrower to the
Bank, substantially in the form of EXHIBIT C hereto.
"ENVIRONMENTAL LAWS" means all present and future laws,
statutes, ordinances, rules, regulations, orders, and determinations of any
Federal, state or local governmental authority pertaining to health, protection
of the environment, natural resources, conservation, wildlife, waste
management, regulation of activities involving Hazardous Substances, and
pollution, including, without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act ("Superfund" or "CERCLA"), 42 U.S.C.
Section 9601 ET SEQ., the Superfund Amendments and Reauthorization Act of 1986
("SARA"), 42 U.S.C. Section 9601(20)(D), the Resource Conservation and
Recovery Act ("RCRA"), 42 U.S.C. Section 6901 ET SEQ., the Federal Water
Pollution Control Act, as amended by the Clean Water Act (the "Clean Water
Act"), 33 U.S.C. Section 1251 ET SEQ., the Clean Air Act ("CAA"), 42 U.S.C.
Section 7401 ET SEQ., and the Toxic Substances Control Act, 15 U.S.C. Section
2601 ET SEQ., together with any and all applicable licenses, permits or
governmental approvals pertaining to, or establishing standards with respect
to, any of the foregoing matters, as any of the foregoing may be amended or
supplemented.
"ERISA" means the Employee Retirement Income Security Act of
1974 and the rules and regulations issued thereunder, as the same may be
amended from time to time, and including any successor statute.
"ERISA AFFILIATE" means, in relation to any Person, any trade
or business (whether or not incorporated) which is a member of a group of which
that Person is a member and which is under common control with such Person
within the meaning of the regulations promulgated under Section 414 of the
Code, as amended.
"ERISA LIABILITIES" means the aggregate of all unfunded vested
benefits under any plan of Borrower or any ERISA Affiliate of Borrower under
any Plan covered by ERISA that is not a Multiemployer Plan, and all potential
withdrawal liabilities of any thereof under all Multiemployer Plans.
"EVENT OF DEFAULT" means any event or condition described in
Section 7.1 of this Agreement.
"FACE AMOUNT" means, as to any Letter of Credit which is
issued or to be issued pursuant to this Agreement, the maximum undisbursed
amount available, at the time of such determination, to be drawn under such
Letter of Credit.
"FUNDS FROM OPERATIONS" means, for any fiscal period of
Borrower, Borrower's Net Income PLUS depreciation and amortization expenses for
such period.
<PAGE> 12
6
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" or "GAAP" means
generally accepted accounting principles in effect from time to time in the
United States, consistently applied as regards any specific fiscal period.
"GUARANTEED PENSION PLAN" means any pension plan maintained by
Borrower or any ERISA Affiliate of Borrower, or to which Borrower or any ERISA
Affiliate contributes, some or all of the benefits under which are guaranteed
by the Pension Benefit Guaranty Corporation within the U.S. Department of
Labor.
"HAZARDOUS SUBSTANCES" means (i) any hazardous wastes and/or
toxic chemicals, materials, substances or wastes as defined by or for the
purposes of any of the Environmental Laws; (ii) any "oil", as defined by the
Clean Water Act, as amended from time to time, and regulations promulgated
thereunder (including crude oil or any fraction thereof and any petroleum
products or derivatives thereof); (iii) any substance, the presence of which is
prohibited, regulated or controlled by any other applicable federal or state or
local laws, regulations, statutes or ordinances now in force or hereafter
enacted relating to waste disposal or environmental protection with respect to
the exposure to, or manufacture, possession, presence, use, generation,
storage, transportation, treatment, release, emission, discharge, disposal,
abatement, cleanup, removal, remediation or handling of any such substances;
(iv) any asbestos or asbestos-containing materials, polychlorinated biphenyls
("PCBs") in the form of electrical equipment, fluorescent light fixtures with
ballasts, cooling oils or any other form, urea formaldehyde, atmospheric radon
at levels over four picocuries per cubic liter; (v) any solid, liquid, gaseous
or thermal irritant or contaminant, such as smoke, vapor, soot, fumes, alkalis,
acids, chemicals, pesticides, herbicides, sewage, industrial sludge or other
similar wastes; (iv) industrial, nuclear or medical by-products; and (vii) any
underground storage tank(s).
"HEAD OFFICE" means the head office of National City Bank,
located at 1900 East Ninth Street, Cleveland, Ohio 44101-0756, or such other
office as may be designated as such by written notice to Borrower by the Bank.
"INDEBTEDNESS" means, in relation to any Person, at any
particular time, all of the obligations of such Person which, in accordance
with GAAP, would be classified as indebtedness upon a balance sheet (including
any footnote thereto) of such Person prepared at such time, and in any event
shall include, without limitation:
(i) all indebtedness of such Person arising or incurred under
or in respect of (A) any guaranties (whether direct or
indirect) by such Person of the indebtedness, obligations or
liabilities of any other Person, or (B) any endorsement by
such Person of any of the indebtedness, obligations or
liabilities of any other Person (otherwise than as an endorser
of negotiable instruments received in
<PAGE> 13
7
the ordinary course of business and presented to
commercial banks for collection of deposit), or (C) the
discount by such Person, with recourse to such Person, of
any of the indebtedness, obligations or liabilities of any
other Person;
(ii) all indebtedness of such Person arising or incurred
under or in respect of any agreement, contingent or otherwise
made by such Person (A) to purchase any indebtedness of any
other Person or to advance or supply funds for the payment or
purchase of any indebtedness of any other Person or (B) to
purchase, sell or lease (as lessee or lessor) any property,
products, materials or supplies or to purchase or sell
transportation or services, primarily for the purpose of
enabling any other Person to make payment of any indebtedness
of such other Person or to assure the owner or holder of such
other Person's indebtedness against loss, regardless of the
delivery or non-delivery of the property, products, materials
or supplies or the furnishing or non-furnishing of the
transportation or services, or (C) to make any loan, advance,
capital contribution or other investment in any other Person
for the purpose of assuring a minimum equity, asset base,
working capital or other balance sheet condition for or as at
any date, or to provide funds for the payment of any
liability, dividend or stock liquidation payment, or otherwise
to supply funds to or in any manner invest in any other
Person;
(iii) all indebtedness, obligations and liabilities secured
by or arising under or in respect of any Lien, upon or in
Property owned by such Person, even though such Person has not
assumed or become liable for the payment of such indebtedness,
obligations and liabilities;
(iv) all indebtedness created or arising under any
conditional sale or other title retention agreement with
respect to Property acquired by such Person, even though the
rights and remedies of the seller or lender (or lessor) under
such agreement in the event of default are limited to
repossession or sale of such Property; and
(v) all indebtedness arising or incurred under or in
respect of any Contingent Obligation.
"INDEBTEDNESS FOR BORROWED MONEY" means at any particular
time, all Indebtedness (i) in respect of any money borrowed (including pursuant
to this Agreement); (ii) under or in respect of any Contingent Obligation
(whether direct or indirect) of any money borrowed; (iii) evidenced by any loan
or credit agreement, promissory note, debenture, bond, guaranty or other
similar written obligation to pay money; or (iv) arising under
<PAGE> 14
8
leases which, in accordance with GAAP, should be reflected as indebtedness on a
balance sheet.
"INSPECTION FEE" means the sum of Five Thousand Dollars
($5,000) per annum for each year during the pendency of this Agreement, payable
in advance to the Bank to defray the Bank's costs and expenses in inspecting
and monitoring the performance of the Eligible Real Estate.
"INTEREST EXPENSE" means, for any period, the aggregate
interest payable by Borrower and all of Borrower's Consolidated Subsidiaries
during such period determined in accordance with GAAP.
"INTEREST PERIOD" means: (a) For each Libor Rate Loan, the
period commencing on the Draw Date for such loan and ending one, two, three,
four, six or twelve months thereafter; provided that
(i) any Interest Period which would otherwise end on a day
which is not a Business Day shall be extended to the next
Business Day unless such Business Day falls in another
calendar month, in which case such Interest Period shall end
on the Business Day immediately preceding such day;
(ii) any Interest Period which begins on the last Business
Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end
of such Interest Period) shall end on the last Business Day of
a calendar month; and
(iii) any Interest Period which begins before the Termination
Date and would otherwise end after the Termination Date shall
end on the Termination Date; and
(b) For a Prime Rate Loan, the period ending on the earliest
of (i) the date on which such Prime Rate Loan is repaid by Borrower; (ii) the
date on which such Prime Rate Loan is converted to a Libor Rate Loan pursuant
to Section 2.4(a) hereof; or (iii) the Termination Date.
"INVESTMENT" means any investment in any other Person by stock
purchase, capital contribution, loan, advance, guaranty of any Indebtedness or
creation or assumption of any other liability in respect of any Indebtedness of
such Person (including, without limitation, any liability of any kind described
in clause (i) or (ii) of the definition of the term "Indebtedness" set forth in
this Section), or the transfer or sale of Property (otherwise than in the
ordinary course of the business) to any other Person for less than payment in
full in cash of the transfer or sale price or the fair value thereof (whichever
of such price or value is higher).
<PAGE> 15
9
"ISSUANCE DATE" means, in relation to any Letter of Credit,
the day on which such Letter of Credit is issued or is to be issued in
accordance with this Agreement.
"LATE CHARGE" means with respect to any delinquent payment of
principal or interest hereunder a fee that is equal to the greater of One
Hundred and 00/100 Dollars ($100.00) or five percent (5.0%) of the delinquent
payment, charged to Borrower or added to the unpaid balance of the Note
whenever any payment of principal or interest is not paid within five (5) days
after the date on which such payment first became due and payable.
"LEGAL REQUIREMENTS" means all applicable laws, rules,
regulations, ordinances, judgments, orders, decrees, injunctions, arbitral
awards, permits, licenses, authorizations, directions and requirements of all
governments, departments, commissions, boards, courts, authorities, agencies,
and officials and officers thereof, that are in effect now or at any time in
the future.
"LETTER OF CREDIT" means any letter of credit issued by the
Bank to or for the account of Borrower pursuant to this Agreement.
"LETTER OF CREDIT COMMISSION" means the sum payable by
Borrower to the Bank with respect to each Letter of Credit issued as provided
by this Agreement in an amount equal to one and one-half percent (1.5%) of the
Face Amount of such Letter of Credit.
"LETTER OF CREDIT USAGE" means, at the date on which the same
is determined, the sum of (x) the aggregate of the Face Amounts of all Letters
of Credit then outstanding, PLUS (y) the aggregate amount of all drawings under
Letters of Credit honored by the Bank and not theretofore either reimbursed by
Borrower or converted into Loans as provided in Section 2.14.
"LIABILITIES" means all indebtedness, obligations and other
liabilities of Borrower and Borrower's Consolidated Subsidiaries, whether
matured or unmatured, liquidated or unliquidated, direct or indirect, absolute
or contingent, joint or several, secured or unsecured, arising by contract,
operation of law or otherwise, which are classified as liabilities in
accordance with GAAP on a balance sheet of Borrower.
"LIBOR" means the rate (rounded upward to the next highest
1/100 of 1%) obtained by dividing (x) the rate of interest per annum determined
by the Bank equal to the offered rates for deposits in U.S. Dollars of one,
two, three, four or six or twelve-month periods (as the case may be) commencing
of the first date of the applicable Interest Period for which such rate is
determined as such rate appears on the Telerate system as of 11:00 a.m.
(London, England time) on the date which is two (2) Business Days preceding the
first day of such Interest Period, for a period comparable to the duration of
such Interest Period and in an amount comparable to the amount of the Libor
Rate Loan
<PAGE> 16
10
to be outstanding during such Interest Period, by (y) a percentage equal to
100% minus the stated maximum rate of all reserves required to be maintained
against "Libor Rate liabilities" (provided that such reserves are actually
maintained) as specified in Regulation D (or against any other category of
liabilities which includes deposits by reference to which the interest rate on
Libor Rate Loans or loans is determined or any category of extensions of credit
or other assets which includes loans by a non-United States office of a bank to
United States residents) on such date to any member bank of the Federal Reserve
System.
"LIBOR BREAK FUNDING COSTS" means an amount sufficient to
reimburse the Bank for any and all loss, cost or expense actually incurred by
it as the result of the occurrence of any Libor Break Funding Event, including,
without limitation, (i) any loss incurred in obtaining, liquidating or
reemploying deposits from third parties, but excluding loss of margin for the
period after any such prepayment, and (ii) the excess, if any, of the amount of
interest that otherwise would have accrued on the principal amount so paid,
prepaid or repaid or not borrowed for the period, beginning with the date of
such payment, prepayment or repayment until the last day of the Interest Period
that would otherwise have been in effect for such Libor Rate Loan, at the
applicable rate of interest for such Libor Rate Loan over the amount of
interest that otherwise would have accrued on such principal amount at a rate
per annum equal to the interest component of the amount the Bank would have bid
in the London interbank market for dollar deposits of leading banks in amounts
comparable to such principal amount and with maturities comparable to such
period, all as determined as of the date of the occurrence of the Libor Break
Funding Event.
"LIBOR BREAK FUNDING EVENT" means any of the events or
occurrences set forth in Sections 2.9(a) or 2.9(b).
"LIBOR RATE" means, for each Interest Period: (a) for Libor
Rate Loans which are Tier 1 Obligations, the sum of Libor plus 1.75%; (b) for
Libor Rate Loans which are Tier 2 Obligations, the sum of Libor PLUS 2.00%; and
(c) for Libor Rate Loans which are Tier 3 Obligations, the sum of Libor PLUS
2.25%.
"LIBOR RATE LOAN" means a Loan, at any Tier, which bears
interest at the Libor Rate.
"LICENSES AND PERMITS" means all licenses, permits,
registrations and recordings thereof and all applications for such licenses,
permits and registrations now owned or hereafter acquired by Borrower and
required or necessary for the business operations of Borrower.
"LIEN" means any lien, mortgage, pledge, security interest,
charge or other encumbrance of any kind, including any conditional sale or
other title retention agreement, any lease in
<PAGE> 17
11
the nature thereof, and any agreement to give any security interest.
"LOAN DOCUMENTS" mean this Agreement, the Note, the
Assignments, the Mortgages, the Environmental Indemnity Agreements and any
other agreement, instrument, certificate or document now or hereafter executed
in connection with or pursuant to this Agreement.
"LOANS" mean, collectively, the revolving credit loans, (each,
singly, a "Loan") made or to be made to Borrower pursuant to this Agreement.
"MARKET CONSTANT" means the factor determined by the Bank by
reference to a standard level constant payment table for a fully amortizing
loan of twenty (20) or twenty-five (25) years' duration, for use in calculating
the Borrowing Base with reference to Eligible Real Estate. The initial Market
Constant factors for the respective Mortgaged Properties comprising the
Eligible Real Estate as of the date hereof are set forth on Schedule 1.1.
Market Constant factors for the respective Mortgaged Properties comprising
Eligible Real Estate may be redetermined as of May 1 of each subsequent full or
partial calendar year during the pendency of this Agreement, PROVIDED, HOWEVER,
that no Market Constant shall be lower than eight percent (8%) or higher than
twelve percent (12%).
"MONEY MARKET LOAN" means a Loan, at any Tier, which bears
interest at the Money Market Rate.
"MONEY MARKET RATE" means the annual rate of interest payable
with respect to Money Market Loans, as such rate of interest is determined by
the Bank and announced to Borrower in accordance with Section 2.4(e), below.
"MAXIMUM COMMITMENT" means, as at any date during the pendency
of this Agreement, an amount equal to the (i) lesser of (x) Sixty Million and
00/100 Dollars ($60,000,000.00), or (y) an amount equal to the Aggregate
Borrowing Base; in the event that a Swap Agreement is in effect, the Maximum
Commitment shall be reduced by an amount equal to the Aggregate Measured Credit
Risk as of the date of such determination.
"MINIMUM NET WORTH" shall mean Borrowers Tangible Net Worth,
adjusted to reflect the inclusion therein of the following sums, as the same
are amortized: (a) deferred charges of$2,806,000, as existing as of June 30,
1994; and (b) unamortized debt issue costs of $5,004,000, as existing as of
June 30, 1994.
"MORTGAGE" means each of the mortgages in the form of EXHIBIT
D hereto, dated as of the Closing Date or such later date as the property
subject thereto becomes a Mortgaged Property and part of the Collateral,
granted by Borrower and the Management Company to the Bank, and any other
mortgages which may hereafter
<PAGE> 18
12
be granted to the Bank to secure the Obligations together with any and all
amendments, modifications or supplements thereto.
"MORTGAGED PROPERTIES" means those properties which are now or
hereafter encumbered by Mortgages, but only during the period in which such
properties are so encumbered. The Mortgaged Properties which exist as of the
date of this Agreement are identified on SCHEDULE 1.1.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined
in Section 4001(a) (3) of ERISA which is maintained for employees of Borrower,
or any ERISA Affiliate of Borrower.
"NET INCOME" means the net income of Borrower and Borrower's
Consolidated Subsidiaries as computed in accordance with GAAP, as reported in
Borrower's most recent report on Forms 10-Q or 10-K, as filed with the SEC.
"NOTE" means, that certain promissory note of Borrower in the
form of EXHIBIT E, which is to be dated, executed and delivered to the Bank by
Borrower on the Closing Date.
"OBLIGATIONS" means, collectively, all of the indebtedness,
obligations and liabilities existing on the date hereof or arising from time to
time hereafter, whether direct, indirect, absolute, contingent, joint or
several, matured or unmatured, liquidated or unliquidated, secured or
unsecured, arising by contract, operation of law or otherwise, of Borrower to
the Bank (i) in respect of the Loans made, or Letters of Credit issued,
pursuant to this Agreement; or (ii) under or in respect of any one or more of
the Loan Documents. Obligations shall also include, without limitation, all
interest, charges and other fees payable hereunder (or under any of the Loan
Documents) by Borrower, or due hereunder (or under any of the Loan Documents)
from Borrower to the Bank from time to time, together with all costs and
expenses referred to in Section 8.5 herein.
"OUTSTANDING AMOUNT" means, at any time, the aggregate of (x)
the principal amount of all Loans then outstanding hereunder; PLUS (y) the Face
Amount of all Letters of Credit then outstanding hereunder; PLUS (z) the amount
of any draw or disbursement made under any Letter of Credit which Borrower does
not convert into a Loan or otherwise reimburse to the Bank as and when required
by Section 2.14, below.
"PAYMENT AUTHORIZATION" means the form substantially in the
form of attached EXHIBIT F, executed by Borrower and delivered to the Bank
notifying the Bank of any payment by Borrower hereunder or under the Note, and
if appropriate, authorizing the Bank to debit a designated account or accounts
of Borrower for such payment amount.
"PERSON" shall include an individual, company, corporation,
association, partnership, joint venture,
<PAGE> 19
13
unincorporated trade or business enterprise, trust, estate, or any other legal
entity, or a government (Federal, state or local), court, arbitrator or any
agency, instrumentality or official of the foregoing.
"PRIME RATE" means the rate of interest as in effect from time
to time at the Bank as its prime rate at its Head Office, whether or not the
Bank shall at times lend to other borrowers at lower rates of interest; if
there is no such prime rate, then such other rate as may be substituted by the
Bank for its Prime Rate.
"PRIME RATE LOAN" means a Loan which bears interest at the
Prime Rate or the Adjusted Prime Rate, as the case may be.
"PROPERTY" means all types of real, personal, tangible,
intangible or mixed property.
"PROPERTY NOI" means, as to each Mortgaged Property included
within the Eligible Real Estate, the annual income produced by the operation of
such Mortgaged Property, LESS normal operating expenses for such Mortgaged
Property for such period. For the purposes of calculating Property NOI,
amortization, depreciation and capital expenditures for property improvements
or tenant alterations for any Mortgaged Property shall not be considered to be
"normal operating expenses" in respect of such Mortgaged Property.
"RATE OPTION" means the Prime Rate or the Adjusted Prime Rate,
as the case may be, the Libor Rate, or the Money Market Rate, as selected
pursuant to Section 2.4 of this Agreement.
"REIT" means a qualified real estate investment trust, as
defined in the Code.
"REQUEST FOR ADVANCE" means the form, substantially in the
form of attached EXHIBIT G, executed by Borrower and delivered to the Bank,
requesting an advance of Loan proceeds hereunder, and among other items,
notifying the Bank of Borrower's intended use of such Loan proceeds.
"REQUEST FOR ISSUANCE OF LETTER OF CREDIT" means the form,
substantially similar to that which is attached hereto as EXHIBIT G-2, to be
executed by Borrower and delivered to the Bank, requesting the issuance of a
Letter of Credit and providing the information required in connection therewith
by Section 2.14(a), below.
"SEC" means the Securities and Exchange Commission or any
successor agency.
"SECURITIES" means any stock, shares, voting trust
certificates, certificates of beneficial interest bonds,
<PAGE> 20
14
debentures, notes, or other evidences of indebtedness, secured or unsecured,
convertible, subordinated or otherwise, or in general any instruments commonly
known as "securities" or any certificates of interest, shares or participation
in temporary or interim certificates for the purchase or acquisition of, or any
right to subscribe to, purchase or acquire, any of the foregoing.
"SECURITY DOCUMENTS" shall mean, collectively, any Collateral
Assignments, any Mortgages, any Environmental Indemnity Agreements and each
other agreement, assignment or instrument creating or purporting to create a
Lien or establish or create any rights in favor of the Bank as security for the
Obligations.
"SUBSIDIARY" means any corporation in which Borrower (or a
Subsidiary of Borrower) owns at least a majority of the securities having
voting power for the election of directors.
"SWAP AGREEMENT" means any agreement hereafter entered into by
and between Borrower and the Bank for the primary purpose of hedging the
interest rate risk of Borrower with respect to the obligations (whether
characterized as an interest rate exchange agreement, a hedging agreement or
otherwise), together with any and all amendments, extensions, renewals and
modifications thereof and any agreements made in replacement thereof or in
substitution therefor.
"TANGIBLE NET WORTH" means shareholders' equity, as determined
in accordance with GAAP, but excluding therefrom any intangible assets
(including but not limited to goodwill).
"TERMINATION DATE" means the earliest of (i) December 31,
1997, subject to extension in accordance with Section 2.1(b), below; or (ii)
the date upon which the entire outstanding principal balance of the Note shall
become due pursuant to the provisions hereof (whether as a result of
acceleration by the Bank or otherwise); or (iii) the date upon which the Credit
Commitment terminates pursuant to Section 7.2 hereof.
"TIER 1 OBLIGATIONS", "TIER 2 OBLIGATIONS" and "TIER 3
OBLIGATIONS" shall have the respective meanings ascribed to those terms in
Section 2.4(c) of this Agreement. The term "Tier" shall mean any of the
discrete tiers of the obligations described in such provision.
ARTICLE 2
---------
THE LOANS
---------
Section 2.1 THE CREDIT COMMITMENT. (a) The Bank
agrees, upon the terms and subject to the conditions contained in this
Agreement, to make the Loans to Borrower and to issue the
<PAGE> 21
15
Letters of Credit for Borrower from time to time prior to the Termination Date,
in the principal amounts requested by Borrower from time to time in accordance
with the terms and conditions of this Agreement, PROVIDED, HOWEVER, that the
Outstanding Amount shall not, at any time, exceed the Maximum Commitment.
(b) Provided that there is not then (or on the commencement
of the extension term resulting from Borrower's exercise of the extension
option set forth in this Section 2.1(b)) any Event of Default hereunder or
under any other Loan Document, and no circumstance which would, with the
passing of time or delivery of notice (or both) constitute such an Event of
Default, and subject to the Bank's right, in its discretion, to consent (or to
refrain from consenting) to such proposed extension (which decision shall be
conveyed to Borrower by written notice from the Bank on or before January 1,
1996), Borrower may extend the Termination Date for a period of one (1) year by
providing the Bank with written notice of its election to do so not earlier
than one hundred twenty (120) days, nor later than sixty (60) days, prior to
January 1, 1996. Thereafter, and provided that the Termination Date has
theretofore been extended pursuant to this 2.1(b), Borrower may extend the
Termination Date (as extended as aforesaid), for successive and consecutive
periods of one (1) year each, provided, as to each instance (i) that Borrower
shall exercise such option by providing the Bank with written notice of its
election to do so not earlier than one hundred twenty (120) days, nor later
than sixty (60) days prior to January 1, 1997 (or, if the Termination Date has
theretofore been extended to permit the same, January 1 of each successive year
thereafter during the pendency of this Agreement); (ii) that there is not then
(or on the commencement of the extension term resulting from Borrower's
exercise of the extension option set forth herein) any Event of Default
hereunder or under any other Loan Document, nor any circumstance which would,
with the passing of time or the delivery of notice (or both) constitute such an
Event of Default; and (iii) the Bank shall elect, in its discretion, to consent
(or to refrain from consenting) to such extension of the Termination Date
(which decision shall be conveyed to Borrower by written notice from the Bank
not later than January 1, 1997, or January 1 of each successive calendar year
thereafter in the case of subsequent extensions of the Termination Date).
Section 2.2 MAKING THE LOANS. The Bank will, subject to the
terms and conditions of this Agreement, make an amount equal to each Loan
available to Borrower at such times and in such amounts as shall be requested
by Borrower in compliance with SECTION 2.13. Borrower may, subject to the
terms and conditions of this Agreement, borrow on a revolving basis from the
Bank on the Closing Date and from time to time thereafter sums, the outstanding
amount of which shall not, when added to the Letter of Credit Usage, exceed the
Maximum Commitment at any time. Subject to the foregoing, each Loan shall be
in an amount equal to or greater than Five Hundred Thousand and 00/100 Dollars
<PAGE> 22
16
($500,000.00), except that the minimum amount of Money Market Loans shall be
One Million Dollars. The Borrower may borrow, repay and reborrow hereunder on
and after the date hereof until the Termination Date, subject to the terms,
provisions and limitations set forth herein. Amounts repaid hereunder after the
Termination Date may not be reborrowed.
Section 2.3 THE NOTE. The absolute and unconditional
obligation of Borrower to repay each Loan and the interest thereon, as well as
Borrower's absolute and unconditional obligation to repay any draws or
disbursements made under any Letter of Credit as and when required as
hereinafter provided, shall be evidenced by the Note.
Section 2.4 INTEREST PAYABLE ON THE LOANS.
(a) METHOD OF SELECTING RATE OPTIONS AND INTEREST
PERIODS. Borrower shall select the Rate Option for each Loan and shall select
the Interest Period applicable to each Libor Rate Loan from time to time.
Borrower shall give the Bank its irrevocable Request For Advance not later than
2:00 p.m. Cleveland Time on the proposed Draw Date for each Prime Rate Loan or
Money Market Loan and three (3) Business Days before the Draw Date for each
Libor Rate Loan, specifying:
(i) the Draw Date (which shall be a Business Day) for such
Loan;
(ii) the aggregate amount of such Loan;
(iii) the Rate Option selected for such Loan;
(iv) in the case of each Money Market Loan, the
proposed duration of such Loan, which shall be not less than
one (1) nor more than four (4) days; and
(iv) in the case of each Libor Rate Loan, the Interest
Period applicable thereto.
Each Libor Rate Loan shall bear interest from and including the first day of
the Interest Period applicable thereto until (but not including) the last day
of such Interest Period at the interest rate determined as applicable to such
Libor Rate Loan. Borrower shall select Interest Periods with respect to Libor
Rate Loans so that it is not necessary to pay a Libor Rate Loan prior to the
last day of the applicable Interest Period in order to repay the Loans on the
Termination Date. Provided that no Default or Event of Default shall have
occurred and be continuing, Borrower may elect to continue a Loan as a Libor
Rate Loan by giving irrevocable written, telephonic or telegraphic notice
thereof to the Bank not less than three (3) Business Days prior to the last day
of the then-current Interest Period applicable to such Libor Rate Loan,
specifying the duration of the succeeding Interest Period therefor. If the
Bank does not
<PAGE> 23
17
receive timely notice of such election, Borrower shall be deemed to have
elected to convert such Libor Rate Loan to a Prime Rate Loan at the end of the
then-current Interest Period. Provided that no Default or Event of Default
shall have occurred and be continuing, Borrower may, on any Business Day,
convert any outstanding Prime Rate Loan, or portion thereof, into a Libor Rate
Loan in the same aggregate principal amount. If Borrower desires so to convert
a Prime Rate Loan, it shall give the Bank prior written, telephonic or
telegraphic notice at least three (3) Business Days prior to the requested
conversion date, which notice shall specify the duration of the Interest Period
applicable thereto.
(b) DETERMINATION OF PRIME RATE AND THE ADJUSTED PRIME
RATE. The Bank shall determine the Prime Rate and the Adjusted Prime Rate in
effect from time to time. Any change in the Prime Rate and the Adjusted Prime
Rate shall, for all purposes of this Agreement and the other Loan Documents,
become effective on the effective date of such change in the Prime Rate as
announced by the Bank in accordance with the Bank's customary practices.
(c) TIERS OF OBLIGATIONS.
(i) Solely for the purpose of calculating the
rate of interest applicable to Loans made and to be made
pursuant to this Agreement, Loans shall be divided into three
(3) Tiers, as follows: (x) the aggregate outstanding
principal balance of Loans which, when added to the
outstanding Letter of Credit Usage as of the Draw Date of such
Loans, is less than thirty million dollars ($30,000,000) shall
be "Tier 1 Obligations"; (y) the aggregate outstanding
principal balance of Loans which, when added to the
outstanding Letter of Credit Usage as of the Draw Date of such
Loans, equals or exceeds thirty million dollars ($30,000,000)
but is less than forty-five million dollars ($45,000,000)
shall be "Tier 2 Obligations"; and (z) the aggregate
outstanding principal balance of Loans which, when added to
the outstanding Letter of Credit Usage as of the Draw Date of
such Loans, equals or exceeds forty-five million dollars but
is less than sixty million dollars ($60,000,000) shall be
"Tier 3 Obligations". Any Loan may consist of components of
more than one Tier, depending upon the Outstanding Amount at
the time such Loan is advanced pursuant to this Agreement.
(ii) If, at the end of any fiscal quarter of
Borrower, Borrower's Minimum Net Worth shall exceed One
Hundred Million Dollars ($100,000,000), the interest rate
payable in the ensuing fiscal quarter for Prime Rate Loans or
Libor Rate Loans which are Tier 3 Obligations shall
automatically be converted to the interest rate payable on
corresponding Loans which are
<PAGE> 24
18
Tier 2 Obligations. Such conversion shall be effective as of
the first day of Borrower's immediately ensuing fiscal
quarter, and shall remain effective for each of Borrower's
fiscal quarters thereafter so long as Borrower's Minimum Net
Worth shall continue to exceed One Hundred Million Dollars
($100,000,000).
(d) MONTHLY INSTALLMENTS.
(i) Borrower shall pay to the Bank, monthly in arrears on the
last Business Day of each month beginning with the month
following the month in which the Closing Date occurs, interest
on the outstanding principal amount of Prime Rate Loans at the
annual rate equal to the Prime Rate, as to Tier 1 and Tier 2
Obligations, and, as to Tier 3 Obligations, at the Adjusted
Prime Rate. If Borrower elects, pursuant to the final
paragraph of Section 2.4(a), to convert a Prime Rate Loan, or
any portion thereof, to a Libor Rate Loan, Borrower shall pay
to the Bank all accrued but unpaid interest on the Prime Rate
Loan, or such portion thereof, being converted, for the period
commencing on the date of the last payment date under this
subparagraph and concluding on the day immediately preceding
the first day of the Interest Period for the Libor Rate Loan
into which the Prime Rate Loan is converted; Borrower shall
pay such amount to the Bank, in arrears, on the last Business
Day of the month in which such conversion shall occur.
(ii) Borrower shall pay to the Bank, in arrears, interest on
the outstanding principal amount of the Libor Rate Loans at
the annual rate equal to the Libor Rate. Such interest shall
be due and payable on the last Business Day of the applicable
Interest Period for each Libor Rate Loan having an Interest
Period of ninety (90) days or less; for all other Libor Rate
Loans, interest shall be payable, in arrears as aforesaid, on
(x) that Business Day which is ninety (90) days after the
beginning of the Interest Period for such Libor Rate Loans;
and (y) on the final day of the Interest Period therefor.
(e) REGARDING MONEY MARKET LOANS. Promptly after its receipt
of a Request for Advance with respect to a Money Market Loan, the Bank shall
apprise Borrower of the Money Market Rate then in effect and applicable to the
requested Money Market Loan. The rate so quoted shall remain in effect for the
duration of the Money Market Loan for which such rate was quoted. Each Money
Market Loan shall be in an amount not less than One Million Dollars
($1,000,000), or any greater amount (subject in each case to the other
limitations set forth in this Agreement) that is a multiple of Two Hundred
Fifty Thousand Dollars ($250,000); the aggregate principal amount of all Money
Market Loans outstanding
<PAGE> 25
19
at any time shall not exceed Three Million Dollars ($3,000,000). Interest
payable on Money Market Loans shall be payable, in arrears, on the maturity
date of each respective Money Market Loan.
(f) INTEREST ON OVERDUE PAYMENTS; DEFAULT INTEREST RATE. If any
payment of principal or interest is not paid within five (5) days after the
date on which the same shall first become due and payable, or if any drawing or
disbursement made under any Letter of Credit is not reimbursed as and when
required by Section 2.14, below, the Bank may charge and collect a Late Charge
from Borrower, or may add a Late Charge to the unpaid balance of the
indebtedness evidenced by the Note.
No failure by the Bank to charge or collect any Late Charge in respect
of any delinquent payment shall be considered to be a waiver by the Bank of any
rights which it may have hereunder, including without limitation the right
subsequently to impose a Late Charge for such delinquent payment, to charge
interest at the Default Interest Rate on the outstanding principal balance of
all Loans as hereinafter provided, or to take such other actions as may then be
available to it hereunder or at law or in equity, including but not limited to
the right to terminate the Credit Commitment or to accelerate the Obligations
pursuant to the terms of Section 7.2 hereof. Notwithstanding the foregoing,
the Bank shall not impose interest on any portion of the unpaid balance of the
indebtedness evidenced by the Note resulting from the Bank's addition of Late
Charges to such unpaid balance.
If the Note has been accelerated pursuant to Section 7.2(b) or if an
Event of Default hereunder or under any other Loan Document shall have occurred
and be continuing, the outstanding principal balance of the indebtedness
advanced under this Agreement, together with all accrued interest thereon and
any and all other Obligations, shall bear interest from the date on which such
amount shall have first become due and payable to the date on which such amount
shall be paid (whether before or after judgment) at the Default Interest Rate.
Interest at the Default Interest Rate will continue to accrue and will (to the
extent permitted by applicable law) be compounded daily until the Obligations
in respect of such payment are discharged (whether before or after judgment).
Notwithstanding the foregoing to the contrary, if, after the occurrence of an
Event of Default as aforesaid, the Bank shall impose interest at the Default
Interest Rate on the unpaid principal balance of all Loans and other
Obligations, no further Late Charges shall be imposed upon Borrower.
Section 2.5 PREPAYMENTS.
(a) OPTIONAL PREPAYMENTS. Without derogating from the mandatory
prepayment requirements contained in Section 2.5(c) hereof, Borrower shall have
the right to prepay the principal of
<PAGE> 26
20
the Loans in full or in part at any time and from time to time upon payment to
the Bank of all accrued interest to the date of payment; PROVIDED, HOWEVER,
that (i) all partial payments of principal shall be in an amount equal to or
greater than Five Hundred Thousand and 00/100 Dollars ($500,000.00); and (ii)
all Loans may be prepaid without penalty or premium; in the event that Borrower
shall prepay any Loan which is a Libor Rate Loan on a day other than the final
day of the applicable Interest Period therefor, such prepayment must include an
amount equal to the Banks' aggregate Libor Break Funding Costs applicable to or
resulting from such prepayment in accordance with Section 2.9, below.
(b) MANDATORY PREPAYMENTS. If at any time the Outstanding Amount
exceeds the Maximum Commitment, Borrower shall immediately prepay the amount in
excess of the Maximum Commitment.
(c) APPLICATION OF PREPAYMENTS. Any prepayment of any Loan shall be
applied by the Bank as set forth in Section 2.6 hereof. To the extent that any
such payment, repayment or prepayment shall be applied to a Libor Rate Loan,
the Bank shall retain such amount until the expiration of the Interest Period
applicable to such Libor Rate Loan, and shall apply such payment at such time
so as to minimize the Libor Break Funding Costs applicable to such payment,
repayment or prepayment, unless otherwise instructed by Borrower, to pay, repay
or prepay such Libor Rate Loan and nonetheless incur the applicable Libor Break
Funding Cost.
(d) MATURITY. Subject to the terms and conditions of this
Agreement, Borrower will be entitled to reborrow all or any part of the
principal of the Note repaid or prepaid prior to the termination of the Credit
Commitment. The Credit Commitment shall terminate, and all of the indebtedness
evidenced by the Note shall, if not sooner paid, be in any event absolutely and
unconditionally due and payable in full by Borrower on the Termination Date.
Section 2.6 PAYMENTS AND COMPUTATIONS.
(a) TIME AND PLACE OF PAYMENTS. Each payment to be made by
Borrower under this Agreement or any other Loan Document shall be made directly
to the Bank at its Head Office, not later than 2:00 p.m. Cleveland Time, on the
due date of each such payment, in immediately available and freely
transferrable funds. Any payment received after such time will be deemed to
have been received on the next Business Day. All payments of interest,
principal and all other amounts owing hereunder or under the Notes or any other
Loan Document shall be documented by Borrower's transmitting to the Bank, via
telecopy, a Payment Authorization; the funds representing such payment shall be
transferred to the Bank in accordance with such Payment Authorization.
<PAGE> 27
21
(b) APPLICATION OF FUNDS. Notwithstanding anything herein to the
contrary, and notwithstanding anything set forth in the Payment Authorization,
the funds received by the Bank with respect to the Obligations shall be applied
as follows:
(i) NO DEFAULT. Provided that the Note has not been accelerated
pursuant to Section 7.2(b), below, and provided further that no Event
of Default hereunder or under any Loan Document shall have occurred
and be continuing at the time that the Bank receives such funds, in
the following manner: (a) FIRST, to the payment of all fees, charges,
and other sums (other than principal and interest) then due and
payable to the Bank under the Note, this Agreement or the other Loan
Documents; (b) SECOND, to the payment of all accrued but unpaid
interest at the time of such payment; and (c) THIRD, to the payment of
principal of the Note.
(ii) DEFAULT. If the Note have been accelerated pursuant to Section
7.2(b), or if an Event of Default hereunder shall have occurred and be
continuing hereunder or under the Note or any of the other Loan
Documents at the time the Bank receives such funds, in the following
manner: (a) FIRST to the payment or reimbursement of the Bank for all
costs, expenses, disbursements and losses which shall have been
incurred or sustained by it in or incidental to the collection of the
Obligations owed by Borrower hereunder or the exercise, protection, or
enforcement by the Bank of all or any of its rights, remedies, powers
and privileges under this Agreement, the Note, or any of the other
Loan Documents and in and towards the provision of adequate indemnity
to the Bank against all taxes or Liens which by law shall have, or may
have priority over the rights of the Bank in and to such funds; and
(b) SECOND to the payment of all of the Obligations in accordance with
Section 2.6(b)(i) above.
(c) PAYMENTS ON BUSINESS DAYS. Except as expressly provided to the
contrary in clause (a)(i) of the definition of "Interest Period" set forth at
Section 1.2 of this Agreement, if any sum would (but for the provisions of this
Section 2.6(c)) become due and payable on any day which is not a Business Day,
then such sum shall become due and payable on the next succeeding Business Day,
and interest payable on such sum shall continue to accrue and shall be adjusted
by the Bank accordingly.
(d) COMPUTATION OF INTEREST. All computations of interest payable
under this Agreement, the Note, or any of the other Loan Documents shall be
computed by the Bank on the basis of the actual principal amount outstanding on
each day during the payment period, and shall be calculated on the basis of the
actual number of days elapsed during such period on the basis of
<PAGE> 28
22
a year consisting of three hundred and sixty (360) days. The daily interest
charge shall be one three-hundred-sixtieth (1/360th) of the annual interest
amount. Each determination of any interest rate by the Bank shall be
conclusive and binding on Borrower in the absence of manifest error. Absent
manifest error, a certificate or statement signed by an authorized officer of
the Bank shall be conclusive evidence of the amount of the Obligations due and
unpaid as of the date of such certificate or statement.
Section 2.7 PAYMENTS TO BE FREE OF DEDUCTIONS. Each sum to be paid
by Borrower under this Agreement, the Note, or any of the other Loan Documents
shall be made in accordance with Section 2.6 hereof, without set-off, deduction
or counterclaim whatsoever, and free and clear of taxes, levies, imposts,
duties, charges, fees, deductions, withholdings, compulsory loans, restrictions
or conditions of any nature now or hereafter imposed or levied by any
governmental or taxing authority, unless Borrower is compelled by law to make
any such deduction or withholding. In the event that any such obligation to
deduct or withhold is imposed upon Borrower with respect to any such payment:
(a) Borrower shall be permitted to make the deduction or withholding required
by law in respect of the said payment, and (b) there shall become and be
absolutely due and payable by Borrower to the Bank on the date on which such
payment shall become due and payable, and Borrower hereby promises to pay to
the Bank on such date, such additional amount as shall be necessary to enable
the Bank to receive the same net amount which the Bank would have received on
such due date had no such obligation been imposed by law. Notwithstanding the
foregoing to the contrary, this Section 2.7 shall not apply in the case of any
deductions or withholdings made in respect of taxes charged upon or by
reference to the overall net income, profits or gains of the Bank.
Section 2.8 USE OF PROCEEDS. Borrower represents, warrants and
covenants to the Bank that no part of the proceeds of any Loans, and no drawing
or disbursement under any Letter of Credit, will be used (directly or
indirectly) so as to result in a violation of Regulations G, T, U or X of the
Board of Governors of the Federal Reserve System or for any other purpose in
violation of any rule or regulation of such Board.
Section 2.9 LIBOR BREAK FUNDING COSTS. Borrower shall pay to the
Bank the Libor Break Funding Costs that the Bank determines are attributable
to:
(a) any payment (including, without limitation, the acceleration
of the Loans following the occurrence of an Event of Default pursuant to this
Agreement or any Loan Document), repayment, mandatory or optional prepayment,
or conversion of a Libor Rate Loan for any reason on a date other than the last
day of the Interest Period for such Libor Rate Loan; or
<PAGE> 29
23
(b) any failure by Borrower for any reason to borrow a Libor Rate
Loan on the date for such borrowing specified in the relevant notice of
borrowing or Request for Advance given pursuant to this Agreement.
The Bank agrees that notwithstanding any other provision of this Agreement to
the contrary, the Bank shall use commercially reasonable efforts, consistent
with the Bank's customary policies, to mitigate or avoid Libor Break Funding
Costs on account of any prepayment required by the Bank for reasons other than
Borrower's default in the performance of its obligations hereunder or under any
other Loan Document.
Section 2.10 ADDITIONAL COSTS.
(a) Notwithstanding any conflicting provision of this Agreement to
the contrary, if any applicable law or regulation not in effect as of the date
hereof shall (i) subject the Bank to any tax, levy, impost, duty, charge, fee,
deduction or withholding of any nature with respect to any Loan or Letter of
Credit, this Agreement, the Note, or any of the other Loan Documents or the
payment by Borrower of any amounts payable to the Bank hereunder or thereunder;
or (ii) materially change, in the opinion of the Bank, the basis of taxation of
payments to the Bank of the principal of or the interest on the Note or any
other amounts payable to the Bank under this Agreement or any of the other Loan
Documents; or (iii) impose or increase or render applicable any special or
supplementary special deposit or reserve or similar requirements (whether or
not having the force of law) against assets held by, or deposits in or for the
account of, or any eligible liabilities of, or loans by any office or branch of
the Bank; or (iv) impose on the Bank any other condition or requirement with
respect to this Agreement, the Note, or any of the other Loan Documents, and if
the result of any of the foregoing is (A) to increase the cost to the Bank of
making, funding or maintaining all or any part of the principal of the Loans or
of issuing, maintaining or making draws or disbursements under the Letters of
Credit, or (B) to reduce the amount of principal, interest or any other sum
payable by Borrower to the Bank under this Agreement, the Note, or any of the
other Loan Documents, or (C) to require the Bank to make any payment or to
forego any interest or other sum payable by Borrower to the Bank under this
Agreement, the Note, or any of the other Loan Documents, the amount of which
payment or foregone interest or other sum is measured by or calculated by
reference to the gross amount of any sum receivable or deemed received by the
Bank from Borrower under this Agreement, the Note, or any of the other Loan
Documents, then, and in each such case, Borrower will pay to the Bank, within
thirty (30) days of written notice by the Bank, such additional amounts as will
(in the reasonable opinion of the Bank) be sufficient to compensate the Bank
for such additional cost, reduction, payment or foregone interest or other sum.
The Bank shall use commercially reasonably efforts, consistent with its
customary policies, to mitigate the effect of
<PAGE> 30
24
the circumstances described in this Section 2.10. Anything in this paragraph
to the contrary notwithstanding, the foregoing provisions of this paragraph
shall not apply in the case of any additional cost, reduction, payment or
foregone interest or other sum resulting solely from or arising solely as a
consequence of any taxes charged upon or by reference to the overall net
income, profits or gains of the Bank.
(b) If any present or future law shall make it unlawful for Borrower
to perform any one or more of its agreements or obligations under this
Agreement, the Note, or any of the other Loan Documents, and if the Bank shall
at any time determine (which determination shall be conclusive and binding on
Borrower) (i) that, as a consequence of the effect or operation (whether direct
or indirect) of any such applicable law, any one or more of the rights,
remedies, powers or privileges of the Bank under or in respect of this
Agreement, Note, or any of the other Loan Documents shall be or become invalid,
unenforceable, or materially restricted; and (ii) that all or any one or more
of the rights, remedies, powers and privileges so affected are of material
importance to the Bank (as determined by the Bank), then: (x) the obligations
of the Bank under its Credit Commitment shall terminate immediately, and (y)
the Bank may, by giving notice to Borrower, declare all of the Obligations,
including, without limitation, the entire unpaid principal of the Note, all of
the unpaid interest accrued thereon and any and all other sums due and payable
by Borrower to the Bank under this Agreement, the Note, and any of the other
Loan Documents, to be immediately due and payable, and, thereupon, such
Obligations shall (if not already due and payable) forthwith become and be due
and payable without further notice.
(c) If the Bank shall reasonably determine that any law, rule or
regulation not in effect as of the date hereof regarding capital adequacy, or
in the event of any change in any existing such law, rule or regulation or in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Bank with any request or directive
regarding capital adequacy (whether or not having the force of law) from any
such authority, central bank or comparable agency, has or would have the effect
of reducing the rate of return on the Bank's capital, as a consequence of its
obligations hereunder, to a level below that which the Bank could have achieved
in respect of the transactions described in this Agreement but for such
adoption, change or compliance (taking into consideration the Bank's policies
with respect to capital adequacy) by any amount deemed by the Bank to be
material, then Borrower shall pay to such Bank upon demand such amount or
amounts, in addition to the amounts payable under the other provisions of this
Agreement or any other Loan Document, as will compensate the Bank for such
reduction. The determination by the Bank of the additional amount or amounts
required to compensate it in respect of the foregoing shall be conclusive in
the absence
<PAGE> 31
25
of manifest error. In determining such amount or amounts, the Bank may use any
reasonable averaging and attribution methods of general application.
Section 2.11 INDEMNIFICATION FOR LOSSES. Without derogating from any
of the other provisions of this Agreement or any of the other Loan Documents,
Borrower hereby absolutely and unconditionally agrees to indemnify the Bank,
upon demand at any time and as often as the occasion therefor may require,
against any and all claims, demands, suits, actions, damages, losses, costs,
expenses and all other liabilities whatsoever which the Bank or any of its
directors, officers, employees or agents may sustain or incur to any third
party (and, solely for the purposes of this Section 2.11, the Bank agrees that
financial institutions which are participants in the financing described in
this Agreement shall not be deemed to be third parties as regards their
participation interests in such financing) as a consequence of, on account of,
in relation to or in any way in connection with (a) any failure by Borrower to
pay, punctually on the due date thereof, any amount payable under this
Agreement, the Note, or any of the other Loan Documents beyond the expiration
of the period of grace (if any) applicable thereto, or (b) the acceleration, in
accordance with Section 7.2 hereof, of the maturity of any of the Obligations,
or (c) any failure by Borrower to perform or comply with any of the terms and
provisions of this Agreement, the Note or any of the other Loan Documents which
shall continue beyond the expiration of the applicable period of notice and
grace therefor. Such claims, demands, suits, actions, damages, losses, costs
or expenses shall include, without limitation, any costs incurred by the Bank
in carrying funds to cover any overdue principal, overdue interest or any other
overdue sums payable by Borrower under this Agreement, the Note, or any of the
other Loan Documents. Notwithstanding the foregoing to the contrary, the
foregoing indemnity shall not extend to any matters of the nature described
above which arise solely from the gross negligence or the willful misconduct of
the Bank, as determined by a court of competent jurisdiction.
Section 2.12 STATEMENTS BY THE BANK. A statement signed by an officer
of the Bank setting forth any additional amount required to be paid by Borrower
under Sections 2.10 or 2.11 hereof shall be submitted by the Bank to Borrower
in connection with each demand made at any time by the Bank under either of
such Sections. A claim by the Bank for all or any part of any additional
amounts required to be paid by Borrower under Sections 2.10 or 2.11 hereof may
be made before or after any payment to which such claim relates. Each such
statement shall include reasonable detail describing the nature and amount of
the Bank's claim, and shall, in the absence of manifest error, constitute
conclusive evidence of the additional amount required to be paid to the Bank.
<PAGE> 32
26
Section 2.13 REQUESTS FOR ADVANCES. (a) All requests for draws,
advances, or disbursements of Loan proceeds shall be made by Borrower in
writing on a Request for Advance in the form of EXHIBIT G hereto. Such
Requests for Advance may be transmitted to the Bank at its Head Office via fax
or telecopy, PROVIDED that Borrower immediately notify the Bank by telephone of
such transmission. All such Requests for Advance shall be transmitted to and
received by the Bank not later than 2:00 p.m. Cleveland Time, on the Business
Day which is not less than three (3) days prior to the Draw Date specified on
such Request for Advance in respect of Libor Rate Loans, and not later than
2:00 p.m., Cleveland Time, on the specified Draw Date for Prime Rate Loans,
subject, however, to such longer period as may be required pursuant to Section
2.4, above.
(b) The Bank shall disburse the proceeds of each Loan to Borrower, in
immediately available funds not later than 3:00 p.m., Cleveland Time, on the
Draw Date described therefor, provided that: (i) Borrower shall have provided
the Bank with a Request for Advance for such Loan as and when provided above;
and (ii) all of the conditions precedent applicable to such Loan under Article
3, below, shall be satisfied as at the Draw Date applicable to such Loan.
Section 2.14. THE LETTERS OF CREDIT.
(a) ISSUANCE OF LETTERS OF CREDIT; CONDITIONS AND LIMITATIONS. Upon
the terms and conditions set forth in this Agreement, the Bank shall, in
accordance with the provisions of this Section 2.14, issue one or more Letters
of Credit for the account of Borrower from time to time prior to the
Termination Date. If Borrower desires the issuance of a Letter of Credit, it
shall deliver to the Bank a Request for Issuance of Letter of Credit in form
substantially similar to that which is attached hereto as EXHIBIT G-2 and made
a part hereof by this reference, no later than 1:00 P.M. (Cleveland time) at
least five (5) Business Days before the proposed Issuance Date therefor. The
Request for Issuance of Letter of Credit shall include a Letter of Credit
Application, on the Bank's customary form, completed and executed by Borrower,
and shall specify, with respect to the requested Letter of Credit: (i) the
proposed Issuance Date therefor (which shall be a Business Day), (ii) the Face
Amount thereof, (iii) the expiration date of the requested Letter of Credit,
(iv) the name and address of the proposed beneficiary, and (v) a summary of the
contemplated terms of the requested Letter of Credit. Borrower shall, in
addition, furnish a precise description of any documents to be presented under,
and any other terms of, the requested Letter of Credit, together with the text
of any certificate to be presented by the beneficiary which, if presented by
the beneficiary prior to the expiration date of the Letter of Credit, would
require the Bank to make payment under the Letter of Credit. The issuance of
each Letter of Credit shall be subject to the satisfaction, on the Issuance
Date for such
<PAGE> 33
27
Letter of Credit, of all of the conditions precedent set forth in Section 3.2,
below, and to the following additional limitations:
(i) Borrower shall not request the issuance of a Letter of
Credit if, after giving effect to the issuance of such Letter of
Credit, the Letter of Credit Usage would equal or exceed Ten Million
Dollars ($10,000,000);
(ii) Borrower shall not request the issuance of a Letter of
Credit if, after giving effect to the issuance of such Letter of
Credit, the Outstanding Amount would exceed the Maximum Commitment; and
(iii) In no event shall the Bank issue any Letter of Credit
having an expiration date later than the first to occur of (x)
Termination Date or (y) one (1) year after its date of issuance;
PROVIDED that, subject to the foregoing clause (x), this clause (y)
shall not prevent the Bank from agreeing that a Letter of Credit will
automatically (but subject, in any case, to the satisfaction, as of
the renewal date thereof, of all of the conditions precedent to the
issuance of a Letter of Credit identified or referred to in this
Section 2.14(a)), be renewed annually for a period not to exceed one
(1) year if the Issuing Bank does not cancel such renewal.
(b) PAYMENT IN CERTAIN CIRCUMSTANCES. Each Letter of Credit may
provide that the Bank may (but shall not be required to) either pay the
beneficiary thereof upon the occurrence of an Event of Default and the
acceleration of the maturity of the Loans or, if payment is not then due to the
beneficiary, provide for the deposit of funds in an account to secure payment
to the beneficiary, and that any funds so deposited shall be paid to such
beneficiary provided that all conditions to such payment are satisfied, or
returned to the Bank (or, if all Obligations then shall have been indefeasibly
paid in full, to Borrower) if no payment to such beneficiary has been made and
if the final date available for drawings under the Letter of Credit has passed.
Each payment or deposit of funds by the Bank as provided in this paragraph
shall be treated for all purposes of this Agreement as a drawing duly honored
by the Bank under the related Letter of Credit.
(c) TERMINATION OF CREDIT COMMITMENT. If for any reason the Credit
Commitment shall terminate when any Letter of Credit is outstanding, Borrower
shall, on or prior to the date of such termination: (i) cause each outstanding
Letter of Credit to be cancelled, and an amount equal to all amounts previously
drawn under Letters of Credit and not theretofore reimbursed by Borrower or
converted into Loans pursuant to clause (d) of this
<PAGE> 34
28
Section 2.14 to be paid immediately to or as directed by the Bank; or (ii)
deposit an amount equal to the Letter of Credit Usage to secure such Letters of
Credit with the Bank.
(d) PAYMENT OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT. The Bank shall
notify Borrower promptly after its receipt of any request for drawing under a
Letter of Credit by the beneficiary thereof, and in any event at least two (2)
Business Days prior to the date on which the Bank intends to honor such
drawing. Borrower shall, and hereby covenants and agrees to, reimburse the
Bank on the day on which such drawing is honored in an amount, in immediately
available funds, equal to the amount of such drawing; PROVIDED that (i) unless
Borrower shall have notified the Bank prior to 11:00 A.M. (Cleveland time) on
the Business Day immediately prior to the date of such drawing that Borrower
intends to reimburse the Bank for the amount of such drawing with funds other
than the proceeds of Loans, Borrower shall be deemed to have given a Request
for Advance for a Prime Rate Loan on the date on which such drawing is honored
in the amount of such drawing; and (ii) the Bank shall, on the date of such
drawing, make a Loan in the amount of such drawing, the proceeds of which shall
be applied directly to reimburse the Bank for the amount of such drawing.
(e) COMPENSATION. Borrower agrees to pay the following amounts with
respect to each Letter of Credit issued pursuant to this Agreement:
(i) a Letter of Credit Commission in an amount equal to the
one and one-half percent (1.5%) of the Face Amount of such Letter of
Credit, payable, in advance, on the Issuance Date of such Letter of
Credit (and, solely in the case of Letters of Credit which are renewed
after the expiration of the first year thereof, on each subsequent
anniversary of such Issuance Date for so long as such Letters of
Credit remain outstanding); and
(ii) with respect to the issuance, amendment or transfer of
each Letter of Credit and each drawing made thereunder, documentary
and processing charges in accordance with the Bank's standard schedule
for such charges in effect at the time of such issuance, amendment,
transfer or drawing, as the case may be.
(f) OBLIGATIONS ABSOLUTE. The obligation of Borrower to reimburse
the Bank for drawings made under the Letters of Credit shall be unconditional
and irrevocable, and shall be paid strictly in accordance with the terms of
this Agreement under all circumstances including, without limitation, the
following circumstances:
<PAGE> 35
29
(i) any lack of validity or enforceability of any Letter of
Credit;
(ii) the existence of any claim, set-off, defense or other
right which Borrower may have at any time against a beneficiary or any
transferee of any Letter of Credit (or any persons or entities for
whom any such transferee may be acting), the Bank or any other Person,
whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction (including any
underlying transaction between Borrower and the beneficiary for which
the Letter of Credit was procured);
(iii) any draft, demand, certificate or any other document
presented under any Letter of Credit proving to be forged, fraudulent
or invalid in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) payment by the Bank under any Letter of Credit against
presentation of a demand, draft or certificate or other document which
does not comply with the terms of such Letter of Credit, PROVIDED that
such payment does not constitute gross negligence or willful
misconduct of the Bank; or
(v) the fact that a default or an Event of Default shall have
occurred and be continuing.
(g) INDEMNIFICATION; NATURE OF THE BANK'S DUTIES REGARDING THE
LETTERS OF CREDIT. In addition to amounts payable as elsewhere provided in
this Section 2.14, and without limiting any other indemnification provided for
in this Agreement, Borrower agrees to protect, indemnify, pay and save the Bank
harmless from and against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable attorneys' fees)
which the Bank may incur or be subject to as a consequence, direct or indirect,
of (i) the issuance of the Letters of Credit, other than as a result of the
gross negligence or willful misconduct of the Bank as determined by a court of
competent jurisdiction, or (ii) the failure of the Bank to honor a drawing
under any Letter of Credit as a result of any act or omission of any present or
future governmental authority beyond the control of the Bank. The Bank shall
have no liability for the acts and omissions of, or misuse of the Letters of
Credit issued by the Bank by, the respective beneficiaries of such Letters of
Credit. In furtherance and not in limitation of the foregoing, the Bank shall
not be responsible for: (i) the form, validity, accuracy, genuineness or legal
effect of any document submitted by any party in connection with the
application for and issuance of Letters of Credit, even if any of
<PAGE> 36
30
the foregoing should in fact prove to be invalid, inaccurate, fraudulent or
forged in any respect; (ii) the validity of any instrument transferring or
assigning or purporting to transfer or assign any Letter of Credit or the
rights or benefits thereunder or proceeds thereof, in whole or in part; (iii)
the failure of the beneficiary of any Letter of Credit to comply fully with
conditions required in order to draw upon such Letter of Credit, provided that
the documents and certificates presented by such beneficiary to the Bank in
connection with such draw comply on their face with the requirements of the
applicable Letter of Credit; (iv) the errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph,
telecopy, telex or otherwise, whether or not they be in cipher; (v) any loss or
delay in the transmission or otherwise of any document required in order to
make a drawing under any Letter of Credit or any proceeds thereof; (vi) the
misapplication by the beneficiary of any Letter of Credit of the proceeds of
any drawing under such Letter of Credit; and (vii) for any consequences arising
from causes beyond the control of the Bank. None of the above shall affect,
impair, or prevent the vesting of any of the Bank's rights or powers hereunder.
In determining whether to pay under any Letter of Credit, the Bank shall be
responsible only to determine that the documents and certificates required to
be delivered under that Letter of Credit have been delivered and that the same
comply on their face with the requirements of that Letter of Credit. Borrower
shall have no obligation to indemnify the Bank in respect of any liability
incurred by the Bank arising solely out of the gross negligence or willful
misconduct of the Bank, as determined by a court of competent jurisdiction, or
out of the wrongful dishonor by the Bank of a proper demand for payment made
under the Letters of Credit.
ARTICLE 3
---------
CONDITIONS PRECEDENT TO DISBURSEMENTS
-------------------------------------
Section 3.1 CONDITIONS PRECEDENT TO INITIAL CLOSING. On or prior to
the Closing Date, each of the following conditions precedent shall have been
satisfied:
(a) CERTIFIED COPIES OF CHARTER DOCUMENTS AND BYLAWS. The Bank
shall have received from Borrower (i) a copy, certified by a duly authorized
officer of Borrower to be true and complete on and as of the Closing Date, of
Borrower's Declaration of Trust and by-laws or code of regulations as in effect
on the Closing Date (together with any and all amendments thereto); (ii) a
copy, certified by a duly authorized officer of the Management Company, of the
Management Company's Articles of Incorporation and by-laws as in effect on the
Closing Date (together with any and all amendments thereto); (iii) the charter
or other organizational documents of the Management Company, certified by the
Delaware Secretary of State, together with a certificate of good standing
<PAGE> 37
31
for the Management Company issued by the Delaware Secretary of State as of a
date not more than five (5) days prior to the Closing Date; (iv) the
organizational documents of Borrower, certified by the Ohio Secretary of State
as being validly registered and in full force and effect; (v) a Certificate of
Good Standing for each of Borrower and the Management Company, each issued by
the Ohio Secretary of State as of a date not more than five (5) days before the
Closing Date; and (vi) certificates, issued by the Secretary of State in each
other jurisdiction in which a Mortgaged Property is located and Borrower or the
Management Company is qualified to do business, each dated not more than five
(5) days prior to the Closing Date, confirming that Borrower and the Management
Company are duly qualified and in good standing in each such jurisdiction.
(b) PROOF OF ORGANIZATIONAL AUTHORITY. The Bank shall have
received from Borrower and from the Management Company copies, certified by a
duly authorized officer of each such party to be true and complete on and as of
the Closing Date, of records of all organizational action taken by Borrower and
the Management Company, respectively, to authorize (i) the execution and
delivery of this Agreement and the other Loan Documents to which it is or is to
become a party as contemplated or required by this Agreement; (ii) its
performance of all of its obligations under each of such documents; and (iii)
the making by Borrower of the borrowings contemplated hereby.
(c) INCUMBENCY CERTIFICATE. The Bank shall have received from each
of Borrower and the Management Company an incumbency certificate, dated as of
the Closing Date, signed by a duly authorized officer of such respective
parties and giving the name and bearing a specimen signature of each individual
who shall be authorized (i) to sign, in the name and on behalf of each such
party, each of the Loan Documents to which it is to become a party on the
Closing Date; and (ii) to give notices and to take other action on behalf of
Borrower under the Loan Documents.
(d) OFFICERS' CERTIFICATES. The Bank shall have received from each
of Borrower and the Management Company a certificate, dated as of the Closing
Date, signed by such party's respective duly authorized officers and
certifying, on terms acceptable to the Bank, that each of the representations
and warranties of such party in this Agreement and in the other Loan Documents
was true and correct when made, and is true and correct on and as of the
Closing Date.
(e) LOAN DOCUMENTS. The Note and all of the other Loan Documents and
Security Documents shall have been duly and properly authorized, executed and
delivered by Borrower and, where appropriate, by the Management Company, and
all such documents shall be in full force and effect on and as of the Closing
Date. Executed originals of each of the Loan Documents shall have been
delivered to the Bank.
<PAGE> 38
32
(f) ACTIONS OF BORROWER REGARDING THE MORTGAGED PROPERTIES. Borrower
and the Management Company shall have taken and completed all of the following
actions with respect to each location which is a Mortgaged Property as of the
Closing Date:
(i) Duly executed and caused to be filed for record in the real
property records of the county in which the affected real property
encumbered thereby is located its Mortgage, Assignment and such
Uniform Commercial Code financing statements as the Bank may deem
necessary or appropriate to create and/or to perfect the first and
paramount lien and security interest in favor of the Bank in the real
and personal property described therein;
(ii) Furnished to the Bank an original loan policy of title insurance
(ALTA 1970 Form B) issued by a title insurance company satisfactory to
Bank (the "TITLE COMPANY"), insuring, in amounts, on terms and with
such affirmative coverages or endorsements as the Bank may require
(including but not limited to the so-called "revolving credit" and
"variable rate" endorsements and such facultative direct-access
reinsurance treaties as the Bank may require), that each such Mortgage
is a valid first lien upon the real property encumbered thereby,
subject only to such exceptions or matters affecting title as the Bank
may approve in writing;
(iii) Furnished to the Bank a current as-built survey showing such
matters as may be required by the Bank, which survey shall be: (x)
acceptable in form and content to the Bank; (y) certified to the Bank
and the Title Company; and (z) prepared by a registered surveyor
acceptable to the Bank in accordance with the minimum standard detail
requirements for ALTA/ACSM Title Surveys, so as to eliminate any and
all "survey exceptions" from the title insurance policies described
above, and containing (A) a note as to the zoning classification of
the subject property; and (B) a statement of whether the subject
property is located in a flood hazard zone and, if applicable, the
Flood Map panel number, suffix, map date and zone for the subject
property; and
(iv) Provided to the Bank such estoppel certificates and tenant
subordination agreements, acceptable in form and content to the Bank,
as the Bank may require with respect to the five (5) largest tenants
at the Fairgrounds Square Mortgaged Property.
In addition, Borrower shall have paid all costs and expenses payable in
connection with all of the actions taken pursuant to
<PAGE> 39
33
this Section 3.1(f), including but not limited to (x) all mortgage, intangibles
or similar taxes or fees, however characterized, payable in respect of this
Agreement, the execution and delivery of the Note, any of the Mortgages or any
of the other Loan Documents or the recording of any of the same; and (y) all
expenses and premiums of the Title Company in connection with the issuance of
such policies of title insurance and to all costs and expenses required for the
recording of the Mortgages or any other Loan Documents in the appropriate
public records.
(g) LEGALITY OF TRANSACTIONS. No change in applicable law
shall have occurred as a consequence of which it shall have become and continue
to be unlawful (i) for the Bank to perform any of its agreements or obligations
under any of the Loan Documents to which it is a party on the Closing Date; or
(ii) for Borrower or the Management Company to perform any of its agreements or
obligations under any of the Loan Documents to which it is a party on the
Closing Date.
(h) PERFORMANCE, ETC. Borrower and the Management
Company shall have duly and properly performed, complied with and observed each
of their respective covenants, agreements and obligations under each of the
Loan Documents to which they are parties or by which they are bound. No event
shall have occurred on or prior to the Closing Date, and no condition shall
exist on the Closing Date, which constitutes or would constitute a Default or
an Event of Default.
(i) COMPLIANCE WITH LAWS. All of the borrowings made or
to be made, and the other financial accommodations to be provided, under this
Agreement are and shall be in compliance with the requirements of all
applicable laws, regulations, rules and orders, including without limitation
the Environmental Laws and the requirements imposed by the SEC or by the Board
of Governors of the Federal Reserve System under Regulations U, G and X.
(j) LEGAL OPINION. The Bank shall have received a
written legal opinion, from legal counsel for Borrower, which shall be
substantially in the form of attached EXHIBIT H and otherwise acceptable to the
Bank.
(k) EXPENSES. Borrower shall have reimbursed the Bank
for all reasonable out-of-pocket costs and expenses, including without
limitation all appraisal, environmental and other fees incurred by the Bank,
and all fees and disbursements of legal counsel to the Bank.
(l) CHANGES: NONE ADVERSE. From the date of the most
recent balance sheets referred to in Section 4.5 of this Agreement to the
Closing Date, no changes shall have occurred in the assets, liabilities,
financial condition, business, operations or prospects of Borrower or
Borrower's Consolidated
<PAGE> 40
34
Subsidiaries which, individually or in the aggregate, are materially adverse to
Borrower and its Consolidated Subsidiaries.
(m) COMPLIANCE CERTIFICATE. The Bank shall have received
a Compliance Certificate, the required calculations under which shall be
modified so as to demonstrate the compliance by Borrower with the covenants of
this Agreement required to be measured in such Certificate, giving effect for
the purpose of such calculations the disbursement to Borrower of the Loan (or
Loans) on the Closing Date.
(n) FINANCIAL STATEMENTS. The Bank shall have received
the financial statements referred to in Section 4.5, certified by an officer of
Borrower, and shall have been satisfied that such financial statements
accurately reflect the financial status and condition of Borrower and its
Consolidated Subsidiaries.
(o) OTHER APPROVALS. The Bank shall have received such
other approvals, opinions, certificates, instruments and documents with respect
to the Mortgaged Properties or the transactions described herein as it may
reasonably request.
(p) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by or on behalf of Borrower and the
Management Company in this Agreement or in any other Loan Document shall be
true, correct and complete.
(q) EVIDENCE OF INSURANCE. Borrower shall have provided the
Bank with certified copies of Borrower's insurance policies with respect to the
Mortgaged Properties, together with executed original counterparts (or, if such
counterparts are unavailable, certified copies) of such endorsements to such
policies as are required by the terms of the Mortgages and with certified
copies of the other insurance policies required of Borrower hereunder or under
the other Loan Agreements, all of which shall comply with the requirements
therefor set forth herein and in the other Loan Documents.
Section 3.2 CONDITIONS PRECEDENT TO SUBSEQUENT LOANS AND TO
LETTERS OF CREDIT. The obligation of the Bank to make or disburse any one or
more Loans and to issue any Letters of Credit from time to time after the
Closing Date shall be subject to the satisfaction, on or before the Draw Date
therefor, of each of the following conditions precedent:
(a) LEGALITY OF TRANSACTIONS. It shall not be unlawful
(a) for the Bank to perform any of its agreements or obligations under any of
the Loan Documents to which it is a party on the Draw Date of such Loan or the
Issuance Date of such Letter of Credit; or (b) for Borrower or the Management
Company to perform any of its agreements or obligations under any of the Loan
Documents.
(b) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by or on behalf of Borrower or the
Management Company to the Bank in this Agreement or any other Loan Document
shall be deemed to be repeated on and as of the date
<PAGE> 41
35
of the Borrower's Request for Advance for such Loan, or Request for the
Issuance of such Letter of Credit, as the case may be, and (giving effect to
any supplemental disclosures provided to the Bank which do not constitute
breaches of such warranties or representations) shall be true and correct in
all material respects on and as of such date.
(c) PERFORMANCE, ETC. Borrower and the Management Company
shall have duly and properly performed, complied with and observed their
respective covenants, agreements and obligations contained in this Agreement
and in all of the other Loan Documents.
(d) NO DEFAULT. No event shall have occurred on or prior
to such date and be continuing on such date, and no condition shall exist on
such date which constitutes a Default or Event of Default, and the making of
such Loan or the issuance of such Letter of Credit shall not result in a
Default or an Event of Default.
(e) PROCEEDINGS AND DOCUMENTS. All organizational,
governmental and other proceedings in connection with the transactions
contemplated hereby and by the other Loan Documents, and all instruments and
documents incidental thereto shall be completed and in place (and, to the
extent required by the Bank, duly recorded) in form and substance satisfactory
to the Bank, and the Bank shall have received all such counterpart originals or
certified or other copies of all such instruments and documents as it shall
have reasonably requested.
(f) MAXIMUM CREDIT. The making of such Loan or the
issuance of such Letter of Credit shall not result in the Outstanding Amount
exceeding the Maximum Commitment.
(g) OTHER APPROVALS. The Bank shall have received such
other approvals, opinions, certificates, instruments and documents as it may
reasonably request.
(h) KANDI MALL PROPERTY. The Bank acknowledges that Borrower
is unable, as of the Closing Date, to deliver those Security Documents which
pertain to Borrower's ground leasehold interest in and to certain real property
located in Kandiyohe County, Minnesota, and more particularly described at
Schedule 1.1(a) (the "Kandi Mall Property"). Borrower's inability to deliver
such Security Documents to the Bank on the Closing Date shall not constitute a
default or Event of Default under this Agreement. Until Borrower shall have
complied with the requirements set forth in this Section 3.2(h), and shall have
delivered to the Bank all of the documents, instruments and materials relating
to the Kandi Mall Property (all of the foregoing being sometimes referred to
herein as the "Additional Closing Documents"), the Aggregate Borrowing Base
shall, subject to Borrower's right to submit Additional Properties as Mortgaged
Properties as described by Section 5.19, below, but notwithstanding any other
provision of this Agreement to the contrary, be limited to Fifty Million
Dollars ($50,000,000). Such limitation shall be released at such time as
Borrower shall have (i)
<PAGE> 42
36
delivered to the Bank those Security Documents which pertain to the Kandi Mall
Property, together with a survey of such property and a title insurance policy
insuring the Bank's first and best lien on such property, all in accordance
with the requirements set forth in Section 3.1(f); (ii) provided to the Bank
evidence satisfactory to the Bank; (x) that Borrower's ground leasehold
interest therein is valid and subsisting, in full force and effect, and is
properly mortgageable to the Bank; and (y) that each owner or holder of any
interest in the fee interest in the property subject to such ground lease, or
in the reversionary estate thereunder, has consented to Borrower's execution,
delivery and performance of the Mortgage and the other Security Documents
encumbering or affecting such property, and confirming that such consent would
permit the Bank (aa) to foreclose upon Borrower's ground leasehold estate and
thereby acquire all of Borrower's rights and interests thereunder, and
subsequently assign or convey such interest, without further consent from any
such party and without entitling any such party to terminate such ground lease
or to initiate any other remedial actions in respect of such ground lease; and
(bb) to receive all notices sent to Borrower under such ground lease
concurrently with the delivery thereof to Borrower, and to have the right (but
not the obligation) to cure any defaults which may arise thereunder subject to
such cure periods, and extensions thereof, as the Bank may require; and (iii)
furnished the Bank an opinion of Borrower's Minnesota counsel, confirming on
terms reasonable acceptable to the Bank that those Security Documents which
pertain to the Kandi Mall Property are Borrower's valid, binding and
enforceable obligations, subject only to customary qualifications and
limitations. Upon the delivery of the Additional Closing Documents as
aforesaid, the Kandi Mall Property shall become a Mortgaged Property under and
for all purposes relevant to this Agreement, and the Aggregate Borrowing Base
shall be calculated without reference to the limitation set forth in this
Section 3.2(h).
ARTICLE 4
---------
GENERAL REPRESENTATIONS AND WARRANTIES
--------------------------------------
Borrower and the Management Company, each as to itself,
severally represent and warrant to the Bank as follows:
Section 4.1 ORGANIZATION, EXISTENCE.
-----------------------
(a) Borrower is duly organized, validly existing and in
good standing as real estate investment trust organized under Chapter 1747 of
the OHIO REVISED CODE, has full power and authority and full legal right to own
or to hold under lease its Property and to carry on its businesses and is
qualified and self-administered as a REIT under Sections 856 through 860 of the
Code. The Management Company is duly organized, validly existing and in good
standing as a corporation under the laws of the State of Delaware, and has full
corporate power and authority and full legal right to own or hold under lease
its Property and to carry on its business. Each of Borrower and the Management
Company is qualified and licensed,
<PAGE> 43
37
admitted or approved to do business in each jurisdiction wherein the character
of its Property or the nature of its business make such qualification necessary
or advisable and where the failure so to qualify would have a material and
adverse effect on Borrower.
(b) Each of Borrower and the Management Company has the
requisite power and authority, and full legal right, to enter into this
Agreement and each of the other Loan Documents to which it is a party, and to
perform, observe and comply with all of its agreements and obligations
hereunder and under each and all of the Loan Documents to which it is a party.
(c) Except as set forth on SCHEDULE 4.1(C), Borrower does
not, as of the date hereof, own or hold of record (whether directly or
indirectly) more than one percent (1.0%) of any shares of any class in the
capital of any corporation, nor does Borrower own or hold (whether directly or
indirectly) more than one percent (1.0%) any legal and/or beneficial equity
interest in any partnership, business trust or joint venture or in any other
unincorporated trade or business enterprise. The representation and warranty
set forth in this Section 4.1(c) is made upon and as of the date hereof, and
shall not (notwithstanding any other provision of this Agreement to the
contrary) be deemed to be repeated on any other date.
(d) Borrower is duly qualified as a REIT under the Code,
and has not incurred any liability for excise taxes pursuant to Section 4981 of
the Code.
Section 4.2 DUE AUTHORIZATION.
-----------------
(a) The execution and delivery by Borrower of each of the
Loan Documents, the performance by Borrower of all of its agreements and
obligations under such documents, and the making by Borrower of the borrowings
contemplated by this Agreement have been duly authorized by all appropriate
action on the part of Borrower and do not and will not (i) contravene any
provision of its Declaration of Trust or any other organizational or
constituent document of Borrower as in effect from time to time; (ii) conflict
with, or result in a breach of the terms, conditions or provisions of, or
constitute a default under, or (except as expressly contemplated by the terms
of this Agreement with respect to the liens and interests to be created in
favor of the Bank under the Security Documents) result in the creation of any
Lien upon any of the Property of Borrower under any agreement, trust deed,
indenture, mortgage or other instrument to which Borrower is a party or by
which Borrower or any other Property of Borrower is bound or affected; (iii)
violate or contravene any provision of any law, rule or regulation (including,
without limitation, Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System) or any order, ruling or interpretation thereunder or
any decree, order or judgment of any court or governmental or regulatory
authority, bureau, agency or official (all as from time to time in effect and
applicable to Borrower); or (iv) require any waivers, consents or
<PAGE> 44
38
approvals by any of the creditors or trustees for creditors of Borrower or any
other Person.
(b) The execution and delivery by the Management Company
of each of the Loan Documents to which it is a party and the performance by the
Management Company of all of its agreements and obligations under such
documents has been duly authorized by all corporate action on the part of the
Management Company, and do not and will not: (i) contravene the Articles of
Incorporation or any other organizational or constituent document of the
Management Company as in effect from time to time; (ii) conflict with, or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, or (except as contemplated by this Agreement) result in the
creation of a Lien upon any Property of the Management Company under any
agreement, trust deed, indenture, mortgage or other instrument to which the
Management Company is a party or by which its Property is bound or affected;
(iii) violate or contravene any provision of any law, rule or regulation or any
order, ruling or interpretation thereunder or any decree, order or judgment of
any court or governmental or regulatory authority, bureau, agency or official
(all from time to time in effect and applicable to the Management Company); or
(iv) require any waivers, consents or approvals of any other Person.
(c) Except as to matters which Borrower has procured,
obtained or performed prior to or concurrently with its execution and delivery
of this Agreement, no approval, consent, order, authorization or license by, or
giving notice to, or taking any other action with respect to, any governmental
or regulatory authority or agency is required under any provision of any
applicable law:
(i) for the execution and delivery by Borrower or the
Management Company, as the case may be, of this Agreement, the
Note, and the other Loan Documents, for the performance by
Borrower or the Management Company of any of the agreements
and obligations hereunder or thereunder or for the making by
Borrower of the borrowing contemplated by this Agreement, or
for the conduct by Borrower of its business; or
(ii) to ensure the continuing legality, validity, binding
effect, enforceability or admissibility in evidence of this
Agreement, the Note and the other Loan Documents.
Section 4.3 ENFORCEABILITY OF DOCUMENTS.
---------------------------
(a) On or before the Closing Date, Borrower and the
Management Company will have duly executed and delivered each of the Loan
Documents required of it by this Agreement, and each such Loan Document will be
in full force and effect. Each Loan Document shall constitute the legal, valid
and binding obligation of Borrower and/or the Management Company, as the case
may be, enforceable against Borrower in accordance with its respective terms.
<PAGE> 45
39
(b) The representations and warranties made by Borrower
and the Management Company in this Section 4.3 are subject to the following
qualifications:
(i) the enforceability of any rights and remedies provided in
any of the Loan Documents or against any particular party
thereto is subject to applicable bankruptcy, reorganization,
moratorium or other similar laws affecting generally the
enforcement of creditors' rights; and
(ii) the availability of equitable remedies for the
enforcement of any provision of any of the Loan Documents may
be subject to the discretion of the court before which any
proceeding for the enforcement of any provision may be
brought.
Section 4.4 NO DEFAULT.
----------
(a) No event has occurred and is continuing, and no condition
exists, which constitutes a Default or an Event of Default.
(b) No default by Borrower or the Management Company and no
accrued right of rescission, cancellation or termination on the part of
Borrower or the Management Company, exists under this Agreement or any of the
other Loan Documents.
Section 4.5 FINANCIAL STATEMENTS. Borrower has furnished the
Bank with true, correct and complete copies of (a) the combined annual
financial statements for Borrower and the Management Company for the most
recent fiscal year of Borrower, including the combined balance sheet of the
Borrower and the Management Company as of the end of such fiscal year and
combined statements of income and changes in cash for Borrower and the
Management company and a statement of Shareholder's Equity, prepared on a
consistent basis in accordance with GAAP (except as specifically disclosed
therein) and in the form included with Borrower's Form 10-K as filed with the
SEC, certified without qualification by Borrower's Accountants; (b) the
combined quarterly financial statements for Borrower and the Management Company
for each fiscal quarter elapsed since the expiration of Borrower's most recent
fiscal year, including a combined balance sheet and combined statements of
income and change in cash of Borrower and the Management Company, prepared on a
consistent basis with the prior fiscal year's financial statements in
accordance with GAAP (except as specifically disclosed therein), and in the
form included with Borrower's Form 10-Q, as filed with the SEC; and (c) a
certificate of the chief financial officer, principal accounting officer or
chief executive officer of Borrower, stating that to his best knowledge after
due inquiry the foregoing statements present fairly in all material respects
the combined financial position of Borrower and the Management Company and the
results of their combined operations, subject,
<PAGE> 46
40
solely with respect to the materials described in clause (b), to routine
year-end audit adjustments.
Section 4.6 NO ADVERSE CHANGES. No changes have occurred in
the assets, liabilities or financial condition of Borrower or the Management
Company from those reflected in the most recent balance sheets referred to in
Section 4.5 hereof which, individually or in the aggregate, have been
materially adverse. Since the date of the most recent balance sheet, there has
been no material and adverse development in the business or in the operations
or prospects of Borrower or the Management Company.
Section 4.7 TITLE TO ASSETS. Except as set forth in Schedule
4.7, Borrower or a Consolidated Subsidiary has good, sufficient and legal title
to, or a valid and subsisting ground leasehold interest in, all the Property
and assets reflected in the most recent balance sheet referred to in Section
4.5, except for assets disposed of since the date of such balance sheet in the
ordinary course of business.
Section 4.8 LITIGATION. Except as disclosed in SCHEDULE 4.8,
or (with respect to subsequent reiterations of this warranty and
representation) as disclosed in documents filed with the SEC and provided to
the Bank as required by this Agreement, there is no pending action, suit,
proceeding or investigation pending, or, to Borrower's knowledge, threatened,
before any court, governmental or regulatory authority, agency, commission or
official, board of arbitration or arbitrator against Borrower or the Management
Company in which Borrower or the Management Company is a participant which
could, if determined adversely to Borrower or the Management Company,
reasonably be expected to affect, in any material or adverse way, the financial
position, assets, business, operations or prospects of Borrower. There are no
proceedings pending or, to Borrower's knowledge, threatened against Borrower or
the Management Company which call into question the validity or enforceability
of any of the Loan Documents.
Section 4.9 NO MATERIALLY ADVERSE CONTRACTS. Borrower is not
a party to or bound by any contracts, agreements or instruments (whether
written or oral) which, either individually or in the aggregate, materially and
adversely affect the financial position, business, operations or prospects of
Borrower.
Section 4.10 TAX RETURNS. Borrower has filed all federal,
state and other tax returns required to be filed by it and has made reasonable
provisions, in accordance with GAAP, for the payment of all taxes (if any)
which have or may become due and payable pursuant to any of the said returns,
pursuant to any matters raised by audits or for other reasons. In addition,
Borrower has paid or caused to be paid all real and personal property taxes and
assessments and other governmental charges
<PAGE> 47
41
lawfully levied or imposed on or against it or its Property, other than those
presently payable without payment of interest or penalty and those which are
subject to contests initiated by Borrower in good faith and diligently
prosecuted, in each case as permitted by and subject to the requirements of
Section 5.10, below.
Section 4.11 CONTRACTS WITH AFFILIATES OR SUBSIDIARIES. (a)
Except as permitted by Section 6.6 hereof and as otherwise set forth on
SCHEDULE 4.1(c) hereto, Borrower is not a party to or otherwise bound by any
material agreements, instruments or contracts (whether written or oral) with
any Affiliate or Subsidiary.
(b) Except as permitted by Section 6.6, below, and as
otherwise set forth on SCHEDULE 4.1(C) hereto, there is no Indebtedness for
Borrowed Money owing by Borrower to any Affiliate nor is there Indebtedness for
Borrowed Money owing by any Affiliate to Borrower.
Section 4.12 EMPLOYEE BENEFIT PLANS. Except as shown on
SCHEDULE 4.12 hereto, Borrower does not maintain any Employee Benefit Plans or
Guaranteed Pension Plans.
Section 4.13 GOVERNMENTAL REGULATION. Borrower is not a
"public utility company", a "holding company" or a "subsidiary" or an
"affiliate" of a "holding company," as such terms are defined in the federal
Public Utility Holding Company Act of 1935, as amended. Borrower is not an
"investment company" or a company "controlled" by an "investment company," as
such terms are defined in the federal Investment Company Act of 1940, as
amended. Borrower is not subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act
or the Investment Company Act of 1940 or under any federal or state statute or
regulation limiting its ability to incur Indebtedness for Borrowed Money.
Section 4.14 SECURITIES ACTIVITIES. Borrower is not engaged
in the business of extending credit for the purpose of purchasing or carrying
any "margin security" or "margin stock" as such terms are used in Regulation U
and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts
221 and 224.
Section 4.15 DISCLOSURE. Neither this Agreement nor any
other Loan Document, or any other document, certificate or written statement
furnished to the Bank by or on behalf of Borrower for use in connection with
the transactions contemplated by this Agreement contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained therein not misleading as of the date of such
document, certificate or other statement.
<PAGE> 48
42
Section 4.16 NO MATERIAL DEFAULT. Borrower is not in default
under any order, writ, judgment, injunction, decree, statute or governmental
rule, indenture, agreement, contract, lease or other instrument or contract
applicable to it, which default would have a material and adverse effect on the
business, assets, Properties or conditions, financial or otherwise, of Borrower
or in the performance of any covenants or conditions respecting any of its
Indebtedness, and no holder of any Indebtedness of Borrower has given notice of
any asserted default thereunder, and no liquidation or dissolution of Borrower
and no receivership, insolvency, bankruptcy, reorganization or other similar
proceedings relative to Borrower or its Property is pending threatened.
Section 4.17 ENVIRONMENTAL CONDITIONS. (a) Borrower
has obtained all necessary permits, licenses, variances, satisfactory
clearances and all other necessary approvals (collectively the "EPA Permits")
in respect of its Property and for the operation and conduct of Borrower's
business, from all applicable federal, state, and local governmental
authorities, utility companies or development-related entities including, but
not limited to, any and all appropriate Federal or State environmental
protection agencies and other departments, public water works and public
utilities in regard to the use of all such real property and the operation and
conduct of its business, and for any handling, transporting, treating, storage,
disposal, discharge, or Release of Hazardous Substances or any wastes, liquids
or other emissions, if any, into, on or from the environment (including, but
not limited to, any air, water, or soil). All EPA Permits are in full force
and effect; no such EPA Permit has expired or been suspended, denied or
revoked, or is under challenge by any Person. Borrower is in compliance with
each EPA Permit, and has no knowledge or information concerning any condition
or fact which might or could cause a suspension, denial or revocation of any of
Borrower's EPA Permits.
(b) Neither Borrower, the Mortgaged Property, nor any other
Property owned by or leased to Borrower is (i) subject to any material private
or governmental litigation, Lien or judicial or administrative notice, order or
action, or, to Borrower's knowledge, threatened litigation or administration
action, relating to Hazardous Substances or environmental problems, impairments
or liabilities; or (ii) with any applicable notice or lapse of time (or both),
and/or failure to take certain curative or remedial actions, in direct or
indirect violation of any Environmental Laws.
(c) To the best of Borrower's knowledge, there has been no
Release (as defined in CERCLA) into, on or from any Mortgaged Property or any
other Property owned by or leased to Borrower, and no Hazardous Substances
(except for (x) "Household Waste" as that term is defined at 40 C.F.R.
261.4(b)(l) (1990), and (y) DE MINIMIS amounts of Hazardous Substances which
neither violate any Environmental Laws nor require any affirmative
<PAGE> 49
43
remediation or corrective action) are located on or have been treated, stored,
processed, disposed of, handled, transported to or from, disposed of upon or
into, upon or from any such Property including, but not limited to, any air,
water, or soil. Borrower shall not allow any Hazardous Substance to exist or
be treated, stored, disposed, Released, located, discharged, possessed,
managed, processed, or otherwise handled on any Mortgaged Property or any other
Property owned by or leased to Borrower except in compliance with all
applicable requirements of all or in the operation or conduct of its business
Environmental Laws, and shall comply with all Environmental Laws affecting all
of Borrower's Property.
(d) Borrower and its Affiliates do not and shall not
transport or engage in the business of transporting, in any manner, any
Hazardous Substances.
(e) Borrower is not aware of any circumstances which would
result in any material obligation under any Environmental Law to investigate or
remediate any Hazardous Substances in, on or under the Mortgaged Properties or
in, on or under any other Property owned by or leased to Borrower.
(f) Reference is hereby made to the Environmental Indemnity
Agreement, dated of even date herewith, executed and delivered by Borrower to
the Bank as one of the Loan Documents. The parties acknowledge and agree that
it is their intention that this Section 4.17 and the Environmental Indemnity
Agreement be interpreted as being consistent and harmonious. Nevertheless, the
parties further agree that, solely with respect to matters which are covered
both by this Section 4.17 and by the Environmental Indemnity Agreement, the
latter shall govern in the event of any inconsistency.
Section 4.18 LICENSES AND PERMITS. Borrower owns or
possesses all material Licenses and Permits and rights with respect thereto
necessary for the lawful and proper conduct of its business as presently
conducted and proposed to be conducted, without any known conflict with the
rights of others, free of any Lien not permitted by this Agreement. All such
Licenses and Permits are in full force and effect, and Borrower is in
compliance with the requirements imposed by, or in respect of, all such
Licenses and Permits without any known conflict with the valid rights of others
which could affect or impair in any material manner the business, assets or
condition, financial or otherwise, of Borrower or the Collateral. No event has
occurred and is continuing which permits, or after notice or lapse of time or
both would permit, the revocation or termination of any such License or Permit,
or would conversely affect the rights of Borrower thereunder. There is no
litigation or other proceeding or dispute with respect to any such Licenses and
Permits which has, or is reasonably likely to have, any material adverse effect
on the validity or continued availability of any such Licenses and Permits.
<PAGE> 50
44
ARTICLE 5
---------
AFFIRMATIVE COVENANTS OF BORROWER
---------------------------------
Borrower covenants with and warrants to the Bank that from and
after the Closing Date and until all of the Obligations are paid and satisfied
in full, Borrower shall (and shall cause the Management Company to) comply
with, observe, perform or fulfill all of the covenants set forth in this
Article 5.
Section 5.1 REPORTS AND OTHER INFORMATION. (a) Borrower
shall provide to the Bank, as soon as the same are available, and in any event
within forty-five (45) days after the close of each of the first three quarters
of each fiscal year of Borrower, combined balance sheet of Borrower and the
Management Company as of the end of such quarter, together with combined
statements of income, changes in cash and shareholders' equity for Borrower and
the Management Company for the period commencing at the end of the previous
fiscal year and ending with the end of such quarter. All such statements shall
be prepared on a consistent basis with the prior year's statements, in
accordance with GAAP (except as may be expressly disclosed therein) in the form
included in Borrower's Form 10-Q as filed with the SEC, shall be certified by
Borrower's chief financial officer, principal accounting officer or chief
executive officer, and shall be accompanied by a certificate of such officer
stating that as of the date of such certificate and to the best of his
knowledge, after reasonable inquiry: (i) such financial statements present
fairly, in all material respects, the combined financial position of Borrower
and the Management Company and the results of their combined operations for
such quarter and for Borrower's fiscal year-to-date in accordance with GAAP,
subject to routine year-end audit adjustments; and (ii) no event has occurred
which constitutes an Event of Default or would constitute an Event of Default
with the giving of notice or the lapse of time or both, or, if an Event of
Default or such an event has occurred and is continuing, a statement as to the
nature thereof and the action which Borrower has taken or proposes to take with
respect thereto. Concurrently with the delivery of the foregoing materials,
Borrowers shall furnish, in such detail as is reasonably required by the Bank
(x) a compliance certificate, documenting Borrower's compliance with the
requirements of Sections 5.21 and Article 6 of this Agreement, (y) a borrowing
report, certified by a duly authorized officer of Borrower, and (z) such other
information as may reasonably be requested by the Bank with respect to Borrower
or Borrower's business or Property.
(b) Borrower shall provide to the Bank, as soon as the same
are available and in any event within ninety (90) days after the end of each
fiscal year of Borrower, a copy of the combined annual financial statements of
Borrower and the Management Company for such year, including therein a copy of
the combined balance sheet of Borrower and the Management Company as of the
<PAGE> 51
45
end of such fiscal year and combined statements of income and changes in cash
and statements of Shareholders' Equity. All of the foregoing shall be prepared
on a consistent basis with the prior year's statements, in accordance with GAAP
(except as may be expressly disclosed therein) in the form included in
Borrower's Form 10-K as filed with the SEC. The foregoing statements shall be
certified without qualification by Borrower's Accountants, and shall be
accompanied by a certificate of the chief financial officer, principal
accounting officer or chief executive officer of Borrower stating that, as of
the date of such certificate, to the best of his knowledge, after reasonable
inquiry: (i) such financial statements reflect all adjustments (consisting of
normal, recurring accruals) necessary to present fairly the combined financial
position of Borrower and the Management Company for such fiscal year in
accordance with GAAP, and (ii) no event has occurred which constitutes an Event
of Default or would constitute an Event of Default with the giving of notice or
the lapse of time or both, or, if an Event of Default or such an event has
occurred and is continuing, a statement as to the nature thereof and the action
which Borrower has taken or proposes to take with respect thereto.
Concurrently with the delivery of the foregoing materials, Borrower shall
furnish, in such detail as is reasonably required by the Bank (x) a Compliance
Certificate, (y) a borrowing report, certified by a duly authorized officer of
Borrower, and (z) such other information as may be reasonably requested by the
Bank with respect to Borrower or Borrower's Business or Property.
(c) Borrower shall provide to the Bank, promptly after
sending or filing thereof, copies of all reports which Borrower sends to
holders of beneficial interests in Borrower, and copies of all reports and
registration statements which Borrower files with the SEC.
(d) Borrower shall provide to the Bank, concurrently with
its delivery to the Bank of Borrower's quarterly financial reports in
accordance with Section 5.1(a), above, and in any event within forty-five (45)
days after the end of each calendar quarter of Borrower, a report as to each
Mortgaged Property setting forth for such Mortgaged Property a statement
showing, in such detail as the Bank may reasonably request, the Property NOI
for such Mortgaged Property for such quarter.
(e) Borrower shall also provide the Bank with such other
information relating to Borrower (including, without limitation, any business
plan of Borrower) as the Bank may from time to time reasonably request.
Without limiting the generality of the foregoing, Borrower shall provide the
Bank, semi-annually, within forty-five (45) days after the end of the second
and fourth fiscal quarters of Borrower in each fiscal year during the pendency
of this Agreement, a current rent-roll for each Mortgaged Property.
<PAGE> 52
46
Section 5.2 MAINTENANCE OF PROPERTY; INSURANCE. (a)
Borrower covenants and agrees to keep and maintain all of its Property in good
repair, working order and condition, reasonable wear and tear excepted, and
from time to time to make, or use all reasonable legal remedies to cause to be
made, all proper repairs, renewals or replacements, betterments and
improvements thereto so that the business carried on in connection therewith
may be properly and advantageously conducted at all times;
(b) Borrower covenants and agrees to keep all of its Property
insured against loss or damage by theft, fire, smoke, sprinklers, riot and
explosion, such insurance (the "Insurance") to be in such form, in such amounts
and against such other risks and hazards as are currently carried by Borrower
or are customarily maintained by other Persons operating similar businesses and
having similar properties in the same general areas, including but not limited
to liability coverage and to flood insurance for real property or real property
interests located in an area designated as flood-prone, with an insurer or
insurers which are financially sound and reputable and which have been accorded
a rating by A.M. Best Company, Inc. (or any successor rating agency) of A-/X
(or any replacement rating of equivalent stature) or better (or A-/VII or
better in the case of insurers whose parent companies are rated A-/X or better;
insurance companies satisfying the foregoing requirements are referred to
herein as "Qualified Insurers"). In the event that an insurer ceases to be a
Qualified Insurer during the term of any Insurance policy, Borrower shall
replace such coverage, at the end of the then-current policy term, by a policy
issued by a Qualified Insurer. The specific requirements for the insurance to
be maintained in respect of the Mortgaged Properties shall be set forth in the
respective Mortgages; to the extent that the requirements set forth in the
respective Mortgages shall conflict with those which are contained in this
Agreement, the requirements of the respective mortgages shall govern. Borrower
shall, in addition, require that the insurer with respect to each such
Insurance policy provide for at least thirty (30) days' advance written notice
to Borrower of any cancellation or termination of, or other change of any
nature whatsoever in, the coverage provided under any such policy. The Bank
acknowledges that Borrower's insurers will not provide more than ten (10) days'
prior notice of cancellation for nonpayment of premiums, and agrees (without
waiving any rights it may have in the event of such occurrence) that ten (10)
days' notice will be adequate in such event.
Section 5.3 PRIORITY OF MORTGAGES. Borrower shall at all
times maintain and preserve the first and best priority of the Mortgages with
respect to each of the Mortgaged Properties, and shall not at any time create
or suffer to be created any other Lien or security interest in any of the
Collateral, excepting only Liens securing the payment of current and
non-delinquent taxes and assessments, both general and special, the effect of
building, land use and zoning laws, and other
<PAGE> 53
47
matters affecting title to the Mortgaged Properties as may be approved or
accepted by the Bank.
Section 5.4 SECURITY INTERESTS. Borrower will defend the
Collateral against all claims and demands of all Persons at any time claiming
the same or any interest therein. Borrower shall comply with the requirements
of all applicable laws and regulations in order to grant to the Bank valid and
perfected first mortgage liens encumbering all of the Mortgaged Properties and
first-priority, perfected security interests in the balance of the Collateral.
The Bank is hereby authorized by Borrower to file any financing statements
covering the Collateral, whether or not Borrower's signature appears thereon.
Borrower agrees to do whatever the Bank may reasonably request, from time to
time, by way of: filing notices of liens, financing statements, fixture filings
and amendments, renewals and continuations thereof; cooperating with the Bank's
representatives; keeping stock records; obtaining waivers from landlords and
mortgagees and from warehousemen and their landlords and mortgagees; paying
claims which might, if unpaid, become a Lien on the Collateral or any portion
or component thereof; and performing such further acts as the Bank may
reasonably require in order to effect the purposes of this Agreement and the
other Loan Documents (excluding, however, any such matters as to which Borrower
shall have caused to be bonded or otherwise discharged, or shall have properly
initiated and duly prosecuted a dispute with the claimant or the party seeking
to compel Borrower's performance, all subject to and in compliance with the
provisions of the applicable Mortgage relative to the prosecution of the
contests and disputes permitted thereunder). Any and all fees, costs and
expenses (including any taxes, attorneys' fees or costs for insurance of any
kind), which the Bank may incur with respect to the Collateral or the
Obligations; in filing public notices; in preparing or filing documents; making
title examinations or rendering opinions; in protecting, maintaining, or
preserving the Collateral or its interest therein; in enforcing or foreclosing
the Liens hereunder, whether through judicial procedures or otherwise; or in
defending or prosecuting any actions or proceedings arising out of or relating
to its transactions with Borrower under this Agreement or any other Loan
Document, shall be borne and paid by Borrower promptly after the Bank's written
demand therefor. If any such costs or expenses are not promptly paid by
Borrower, the Bank may pay the same on Borrower's behalf, and the amount so
paid shall thereupon comprise Obligations hereunder, evidenced by the Note and
secured by the other Loan Documents, and shall bear interest from the date of
such payment until the date the same are paid in full, at the Default Interest
Rate.
Section 5.5 MAINTENANCE OF EXISTENCE. (a) Borrower shall
make all filings under the Code necessary to preserve and maintain (i) its
qualifications as a REIT under the Code and (ii) the applicability to Borrower
and its shareholders of the
<PAGE> 54
48
method of taxation provided for in Section 857(b) of the Code (and any
successor provision thereto).
(b) Borrower shall preserve and maintain its existence and
all of its rights, franchises and privileges as an Ohio real estate investment
trust, and its qualification to do business in each jurisdiction in which the
character of Borrower's Property or the nature of Borrower's business makes
such qualification necessary.
(c) The Management Company will preserve and maintain its
existence and all of its rights, franchises and privileges as a Delaware
corporation, and its qualification to do business in any other jurisdiction in
which the character of its Property or the nature of its business makes such
qualification necessary.
Section 5.6 COMPLIANCE WITH LAWS. (a) Borrower and the
Management Company shall, and each hereby covenants and agrees to, comply with
all acts, rules, regulations, orders, directions and ordinances of any
legislative, administrative or judicial body or official (including, without
limitation, all Environmental Laws and the Americans with Disabilities Act --
the "ADA" --) applicable to the Borrower's Property or any part thereof, or to
the operation of Borrower's business.
(b) Borrower will promptly notify the Bank in the event that
Borrower receives any notice, claim or demand from any governmental agency
which alleges that Borrower or the Management Company is in violation of any of
the terms of, or has failed to comply with any applicable order issued pursuant
to any Federal, state or local statute regulating its operation and business
with respect to any Mortgaged Property, including, but not limited to, the
Occupational Safety and Health Act, the ADA and all Environmental Laws.
Section 5.7 NOTICE OF LITIGATION: JUDGMENTS. Borrower shall
furnish or cause to be furnished to the Bank, promptly (and, in any event,
within five (5) Business Days) after Borrower shall have first become aware of
the same, a written notice describing, in detail acceptable to the Bank: (a)
any final judgment in an amount exceeding Five Hundred Thousand Dollars
($500,000.00) rendered against Borrower or any Affiliate of Borrower; (b) the
commencement or institution of any legal or administrative action, suit,
proceeding or investigation by or against Borrower or any Affiliate of Borrower
in or before any court, governmental or regulatory body, agency, commission or
official, board of arbitration or arbitrator, the outcome of which could
materially and adversely affect Borrower's current or future financial
position, assets, business, operations or prospects, or could prevent or impede
the implementation or completion, observance or performance of any of the
arrangements or transactions contemplated by any of the Loan Documents; or (c)
the occurrence of any adverse development, not previously disclosed by Borrower
to the Bank in writing, in any such action,
<PAGE> 55
49
suit, proceeding or investigation. In addition, as promptly as possible after
sending the notice of any such event or events, Borrower shall provide the Bank
with a supplemental notice relating to the event described in such initial
notice. Such supplemental notice shall include Borrower's description of the
action that Borrower has taken or proposed to take with respect to such event.
Section 5.8 NOTICE OF OTHER EVENTS. (a) If (and on each
occasion that) any event shall occur or any condition shall develop which
constitutes a Default or an Event of Default, then, promptly (and, in any
event, within five (5) Business Days) after Borrower shall have first become
aware of the same, Borrower will furnish or cause to be furnished to the Bank a
written notice specifying the nature and the date of the occurrence of such
event or (as the case may be), the nature and the period of existence of such
condition and what action Borrower is taking or proposes to take with respect
thereto.
(b) Immediately upon Borrower's first becoming aware of any
of the following occurrences, Borrower will furnish or cause to be furnished to
the Bank) written notice with full particulars of (i) the business failure,
insolvency or bankruptcy of Borrower; and (ii) any defaults or events of
default under any material agreement of Borrower or any material violations of
any laws, regulations, rules or ordinances of any governmental or regulatory
body by Borrower with respect to any Mortgaged Property.
(c) If (and on each occasion that) any of the following
events shall occur:
(i) the Declaration of Trust or other organizational
documents of Borrower shall at any time be modified or amended
in any respect whatever; or
(ii) the by-laws or code of regulations of Borrower shall at
any time be modified or amended in any respect whatever;
then promptly (and, in any event, within five (5) Business Days) after the
occurrence of any such event, Borrower shall furnish the Bank with a true and
complete copy of each such modification, amendment or supplement.
Section 5.9 INSPECTIONS. Borrower and the Management Company
shall permit any officer, employee, consultant or other representative or agent
of the Bank to visit and inspect, from time to time and at any reasonable time,
after prior notice to Borrower, any of the assets or Property owned or held
under lease by Borrower or the Management Company and to examine the books of
account, records, reports and the papers (and to make copies thereof and to
take extracts therefrom) of Borrower and to discuss the affairs, finances and
accounts of Borrower with the
<PAGE> 56
50
trustees and executive officers of Borrower, and with Borrower's independent
accountants.
Section 5.10 PAYMENT OF TAXES AND OTHER CLAIMS. Borrower and
the Management Company shall pay and discharge promptly all taxes, assessments
and other governmental charges or levies at any time imposed upon it or upon
its income, revenues or Property, as well as all claims of any kind (including
claims for labor, material or supplies) which, if unpaid, might by law become a
Lien or charge upon all or any part of its income, revenues or Property.
Notwithstanding the foregoing to the contrary, Borrower may, provided that there
is not then an Event of Default hereunder, contest the propriety or amount of
any such taxes, assessments or governmental charges, or of any such claims, if
(a) such contest is instituted in good faith and prosecuted with reasonable
diligence; (b) such contest shall preclude the sale or forfeiture of the
affected Property (or Borrower shall discharge, by bonding or otherwise, the
claim giving rise to the contest or shall provide the Bank with such reasonable
security or other assurances as may be requested by the Bank in connection with
such contest); and (c) Borrower shall indemnify the Bank of and from any and
all liability, loss, cost or expense incurred by or asserted against the Bank
in connection with, or in consequence of, any such contest.
Section 5.11 PAYMENT OF INDEBTEDNESS. Borrower will duly and
punctually pay or cause to be paid the principal and interest on the Loans, all
draws and disbursements under the Letters of Credit and all fees and other
amounts payable hereunder or under the Loan Documents promptly as and when
required by this Agreement and/or the other Loan Documents. Borrower shall pay
all other Indebtedness (whether existing on the date hereof or arising at any
time thereafter) promptly as and when the same is due and payable.
Section 5.12 PAYMENT OF FEES. Borrower shall, and hereby
covenants and agrees to, pay the following fees as and when described below:
(a) A Commitment Fee, in the amount of 0.375% per annum of
the average daily unused portion of $60,000,000 (without regard to whether the
full amount of the credit facility provided hereunder is then available to
Borrower), computed on the basis of a 360-day year for the actual number of
days elapsed, payable quarterly, in arrears, on the final day of each calendar
quarter during the pendency of this Agreement and on the Termination Date;
(b) The Letter of Credit fees and commissions contemplated by
Section 2.14, above; and
(c) The Inspection Fee, in the amount of Five Thousand
Dollars ($5000) per year, payable annually in advance to the Bank to defray the
costs of inspecting and monitoring the performance
<PAGE> 57
51
of the Eligible Real Estate; the initial year's Inspection Fee shall be payable
on the Closing Date, and shall be prorated based upon the number of days
remaining as of the Closing Date in calendar year 1994. Subsequent years'
payments of the Inspection Fee shall be paid, in advance, on January 1 of each
full or partial calendar year during the pendency of this Agreement, commencing
on January 1, 1995.
Section 5.13 PERFORMANCE OF OBLIGATIONS UNDER THE LOAN
DOCUMENTS. Borrower and the Management Company each will duly and properly
perform, observe and comply with all of its agreements, covenants and
obligations under this Agreement and each of the other Loan Documents.
Section 5.14 GOVERNMENTAL CONSENTS AND APPROVALS. (a)
Borrower will obtain or cause to be obtained all such approvals, consents,
orders, authorizations and licenses from, give all such notices promptly to,
register, enroll or file all such agreements, instruments or documents promptly
with, and promptly take all such other action with respect to, any governmental
or regulatory authority, agency or official, or any central bank or other
fiscal or monetary authority, agency or official, as may be required from time
to time under any provision of any applicable law:
(i) for the performance by Borrower or the Management Company
of any of its agreements or obligations under the Note, this
Agreement or any of the other Loan Documents or for the
payment by Borrower to the Bank at its Head Office of any sums
which shall become due and payable by Borrower to the Bank
hereunder or thereunder;
(ii) to ensure the continuing legality, validity, binding
effect or enforceability of the Note or any of the other Loan
Documents or of any of the agreements or obligations
thereunder of Borrower or the Management Company; or
(iii) to continue the proper operation of the business and
operations of Borrower.
(b) Borrower shall duly perform and comply with the terms and
conditions of all such approvals, consents, orders, authorizations and Licenses
and Permits from time to time granted to or made upon Borrower.
Section 5.15 EMPLOYEE BENEFIT PLANS AND GUARANTEED PENSION
PLANS. (a) Borrower will not establish any Guaranteed Pension Plans or
Employee Benefit Plans without the Bank's prior written consent (which will not
be unreasonably withheld or delayed), (b) Borrower will make full payment when
due of all amounts which, under the provisions of Employee Benefit Plans or
under applicable law, are required to be paid as contributions
<PAGE> 58
52
thereto, (c) Borrower will not permit to exist any accumulated funding
deficiency, whether or not waived, (d) Borrower will file on a timely basis all
reports, notices and other filings required by any governmental agency with
respect to any of its Employee Benefit Plans, (e) Borrower will make any
payments to Multiemployer Plans required to be made under any agreement
relating to such Multiemployer Plans, or under any law pertaining thereto, (f)
Borrower will not permit any amount of unfunded guarantied benefits to occur
with respect to any Guaranteed Pension Plan, (g) Borrower will furnish to all
participants, beneficiaries and employees under any of the Employee Benefit
Plans, within the periods prescribed by law, all reports, notices and other
information to which they are entitled under applicable law, and (h) Borrower
will take no action which would cause any of the Employee Benefit Plans to fail
to meet any qualification requirement imposed by the Code, as amended. As used
in this Section 5.15, the term "accumulated funding deficiency" has the meaning
specified in Section 302 of ERISA and Section 412 of the Code, and the term
"unfunded guarantied benefits" has the meaning specified in Section 4001 of
ERISA.
Section 5.16 FURTHER ASSURANCES. Borrower will execute,
acknowledge and deliver, or cause to be executed, acknowledged and delivered,
any and all such further assurances and other agreements or instruments, and
take or cause to be taken all such other action, as shall be reasonably
requested by the Bank from time to time in order to give full effect to any of
the Loan Documents.
Section 5.17 DELIBERATELY OMITTED.
--------------------
Section 5.18 FINANCIAL COVENANTS.
-------------------
(a) LEVERAGE RATIO. Borrower shall at all times maintain
a ratio of Liabilities to EBITDA for any period of four (4) consecutive fiscal
quarters of Borrower of not more than eight (8.0) to one (1.0). For the
purposes of this provision: (x) Borrower's EBITDA shall be adjusted to
reflect any acquisitions made by Borrower during the quarter on a PRO FORMA
basis acceptable to the Bank, assuming the lesser of 90% or actual occupancy,
and (y) any deferred obligations, deferred capital gains and other deferred
income shall be excluded from Liabilities.
(b) DEBT SERVICE COVERAGE RATIO. Borrower shall, as of
the final day of any fiscal quarter of Borrower, maintain a ratio of EBITDA to
all required payments of principal (other than balloon payments) and interest
on Indebtedness for Borrowed Money, in each case with respect to such fiscal
quarter, of not less than one and three-tenths (1.3) to one (1.0). For the
purposes of this provision, Borrower's EBITDA shall be adjusted to reflect any
acquisitions made by Borrower during the applicable fiscal period on a PRO
FORMA basis acceptable to the Bank, assuming the lesser of 90% or actual
occupancy.
<PAGE> 59
53
(c) MINIMUM NET WORTH. Borrower's Minimum Net Worth shall,
at all times during the pendency of this Agreement, equal or exceed Eighty
Million Dollars ($80,000,000). In the event that Borrower shall make any
equity offerings during the pendency of this Agreement, the Minimum Net Worth
required to be maintained by Borrower hereunder shall be not less than the sum
of $80,000,000 PLUS ninety percent (90%) of the net proceeds to Borrower of
such offering.
(d) AGGREGATE BORROWING BASE. The Aggregate Borrowing Base
shall at all times equal or exceed the outstanding principal balance of all
Loans.
(e) FUNDS FROM OPERATIONS. Borrower's Funds from Operations
shall equal or exceed Sixteen Million Dollars ($16,000,000) for each period of
four (4) consecutive fiscal quarters of Borrower during the pendency of this
Agreement.
5.19. ADDITIONAL MORTGAGED PROPERTIES; SUBSTITUTE MORTGAGED
PROPERTIES. Subject to the terms and conditions set forth in this Section
5.19, Borrower may, from time to time, supplement the collateral for the Loans
by causing certain real property owned by Borrower to become additional
Mortgaged Properties, in accordance with the following provisions:
(a) If Borrower shall desire to cause certain real property
owned by Borrower to become a Mortgaged Property hereunder, Borrower shall so
notify the Bank. Such notice shall include: (i) a description of the property
which Borrower would propose to become a Mortgaged Property (the "Additional
Property"), including historical operating results and occupancy levels of such
Additional Property; (ii) an appraisal establishing the fair market value of
such Additional Property, prepared by an appraiser who is a Member of the
American Institute of Real Estate Appraisers (or has a corresponding
professional designation acceptable to the Bank), conforming to all
requirements applicable to the Bank with respect to real estate collateral, and
otherwise acceptable to the Bank; (iii) a commitment for the issuance of a loan
policy of title insurance (ALTA Form B, 1970 Form), issued by a title insurer
acceptable to the Bank and showing that (x) such Additional Property is owned
by Borrower (or will be, prior to the execution and delivery of the Mortgage
encumbering such Additional Property), and (y) that, if such Additional
Property were to become a Mortgaged Property, the Mortgage encumbering such
Additional Property would be the first and best lien upon such property,
subject only to the lien of taxes and assessments, both general and special,
which are a lien but are not then delinquent or due and payable; (iv) a survey,
prepared and certified to the Bank in accordance with ALTA/ACSM standards,
showing the boundaries of the Additional Property, the location of all
improvements, required set-backs and such other information as may be required
pursuant to the foregoing standards, acceptable to the Bank and sufficient to
permit the issuance of a loan policy of title insurance without
<PAGE> 60
54
exception for any matter which would be revealed by a survey and physical
inspection of the Additional Property; (v) a Phase I environmental report,
acceptable to the Bank, showing that such Additional Property is free of
Hazardous Substances and from violations of Environmental Laws, and otherwise
in compliance with the requirements set forth in this Agreement with respect to
the Mortgaged Properties and (vi) a statement, showing in detail and with
substantiating information reasonably acceptable to the Bank, the Property NOI
for the Additional Property for not less than one (1) full calendar year prior
to the date of the notice with which such information is furnished. If the
Bank shall approve the addition of the Additional Property as a Mortgaged
Property, the Bank shall so notify Borrower, shall assign a Coverage Factor and
an initial Market Constant to such Additional Property and shall, on the basis
of the same, determine the Borrowing Base for such property. Promptly after
its receipt of such notice, execute a Mortgage and such other Security
Documents with respect to such Substitute Property as the Bank may require in
order to cause such property to comply with the requirements of this Agreement
and the other Loan Documents as Collateral for the Obligations, shall cause all
such Security Documents to be duly delivered to the Bank or recorded in the
appropriate public records, and will cause the title company which issued the
title commitment described above to issue a loan policy of title insurance to
the Bank, containing such coverages and endorsements as the Bank may require.
Concurrently therewith, Borrower and the Bank shall amend or supplement this
Agreement to reflect inclusion of such Additional Property as a Mortgaged
Property and a component of the Eligible Real Estate, to reflect the resulting
changes in the Aggregate Borrowing Base and to make such other changes to this
Agreement as may be necessary or appropriate in view of the addition of such
Additional Property to the Collateral.
(b) If Borrower shall desire to cause certain real
property owned by Borrower to become a Mortgaged Property in substitution for a
property which is then a Mortgaged Property hereunder, Borrower shall so notify
the Bank. Such notice shall include: (i) the identity of the Mortgaged
Property for which Borrower intends to make such substitution, and a
description of the property which Borrower would propose to become a Mortgaged
Property (the "Substitute Property"), including historical operating results
and occupancy levels of such Substitute Property; (ii) an appraisal
establishing the fair market value of such Substitute Property, prepared by an
appraiser who is a Member of the American Institute of Real Estate Appraisers
(or has a corresponding professional designation acceptable to the Bank),
conforming to all requirements applicable to the Bank with respect to real
estate collateral and otherwise acceptable to the Bank; (iii) a commitment for
the issuance of a loan policy of title insurance (ALTA Form B, 1970 Form),
issued by a title insurer acceptable to the Bank and showing that (x) the
Substitute Property is owned by Borrower (or will be, prior to the execution
and delivery of the Mortgage encumbering such
<PAGE> 61
55
Substitute Property), and (y) that, if such Substitute Property were to become
a Substitute Property, the Mortgage encumbering such Substitute Property would
be the first and best lien upon such property, subject only to the lien of
taxes and assessments, both general and special, which are a lien but are not
then delinquent or due and payable; (iv) a survey, prepared and certified to
the Bank in accordance with ALTA/ACSM standards, showing the boundaries of the
Substitute Property, the location of all improvements, required set-backs and
such other information as may be required pursuant to the foregoing standards,
acceptable to the Bank and sufficient to permit the issuance of a loan policy
of title insurance without exception for any matter which would be revealed by
a survey and physical inspection of the Substitute Property; (v) a Phase I
environmental report, acceptable to the Bank, showing that such Substitute
Property is free of Hazardous Substances and from violations of Environmental
Laws, and is otherwise in compliance with the requirements set forth in this
Agreement with respect to the Mortgaged Properties and (vi) a statement,
showing in detail and with substantiating information reasonably acceptable to
the Bank, the Property NOI for the Substitute Property for not less than one
(1) full calendar year prior to the date of the notice with which such
information is furnished. If the Bank shall approve the proposed substitution
of the Substitute Property as a Mortgaged Property, the Bank shall so notify
Borrower, shall assign a Coverage Factor and an initial Market Constant to such
Substitute Property and shall, on the basis of the same, determine the
Borrowing Base for such property. Promptly after its receipt of such notice,
Borrower shall execute a Mortgage and such other Security Documents with
respect to such Substitute Property as the Bank may require in order to cause
such property to comply with the requirements of this Agreement and the other
Loan Documents as Collateral for the Obligations, shall cause all such Security
Documents to be duly delivered to the Bank or recorded in the appropriate
public records, and will cause the title company which issued the title
commitment described above to issue a loan policy of title insurance to the
Bank, containing such coverages and endorsements as the Bank may require.
Concurrently therewith, the Bank shall execute and deliver to Borrower a
release of the Mortgage encumbering the Mortgaged Property for which such
substitution was made, together with a release of all other Security Documents
in favor of the Bank which pertain to such property (without thereby releasing
or affecting any Mortgage or Security Document affecting any other Mortgaged
Property), and Borrower and the Bank shall amend or supplement this Agreement
to reflect the inclusion of such Substitute Property as a Mortgaged Property
and a component of the Eligible Real Estate, to reflect the resulting changes
in the Aggregate Borrowing Base and to make such other changes to this
Agreement as may be necessary or appropriate to reflect the transactions
effected pursuant to this Section 5.19(b).
<PAGE> 62
56
(c) All costs and expenses incurred or payable by the Bank
with respect to or in connection with Borrower's exercise of its options under
this Section 5.19 (including, without limitation, reasonable attorney's fees
and further including any and all taxes, costs, fees and recording expenses in
connection with the implementation of the rights set forth in this provision)
shall be paid by Borrower on demand.
ARTICLE 6
---------
NEGATIVE COVENANTS OF BORROWER
------------------------------
Borrower covenants with and represents and warrants to the
Bank that from and after the date hereof and until all of the Obligations are
paid and satisfied in full Borrower shall, and shall cause the Management
Company to, observe and comply with the negative covenants set forth in this
Article 6:
Section 6.1 LIMITATION ON NATURE OF BUSINESS. Neither
Borrower nor the Management Company will at any time make any material
alterations in the nature or character of its business as carried on at the
date hereof, or undertake, conduct or transact any business in a manner
prohibited by applicable law.
Section 6.2 LIMITATION ON CONSOLIDATION AND MERGER. Neither
Borrower nor the Management Company shall at any time consolidate with or merge
into or with any Person or Persons, other than those (a) which do not violate
or result in the violation of Section 6.1, above, and (b) as to which Borrower
is the surviving party. This Section 6.2(a) shall not prohibit Borrower from
merging the Management Company or any one or more of Borrower's subsidiaries
identified on SCHEDULE 4.1(c) with or into Borrower.
Section 6.3 LIMITATION ON DISTRIBUTIONS, DIVIDENDS AND RETURN
OF CAPITAL. (a) Borrower shall not, after the occurrence and during the
continuance of an Event of Default hereunder or under any Loan Document: (i)
declare or pay any Distribution or cash dividends of any kind on any Securities
of any class in its capital; (ii) make any payments on account of the purchase
or other acquisition or redemption or other retirement of any Securities of any
class in its capital.
(b) Borrower shall not at any time make (whether directly or
indirectly) any payment of any kind on any Indebtedness for Borrowed Money
(other than the Obligations) to any other Person while any Default or Event of
Default exists hereunder.
(c) Borrower shall not at any time make (whether directly
or indirectly) any payments or other distributions of any kind to any
Affiliate, or transfer or assign (whether directly or indirectly) any Property
or assets of any kind to any
<PAGE> 63
57
Affiliate; EXCLUDING, HOWEVER, from the operation of the foregoing provisions
of this paragraph:
(i) payments on transactions or contracts which are not
prohibited by Section 6.6;
(ii) remuneration payable by Borrower to its employees,
trustees or officers in amounts approved by its board of
trustees;
(iii) reimbursements by Borrower of the reasonable business
expenses of its employees, trustees and officers incurred in
the ordinary course of business; and
(iv) payments, distributions or transfers which are
consolidated on Borrower's financial statements and are not
prohibited by any other provision of this Agreement.
(d) Notwithstanding any provision of this Section 6.3 to the
contrary, Borrower may make such Distributions as may be necessary to preserve
Borrower's status and qualification as a REIT, provided that if, but for this
Section 6.3(d) such Distribution would otherwise be prohibited by the terms of
this Agreement, Borrower shall, prior to making any such Distribution, provide
the Bank with an opinion of counsel or other evidence acceptable to the Bank
confirming the necessity of such Distribution to the preservation of Borrower's
status and qualification as a REIT. The making of any Distribution under the
circumstances described in this Section 6.3(d) shall not excuse any default or
Event of Default hereunder, or constitute a waiver by the Bank of any rights or
remedies which may be available to it hereunder or under any of the Loan
Documents in the event of a default or an Event of Default hereunder.
Section 6.4 ACQUISITION OF MARGIN SECURITIES. Borrower
shall not own, purchase or acquire (or enter into any contract to purchase or
acquire) any "margin security" as defined by any regulation of the Federal
Reserve Board as now in effect or as the same may hereafter be in effect
unless, prior to any such purchase or acquisition, the Bank shall have received
a satisfactory opinion of counsel to the effect that such purchase or
acquisition will not cause this Agreement or the Note to be in violation of
Regulation G, T, U, X or any other regulation of the Federal Reserve Board then
in effect.
Section 6.5 LIMITATION ON INDEBTEDNESS. (a) Borrower will
not create, assume or have outstanding at any time any Indebtedness for
Borrowed Money, other than: (i) short term unsecured borrowings obtained by
Borrower from a bank or other institutional lender, or in the commercial paper
market, provided that (x) the outstanding principal balance of all such
borrowings shall not exceed One Hundred Million Dollars ($100,000,000) at
<PAGE> 64
58
any time, and (y) the aggregate outstanding balance of Borrower's borrowings in
the commercial paper market shall not exceed at any time the aggregate unused
portions of lines of credit made available to Borrower for the purpose of
supporting such commercial paper borrowings by banks and other institutional
lenders, together with the amount of any unused balance of the Credit
Commitment available hereunder and any unused portion of any other credit
facility otherwise permitted hereunder which may then be available to Borrower;
(ii) indebtedness secured by mortgages, deeds of trust or deeds to secure debt
encumbering real property or real property interests owned by Borrower,
provided that the aggregate outstanding balance of all such indebtedness as to
which recourse for non-payment is not limited strictly to the real property or
real property interest so encumbered shall not exceed Eighty Million Dollars
($80,000,000) at any time; (iii) Indebtedness, other than the mortgage
indebtedness described in the immediately preceding clause, presently existing
or hereafter incurred, created or assumed by Borrower to finance (or refinance)
the acquisition of real property or real property interests by Borrower,
provided that such Indebtedness shall not exceed the cost of the real property,
or real property interest, so acquired (as such cost is reflected from time to
time in Borrower's financial records); (iv) the outstanding principal balance
of Loans made pursuant to this Agreement together with the outstanding
principal balance of funds borrowed under credit agreements containing terms
not materially less favorable to Borrower than those contained herein, provided
that the aggregate amount of all such Loans and other funds described in this
clause (iv) shall not exceed Eighty Million Dollars ($80,000,000) at any time;
(v) any subordinated indebtedness; and (vi) Indebtedness which is outstanding
as of the date hereof.
(b) Borrower shall provide the Bank with written notice,
quarterly within forty-five (45) days after the end of each fiscal quarter of
Borrower during the pendency of this Agreement, showing in detail acceptable to
the Bank the amount, nature, purpose and material terms of Borrower's
Indebtedness for Borrowed Money. Such notice shall be accompanied by a
statement in detail and content acceptable to the Bank demonstrating compliance
with all of the requirements established by this Agreement, including without
limitation those which are contained at Section 6.6(a), and in Section 5.18.
Section 6.6 TRANSACTIONS WITH AFFILIATES. Borrower shall not
enter into or participate in any agreements or transactions of any kind with
any Affiliates of Borrower, except: (i) agreements or transactions that
individually produce annual payments of less than Fifty Thousand and 00/100
Dollars ($50,000.00); (ii) agreements or transactions entered into in the
ordinary course of business on an arms-length basis; or (iii) agreements,
including but not limited to net-lease arrangements with the Management Company
which are permitted pursuant to Section 6.3(c)(iv).
<PAGE> 65
59
Section 6.7 LIMITATION ON CERTAIN ACTIONS. In the event of
any conflict between the provisions of this Article 6 and the covenants set
forth in Section 5.18, the latter shall control. Borrower shall not take any
action otherwise permitted by any provision of this Article 6 if such action
would result in a violation of any one or more, or all, of the covenants set
forth in Section 5.18.
ARTICLE 7
---------
EVENTS OF DEFAULT; REMEDIES
---------------------------
Section 7.1 EVENTS OF DEFAULT. The occurrence of any one or
more of the following events shall constitute an "Event of Default":
(a) PRINCIPAL AND INTEREST. Any principal, interest or
any other sum payable under this Agreement or the Note shall not be paid within
five (5) days of when due;
(b) REPRESENTATION AND WARRANTIES. Any representation or
warranty at any time made by or on behalf of Borrower in this Agreement, any
Loan Document or in any certificate, written report or statement furnished to
the Bank in connection therewith shall prove to have been untrue, incorrect or
breached in any material respect on or as of the date on which the same was
made or was deemed to have been made or repeated;
(c) CERTAIN COVENANTS. Borrower shall fail to comply with
the covenants set forth in Sections 5.2(b), 5.5(a) and 5.18, or Borrower shall
fail to maintain the insurance required to be maintained pursuant to Section
5.2(b) (including, but not limited to, any insurance required to be maintained
in respect of any Mortgaged Property pursuant to the Mortgage encumbering such
Mortgaged Property);
(d) OTHER COVENANTS. Borrower shall fail to perform, comply
with or observe any other covenant or agreement contained in this Agreement and
such failure or breach shall continue for more than thirty (30) days after the
earlier of the date on which Borrower shall have first become aware of such
failure or breach or the Bank shall have first notified Borrower of such
failure or breach (PROVIDED, HOWEVER, that solely with respect to defaults of
the nature described in this Section 7.1(d) which cannot be cured by the
payment of money and cannot using appropriate diligence be cured within such
30-day period, Borrower shall not be deemed to have defaulted hereunder
provided that Borrower shall commence reasonable curative action with respect
to such matter within such 30-day period and shall thereafter diligently and
continuously prosecute the same to a timely completion);
(e) LOAN DOCUMENTS. Borrower shall fail to observe or
perform in any material fashion any of its obligations or undertakings under
any Loan Document other than this Agreement,
<PAGE> 66
60
and such failure shall continue beyond the applicable period of grace (if any)
provided therein, or any Loan Document shall cease to be legal, valid, binding
or enforceable in accordance with its terms;
(f) LITIGATION. Any action at law, suit in equity or other
legal or administrative proceeding to amend, cancel, revoke or rescind any Loan
Document shall be commenced by or on behalf of Borrower or by any court or any
other governmental authority, or any court or any other governmental authority
shall make a determination, or issue a judgment, order, decree or ruling to the
effect that, any one or more of the covenants, agreements or obligations of
Borrower hereunder or under any one or more of the other Loan Documents are
illegal, invalid or unenforceable in accordance with the terms thereof;
(g) ACCELERATION OF OTHER AGREEMENTS. Borrower shall default
under any agreement, instrument or contract to which Borrower is a party or by
which any of its assets or Property is bound, and such default shall result in
any Indebtedness of Borrower having outstanding principal balance, immediately
prior to the occurrence of such default of One Million Dollars ($1,000,000) or
more becoming or being declared due and payable prior to the date on which such
Indebtedness or any part thereof would otherwise have become due and payable;
(h) INSOLVENCY-VOLUNTARY. If Borrower shall: (1) take any
action for the termination, winding up, liquidation or dissolution of Borrower;
(2) make a general assignment for the benefit of creditors, become insolvent or
be unable to pay its debts as they mature; (3) file a petition in voluntary
liquidation or bankruptcy; (4) file a petition or answer or consent seeking the
reorganization of Borrower, or the readjustment of any of the Indebtedness of
Borrower; (5) commence any case or proceeding under applicable insolvency or
bankruptcy laws now or hereafter existing; (6) consent to the appointment of
any receiver, administrator, custodian, liquidator or trustee of all or any
part of its assets or Property; (7) take any corporate action for the purpose
of effecting any of the foregoing; or (8) be adjudicated as bankrupt or
insolvent;
(i) INSOLVENCY-INVOLUNTARY. If any petition for any
proceedings in bankruptcy or liquidation or for the reorganization or
readjustment of Indebtedness of Borrower shall be filed, or any case or
proceeding shall be commenced, under any applicable bankruptcy or insolvency
laws now or hereafter existing, against Borrower, or any receiver,
administrator, custodian, liquidator or trustee shall be appointed for Borrower
or for all or any part of Borrower's assets or Property, or any order for
relief shall be entered in a proceeding with respect to the Borrower under the
provisions of the United States Bankruptcy Code, as amended, and such
proceeding or such appointment shall not be dismissed or discharged, as the
case may be, within forty-five (45) days after the filing or appointment
thereof;
<PAGE> 67
61
(j) JUDGMENT. Any final and non-appealable judgment, order
or decree for the payment of money in excess of Five Hundred Thousand and
00/100 Dollars ($500,000.00) shall be rendered against Borrower, and shall not
be discharged within thirty (30) days after the date of the entry thereof;
(k) ERISA. Any Termination Event shall occur and, as of the
date thereof or any subsequent date, the sum of the various liabilities of
Borrower and its ERISA Affiliates including, without limitation, any liability
to the Pension Benefit Guaranty Corporation or its successor or to any other
party under Sections 4062, 4063, or 4064 of ERISA or any other provision of law
resulting from or otherwise associated with such event exceeds Fifty Thousand
Dollars ($50,000.00); or Borrower or any of its ERISA Affiliates as an employer
under any Multiemployer Plan shall have made a complete or partial withdrawal
from such Multiemployer Plans and the plan sponsors of such Multiemployer Plans
shall have notified such withdrawing employer that such employer has incurred a
withdrawal liability requiring a payment in an amount exceeding Fifty Thousand
and 00/100 Dollars ($50,000.00); or
(l) LOSS OF LICENSES OR PERMITS. Any of the Licenses and
Permits now held or hereafter acquired by Borrower shall be revoked or
terminated and not renewed and the absence of any such Licenses and Permits
would have a material adverse impact on the business, Property, prospects,
profits or condition (financial or otherwise) of Borrower.
Section 7.2 TERMINATION OF COMMITMENT AND ACCELERATION OF
OBLIGATIONS. If any one or more of the Events of Default shall at any time
occur and be continuing:
(a) The Bank may, by giving notice to Borrower, immediately
terminate the Credit Commitment, and the Bank shall thereupon be relieved of
all of its obligations to issue any Letters of Credit or to make any Loans
hereunder; except that if there shall be a Default under Section 7.1(i) or (h)
hereof, the Credit Commitment (and without notice of any kind, the same being
expressly waived by Borrower) terminate in full concurrently with the
occurrence of such Default, and the Bank shall thereupon be relieved of all of
its obligations to make any Loans hereunder.
(b) The Bank may, by giving notice to Borrower (a "Notice of
Acceleration"), declare all of the Obligations, including the entire unpaid
principal of the Note, all of the unpaid interest accrued thereon, and any and
all other sums payable by Borrower under this Agreement, the Note, or any of
the other Loan Documents, to be immediately due and payable; except: (i) that
if there shall be an Event of Default under Section 7.1(i) or (h), all of the
Obligations, including the entire unpaid balance of all of the Notes, all of
the unpaid interest accrued thereon and any other sums payable by Borrower
under this Agreement, the Note or any of the other Loan Documents
<PAGE> 68
62
shall automatically and immediately be due and payable without notice to
Borrower, such notice being expressly waived by Borrower; and (ii) that if
there shall be an Event of Default under Section 7.1(h) or (i), and if the Bank
shall, in accordance with the terms of this Agreement, give a Notice of
Acceleration to Borrower, Borrower shall not be required to pay any prepayment
penalties in connection with the acceleration of any of the Obligations of
Borrower. Thereupon, all of such Obligations which are not already due and
payable shall forthwith become and be absolutely and unconditionally due and
payable, without presentment, demand, protest or any further notice or any
other formalities of any kind, all of which are hereby expressly and
irrevocably waived.
(c) The Bank may proceed to protect and enforce all or any of
its' rights, remedies, powers and privileges under this Agreement, the Note or
any of the other Loan Documents by action at law, suit in equity or other
appropriate proceedings, whether for specific performance of any covenant
contained in this Agreement, the Note or any of the other Loan Documents, or in
aid of the exercise of any power granted to the Bank herein or therein.
Section 7.3 NO IMPLIED WAIVER; RIGHTS CUMULATIVE. No delay on
the part of the Bank in exercising any right, remedy, power or privilege
hereunder or under any of the other Loan Documents or provided by statute or at
law or in equity or otherwise shall impair, prejudice or constitute a waiver of
any such right, remedy, power or privilege or be construed as a waiver of any
Default or Event of Default or as an acquiescence therein. No right, remedy,
power or privilege conferred on or reserved to the Bank under any of the Loan
Documents or otherwise is intended to be exclusive of any other right, remedy,
power or privilege. Each and every right, remedy, power and privilege
conferred on or reserved to the Bank under any of the Loan Documents or
otherwise shall be cumulative and in addition to each and every other right,
remedy, power or privilege so conferred on or reserved to Bank, and may be
exercised at such time or times and in such order and manner as the Bank shall
(in its sole and complete discretion) deem expedient.
ARTICLE 8.
-----------
PROVISIONS OF GENERAL APPLICATION
---------------------------------
Section 8.1 DURATION. This Agreement shall continue in full
force and effect and the duties, covenants, and liabilities of Borrower
hereunder and all the terms, conditions, and provisions hereof relating thereto
shall continue to be fully operative until all Obligations to the Bank have
been satisfied in full, PROVIDED, HOWEVER that notwithstanding the provisions
of this Section 9.1 the Credit Commitment shall expire and all Obligations
shall be due and payable on the Termination Date.
<PAGE> 69
63
Section 8.2 NOTICES. (a) All notices and other
communications pursuant to this Agreements shall be in writing, either
delivered in hand or sent by first-class mail, postage prepaid, or sent by
telex, telecopier, facsimile transmission or telegraph, addressed as follows:
(i) If to Borrower, to:
First Union Real Estate Equity and Mortgage Investments
Suite 1900
55 Public Square
Cleveland, Ohio 44113
Telecopier:
Attention: Gregory D. Bruhn
Executive Vice President and
Chief Financial Officer
with a copy to:
First Union Real Estate Equity
and Mortgage Investments
Suite 1900
55 Public Square
Cleveland, Ohio 44113
Telecopier: (216) 781-7364
Attention: Paul F. Levin, Esq.
Vice President, General
Counsel and Secretary
(ii) If to the Bank, to:
National City Bank
1900 East Ninth Street
Cleveland, Ohio 44101
Telecopier: (216) 575-3160
Attention: Anthony J. DiMare, Vice President and
Senior Lending Officer
with a copy to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Telecopier: (216) 579-0212
Attention: William K. Smith, Esq.
or to such other addresses or by way of such telex and other numbers as either
party hereto shall have designated in a written notice to the other party
hereto.
(b) Except as otherwise expressly provided herein, any
notice or other communication given under this Agreement or any
<PAGE> 70
64
other Loan Document shall be deemed to have been duly given or made and to have
become effective when delivered in hand to the party to which it is directed,
or, if sent by first-class mail, postage prepaid, or by telex, telecopier,
facsimile transmission or telegraph, and properly addressed in accordance with
Section 8.2(a), (i) when received by the addressee; or (ii) if sent by first
class mail, postage prepaid, on the third (3rd) Business Day following the day
of the dispatch thereof, whichever of (i) or (ii) shall be the earlier;
PROVIDED, HOWEVER, that any such communication hereunder sent by telex,
telecopier or facsimile transmission or telegraph shall be followed by delivery
in hand or by first-class mail, postage prepaid.
Section 8.3 SURVIVAL OF REPRESENTATIONS. All representations
and warranties made by or on behalf of Borrower in this Agreement or any of the
other Loan Documents shall be deemed to have been relied upon by the Bank
notwithstanding any investigation made by or for the Bank. All such
representations and warranties shall survive the making of each of the Loans
until all of the Obligations shall have been paid in full.
Section 8.4 AMENDMENTS. Each of the Loan Documents may be
modified, amended or supplemented in any respect whatever, only by a written
instrument signed by Borrower and the Banks.
Section 8.5 COSTS, EXPENSES, TAXES AND INDEMNIFICATION. (a)
Borrower absolutely and unconditionally agrees to pay to the Bank, and to
reimburse the Bank for, all reasonable out-of-pocket costs and expenses
(including legal fees and expenses) which shall at any time be incurred or
sustained by the Bank or any of its directors, officers, employees or agents as
a consequence of or any way in connection with: (a) the preparation,
negotiation, execution and delivery of the Loan Documents; (b) the perfection
and continuation of the rights of the Bank in connection with the Loans; (c)
the preparation, negotiation, execution, or delivery of any amendment or
modification of any of the Loan Documents; or (d) the consideration by the Bank
of any consents, approvals or waivers which may be requested under any of the
Loan Documents (without regard to whether any such consent, approval or waiver
is in fact provided).
(b) Borrower absolutely and unconditionally agrees to pay to
the Bank, promptly after request therefor by the Bank and at any time and as
often as the occasion therefor may require, all reasonable out-of-pocket costs
and expenses which shall be incurred or sustained by the Bank or its directors,
officers, employees or agents as a consequence of, on account of, in relation
to or any way in connection with the exercise, protection or enforcement any of
its rights, remedies, powers or privileges hereunder or under any of the Loan
Documents or in connection with any litigation, proceeding or dispute arising
from or related to any of the Loan Documents (including, but not limited to,
all of the reasonable fees and disbursements of
<PAGE> 71
65
consultants, legal advisers, accountants, experts and agents for the Bank, the
reasonable travel and living expenses away from home of employees, consultants,
experts or agents of the Bank, and the reasonable fees of agents, consultants
and experts of the Bank for services rendered on its behalf).
(c) Borrower shall absolutely and unconditionally indemnify
and hold harmless the Bank against any and all claims, demands, suits, actions,
causes of action, damages, losses, settlement payments, obligations, costs,
expenses and all other liabilities whatsoever which shall at any time or times
be incurred or sustained by the Bank or by any of its shareholders, directors,
officers, employees, subsidiaries, Affiliates or agents on account of, or in
relation to, or in any way in connection with, any of the arrangements or
transactions contemplated by, associated with or ancillary to this Agreement or
any of the other Loan Documents, without regard to whether all or any of the
transactions contemplated by, associated with or ancillary to this Agreement,
or any of such Loan Documents shall ultimately be consummated.
(d) Borrower hereby covenants and agrees that any sums
expended by the Bank for which the Bank is entitled to reimbursement under this
Section 8.5 shall be due and payable promptly (and in any case within thirty
days) after Borrower's receipt of an invoice therefor, and if not paid within
such period any such sum shall bear interest at the Default Interest Rate from
the date of Borrower's receipt of such invoice until the date such payment is
made in full.
(e) Borrower's indemnity obligations under this Section 8.5
shall not extend to any losses, costs, expenses or damages proximately caused
by the gross negligence or willful misconduct of the Bank or any other party
which, but for this Section 8.5(e), would be entitled to indemnification
hereunder.
Section 8.6 BINDING EFFECT; ASSIGNMENT. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Borrower may not assign or
delegate any of its rights or obligations hereunder or under or in respect of
the Loan Documents without the express prior written consent of the Bank. The
Bank may assign, and may sell participation interests in, its rights hereunder
or under the Loan Documents at any time and from time to time at its sole
discretion, provided, however, that: (a) the Bank shall retain not less than
fifty percent (50%) of all interests in the Loans and in the Credit Commitment;
(b) the Bank shall not sell participation interests to more than three (3)
participants at any time; (c) no participant may sub-participate its
participation interests hereunder; and (d) each participant shall be entitled
to the cost protection and indemnity provisions of Sections 2.10 and 8.5 of
this Agreement, but no participant shall be entitled to receive pursuant to
such provisions an amount larger than its proportionate share of the
<PAGE> 72
66
amount to which the Bank would have been entitled in respect of any claim
thereunder; and (c) Borrower shall continue to deal exclusively with the Bank
in connection with all matters arising hereunder or under the Loan Documents.
The Bank may share any information provided to it by or on behalf of Borrower
pursuant to this Agreement with any participant or potential participant in
respect of this Agreement.
Section 8.7 GOVERNING LAW; JURISDICTION AND VENUE. (a) This
instrument and the rights and obligations of all parties hereunder shall be
governed by and construed under the substantive laws of the State of Ohio,
without reference to the conflict of laws principles of such state.
(b) The Bank and Borrower hereby designate all state and
federal courts of record sitting in Cleveland, Ohio as forums where any action,
suit or proceeding in respect of or arising out of this Agreement, the Note,
the other Loan Documents, or the transactions contemplated by this Agreement
may be prosecuted as to all parties, their successors and assigns, and each
hereby consents to the jurisdiction and venue of such courts (provided,
however, that the Bank and Borrower acknowledge that those Mortgages which
encumber Mortgaged Properties located outside of the State of Ohio shall be
governed by the respective laws of the jurisdictions in which such Mortgaged
Properties are located, and agree that the prosecution of the remedies of the
Bank under such Mortgages may take place in such jurisdictions). Except as
aforesaid, Borrower waives any and all personal rights under the laws of any
other state to object to jurisdiction within the State of Ohio for the purposes
of litigation to enforce the Obligations of Borrower. In the event any such
litigation shall be commenced, Borrower agrees that service of process may be
made, and personal jurisdiction over Borrower obtained, by service of a copy of
the summons, complaint and other pleadings required to commence such litigation
upon Borrower's appointed Agent for Service of Process in the State of Ohio,
which the undersigned hereof designates to be: Paul F. Levin, Esq., Suite
1900, 55 Public Square, Cleveland, Ohio 44113. Borrower recognizes and agrees
that such designation agency has been created for the benefit of the Borrower,
and the parties agree that this designation shall not be revoked, withdrawn, or
modified without the prior written consent of the Bank.
Section 8.8 WAIVER OF JURY TRIAL. AS A MATERIAL INDUCEMENT
FOR THE BANK TO EXTEND CREDIT TO BORROWER, AND AFTER HAVING THE OPPORTUNITY TO
CONSULT COUNSEL, BORROWER HEREBY EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY IN
ANY LAWSUIT OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS OR ARISING IN ANY WAY FROM THE OBLIGATIONS.
Section 8.9 WAIVERS. Borrower waives notice of nonpayment,
demand, notice of demand, presentment, protest and notice of protest with
respect to the Obligations, or notice of acceptance hereof, notice of the Loans
made, credit extended, or
<PAGE> 73
67
any other action taken in reliance hereon, and all other demands and notices of
any description, except for those notices which are expressly provided for
herein.
Section 8.10 INTEGRATION OF SCHEDULES AND EXHIBITS. The
Exhibits and Schedules annexed to this Agreement are part of this Agreement and
are incorporated herein by reference.
Section 8.11 HEADINGS. The table of contents, headings of
the Articles, Sections and paragraphs of this Agreement have been inserted for
convenience of reference only and shall not be deemed to alter, limit or affect
the scope, meaning or interpretation of any provision of this Agreement.
Section 8.12 COUNTERPARTS. This Agreement may be executed in
any number of counterparts, and signature pages but all of such counterparts
shall together constitute a single agreement. In making proof of this
Agreement, it shall not be necessary to produce or account for more than one
counterpart hereof signed by each of the parties hereto.
Section 8.13 SEVERABILITY. If any provision of this
Agreement, or the application thereof to any person or circumstance shall be
invalid or unenforceable to any extent, the balance of this Agreement and the
application of all provisions of this Agreement to all other persons and
circumstances shall not be affected thereby; each provision of this Agreement
shall remain valid and enforceable to the fullest extent permitted by law.
Section 8.14 ONE GENERAL OBLIGATION. All Loans under this
Agreement constitute one loan, and all Obligations of Borrower under this
Agreement and all of the other Loan Documents constitute one general
obligation. All of the rights of the Bank contained in this Agreement shall
likewise apply insofar as applicable to any modification of or supplement to
this Agreement. No officers, directors, shareholders or employees of Borrower
shall have any personal liability for any obligations under this Agreement or
as a result of any documents or certificates delivered pursuant to this
Agreement, except in cases of actual fraud or willful misconduct; PROVIDED,
HOWEVER, that nothing in this sentence shall be deemed in any way to limit the
absolute and unconditional liability of Borrower for the full and timely
payment, observance and performance of all of its obligations hereunder.
Section 8.15 LIABILITY OF BORROWER'S TRUSTEES, ETC.
Notwithstanding any provision of this Agreement to the contrary, this Agreement
has been executed and delivered by a duly authorized officer of Borrower, for
and on behalf of Borrower's trustees. The Bank acknowledges that neither the
trustees of Borrower, nor any additional or successor trustees of Borrower, nor
any beneficiary, officer, employee or agent of Borrower, shall have any
personal, individual liability hereunder or under
<PAGE> 74
68
any of the Loan Documents. The Bank agrees to look solely to the property and
assets of Borrower (and, where so provided herein or in any of the Loan
Documents, to the property and assets of the Management Company) for the
satisfaction of all claims of any nature arising under or in connection with
this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by or on behalf of each of the parties as of December 5, 1994.
Borrower:
FIRST UNION REAL ESTATE EQUITY AND
MORTGAGE INVESTMENTS
BY: /S/GREGORY D. BRUHN
-----------------------
Gregory D. Bruhn,
Executive Vice-President
and Chief Financial
Officer
The Management Company:
FIRST UNION MANAGEMENT, INC.
BY: /S/JOSEPH W. KEARNEY
----------------------
Controller and Assistant
Secretary
The Bank:
NATIONAL CITY BANK
BY: /S/ANTHONY J. DIMARE
---------------------
Anthony J. DiMare
Vice President and Senior
Lending Officer
<PAGE> 1
<TABLE>
Exhibit 11
----------
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS AND
-----------------------------------------------------------
FIRST UNION MANAGEMENT, INC.
----------------------------
STATEMENTS RE: COMPUTATION OF PER SHARE EARNINGS
-------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------
<CAPTION>
Years Ended December 31,
------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Shares Outstanding (a):
For computation of primary net
income per share -
Weighted average 18,105 18,086 18,086 18,098 18,134
Share equivalents - Options -- 10 -- -- --
- Restricted shares 15 -- -- -- --
------- ------- ------- ------- -------
Adjusted shares outstanding 18,120 18,096 18,086 18,098 18,134
======= ======= ======= ======= =======
For computation of fully diluted
net income per share -
Weighted average, without regard to,
exercise under share option plans,
or purchase of outstanding shares 18,109 18,086 18,086 18,133 18,184
Assumption of exercise under share
option plans -- 10 -- -- --
Weighted average of restricted
shares granted 15
Weighted average of outstanding
shares purchased and retired (4) -- -- (35) (50)
------- ------- ------ ------ ------
Adjusted shares outstanding 18,120 18,096 18,086 18,098 18,134
======= ======= ====== ====== ======
Net Income:
Net income applicable to shares
of beneficial interest (used
for computing primary and
fully diluted net income per
share) $ 6,485 $13,984 $18,432 $18,236 $20,639
======= ======= ======= ======= =======
Net income per share of beneficial
interest (a):
Primary and fully diluted
Income from operations $ .36 $ .57 $ .70 $ .74 $ .88
Capital gains .27 .32 .27 .26
-------- ------- ------- ------- --------
Income before extraordinary
loss from early
extinguishment of debt .36 .84 1.02 1.01 1.14
Extraordinary loss from early
extinguishment of debt -- .07 -- -- --
-------- ------- ------- ------- -------
Net income $ .36 $ .77 $ 1.02 $ 1.01 $ 1.14
======== ======= ======= ======= =======
<FN>
(a) The shares of beneficial interest and per share data have been restated for a 4% share
dividend declared December 5, 1990 and distributed February 1, 1991.
</TABLE>
<PAGE> 1
<TABLE>
Exhibit 12
----------
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS AND
-----------------------------------------------------------
FIRST UNION MANAGEMENT, INC.
----------------------------
STATEMENTS OF RATIOS OF COMBINED INCOME FROM OPERATIONS
-------------------------------------------------------
AND COMBINED NET INCOME TO FIXED CHARGES
----------------------------------------
(IN THOUSANDS, EXCEPT RATIOS)
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Income from operations $ 6,485 $10,276 $12,657 $13,330 $15,917
Add fixed charges 21,865 19,103 19,469 21,513 23,096
------- ------- ------- ------- -------
Income from operations, as defined 28,350 29,379 32,126 34,843 39,013
Capital gains --- 4,948 5,775 4,906 4,722
------- ------- ------- ------- -------
Net income, as defined $28,350 $34,327 $37,901 $39,749 $43,735
======= ======= ======= ======= =======
Fixed charges:
Interest
- Mortgage loans $ 7,335 $ 5,777 $ 6,182 $ 6,493 $ 7,045
- Senior notes 9,305 5,779 4,199 4,199 6,386
- 10.25% debentures --- 3,214 3,858 3,858 3,861
- Bank loans and other 4,640 3,747 4,694 6,221 4,986
Amortization of debt issue costs 168 162 122 95 131
Rents (1) 417 424 414 647 687
------- ------- ------- ------- -------
Fixed charges, as defined $21,865 $19,103 $19,469 $21,513 $23,096
======= ======= ======= ======= =======
Ratio of income from operations, as
defined, to fixed charges 1.30 1.54 1.65 1.62 1.69
====== ======= ======= ======= =======
Ratio of net income, as defined,
to fixed charges 1.30 1.80 1.95 1.85 1.89
====== ======= ======= ======= =======
<FN>
______________________
(1) The interest portion of rentals is assumed to be one-third of all ground rental and
net lease payments.
</TABLE>
<PAGE> 1
Exhibit (13)
<TABLE>
FINANCIAL HIGHLIGHTS
(In thousands, except per share data)
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1993
<S> <C> <C>
Revenues $76,339 $74,339
Income from operations 6,485 10,276
Income before extraordinary loss(1) 6,485 15,224
Net income 6,485 13,984
Funds from operations(2) 18,342 21,301
Dividends declared 7,273 13,031
Per share
Income from operations $ .36 $ .57
Income before extraordinary loss(1) .36 .84
Net income .36 .77
Dividends declared .40 .72
</TABLE>
<TABLE>
MARKET PRICE AND DIVIDEND RECORD
<CAPTION>
DIVIDENDS
1994 QUARTERS ENDED HIGH LOW DECLARED
<S> <C> <C> <C>
December 31 $ 8 1/8 $ 6 3/8 $.10
September 30 7 1/4 6 1/8 .10
June 30 8 6 3/8 .10
March 31 10 1/4 7 3/8 .10
----
$.40
====
1993 QUARTERS ENDED
December 31 $11 7/8 $ 9 5/8 $.18
September 30 11 1/8 9 5/8 .18
June 30 12 5/8 9 5/8 .18
March 31 12 1/8 9 .18
----
$.72
</TABLE> ====
The Trust's shares are traded on the New York Stock Exchange (Ticker Symbol:
FUR). As of December 31, 1994, there were 5,753 record holders of the Trust's
shares of beneficial interest. The Trust estimates the number of beneficial
owners at approximately 15,000.
(1) On November 1, 1993, the Trust repaid prior to their maturity dates $45
million of senior notes and $37.6 million of convertible debentures
resulting in a $1.2 million charge for the write off of unamortized issue
costs and payment of a redemption premium.
(2) The amount of funds from operations is calculated as income from operations
plus noncash charges for depreciation and amortization.
<PAGE> 2
<TABLE>
SELECTED FINANCIAL DATA
(In thousands, except per share data)
<CAPTION>
YEARS ENDED DECEMBER 31,
1984 1985 1986 1987 1988
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues $70,271 $73,043 $72,570 $73,892 $73,390
Income from operations 19,932 21,890 21,403 19,360 18,129
Capital gains 3,755 2,314 4,093 6,656 5,269
Income before extraordinary loss (1) 23,687 24,204 25,496 26,016 23,398
Net income 23,687 24,204 25,496 26,016 23,398
Funds from operations (2) 26,316 28,673 28,477 26,445 25,602
Dividends declared 19,372 24,031 26,357 27,202 26,967
----------------------------------------------------------------------------------------------------------------------
Per share of beneficial interest (3)
Income from operations $1.13 $1.15 $1.13 $1.02 $ .97
Income before extraordinary loss (1) 1.32 1.27 1.35 1.37 1.25
Net income 1.32 1.27 1.35 1.37 1.25
Dividends declared (3) 1.11 1.27 1.40 1.44 1.44
----------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION AT YEAR END
Gross assets before deducting
accumulated depreciation $ 430,775 $ 416,221 $ 495,424 $ 429,815 $ 441,909
Long-term obligations (4) 172,329 154,890 177,810 162,960 173,880
Total equity (5) 149,778 147,714 147,102 145,083 132,689
Total equity before deducting
accumulated depreciation (5) 194,637 198,325 201,304 203,739 197,245
----------------------------------------------------------------------------------------------------------------------
Per share of beneficial interest (3) (5) (6)
Net assets $7.21 $ 7.15 $ 7.13 $ 7.05 $ 6.61
Net assets before deducting
accumulated depreciation 9.35 9.58 9.72 9.86 9.79
----------------------------------------------------------------------------------------------------------------------
<FN>
This selected financial data should be read in conjunction with the Combined Financial Statements and notes thereto.
(1) On November 1, 1993, the Trust repaid prior to their maturity dates $45 million of senior notes and $37.6 million of convertible
debentures resulting in a $1.2 million charge for the write off of unamortized issue costs and payment of a redemption premium.
(2) The amount of funds from operations is calculated as income from operations plus noncash charges for depreciation and
amortization.
(3) All per share amounts have been adjusted for a 4% share dividend declared December 5, 1990, and distributed February 1, 1991.
(4) Includes senior notes and mortgage loans, including the current portion for all years. Beginning in 1993, also includes bank
loans.
(See Note 6 to Combined Financial Statements - Bank Loans.)
(5) Includes shareholders' equity and convertible securities net of unamortized issue costs through 1992 as the convertible
debentures were repaid on November 1, 1993 (See footnote(1) above).
(6) Includes the effect of vested options.
</TABLE>
18
<PAGE> 3
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C>
$ 76,963 $ 76,861 $ 74,941 $ 74,567 $ 74,339 $ 76,339
17,280 15,917 13,330 12,657 10,276 6,485
12,724 4,722 4,906 5,775 4,948
30,004 20,639 18,236 18,432 15,224 6,485
30,004 20,639 18,236 18,432 13,984 6,485
25,422 24,287 22,681 23,300 21,301 18,342
26,438 19,632 16,827 13,022 13,031 7,273
----------------------------------------------------------------------------------------------------
$ .94 $ .88 $ .74 $ .70 $ .57 $ .36
1.63 1.14 1.01 1.02 .84 .36
1.63 1.14 1.01 1.02 .77 .36
1.44 1.08 .93 .72 .72 .40
----------------------------------------------------------------------------------------------------
$ 442,304 $ 454,778 $ 461,077 $ 445,881 $ 495,445 $ 488,161
178,174 122,659 119,049 109,733 257,355 238,296
132,994 133,073 134,047 139,547 103,766 102,940
201,274 209,001 217,848 231,973 205,590 214,912
----------------------------------------------------------------------------------------------------
$ 6.73 $ 6.80 $ 6.89 $ 7.18 $ 5.93 $ 5.78
10.11 10.58 11.06 11.77 11.45 11.82
----------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 4
<TABLE>
COMBINED BALANCE SHEETS
As of December 31, (In thousands)
<CAPTION>
1994 1993
<S> <C> <C>
ASSETS
INVESTMENTS IN REAL ESTATE
Land $ 44,594 $ 40,284
Buildings and improvements 391,800 368,776
-------- --------
436,394 409,060
Less - Accumulated depreciation (111,972) (101,824)
-------- --------
Total investments in real estate 324,422 307,236
MORTGAGE LOANS RECEIVABLE,
including current portion of $160,000 35,761 35,550
OTHER ASSETS
Cash and cash equivalents 2,975 38,523
Accounts receivable and prepayments 4,594 4,621
Deferred charges and other, net 3,488 2,506
Unamortized debt issue costs 4,949 5,185
-------- --------
$376,189 $393,621
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage loans, including current portion of $15,560,000 $ 90,796 $ 92,355
Senior notes 105,000 105,000
Bank loans 42,500 60,000
Accounts payable and accrued liabilities 16,686 14,356
Deferred obligations 10,522 10,394
Deferred capital gains and other deferred income 7,745 7,750
-------- --------
273,249 289,855
-------- --------
SHAREHOLDERS' EQUITY
Shares of beneficial interest, $1 par, unlimited
authorization, outstanding 18,263 18,109
Additional paid-in capital 59,254 59,446
Undistributed income from operations 19,944 20,732
Undistributed capital gains 5,479 5,479
-------- --------
Total shareholders' equity 102,940 103,766
-------- --------
$376,189 $393,621
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE> 5
<TABLE>
COMBINED STATEMENTS OF INCOME
For the years ended December 31, (In thousands, except per share data)
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
REVENUES
Rents $71,200 $70,131 $68,626
Interest - Mortgage loans 3,928 4,033 5,611
- Short-term investments 1,211 175 330
------- ------- -------
76,339 74,339 74,567
------- ------- -------
EXPENSES
Property operating 25,318 24,887 23,085
Real estate taxes 7,930 7,726 7,749
Depreciation and amortization 11,857 11,025 10,643
Interest - Mortgage loans 7,335 5,777 6,182
- Senior notes 9,305 5,779 4,199
- Convertible debentures 3,214 3,858
- Bank loans and other 4,640 3,747 4,694
General and administrative 3,469 1,908 1,500
------- ------- -------
69,854 64,063 61,910
------- ------- -------
INCOME FROM OPERATIONS 6,485 10,276 12,657
CAPITAL GAINS 4,948 5,775
------- ------- -------
Income before extraordinary loss from
early extinguishment of debt 6,485 15,224 18,432
Extraordinary loss from early
extinguishment of debt 1,240
------- ------- -------
NET INCOME $ 6,485 $13,984 $18,432
======= ======= =======
PER SHARE DATA
Income from operations $ .36 $ .57 $ .70
Capital gains .27 .32
------- ------- -------
Income before extraordinary loss from
early extinguishment of debt .36 .84 1.02
Extraordinary loss from early
extinguishment of debt .07
------- ------- -------
Net income $ .36 $ .77 $ 1.02
======= ======= =======
Dividends declared $ .40 $ .72 $ .72
======= ======= =======
ADJUSTED SHARES OF BENEFICIAL INTEREST 18,120 18,096 18,086
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE> 6
<TABLE>
COMBINED STATEMENTS OF CHANGES IN CASH
For the years ended December 31, (In thousands)
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATIONS
Net income $6,485 $13,984 $18,432
Adjustments to reconcile net income to net
cash provided by operations -
Depreciation and amortization 11,857 11,025 10,643
Extraordinary loss from early
extinguishment of debt 1,240
Capital gains (4,948) (5,775)
Increase in deferred charges, net (1,608) (96) (53)
Increase in deferred interest on mortgage
investments, net (357) (401) (387)
Increase in deferred obligations 128 110 95
Recognition of deferred income, net (5) (82) (1,865)
Net changes in other assets and liabilities 3,855 79 501
------- ------- -------
Net cash provided by operations 20,355 20,911 21,591
------- ------- -------
CASH PROVIDED BY (USED FOR) INVESTING
Principal received from mortgage investments 146 4,424 11,326
Investments in properties (27,955) (12,863) (10,305)
Proceeds from sales of properties, net 266
------- ------- -------
Net cash provided by (used for) investing (27,809) (8,173) 1,662
------- ------- -------
CASH PROVIDED BY (USED FOR) FINANCING
Decrease in bank loans (17,500) (7,000) (13,000)
Issuance of senior notes 100,000
Repayment of senior notes (45,000)
Repayment of convertible debentures (37,591)
Increase in mortgage loans 4,600 44,300 8,000
Repayment of mortgage loans - Normal payments (3,934) (3,245) (3,615)
- Balloon payments (2,225) (8,433) (13,701)
Purchase of First Union securities (57)
Debt issue costs paid (226) (4,913) (357)
Dividends paid (8,707) (13,026) (13,022)
Other (45) (299) 74
------- ------- -------
Net cash provided by (used for) financing (28,094) 24,793 (35,621)
------- ------- -------
Increase (decrease) in cash and cash equivalents (35,548) 37,531 (12,368)
------- ------- -------
Cash and cash equivalents at beginning of year 38,523 992 13,360
------- ------- -------
Cash and cash equivalents at end of year $ 2,975 $38,523 $ 992
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
22
<PAGE> 7
<TABLE>
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except footnotes)
<CAPTION>
SHARES OF ADDITIONAL UNDISTRIBUTED UNDISTRIBUTED
BENEFICIAL PAID-IN INCOME FROM CAPITAL
INTEREST CAPITAL OPERATIONS(1) GAINS
<S> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1991 $18,086 $59,254 $14,369 $5,479
Net income 12,657 5,775
Dividends paid or accrued (7,668) (5,354)
Other 74
------- ------- ------- ------
BALANCE DECEMBER 31, 1992 18,086 59,328 19,358 5,900
Net income 9,036 4,948
Dividends paid or accrued (7,662) (5,369)
Shares issued -
Under share option agreements 21 174
Upon conversion of debentures, net 2 47
Other (103)
------- ------- ------- ------
BALANCE DECEMBER 31, 1993 18,109 59,446 20,732 5,479
Net income 6,485
Dividends paid or accrued (7,273)
Restricted shares issued, net 162 873
Unamortized compensation
related to restricted shares (971)
Shares purchased (8) (49)
Other (45)
------- ------- ------- ------
BALANCE DECEMBER 31, 1994 $18,263 $59,254(2) $19,944 $5,479
======= ======= ======= ======
(1) Includes the balance of cumulative undistributed net loss of First Union Management, Inc. of $230,000, $73,000, $71,000
and $1,071,000 as of December 31, 1991, 1992, 1993 and 1994, respectively.
(2) Cumulative distributions in excess of the Trust's net income from inception are $11,330,000.
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE> 8
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
First Union Real Estate Investments ("Trust") and First Union Management,
Inc., ("Company") are in the real estate industry and do not have operations
outside this industry. The accounting policies of the Trust and Company
conform to generally accepted accounting principles and give recognition, as
appropriate, to common practices within the real estate industry.
Under a trust agreement, the shares of the Company are held for the
benefit of the shareholders of the Trust. Accordingly, the financial
statements of the Company and the Trust have been combined.
Most of the Trust's properties are currently leased to the Company. The
remaining properties are leased to other parties under net leases with
original terms expiring by 1998 and with renewal options available
thereafter.
The Trust and Company capitalize costs related to leasing of real
estate, including employees' salaries and related costs. These leasing costs
capitalized were approximately $1.4 million, $1.1 million and $1.3 million
in 1994, 1993 and 1992, respectively.
At December 31, 1994 and 1993, buildings and improvements included $10.3
million and $9.5 million of leasing costs, respectively. Also included in
buildings and improvements were equipment and appliances of $4.5 million at
December 31, 1994 and $3.7 million at December 31, 1993.
The Trust follows the recommendations set forth in the Statement of
Position on Accounting Practices of Real Estate Investment Trusts issued by
the American Institute of Certified Public Accountants in evaluating the
need for an allowance for loan losses.
Tenant leases generally provide for billings of certain operating costs,
and retail tenant leases generally provide for percentage rentals, in
addition to fixed minimum rentals. The Company accrues the recovery of
operating costs based on actual costs incurred and accrues percentage
rentals based on current estimates of each retail tenant's sales. For the
years ended December 31, 1994, 1993 and 1992, such additional income
approximated $17.2 million, $17.9 million and $16.4 million, respectively.
Depreciation for financial reporting purposes is computed using the
straight-line method. Buildings and improvements are depreciated over their
estimated useful lives of 40 to 64 years and equipment and appliances over
five to 10 years. Leasing costs are amortized over the lives of the
respective leases. Routine maintenance and repairs, including replacements,
are charged to expense; however, replacements which improve or extend the
lives of existing properties are capitalized.
Net income per share of beneficial interest has been computed based on
weighted average shares and share equivalents outstanding for the applicable
period.
2. COMBINED STATEMENTS OF CHANGES IN CASH
The trust considers all highly liquid short-term investments with original
maturities of three months or less to be cash equivalents.
The Trust paid interest expense of $21.1 million, $17.9 million and
$18.7 million in 1994, 1993 and 1992, respectively.
3. SALE OF JOINT VENTURE PROPERTIES
In September 1994, the Trust contracted to sell in January 1995 its 50%
interests in two malls located in Wilkes-Barre, Pennsylvania and Fairmount,
West Virginia for $35.5 million. The contracts governing this sale provide
for a $2 million payment which was received in 1994, a $27.5 million payment
to be received in January 1995 and a note of $6 million with an interest
rate of 9% due in January 1998. The proceeds will be net of $4.7 million of
existing mortgages secured by the properties. The sale results in a gain of
$29.9 million which will be recorded in January 1995.
4. EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT
On November 1, 1993, the Trust repaid prior to their maturity dates $45
million of 8.375% senior notes at par and $37.6 million of 10.25%
convertible subordinated debentures at a premium of 1.025%. The maturity
date of the senior notes was December 1994 and the convertible debentures
was July 2009. The early extinguishment of debt resulted in an extraordinary
charge in 1993 of $1.2 million for the write off of unamortized issue costs
and payment of a redemption premium.
24
<PAGE> 9
<TABLE>
5. INVESTMENTS IN MORTGAGE LOANS
As of December 31, 1994, the Trust had the following investments in mortgage
loans (dollar amounts in thousands):
<CAPTION>
CURRENT
EFFECTIVE
RATE ON NET LOAN PRIOR NET
INVESTMENT AMOUNT LIENS INVESTMENT
<S> <C> <C> <C> <C>
First mortgage loan secured by
office building in Cleveland, Ohio,
maturing in 2011. 10% $19,440 $19,440
Wraparound mortgage loan secured
by apartment building in Atlanta,
Georgia, maturing in 1999. 14% 16,321 $ 4,012 12,309
------- ------- -------
$35,761 $ 4,012 $31,749
======= ======= =======
</TABLE>
6. BANK LOANS
In December 1994, the Trust entered into a fully secured $60 million
revolving credit agreement that matures on December 31, 1997. As of December
31, 1994, there was $27 million outstanding under this credit agreement at
an interest rate of 7.2%. Interest under this agreement is calculated, at
the option of the Trust, based on LIBOR or the lender's prime lending rate.
In the previous year, the Trust had a $60 million five-year term loan,
requiring a 20% reduction on the last day of each of the following five
years. The Trust also has a $20 million unsecured revolving credit
agreement with another bank, which terminates in July 1996. As of December
31, 1994, there was $15.5 million outstanding under this credit agreement at
an interest rate of 7.9%. Interest under this agreement may be calculated
based on various alternatives, at the option of the Trust, including the
lender's base rate, LIBOR, certificate of deposit rate or current bank cost
of funds. The weighted average interest rate under the credit agreements
was 5.2% for 1994.
Commitment fees not greater than 3/8% per annum are payable on the
unused portion of the revolving credits. These agreements contain certain
requirements including maintaining minimum funds from operations
(income from operations plus depreciation and amortization), net worth,
leverage, fixed charges and earnings before interest and depreciation and
amortization ratios, as defined. The Trust was in compliance with all the
above requirements as of December 31, 1994.
7. MORTGAGE LOANS PAYABLE
As of December 31, 1994, the Trust had outstanding $90.8 million of mortgage
loans due in installments extending to the year 2031. Interest rates on
fixed rate mortgages range from 7.75% to 10%. A $34 million mortgage is at a
variable rate, presently 9.0%, which is tied to LIBOR (with a maximum rate
of 9.5%). This maximum rate guarantee was purchased for $1.1 million and
is being amortized over the life of the loan. This mortgage requires the
Trust to maintain minimum net worth, liquidity and debt service coverage
ratios, of which the Trust was in compliance at December 31, 1994. Principal
payments due during the five years following December 31, 1994, are $15.6
million, $3.3 million, $3.6 million, $5.7 million, and $3.6 million,
respectively.
8. SENIOR NOTES
As of December 31, 1994, the Trust had $105 million in senior notes
outstanding. The interest rate is 8.875% on $100 million maturing in October
2003 and 8.6% on $5 million maturing in July 1996. The $100 million
senior notes are noncallable, limit future borrowings by the Trust and
require maintenance of a minimum net worth. The Trust was in compliance with
all requirements as of December 31, 1994.
9. SHARE OPTIONS
The Trust has the following share option plans for key personnel.
1981 STOCK OPTION PLAN
This plan provides that option prices be at the fair market value of the
shares at the date of grant and that option rights granted expire ten years
after the date granted. Adopted in 1981, the plan originally reserved
624,000 shares for the granting
25
<PAGE> 10
of incentive and nonstatutory share options. Subsequently, the shareholders
approved amendments to the plan reserving an additional 200,000 shares, for
a total of 824,000 shares, for the granting of options and extending the
expiration date to December 31, 1996. The amendments do not affect
previously issued options.
The activity of the plan is summarized for the years ended December 31
in the following table:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Granted 75,000 25,000 63,000
Exercised - 20,925 -
Canceled 121,317 9,500 3,619
Available 285,927 239,610 255,110
</TABLE>
As of December 31, 1994, options on 391,580 shares were outstanding at
prices ranging from $7.38 to $24.76 per share.
Separately, the Trust and Company have an agreement whereby, as of
December 31, 1994, the Company may purchase up to 76,150 shares from the
Trust at prices ranging from $8.25 to $24.76 per share to satisfy the
Company's obligations to deliver shares to certain of its key employees
pursuant to options previously granted. The option agreements with the
Company's employees provide that option prices be at the fair market value
of the Trust shares at the date of grant and that option rights granted
expire ten years after the date granted.
1994 LONG-TERM INCENTIVE OWNERSHIP
This plan, adopted in 1994, reserved 1,629,785 shares for the granting
of incentive and nonstatutory share options and restricted shares. The share
options expire eight years after being granted. The price of the options is
the fair market value of the shares at the date of grant. The restricted
shares receive dividends and have voting rights but may not be sold or
transferred until the restriction period lapses after eight years from the
date of grant, or earlier if the Trust's share price equals or exceeds $21
for 20 consecutive days or upon a change in control as defined in the plan.
Additional restricted shares will be granted when defined levels of funds
from operations and net capital gains are achieved during any four
consecutive calendar quarters. Deferred compensation of $1 million was
recorded in connection with the issuance of the restricted shares and is
being amortized over an eight-year period on a straight-line basis.
Amortization of $65,000 was recognized in 1994.
The activity of this plan is summarized for the year ended December 31,
1994 in the following table:
Share options granted 229,850
Share options canceled 16,000
Restricted shares granted 162,500
Available share options and
restricted shares 1,253,435
As of December 31, 1994, options on 213,850 shares at prices of $6.38 and
$6.50 and 162,500 restricted shares were outstanding.
10. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The disclosure of the estimated fair value of financial instruments is made
in accordance with the requirements of Statement of Financial Accounting
Standards (SFAS) No. 107, "Disclosures about Fair Value of Financial
Instruments." The estimated fair value amounts have been determined by the
Trust, using available market information as of December 31, 1994, and
appropriate valuation methods. Considerable judgment is required in
interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative
of the amounts that the Trust could realize in a current market exchange.
The use of different market assumptions and methods of estimation may have a
material effect on the estimated fair value amounts.
26
<PAGE> 11
As of December 31, 1994, the carrying amount and estimated fair value of
financial instruments were as follows (amounts in thousands):
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,975 $ 2,975
Accounts receivable and prepayments 4,594 4,594
Mortgage loans receivable 35,761 35,546
LIABILITIES
Accounts payable and accrued liabilities 16,686 16,686
Bank loans 42,500 42,500
Mortgage loans payable 90,796 88,809
Senior notes 105,000 105,000
Deferred obligations 10,522 14,004
</TABLE>
Cash and cash equivalents, accounts receivable and prepayments, accounts
payable and accrued liabilities - The carrying amounts are a reasonable
estimate of their fair value because each item is of short duration.
Mortgage loans receivable - The fair value of the wraparound mortgage
investment secured by a property in Atlanta, Georgia and a first mortgage
secured by an office building in Cleveland, Ohio, are calculated as
the net present value of future cash flows. The discount rates used are an
estimate based on current lending rates and market conditions. Management
intends to hold the mortgage loans receivable to maturity.
Mortgage loans payable and deferred obligations - The mortgage loans payable
are aggregated by maturity and discounted at rates based on current
lending rates and market conditions to determine their fair value. The
deferred obligations are discounted based on current lending rates and
market conditions. Management intends to repay the mortgage loans and
deferred obligations as they become due.
Senior notes and bank loans - The fair value is the carrying amount because
market interest rates approximate the interest rates of these debt
securities. Management intends to repay these debt securities as they become
due.
11. SHAREHOLDER RIGHTS PLAN
In March 1990, the Board of Trustees declared a dividend consisting of one
right to purchase one share of beneficial interest of the Trust with respect
to each share of beneficial interest.
The rights may be exercised only if a person or group acquires 15% or
more of the outstanding shares of beneficial interest, makes a tender offer
for at least 15% of the outstanding shares of beneficial interest, or is
declared to be an "adverse person." The exercise price of each right is $50.
If a person or group acquires 15% or more of the outstanding shares of
beneficial interest (except in a tender offer approved by the Board of
Trustees), is declared to be an "adverse person," or engages in certain
self-dealing transactions with the Trust ("flip-in events"), each right
(other than rights owned by a 15% owner of an "adverse person") entitles the
holder to purchase one share of beneficial interest of the Trust for par
value (now $1 per share). If the Trust is acquired in a merger or other
business combination ("flip-over events"), each right entitles the holder to
purchase, for $1, shares of the acquiring company having a market value
equal to the market value of one share of beneficial interest of the Trust.
The rights may be redeemed by the Trust at a price of $0.01 per right at
any time prior to the earlier of a "flip-in" or "flip-over" event or the
expiration of the rights on March 30, 2000.
27
<PAGE> 12
12. CAPITAL GAINS
In 1993 and 1992, the Trust recognized capital gains of $4.7 million and
$5.6 million, respectively, from an installment sale which occurred
in a prior year. Also, in 1993 and 1992, the Trust recognized approximately
$250,000 and $200,000, respectively, from sales of small land parcels.
The final portion of the capital gain from the prior year installment
sale was recognized during 1993.
13. FEDERAL INCOME TAXES
No provision for current or deferred income taxes has been made by the
Trust on the basis that it qualified under Sections 850-860 of the Internal
Revenue Code as a real estate investment trust and has distributed all of
its taxable income to shareholders.
The Trust and Company treat certain items of income and expense
differently in determining net income reported for financial reporting and
tax purposes. Such items resulted in a net increase in income for tax
reporting purposes of approximately $500,000 for 1994, and a net reduction
in income for tax reporting purposes of approximately $2.9 million for 1993
and $4.4 million for 1992.
As of December 31, 1994, net investments in real estate for financial
reporting purposes were approximately $63 million greater than for tax
purposes.
The 1994 quarterly allocation of cash dividends per share for individual
shareholders' income tax purposes was as follows:
<TABLE>
<CAPTION>
LONG-TERM ORDINARY TOTAL
DATE PAID CAPITAL GAINS INCOME PAID
<S> <C> <C> <C>
February 1 $ - $.18 $.18
April 29 - .10 .10
July 29 - .10 .10
October 31 - .10 .10
---- ----
$ - $.48 $.48
==== ====
</TABLE>
For the year ended December 31,1993, the cash dividends paid included
$0.232 of long-term capital gains and $0.488 of ordinary income, and for the
year ended December 31, 1992, $0.332 of long-term capital gains and $0.388
of ordinary income.
14. LEGAL CONTINGENCY
The Trust has pursued legal action against the State of California
associated with the 1986 flood of Peach Tree Mall. In September 1991,
the court ruled in favor of the Trust on the liability portion of this
inverse condemnation suit, which the State of California appealed. The Trust
is proceeding with its damage claim. No recognition of potential income has
been made in the accompanying financial statements.
28
<PAGE> 13
15. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following is an unaudited condensed summary of the combined results of
operations by quarter for the years ended December 31, 1994 and 1993. In the
opinion of the Trust and Company, all adjustments (consisting of normal
recurring accruals) necessary to present fairly such interim combined results
in conformity with generally accepted accounting principles have been included.
<TABLE>
(In thousands, except per share data)
<CAPTION>
QUARTER ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
<S> <C> <C> <C> <C>
1994
Revenues $18,917 $18,732 $19,326 $19,364
------- ------- ------- -------
Income from operations 1,612 1,654 1,605 1,614
Net income $ 1,612 $ 1,654 $ 1,605 $ 1,614
======= ======= ======= =======
Per share
Income from operations $ .09 $ .09 $ .09 $ .09
Net income $ .09 $ .09 $ .09 $ .09
======= ======= ======= =======
1993
Revenues $18,216 $18,455 $18,706 $18,962
------- ------- ------- -------
Income from operations 2,847 2,879 2,901 1,649
Capital gains 1,510 3,257 181
------- ------- ------- -------
Income before extraordinary
loss from early extinguishment of debt 4,357 6,136 2,901 1,830
Extraordinary loss from early
extinguishment of debt 1,240
------- ------- ------- -------
Net income $ 4,357 $ 6,136 $ 2,901 $ 590
======= ======= ======= =======
Per share
Income from operations $ .16 $ .16 $ .16 $ .09
Capital gains .08 .18 .01
------- ------- ------- -------
Income before extraordinary
loss from early extinguishment of debt .24 .34 .16 .10
Extraordinary loss from early
extinguishment of debt .07
------- ------- ------- -------
Net income $ .24 $ .34 $ .16 $ .03
======= ======= ======= =======
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SECURITYHOLDERS AND TRUSTEES OF FIRST UNION REAL ESTATE EQUITY AND
MORTGAGE INVESTMENTS:
We have audited the accompanying combined balance sheets of First Union Real
Estate Equity and Mortgage Investments (an unincorporated Ohio business trust,
also known as First Union Real Estate Investments) and First Union Management,
Inc. (a Delaware corporation) as of December 31, 1994 and 1993, and the
related combined statements of income, shareholders' equity and changes in cash
for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of 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 financial statements referred to above present fairly,
in all material respects, the combined financial position of First Union Real
Estate Equity and Mortgage Investments and First Union Management, Inc. as of
December 31, 1994 and 1993, and the results of their operations and their
changes in cash for each of the three years in the period ended December 31,
1994, in conformity with generally accepted accounting principles.
Cleveland, Ohio,
February 1, 1995. ARTHUR ANDERSEN LLP
29
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Financial Condition
In August 1994, the Trust acquired a 345-unit apartment complex in Durham,
North Carolina for $19 million in an all-cash transaction. The $19 million had
been invested in short-term investments.
In September 1994, the Trust contracted to sell in January 1995 its 50%
interests in two malls located in Wilkes-Barre, Pennsylvania and Fairmount,
West Virginia for $35.5 million. The contracts governing this sale provide for
a $2 million payment which was received in 1994, a $27.5 million payment to be
received in January 1995 and a note for $6 million with an interest rate of 9%
due in January 1998. The proceeds will be net of $4.7 million of existing
mortgages secured by the properties. The sale results in a gain of $29.9
million given the Trust's basis of $10.3 million in the two properties which
will be recorded in January 1995.
In December 1994, the Trust repaid $17 million of outstanding bank loans on
one of its revolving credit agreements with cash that had been invested in
short-term investments.
LIQUIDITY AND CAPITAL RESOURCES
In March 1994, the Board of Trustees voted to reduce the quarterly dividend
to $0.10 from $0.18 per quarter. The reduction in the dividend provided some of
the funds required for expenditures to refocus and upgrade the Trust's property
portfolio.
During December 1994, the Trust restructured its $60 million term loan into
a revolving credit facility maturing at the end of 1997. The $60 million
revolving credit agreement is fully secured and has $27 million outstanding at
December 31, 1994. The previous term loan would have required five annual
payments of $12 million beginning in December 1994. Additionally, the Trust has
a $20 million unsecured bank line of credit maturing in 1996 with $15.5 million
outstanding at December 31, 1994.
The proceeds from the sale of the Trust's 50% interests in two malls noted
above will be reinvested in "like-kind exchange" properties thereby allowing
the deferral of the capital gain distribution for tax purposes.
During 1995, the Trust will repay a $12 million mortgage loan which is due
in December 1995. If interest rates are favorable, the Trust will consider
refinancing this mortgage. The Trust has announced that its Fairgrounds Square
Mall in Reading, Pennsylvania will be expanded in 1995 by 107,000 square feet
to accommodate a newly constructed Montgomery Ward store. The project,
including site work and construction costs, will require approximately $5.5
million in 1995. In addition to expanding the mall for this new third anchor
department store, the Trust plans to renovate the interior and exterior of
Fairgrounds Square Mall in 1995. This and other property renovations and
expansions, tenant alterations and property acquisitions will be financed
through unused credit facilities (currently $37.5 million available), cash flow
from property operations, mortgaging unencumbered properties and, as market
conditions allow, the public and private capital markets.
RESULTS FROM OPERATIONS
Income from operations for 1994 was $6.5 million as compared to $10.3 million
in 1993 (before an extraordinary loss from early extinguishment of debt). In
1993, the Trust recorded an extraordinary loss of $1.2 million representing the
write off of unamortized issue costs associated with the $45 million senior
notes and $37.6 million convertible debentures which were repaid prior to
maturity, as well as the redemption premium required with the call of the
convertible debentures. Net income of $14.0 million in 1993 included $4.7
million of capital gains from a prior year installment sale and $250,000 in
capital gains from the sale of small land parcels. The installment sale capital
gain was completely recognized in 1993.
Net income in 1993 was $14.0 million, as compared to $18.4 million in 1992.
Net income in 1993 included the extraordinary loss from early extinguishment of
debt of $1.2 million. Capital gains from a prior year installment sale were
$4.7 million and $5.6 million in 1993 and 1992, respectively. Capital gains of
$250,000 and $200,000 in 1993 and 1992, respectively, were from sales of small
land parcels.
Income from property operations, which is rent less property operating
expenses and real estate taxes, increased by $434,000 when comparing properties
in the portfolio for all of 1994 and 1993 and the apartment complex purchased
in August 1994. The increase was due to the new apartment acquisition which was
partly offset by non-recurring real estate tax refunds received in 1993.
Income from property operations increased by $2.0 million when comparing
properties in the portfolio for all of 1993 as compared to 1992 and an
apartment complex acquired in June 1992. However, the increase was offset by
the one-time recognition in 1992 of a $1.7 million lease termination fee and
$371,000 from the difference between the fair market value of the apartment
complex acquired in June 1992 and the Trust's wraparound mortgage secured by
that property.
30
<PAGE> 15
Short-term investment income increased when comparing 1994 to 1993 because
short-term investments averaged $30 million in 1994 as compared to an average
of $6 million in 1993. The large increase in short-term investments from 1993
to 1994 was due to the Trust borrowing $38 million under one of its lines of
credit which had converted to a term loan on December 31, 1993, and
subsequently investing the funds in short-term securities. In August 1994, the
Trust used $19 million of short-term investments to purchase the Durham, North
Carolina apartment complex.
Mortgage interest income was approximately the same in 1994 as in 1993, but
1993 declined when compared to 1992. This decrease is primarily attributed to
the repayment in June 1993 of a mortgage investment which had resulted from an
installment sale of an office building in 1983. Also, when comparing 1993 to
1992, mortgage investment income declined due to the conversion in June 1992 of
a mortgage investment to an equity investment. As of December 31, 1994, the
Trust has two mortgage investments secured by an apartment complex and an
office building which mature in 1999 and 2011, respectively.
Mortgage interest expense increased when comparing 1994 to 1993. This
increase was primarily caused by the $35 million mortgage obtained in September
1993 which is secured by a shopping mall in St. Cloud, Minnesota. The interest
rate on this mortgage loan was reset in late 1994 based on a 12-month LIBOR
option chosen by the Trust. During 1994, the interest rate averaged 6.3%,
whereas for 1995 it will be 9% until November 30, 1995 when the rate must be
reset. The Trust has an interest rate cap with a ceiling of 9.5% on the loan
during its remaining term of 9 years. When comparing 1993 to 1992, mortgage
interest expense declined in 1993 due to the repayment of $14.8 million of
mortgage loans in December 1992 and October 1993.
The increase in depreciation and amortization expense when comparing 1994
to 1993 and from 1993 to 1992 was primarily the result of the acquisitions of
the apartment complex in 1994 and the apartment complex in 1992.
Senior notes interest expense increased in 1994 as compared to 1993 because
of the issuance of $100 million of 8.875% senior notes on October 1, 1993. The
proceeds were used primarily to repay $45 million of 8.375% senior notes and
$37.6 million of 10.25% convertible debentures on November 1, 1993. Because of
the one month difference between the receipt of proceeds from the issuance of
$100 million of 8.875% senior notes and the repayment of the $45 million senior
notes and the $37.6 million convertible debentures (due to 30-day call
provisions in the indentures of the retired debt), nonrecurring interest
expense of $435,000, net of short-term investment income and reduced interest
expense on bank loans, was incurred in 1993.
Interest expense on bank loans increased when comparing 1994 to 1993 due to
the increase of approximately 130 basis points in interest rates from 1993 to
1994. The Trust's interest rates on its bank lines of credit fluctuate based on
short-term market rates. The Trust's weighted average borrowing rate during
1994 was 5.2% on an average outstanding balance of $59 million. Short-term
interest rates have increased during 1994 so that the $42.5 million of
outstanding bank loans on December 31, 1994 was at a weighted average borrowing
rate of 7.4%. Bank loan interest expense declined when comparing 1993 to 1992
due to lower average balances outstanding in 1993 and lower average interest
rates of approximately 60 basis points.
General and administrative costs increased when comparing 1994 to 1993. The
increase in expense resulted from professional fees related to the Trust's
reorganization of the portfolio and management, expenses from the new long-
term incentive program and increased staffing to execute the Trust's new
strategic plan. The increase in general and administrative expenses from 1993
as compared to 1992 was caused by the expensing of costs which are normally
charged against acquisitions and dispositions of investments because no such
transactions occurred in 1993.
FUNDS FROM OPERATIONS AND DIVIDENDS PAID
Funds from operations are calculated as income from operations plus noncash
charges for depreciation and amortization. For 1994, 1993 and 1992, funds from
operations were $18.3 million, $21.3 million and $23.3 million, respectively,
and dividends paid to holders of shares of beneficial interest were $8.7
million, $13 million and $13 million, respectively. The dividend payout ratio,
which is dividends paid divided by funds from operations, was 48%, 61% and 56%,
respectively, for this three year period, reflecting the Trust's conservative
dividend policy and its desire to retain cash for reinvestment and upgrading
its real estate portfolio.
31
<PAGE> 1
Exhibit 23
----------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation
of our reports included and incorporated by reference in this Form 10-K, into
the registrant's previously filed Registration Statements on Form S-3
(Registration Nos. 2-88719, 33-2818, 33-11524, 33-19812, 33-26758, 33-33279,
33-38754, 33-45355, and 33-57756).
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
March 30, 1995.
<PAGE> 1
Exhibit 24
----------
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
-------------------------------------------------------
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1994
------------------------------------
Power of Attorney of Officers and Trustees
------------------------------------------
The undersigned, an Officer or Trustee or both an Officer and Trustee of
First Union Real Estate Equity and Mortgage Investments, an Ohio business trust
(the "Trust") which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the year ended
December 31, 1994 (hereinafter called the "Form 10-K"), does hereby constitute
and appoint James C. Mastandrea and Paul F. Levin, and either of them, with
full power of substitution and resubstitution, as attorneys or attorney to sign
for him and in his name the Form 10-K and any and all amendments and exhibits
thereto, and any and all other documents to be filed with the Securities and
Exchange Commission pertaining to the Form 10-K, with full power and authority
to do and perform any and all acts and things whatsoever required or necessary
to be done in the premises, as fully to all intents and purposes as he could do
if personally present, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st day of
March, 1995.
/S/ Otes Bennett, Jr.
-----------------------
/S/ Kenneth K. Chalmers
-------------------------
/S/ William E. Conway
-----------------------
/S/ Daniel G. DeVos
---------------------
/S/ Allen H. Ford
-------------------
/S/ Stephen R. Hardis
-----------------------
/S/ James C. Mastandrea
-------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ex-27
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 2,975,000
<SECURITIES> 0
<RECEIVABLES> 4,594,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,569,000
<PP&E> 436,394,000
<DEPRECIATION> (111,972,000)
<TOTAL-ASSETS> 376,189,000
<CURRENT-LIABILITIES> 16,686,000
<BONDS> 238,296,000
<COMMON> 102,940,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 376,189,000
<SALES> 71,200,000
<TOTAL-REVENUES> 76,339,000
<CGS> 0
<TOTAL-COSTS> 33,248,000
<OTHER-EXPENSES> 15,326,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,280,000
<INCOME-PRETAX> 6,485,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,485,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,485,000
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
