<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
---------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934 (NO FEE REQUIRED)
Commission File No. 1-8815
------
EQK REALTY INVESTORS I
----------------------
(Exact name of Registrant as specified in its Charter)
Massachusetts 23-2320360
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5775 Peachtree Dunwoody Road, Suite 200D, Atlanta, GA 30342
- ----------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (404) 303-6100
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ----------------------------- -----------------------------------------
Shares of Beneficial Interest New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by checkmark 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
--- ---
The aggregate market value of Shares of Beneficial Interest held by
non-affiliates of the Registrant, based on the closing price of the Shares on
March 22, 1996 on the New York Stock Exchange of $1.250 per Share, is
$9,466,300. As of March 22, 1996, 9,264,344 Shares of Beneficial Interest were
outstanding. Officers and Trustees of the Trust (and certain of their family
members) and Equitable Realty Portfolio Management, Inc., Advisor to the Trust,
are treated as affiliates for the purposes of this computation, with no
admission being made that such people or entities are actually affiliates.
DOCUMENTS INCORPORATED BY REFERENCE.
The Trust's Proxy Statement relating to its 1996 Annual Meeting of
Shareholders is incorporated in Part III, Items 10, 11, 12 and 13.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
<S> <C> <C>
Item 1. Business 2
Item 2. Properties 7
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 17
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 25
PART III
Item 10. Directors and Executive Officers of the Registrant 26
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners
and Management 26
Item 13. Certain Relationships and Related Transactions 26
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 27
</TABLE>
1
<PAGE> 3
PART I
ITEM 1. BUSINESS.
General Development of Business
EQK Realty Investors I, a Massachusetts business trust (the
"Trust"), was formed pursuant to a Declaration of Trust dated October 8, 1984.
Equitable Realty Portfolio Management, Inc. ("ERPM," successor in interest to
EQK Partners), acts as the advisor (the "Advisor") to the Trust. ERPM is a
wholly owned subsidiary of Equitable Real Estate Investment Management, Inc.
("Equitable Real Estate"), itself an indirect wholly owned subsidiary of The
Equitable Life Assurance Society of the United States ("Equitable"). The
principal executive offices of the Trust and of the Advisor are located at 5775
Peachtree Dunwoody Road, Suite 200D, Atlanta, Georgia, 30342, and their
telephone number is (404) 303-6100.
The Trust has adopted a fiscal and taxable year ending
December 31. The Trust has transacted its affairs so as to qualify as, and has
elected to be treated as, a real estate investment trust under applicable
provisions of the Internal Revenue Code. Under the Internal Revenue Code, a
real estate investment trust that meets applicable requirements is not subject
to Federal income tax on that portion of its taxable income that is distributed
to its shareholders.
The Trust consummated the public offering of its Shares of
Beneficial Interest (the "Shares") on March 12, 1985. The net proceeds to the
Trust from such offering, net of underwriting discount, amounted to
$170,856,000 before deducting offering expenses of $1,062,000. Certain of
those proceeds aggregating $167,032,000 were expended to acquire certain
properties on March 13, 1985 (which were comprised of Harrisburg East Mall as
described below under "Narrative Description of Business," as well as two
properties subsequently sold: Castleton Park or "Castleton", an office park in
Indianapolis, Indiana, which was sold in December 1995, and Peachtree Dunwoody
Pavilion, or "Peachtree", an office complex in Atlanta, Georgia, which was sold
during the period 1992-1993).
The Trust initially intended to hold its real estate
investments for a period not to exceed 12 years from the date of acquisition
and, after the twelfth year, to dispose of any remaining investments in an
orderly fashion within a period of two years in order to achieve a complete
liquidation of the Trust by March 1999. Actual disposition of the remaining
property may occur at any time prior to March 1999, depending on both the
prevailing conditions in the relevant real estate market and the ability of the
Trust to extend or refinance its debt maturing in December 1996 (see Note 2 to
the financial statements). The precise timing of this disposition will be at
the discretion of the Trustees.
Since December 15, 1992, the Trust has had in place a
"Mortgage Note" with the Prudential Insurance Company of America, which had an
initial balance of $75,689,000, and an original maturity date of December 15,
1995. The interest rates on the Mortgage Notes averaged 9.79% over the three
year term. However, the note agreement required monthly payments of interest
only at the rate of 8.54% per annum.
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<PAGE> 4
The additional interest charges were accrued and added to
principal over this initial term of the loan. Absent any prepayments of debt
arising from property dispositions, the amount of principal due on the original
maturity date of December 15, 1995 would have been $78,928,000. Under the
terms of the Mortgage Note agreement, the lender received warrants to purchase
367,868 shares of beneficial interest of the Trust for $.0001 per share, none
of which have been exercised.
The Trust also had a "Term Loan" in place since December 15,
1992 bearing interest at 8.33% per annum and requiring payments at the same
annual rate of 8.54% as is required under the Mortgage Note agreement. The
payments made in excess of the interest rate were applied to the principal
balance of the loan such that the original principal balance of $2,859,000
would have been reduced over its three year term to $2,839,000, absent any
prepayments arising from property dispositions.
On December 8, 1995, the Trust completed the sale of Castleton
Park ("Castleton"), its 44 building office park located in Indianapolis,
Indiana. The Trust used net proceeds of $35,990,000 (reduced by customary
prorations of $2,517,000) to retire $34,738,000 of the Mortgage Notes and
$1,252,000 of the Term Loan.
The remaining principal balances outstanding under the
Mortgage Note and the Term Loan at December 15, 1995, $44,125,000 and
$1,587,000, respectively, were extended for one year under terms substantially
comparable to those previously in effect. The Mortgage Note remains
collateralized by a first mortgage lien on Harrisburg East Mall, an assignment
of leases and rents, and certain cash balances. The Term Loan is
collateralized by a subordinate lien on Harrisburg East Mall. The Mortgage
Note agreement was amended to stipulate an interest accrual rate equal to the
pay rate of 8.54% per annum, which reflects a decrease from the average accrual
rate of 9.79% per annum during the initial three year term of the debt. The
extended Mortgage Note agreement with Prudential Insurance Company of America
requires monthly payments of $340,000, of which $314,000 represents interest
accrued at 8.54%. The differential, which represents amortization of
principal, will result in a balance at maturity of $43,794,000. The Term Loan
agreement was amended to provide for an accrual rate that resets periodically
and is computed at the Trust's discretion at either 2 5/8% above the Euro-Rate
(as defined) or 1 1/8% above the Prime Rate (as defined). The accrual rate in
effect for the period January 5, 1996 through April 7, 1996 is 8.25%. The
differential between the accrual rate and the pay rate of 8.54% will be added
or subtracted to the principal balance due at maturity.
Management continues to pursue the sale of Harrisburg
as a means of paying its remaining outstanding debt obligations and making a
liquidating distribution to its shareholders. As more fully described in Item
7 - Management's Discussion and Analysis, the current vacancy of one of the
anchor department stores is complicating Management's efforts to complete this
objective.
In connection with the December 15, 1992 debt financings, the
Trust issued 1,675,000 previously repurchased shares of its stock to its
Advisor. The Trust received proceeds of $6,700,000, or $4.00 per share, for
the Shares. The Trust may, at its discretion, reissue the remaining 791,211
Shares previously repurchased. Any issuance of Shares in excess of the Shares
previously repurchased would require shareholder approval.
3
<PAGE> 5
Apart from its initial investments in the Properties, and
subject to certain restrictions, the Trust is permitted to make additional real
estate investments involving the expansion of existing properties. Given the
fact that the Trust is liquidating, the Trust has no intentions of acquiring
additional real estate interests, but will make certain capital expenditures
required to enhance or maintain the value of Harrisburg, including tenant
allowances associated with leasing activity.
The Trust may make secured or unsecured borrowings to make
distributions to its shareholders and for normal working capital needs,
including tenant alterations and/or allowances and the repair and maintenance
of properties in which it has invested. The Declaration of Trust prohibits the
Trust's aggregate borrowings from exceeding 75% of its total asset value, as
defined.
The Trust will not engage in any business not related to its
real estate investments and, in that connection, the Declaration of Trust
imposes certain prohibitions and investment restrictions on various investment
practices or activities of the Trust.
Narrative Description of Business
As discussed above, the Trust has completed the disposition of
two of its three real estate investments. The office buildings comprising
Peachtree were sold in three separate transactions during the period 1992 to
1993. Two of the office buildings at Castleton were sold in 1991. The
remaining office buildings at Castleton were sold on December 8, 1995. The
Trust's remaining real estate investment is its regional mall located in
Harrisburg, Pennsylvania. The Trust intends to sell Harrisburg as conditions
in the relevant real estate market permit, subject to its ability to extend or
refinance its mortgage debt that matures in December 1996, but in any case
before March 1999. The Trust anticipates making certain capital expenditures
in order to maintain or enhance the value of the property. For 1996, the
Trust has budgeted $900,000 for capital expenditures, which includes budgeted
tenant allowances of $550,000 and roof and parking lot repairs of $290,000.
Certain of these expenditures are discretionary in nature and therefore may be
deferred into future periods.
Harrisburg East Mall
Location and Area Overview. The Mall is located in Dauphin
County, Pennsylvania, near the intersection of Paxton Street (U.S. Route 322)
and Interstate 83. The property is adjacent to Pennsylvania Route 441,
approximately five miles from the Pennsylvania Turnpike and three miles from
the central business district of Harrisburg. Access to the site from
Interstate 83, the major north-south traffic corridor serving Harrisburg, is
provided by the Paxton Street interchange. Access from the Pennsylvania
Turnpike, the major east-west traffic corridor serving Harrisburg, is provided
by the Interstate 283 interchange.
Tenants. At December 31, 1995, Harrisburg had 85 mall and
outparcel tenants (excluding anchor store tenants) occupying approximately
303,000 square feet of gross leasable area, representing an occupancy rate of
89%. Other than the anchor store
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<PAGE> 6
spaces, which are occupied by JC Penney and Hecht's, as well as the department
store space formerly occupied by John Wanamaker (which closed on October 9,
1995), only Toys 'R' Us, which occupies approximately 45,950 square feet of
space as the sole tenant in Harrisburg's outparcel building, occupies more than
five percent of the gross leasable area of the Mall.
Anchor Department Stores. There were two major developments
concerning anchor department stores at Harrisburg during the past 1 1/2 years.
Replacement of Hess's with Hecht's
On October 19, 1995, May Department Stores Company ("May
Company") opened a Hecht's in the department store space previously occupied by
Hess's. Hess's had previously announced in August 1994 its decision to sell
certain of its stores, including its location at Harrisburg, to May Company.
In November 1994, the Hess's location at Harrisburg closed, its anchor tenant
lease was assigned to May Company, and remodeling and expansion of the former
Hess's space commenced for the purpose of accommodating the opening of a
Hecht's. Such remodeling and expansion costs were borne by May Company.
The expansion of the Hecht's space resulted in the relocation
in April 1995 of Toys 'R' Us (which was situated in the basement area adjacent
to Hess's) to Harrisburg's outparcel building. Prior to the Toys 'R' Us
relocation, the Trust redeveloped the outparcel building to suit this tenant's
specifications at a cost of $3,440,000.
Closing of John Wanamaker
On August 8, 1995, the U.S. Bankruptcy Court approved the sale
of certain Woodward & Lothrop department stores to May Company, including the
John Wanamaker location at Harrisburg. Given its existing presence at
Harrisburg with its newly opened Hecht's, May has indicated that it will pursue
an assignment of the John Wanamaker leasehold interest to another department
store retailer.
On October 9, 1995, the John Wanamaker store ceased
operations, although May Company continues to make rental payments in
accordance with its lease agreement. As a result of this store closure, the
Trust believes that May Company is in violation of a continuous operating
covenant stipulated in the related lease agreement. As discussed further under
Item 3 - Legal Proceedings, Management filed complaints of ejectment
(eviction) and money damages on March 22, 1996 in the local jurisdiction to
gain control of the premises on the basis that the lease and May Company's
right of possession have been terminated. Until a replacement department
store opens in the John Wanamaker location, certain tenants will be permitted,
pursuant to co-tenancy provisions provided for under the terms of their
leases, to pay percentage rent in lieu of fixed minimum rentals. This matter
is discussed further under Item 7 - Management's Discussion and Analysis.
5
<PAGE> 7
Competition. The following table provides selected
information with respect to the Mall's primary existing competitors. Each
property is located within five miles of the Mall, except for Park City Mall
which is 35 miles away. The inclusion of Park City is due to the lack of major
retail space along Interstate 283 between Harrisburg and Lancaster, although
its degree of competition with the Mall is limited.
<TABLE>
<CAPTION>
Gross Leasable Anchor
Shopping Center Type of Center Area (Sq. Ft.) Stores
- --------------- -------------- -------------- ------
<S> <C> <C> <C>
Strawberry Square Enclosed multi- 230,000 None
level urban mall
Colonial Park Plaza Enclosed one- 762,000 Sears
level regional mall The Bon Ton
Boscov's
Camp Hill Shopping Enclosed one- 505,000 Boscov's
Center level mall Montgomery Ward
Capital City Mall Enclosed one- 722,000 Sears
level regional mall Hecht's
JCPenney
Park City Mall Enclosed two- 1,400,000 The Bon Ton, Sears
level regional mall JCPenney
Boscov's, Clover
York Galleria Enclosed two- 770,000 The Bon Ton,Sears
level mall JCPenney, Boscov's
</TABLE>
Competition Analysis. The boundaries of the trade area for
Harrisburg East Mall are influenced by the existence of natural boundaries,
competing developments, and demographic characteristics. The Susquehanna River
splits the Harrisburg market in two, creating the East and West shores.
Harrisburg East Mall is located in Dauphin County in the East shore area. The
Mall's primary trade area consists of all of Dauphin County, while the
secondary trade area includes sections of Lebanon and Lancaster counties on the
East shore and sections of Perry and Cumberland counties on the West shore.
Primary competition for Harrisburg East Mall consists of three regional centers
located in the Harriburg trade area: Colonial Park Plaza, Capital City Mall,
and Camp Hill Mall.
Colonial Park Plaza, which opened in 1960, is located approximately five miles
north of Harrisburg East Mall in the primary trade area, and contains 762,000
square feet of gross leasable area. It is anchored by The Bon-Ton, Sears, and
Boscov's, contains 90 in-line specialty retailers and has an occupancy
percentage of 96%. In 1990, this one-level center
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<PAGE> 8
was renovated and expanded to include a food court and additional specialty
shops. Colonial Center continues to be Harrisburg East's primary competitor
due to the strength of Boscov's and its tenant mix, which is very similar to
that found at Harrisburg.
Capital City Mall, a one-level center which opened in 1974, is located eight
miles west of Harrisburg East Mall in the secondary trade area. The center
contains approximately 722,000 square feet of gross leasable area and is
anchored by Hecht's, JC Penney, and Sears. It is currently 97.8% occupied,
with a strong concentration of boutique style retailers, and with the addition
of Hecht's and JC Penney in 1995, offers the same anchor appeal as Harrisburg
East Mall.
Camp Hill Mall, a former community center originally constructed in 1959, was
completely enclosed and renovated in 1987. Camp Hill is located approximately
eight miles west of Harrisburg East Mall in the secondary trade area, and
contains approximately 505,700 square feet. The center is anchored by Boscov's
and Montgomery Ward, and also contains a 42,000 square foot Pathmark
Superstore. The tenant mix is mostly comprised of local retailers and
occupancy is currently at 90.0%.
ITEM 2. PROPERTIES.
Harrisburg East Mall
General. Harrisburg is a two-level enclosed regional shopping
mall located approximately three miles from the central business district of
Harrisburg, Pennsylvania, the state capitol. The Mall contains approximately
875,000 gross leasable square feet and is currently anchored by two major
department stores: JCPenney and Hecht's. As discussed below, a third
department store space, formerly occupied by John Wanamaker, has been vacant
since John Wanamaker's closure on October 9, 1995. The Mall is located on a
site of approximately 64 acres with paved surface parking for approximately
4,763 automobiles (5.5 spaces per 1,000 gross leasable square feet).
Anchor Department Stores. There were two major developments
concerning anchor department stores at Harrisburg during the past 1 1/2 years.
Replacement of Hess's with Hecht's
On October 19, 1995, May Department Stores Company ("May
Company") opened a Hecht's in the department store space previously occupied by
Hess's. Hess's had previously announced in August 1994 its decision to sell
certain of its stores, including its location at Harrisburg, to May Company.
In November 1994, the Hess's location at Harrisburg closed, its anchor tenant
lease was assigned to May Company, and remodeling and expansion of the former
Hess's space commenced for the purpose of accommodating the opening of a
Hecht's. Such remodeling and expansion costs were borne by May Company.
The expansion of the Hecht's space resulted in the relocation
in April 1995 of Toys 'R' Us (which was situated in the basement area adjacent
to Hess's) to Harrisburg's
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<PAGE> 9
outparcel building. Prior to the Toys 'R' Us relocation, the Trust redeveloped
the outparcel building to suit this tenant's specifications at a cost of
$3,440,000.
Closing of John Wanamaker
May Department Stores Company ("May Company") acquired from
Woodward & Lothrop pursuant to an August 1995 bankruptcy court auction the
leasehold interest in the John Wanamaker department store at Harrisburg. Given
the October 19, 1995 opening of its Hecht's department store at Harrisburg, May
Company indicated that it would pursue an assignment of the John Wanamaker
leasehold interest to another department store retailer.
On October 9, 1995, the John Wanamaker store ceased
operations, although May Company continues to make rental payments in
accordance with its lease agreement. As a result of this store closure, the
Trust believes that May Company is in violation of a continuous operating
covenant stipulated in the related lease agreement. As discussed further under
Item 3 - Legal Proceedings, Management filed complaints of ejectment (eviction)
and money damages on March 22, 1996 in the local jurisdiction to gain control
of the premises on the basis that the lease and May Company's right of
possession have been terminated. Until a replacement department store opens in
the John Wanamaker location, certain tenants will be permitted, pursuant to
co-tenancy provisions provided for under the terms of their leases, to pay
percentage rent in lieu of fixed minimum rentals. This matter is discussed
further under Item 7 - Management's Discussion and Analysis.
Capital Requirements
While Harrisburg is held for sale, the Trust will make certain
capital expenditures to maintain or enhance the value of the property,
including tenant allowances associated with leasing activity. The Trust
anticipates making 1996 capital expenditures of $900,000, which includes
budgeted tenant allowances of $550,000 and roof and parking lot repairs of
$290,000. Certain of these expenditures are discretionary in nature and
therefore may be deferred into future periods.
One of the conditions of the Mortgage Note was the
establishment of a capital reserve account, which is maintained by a
third-party escrow agent and from which expenditures must be approved by the
lender. The balance of this account at December 31, 1995 was $2,083,000.
Management believes the current cash balance in this account will be sufficient
to fund Harrisburg's capital expenditures requirements.
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The total building area of the Mall is allocated as shown in
the table below.
<TABLE>
<CAPTION>
Gross % of
Number of Leasable Total
Store Spaces Area Building Occupancy %
2/28/96 (Sq.Ft.) Area at 2/28/96
------------ -------- -------- -----------
<S> <C> <C> <C> <C>
Gross leasable area
Anchor Stores 3 534,013 52.3 % 63.9 %(1)
Mall Stores 104 289,673 28.4 85.7
Free-standing building 3 51,381 5.0 95.7
---- --------- ----- -----
Total gross leasable area 110 875,067 85.7 72.9 %
---- --------- ----- =====
Common area 146,371 14.3
--------- -----
Total building area 1,021,438 100.0 %
========= =====
</TABLE>
- ----------------------
(1) Reflects the existing vacancy of the former John Wanamaker department store
space.
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Occupancy Data and Average Effective Annual Rent. Information
regarding occupancy rates and average effective annual rent for the property,
including anchor and outparcel tenants, is set forth below:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Occupancy Rate 73.6%(a) 94.3% 96.9% 97.5% 98.9%
========== ========== ========== ========== ==========
Total Annual Minimum Rent
(b) $5,110,162 $5,973,828 $5,943,748 $5,591,915 $4,941,813
Total Percentage
Rent 269,558 294,591 154,039 262,870 450,051
---------- ---------- ---------- ---------- ----------
Total Annual Effective Rent $5,379,720 $6,268,419 $6,097,787 $5,854,785 $5,391,864
========== ========== ========== ========== ==========
Average Annual Rent Per
Square Foot: (c)
Mall Anchor Tenants $ 1.32(d) $ 1.67 $ 1.71 $ 1.71 $ 1.71
Outparcel Stores $ 6.91 $ 5.69 $ 6.30 $ 6.27 $ 7.67
Mall Tenants $ 16.46 $ 16.55 $ 15.48 $ 14.76 $ 13.58
All Tenants $ 6.44(d) $ 7.49 $ 7.16 $ 6.88 $ 6.41
</TABLE>
- -------------------------------------
(a) Occupancy rate reflects vacancy of the John Wanamaker anchor space,
although May Company is paying monthly rent under the terms of the lease.
Excluding the effect of the John Wanamaker space vacancy, the occupancy rate at
February 29, 1996 on a pro forma basis is 95.0%.
(b) Total minimum annual rent and percentage rent represents actual tenant
rental income for each calendar year, and does not include adjustments for
stipulated rent increases in accordance with Generally Accepted Accounting
Principles.
(c) Anchor and outparcel rent per square foot data is based on actual leased
square footage during each calendar year presented. Mall tenant rent per
square foot data is based on leased square footage at December 31 of each year
presented.
(d) The decrease in mall anchor tenant rent per square foot in 1995 and its
effect on the rent per square foot for all tenants, is due to the replacement
of the Hess department store with Hecht's in November 1994, and Hecht's
expansion into an adjacent basement space. Hecht's now occupies 187,280 square
feet at $1.07 per square foot, whereas Hess formerly occupied 139,656 square
feet at $2.18 per square foot.
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Lease Expirations. The lease expiration schedule for mall and
outparcel stores as of December 31, 1995 is shown below:
<TABLE>
<CAPTION>
% of
1995 1995
Gross Minimum Minimum
# of leases Leased Annual Annual
expiring(1) Area (Sq./Ft.) Rent Rent
----------- -------------- ------ ------
<S> <C> <C> <C> <C>
month to
month 2 6,492 67,737 1.5%
1996 9 16,938 335,911 6.6%
1997 5 8,263 157,884 3.4%
1998 14 12,838 331,116 6.3%
1999 6 15,696 249,344 5.3%
2000 10 39,187 652,529 14.0%
2001 8 20,464 444,693 9.6%
2002 6 21,630 326,362 7.0%
2003 10 24,672 236,412 5.1%
2004 4 8,602 191,944 4.1%
2005 and
thereafter 11 127,750 773,822 16.6%
---- ------- --------- -----
TOTAL 85 302,532 3,767,754 79.5%
==== ======= ========= =====
</TABLE>
- -----------------
(1) Assumes no renewal options will be exercised in order to present the
earliest point of termination of the leases.
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<PAGE> 13
Anchor Tenants. The following chart presents tenants that
occupy more than 10% of the property's rentable square footage, along with
certain provisions contained in their leases:
<TABLE>
<CAPTION>
Leased Area Rent Lease
Tenant (Sq. Ft.) per Annum Expiration Date Renewal Options
- ------ ----------- --------- --------------- ---------------
<S> <C> <C> <C> <C>
Hecht's 187,280 $200,000 1/31/2007 3-10 Year Options
JCPenney 153,770 $300,000 3/31/2001 6-5 Year Options
May Stores/
Wanamaker(1) 192,963 $226,000 10/8/1999 1-20 Year Option
4-10 Year Options
</TABLE>
- ---------------------------
(1) On August 8, 1995, May Department Stores assumed the lease of John
Wanamaker.
Debt. As discussed under Item 1-Business, the Trust completed
an extension of its existing mortgage debt effective December 1995. The
outstanding balance on these debt instruments at December 31, 1995 aggregated
$45,712,000. These debt instruments mature on December 15, 1996. The
following table sets forth certain information regarding the outstanding debt.
Both the Prudential Insurance Company of America Mortgage Loan and the PNC Bank
Term Loan are due in full on December 15, 1996 and if prepaid must be prepaid
in full.
<TABLE>
<CAPTION>
Principal Principal
Balance Balance
as of Annual Debt at
Annual 1995 Service Maturity Maturity
Lender Rate (000's) (000's) Date (000's)
- ------ ------ --------- --------- ------ --------
<S> <C> <C> <C> <C> <C>
Prudential 8.54%(1) $44,125 $4,092 12/15/96 $43,794
PNC 8.54%(2) 1,587 132 12/15/96 1,587(2)
</TABLE>
- ---------------------------
(1) The extended Mortgage Note agreement with Prudential Insurance Company of
America requires monthly payments of $340,000, of which $314,000 represents
interest accrued at 8.54%. The differential, which represents amortization of
principal, will result in a balance at maturity of $43,794,000.
(2)The extended Term Loan agreement with PNC Bank provides for the accrual
interest rate to be re-set periodically, and is computed at the Trust's
discretion at either 2 5/8% above the Euro-Rate (as defined) or 1 1/8% above
the Prime Rate (as defined). The accrual rate in effect at January 5, 1996
through April 7, 1996 is 8.25%. The differential between the accrual rate and
the pay rate of 8.54% will be added or subtracted to the principal balance due
at maturity.
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<PAGE> 14
Depreciation. As of December 31, 1995, for Federal income tax
purposes, the Trust depreciates its assets under the Accelerated Cost Recovery
System (ACRS) and the Modified Accelerated Cost Recovery System (MACRS) as
follows:
<TABLE>
<CAPTION>
Buildings:
<S> <C>
Gross Federal Income Tax Basis $49,923,000
Accumulated Depreciation $12,722,000
Depreciation Method Straight Line
Depreciable Life 40 Years
Land Improvements:
Gross Federal Income Tax Basis $ 2,195,000
Accumulated Depreciation $ 130,000
Depreciation Method Straight Line
Depreciable Life 40 Years
Personal Property:
Gross Federal Income Tax Basis $ 185,000
Accumulated Depreciation $ 87,000
Depreciation Method Straight Line*
Depreciable Life 10 Years*
</TABLE>
*Except for automobiles which are depreciated over a range of 3 to 7
years using the double declining balance method.
Real Estate Taxes. Real estate taxes are levied for county and
township, and school tax purposes. County and township taxes are payable March
1 and school taxes are payable on September 1. Harrisburg paid $911,000 in
real estate taxes in 1995. The 1995 millage rate was 26.886. Due to the
renovation of the outparcel building in 1995, the Trust estimates an increase
in real estate taxes for 1996 of $196,000. However, this increase will be
recoverable from the tenants through real estate tax recovery billings at a
ratio of 92.5%.
Physical Improvements. Since acquiring the Mall in 1985, the
Trust has undertaken several physical improvement programs. In 1987, the Trust
converted approximately 51,400 square feet of space in the basement of the
former Hess's department store space into mall tenant space, at which time it
was leased to Toys ' R' Us. During 1988, a new food court with approximately
13,000 square feet of gross leasable area was added. In 1991, the Trust
completed the conversion of 47,960 square feet of space previously occupied by
JCPenney into approximately 31,500 square feet of new leasable area leased at
substantially higher rates.
In conjunction with the JCPenney conversion, the remaining area
of the JCPenney store was remodeled. In addition, the terms of the amended
JCPenney lease
13
<PAGE> 15
required the Trust to renovate the common areas and the exterior facade of the
Mall. This renovation was completed in 1993 for a cost of approximately
$4,000,000. The project included a complete refurbishment of the property's
interior common area, with new floors, finishes, and lighting throughout.
As discussed in Item 2-Properties, upon the expansion of Hecht's
into the basement space (approximately 51,400 square feet) previously occupied
by Toys' R' Us, the Trust renovated Harrisburg's outparcel building
(approximately 51,000 square feet) to accommodate the relocation of Toys 'R' Us
for a cost of approximately $3,440,000. In addition to the expansion of the
anchor tenant space, Hecht's performed an interior renovation of its new
department store space.
ITEM 3. LEGAL PROCEEDINGS.
In August 1995, May Department Stores Company ("May Company")
acquired the leasehold interest in the John Wanamaker department store at
Harrisburg from Woodward & Lothrop. Given that May Company already had an
anchor tenant position at Harrisburg, in its Hecht's department store, May
Company indicated that it would pursue an assignment of the John Wanamaker
leasehold interest to another department store retailer.
On October 9, 1995, the John Wanamaker store ceased operations.
This anchor store location is subject to a continuous operating covenant set
forth in the applicable lease agreement, but no assignment has occurred to date
and the store remains dark, although May Company continues to make rental
payments in accordance with its lease agreement. On October 11, 1995,
Management notified May Company of its violation of the lease and of its
intentions to exercise its remedies provided for under such lease, including
the right to terminate the lease and regain possession of the premises, if a
Trust-approved retailer did not open within the specified cure period.
Management granted three extensions to the cure period (without waiving the
Trust's default remedies provided for in the lease agreement) to allow May
Company additional time to identify a replacement retailer. However, upon
concluding that May Company's actions and plans with respect to identifying a
replacement retailer lacked the specificity and timeliness that Management
believed was necessary to protect the interests of the Trust, Management filed
complaints of ejectment (eviction) and money damages on March 22, 1996 in the
local jurisdiction to gain control of the premises on the basis that the lease
and May Company's right of possession have been terminated. May Company had
previously submitted the dispute to arbitration, but the Trust is contesting
the availability of that remedy. Although Management believes it has a
meritorious case, the pending status of this matter prevents Management from
being able to determine its ultimate outcome.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
14
<PAGE> 16
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the names and positions of the
executive officers of the Trust. The term of office of each officer expires at
the annual meeting of the Board of Directors or when the respective successor
is elected and qualifies.
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
Phillip E. Stephens President
Gregory R. Greenfield Executive Vice President and Treasurer
William G. Brown, Jr. Vice President and Controller
Scott M. Boggio Vice President
Gary L. Werkheiser Vice President
Linda K. Schear Secretary
</TABLE>
Phillip E. Stephens, age 48, has been Chairman and Chief
Executive Officer of Compass Retail, Inc., a subsidiary of Equitable Real
Estate, since February 1996, and was President and Chief Executive Officer from
January 1992 to January 1996. Mr. Stephens was Executive Vice President of the
Compass Retail division of Equitable Real Estate from January 1990 to December
1991. He has also served as President of ERPM since December 1989. Prior to
that date and since October 1987, he was President of EQK Partners, the
predecessor in interest to ERPM. Prior to that date and since its inception in
September 1983, he was Senior Vice President of EQK Partners. Mr. Stephens is
also a managing trustee of Arbor Property Trust, successor in interest to EQK
Green Acres, L.P.
Gregory R. Greenfield, age 39, has been President and Chief
Operating Officer of Compass Retail, Inc. since February 1996, and was
Executive Vice President and Chief Operating Officer from January 1992 to
January 1996. Mr. Greenfield was Senior Vice President of the Compass Retail
division of Equitable Real Estate from January 1990 to December 1991. He has
also served as Vice President and Treasurer of ERPM since December 1989. Prior
to that date and since November 1988, he was Senior Vice President, General
Counsel and Secretary of EQK Partners. Mr. Greenfield joined EQK Partners in
June 1984. From 1981 to 1984, he was associated with the law firm of Wolf,
Block, Schorr and Solis-Cohen.
William G. Brown, Jr., age 40, has been Executive Vice President
and Chief Financial Officer of Compass Retail, Inc. since February 1996, and
was Senior Vice President and Chief Financial Officer from January 1992 through
January 1996. Mr. Brown was Vice President of the Compass Retail division of
Equitable Real Estate from March 1990 to December 1991. He has also served as
a Vice President of ERPM since March 1990. Prior to that date and since
November 1988, he was Vice President and Chief Financial Officer of Envirosafe
Services, Inc., a hazardous waste management company. Mr. Brown joined
Envirosafe in July 1987. From 1981 to 1987, he held financial management
positions with IU International Corporation, and from 1978 to 1981, he was
associated with the accounting firm of Coopers & Lybrand.
Scott M. Boggio, age 36, has been Senior Vice President of
Compass Retail, Inc. since February 1996, and was Vice President from February
1992 through January
15
<PAGE> 17
1996. Mr. Boggio was Director of Construction and Development of the Compass
Retail division of Equitable Real Estate from January 1990 to January 1992. He
has also served as Assistant Vice President of ERPM since December 1989. Prior
to that date and since February 1989, he was Vice President of Construction and
Planning of EQK Partners. From 1986 until 1988, he was employed by VMS Realty
Management, Inc. as its Northeast Regional Manager. From 1985 to 1986, he was
employed by the Linpro Company in acquisitions and site selection.
Gary L. Werkheiser, age 36, has been Vice President of Asset
Management and Acquisitions of Compass Retail, Inc. since February 1992 and was
Director of Asset Management of Equitable Real Estate from May 1990 to January
1992. Prior to that date and since August of 1986, he was a real estate
analyst for EQK Partners.
Linda K. Schear, age 43, has been Senior Vice President and
General Counsel to Compass Retail, Inc. since February 1995, and was Vice
President and General Counsel from February 1992 to January 1995. Ms. Shear
was General Counsel to the Compass Retail division of Equitable Real Estate
from April 1990 to February 1992. She has also served as Counsel to ERPM and
Vice President of Equitable since April 1990. Prior to that date, she was
first an associate and then a partner with the Atlanta law firm of Merritt &
Tenney, specializing in commercial real estate.
16
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Trust's shares of beneficial interest are traded on the New
York Stock Exchange (symbol EKR). The Trust is listed in the stock tables as
"EQK Rt." As of February 29, 1996, the record number of shareholders of the
Trust was 300. Although the Trust does not know the exact number of beneficial
holders of its shares, it believes the number exceeds 2,000.
The following table presents the high and low prices of the
Trust's shares based on the New York Stock Exchange daily composite
transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Year ended December 31, 1995:
First Quarter $ 2.250 $ 1.625
Second Quarter 2.250 1.500
Third Quarter 2.125 1.375
Fourth Quarter 2.000 1.375
Year ended December 31, 1994:
First Quarter $ 2.750 $ 2.500
Second Quarter 2.500 2.250
Third Quarter 2.500 2.000
Fourth Quarter 2.500 1.750
</TABLE>
There were no distributions to shareholders during 1994 and 1995. It is the
Trust's current policy to reinvest all of its excess cash flow into its
remaining property to fund capital expenditures and leasing costs. The Trust
does not anticipate a change in this policy.
17
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues from rental operations $ 15,761 $ 16,512 $ 18,458 $ 20,900 $ 21,276
Write down of investments in
real estate (a) (3,200) -- -- (4,001) (8,448)
Loss before gain on sales of
real estate and extraordinary loss (6,575) (3,459) (2,351) (9,993) (15,224)
Gain on sales of real estate (b) 229 -- 282 1,143 248
Loss before extraordinary loss (6,346) (3,459) (2,069) (8,850) (14,976)
Extraordinary loss from early
retirement of debt -- -- (1,711) -- --
Net loss (6,346) (3,459) (3,780) (8,850) (14,976)
Total assets 48,209 90,258 93,163 103,690 124,051
Long-term obligations:
Mortgage notes payable, net of
imputed interest and discount 45,712 80,032 78,727 86,713 9,022
Zero coupon mortgage notes,
net of unamortized discount -- -- -- -- 84,910
Per share data (c):
Loss per share:
Loss before gain on sales of
real estate and extraordinary
loss $ (0.71) $ (0.37) $ (0.25) $ (1.31) $ (2.00)
Loss before extraordinary loss (0.68) (0.37) (0.22) (1.16) (1.97)
Net loss (0.68) (0.37) (0.41) (1.16) (1.97)
Dividends declared -- -- -- -- --
</TABLE>
- ------------------
(a) The Trust classifies all of its properties as being held for sale.
Therefore, to the extent that the net cost investment in any property
exceeds its current market value, an allowance is recorded to adjust
the net investment to net realizable value. In 1995, the Trust
recorded a $3,200,000 write-down to adjust its investment in Castleton
to net realizable value. In 1992, the Trust recorded a write-down of
$4,001,000 to adjust its investment in Castleton to net realizable
value. In 1991, the Trust recorded a $8,448,000 adjustment to reflect
its investment in Castleton and Peachtree Dunwoody Pavilion to net
realizable value.
(b) In 1995, the Trust sold Castleton Park and recognized a gain on the
sale of $229,000. In 1993, the Trust sold its remaining two buildings
at Peachtree Dunwoody Pavilion and recognized a gain on the sale of
$282,000. In 1992, the Trust sold five buildings at Peachtree Dunwoody
Pavilion and recognized a gain on the sale of $1,143,000. In 1991,
the Trust sold two buildings at Castleton Park and recognized a gain
on the sale of $248,000.
(c) Calculation is based on 9,264,344 weighted average shares outstanding
during 1995, 1994 and 1993; 7,653,415 weighted average shares
outstanding during 1992; and 7,589,344 weighted average shares
outstanding during 1991.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This discussion should be read in conjunction with the
financial statements and notes that appear immediately following the Signatures
page.
18
<PAGE> 20
FINANCIAL CONDITION
CAPITAL RESOURCES
Background
The Trust was formed pursuant to a Declaration of Trust dated
October 8, 1984 to acquire certain income-producing real estate investments.
On March 13, 1985, the Trust acquired Harrisburg East Mall ("Harrisburg" or the
"Mall"), a regional shopping mall located in Harrisburg, Pennsylvania;
Castleton Park ("Castleton"), an office park located in Indianapolis, Indiana;
and Peachtree Dunwoody Pavilion ("Peachtree"), an office park located in
Atlanta, Georgia. The Trust initially intended to hold its real estate
investments for a period not to exceed 12 years from the date of acquisition
and, after the twelfth year, to dispose of any remaining investments in an
orderly fashion to achieve a complete liquidation of the Trust by March 1999.
As of December 31, 1995, the Trust has completed the
disposition of two of its three real estate investments. The office buildings
comprising Peachtree were sold in three separate transactions during the period
1992 to 1993. Two of the office buildings at Castleton were sold in 1991. The
remaining 44 office buildings at Castleton were sold on December 8, 1995 (see
discussion below). The Trust intends to dispose of its remaining real estate
investment, Harrisburg, prior to March 1999, depending upon the prevailing
conditions in the relevant real estate market and subject to the ability of the
Trust to extend or refinance its mortgage debt that matures on December 15,
1996 (see discussion below).
Sale of Castleton and Partial Repayment of Debt
On December 8, 1995, the Trust completed the sale of its
remaining 44 buildings at Castleton for $38,507,000, net of closing costs and
other transaction expenses. After deductions for customary prorations, the net
proceeds of $35,990,000 were used to partially retire $34,738,000 of its
Mortgage Notes and $1,252,000 of its Term Loans (see Note 2 to the financial
statements).
One of the conditions of the sale was the establishment of a
$277,000 escrow account related to certain tenant performance and office space
buildout issues. The Trust believes that it will meet the conditions for the
release of such funds, and in accordance with the escrow agreement, anticipates
that it will receive such funds in the fourth quarter of 1996.
As discussed in Note 3 to the financial statements, the
carrying values of the Trust's investments in real estate, which are stated at
the lower of cost or market, have been determined in conjunction with
independent appraisals, but ultimately may differ from such indications of
market value as determined through negotiations with prospective buyers. In
contemplation of completing the sale of Castleton, Management wrote down its
investment in Castleton by $3,200,000 during the third quarter of 1995 to its
then current estimate of net realizable value. The $229,000 gain on sale of
Castleton recognized during the fourth quarter of 1995 took into consideration
such write-down as well as earlier write-downs aggregating $19,565,000
reflected during the period 1990 to 1994.
19
<PAGE> 21
Mortgage Debt Extensions
Following the completion of the sale of Castleton and the
partial repayment of its mortgage debt, the Trust extended the maturity dates
on its Mortgage Note (remaining balance, $44,125,000) and its Term Loan
(remaining balance, $1,587,000) for a period of one year. The terms of such
debt facilities pursuant to the extensions are substantially unchanged from the
terms in effect since the original issuance date, December 15, 1992, except as
described below. The Mortgage Note remains collateralized by a first mortgage
lien on Harrisburg, an assignment of leases and rents, and certain cash
balances. The Term Loan is collateralized by a subordinate lien on Harrisburg.
The Mortgage Note now accrues interest at the pay rate of 8.54%, which reflects
a decrease from the average accrual rate of 9.79% per annum in effect during
the initial three year term of the debt. The extended Mortgage Note agreement
requires monthly payments of $340,000, of which $314,000 represents interest
accrued at 8.54%. The differential, which represents amortization of
principal, will result in a balance at maturity of $43,794,000. The Term Loan
still reflects the same pay rate of 8.54% that is applicable to the Mortgage
Note, but now bears interest at an accrual rate that re-sets periodically and
is computed at the Trust's discretion at either 2 5/8% above the Euro-Rate (as
defined) or 1 1/8% above the Prime Rate (as defined). The accrual rate in
effect for the period January 5, 1996 through April 7, 1996 is 8.25%. Prior to
its refinancing, the Term Loan bore interest at 8.33%. The differential
between the accrual rate and the pay rate of 8.54% will be added or subtracted
to the principal balance due at maturity. In connection with the Term Loan
extension, the lender consented to the release of a $300,000 escrow deposit
that had been required as a condition of the debt origination in December 1992.
In the event that the Trust does not sell Harrisburg during
1996 (see discussion below), Management continues to explore its external
financing alternatives, including the refinancing of its debt with the existing
lenders, in anticipation of the maturity of Mortgage Note and the Term Loan on
December 15, 1996. Based on its current assessment of the credit markets,
Management believes that it can refinance its existing debt, and that such new
facility will be in place on or before the maturity date of the existing debt.
However, if the Trust is unable to refinance or replace the existing debt at
commercially reasonable terms or at all, Management's plans with respect to
liquidating Harrisburg will be accelerated to satisfy its debt obligations.
Harrisburg East Mall
As previously discussed, the Trust is currently holding
Harrisburg for sale, and intends to complete the disposition of this remaining
investment prior to March 1999, depending upon the prevailing conditions in the
relevant real estate market and subject to its ability to extend or refinance
its maturing mortgage debt.
Although it would be desirable to sell Harrisburg during 1996
and thus avoid the costs associated with extending or refinancing its mortgage
debt maturing in December 1996, Management is concerned that completing such a
sale prior to the identification of a replacement retailer to operate in the
former John Wanamaker department store location could result in sales proceeds
less than that which Management estimates could be obtained if the property was
valued on a more stabilized basis. As discussed in Note 9 to the financial
statements, May Department Stores Company ("May Company") acquired
20
<PAGE> 22
from Woodward & Lothrop the leasehold interest in the John Wanamaker
department store at Harrisburg in an August 1995 bankruptcy court auction.
Since it already operates a Hecht's department store at Harrisburg, May Company
indicated that it would pursue an assignment of the John Wanamaker leasehold
interest to another department store retailer.
On October 9, 1995, the John Wanamaker store ceased
operations. This anchor store location is subject to a continuous operating
covenant set forth in the applicable lease agreement, but no assignment has
occurred to date and the store remains dark, although May Company continues to
make rental payments in accordance with its lease agreement. On October 11,
1995, Management notified May Company of its violation of the lease, and of
its intentions to exercise its remedies provided for under such lease,
including the right to terminate the lease and regain possession of the
premises, if a Trust-approved retailer did not open within the specified cure
period. Management granted three extensions to the cure period (without
waiving the Trust's default remedies provided for in the lease agreement) to
allow May Company additional time to identify a replacement retailer. However,
upon concluding that May Company's actions and plans with respect to
identifying a replacement retailer lacked the specificity and timeliness that
Management believed was necessary to protect the interests of the Trust,
Management filed complaints of ejectment (eviction) and money damages on March
22, 1996 in the local jurisdiction to gain control of the premises on the
basis that the lease and May Company's right of possession have been
terminated. May Company had previously submitted the dispute to arbitration,
but the Trust is contesting the availability of that remedy. Although
Management believes it has a meritorious case, the pending status of this
matter prevents Management from being able to determine the ultimate outcome.
Despite Management's belief that the filing of this complaint
will accelerate the resolution of this matter, Management believes it is likely
that the former John Wanamaker department store space will remain vacant for a
substantial portion, if not all, of 1996. Until a replacement department store
opens in the John Wanamaker location, certain tenants will be permitted,
pursuant to co-tenancy provisions provided for in their leases, to pay
percentage rent in lieu of fixed minimum rentals. Based on the current sales
volumes of these tenants, the reduction in rental revenues from amounts that
otherwise would have been earned is estimated to be approximately $115,000 per
quarter for such time in the future as the Wanamaker store location remains
vacant. In addition to having a deleterious effect on Management's efforts to
sell Harrisburg and on the property's ability to collect the full amount of
rents provided under certain existing tenants' leases, the department store
vacancy will likely to continue to have a negative impact on the property
manager's ability to attract new tenants under lease terms that otherwise could
be achieved if the property had three department stores open and operating.
While Harrisburg is held for sale, the Trust will make certain
capital expenditures to maintain or enhance the value of the property,
including tenant allowances associated with leasing activity. The Trust
anticipates making 1996 capital expenditures of $900,000, which includes
budgeted tenant allowances of $550,000 and roof and parking lot repairs of
$290,000. Certain of these expenditures are discretionary in nature and
therefore may be deferred into future periods.
One of the conditions of the Mortgage Note was the
establishment of a capital reserve account, which is maintained by a
third-party escrow agent and from which
21
<PAGE> 23
expenditures must be approved by the lender. The cash balance of the Trust's
capital reserve account at December 31, 1995 was $2,083,000. Management
believes the current cash balance in this account will be sufficient to fund
Harrisburg's routine capital expenditure requirements.
LIQUIDITY
The comparability of the Statements of Cash Flows during 1993
to 1995 is affected by the property dispositions and debt repayments that
occurred during this time period.
During 1995, the Trust generated cash flows from operating
activity of $1,123,000, a decline of $1,061,000 from the prior year's operating
cash flows of $2,184,000. The decline was primarily attributable to the
accelerated payment of $1,425,000 of Castleton's real estate taxes in
connection with sale of the property in December, and a $619,000 decrease in
rental revenues for Harrisburg as described below. This decline in operating
cash flow was partially offset by a $400,000 real estate tax refund and a
reduction in operating expenses for Castleton and Harrisburg which are also
described below.
The Trust's 1994 cash flow provided by operating activities
declined $1,903,000 compared to 1993. The decline was attributable to the loss
of Peachtree's contribution to operating cash flows in 1994 upon its 1993
sale, an increase in Castleton's operating costs, higher collections of 1993
Harrisburg tenant receivables related to the prior year, and the timing of
payment of certain recurring operational expenses. This decline was partially
offset by a $693,000 decrease in interest paid resulting from the 1993
retirement of the Harrisburg mortgage notes.
During 1995, cash flow from investing activities increased
$36,337,000 over the prior year, while cash consumed in financing activities
increased $35,990,000 over the prior year. Cash flow from investing activities
for 1995 of $38,507,000 was generated from the disposition of Castleton, which
was partially offset by the investment in the Harrisburg outparcel building
renovation. The related net proceeds from the sale of Castleton were used to
paydown the mortgage note and term loan which accounts for the increase in cash
used in financing activities. In addition to the capital expenditure
requirements described above, liquidity requirements for 1996 will also include
principal and interest payments of $4,224,000 pursuant to existing loan
agreements. These loan agreements mature on December 15, 1996; the principal
balance at maturity will be approximately $45,381,000.
During 1993 the Trust generated cash flow of $5,542,000 from
investing activities and consumed cash in financing activities of $10,478,000.
The cash flows from investing activities were generated from dispositions of
real estate. The related net proceeds were used to prepay and retire debt
instruments that were then outstanding. Cash flows used in investing
activities in 1994 primarily were for routine capital additions at the
Properties.
As a result of the difficult economic climate facing retailers
across the country, the parent companies of certain national tenants have had
to give consideration to, and in certain situations implemented, plans of
reorganization, including filing for protection under
22
<PAGE> 24
the U.S. Bankruptcy Code. Certain of these tenants lease space at Harrisburg.
Based on (i) the bankruptcy filings of certain national retailers, (ii)
unanticipated closings of other financially-troubled retailers, and (iii) rent
relief requests from certain additional tenants, Management believes that
approximately $250,000 in minimum rents earned in 1995 may not be achieved in
1996. These problems have been exacerbated by the currently vacant department
store which, as discussed above, is likely to result in a further reduction in
minimum rents that otherwise would have been earned as a result of certain
tenants exercising co-tenancy provisions pursuant to their leases.
The Trust's cash management agreement stipulates that all
rental payments from tenants are to be made directly to a third party escrow
agent who also funds monthly operating expenses in accordance with a budget
approved by the lender. The Trust believes that its cash flow for 1996 will be
sufficient to fund its various operating requirements, including budgeted
capital expenditures and monthly principal and interest payments, although its
discretion with respect to cash flow management will be limited by the terms of
the cash management agreement. Despite the anticipated reductions in revenues
discussed in the previous paragraph, Management believes that the Trust's
current cash reserves, coupled with additional cash flow projected to be
generated from operations, will permit the Trust to meet its operating,
capital and debt service requirements.
As discussed above and in Note 1 to the financial statements,
the Trust records its investments in real estate in accordance with the
historical cost accounting convention. Accordingly, the Trust has not written
up the cost basis of its investment in Harrisburg to its substantially higher
net realizable value. Therefore, Management does not believe that its deficit
in shareholders' equity of $1,533,000 at December 31, 1995 is indicative of its
current liquidity or the net distribution that its shareholders will receive
upon liquidation.
RESULTS OF OPERATIONS
For the year ended December 31, 1995, the Trust reported a net
loss of $6,346,000 ($.68 per share) compared to net losses of $3,459,000 ($.37
per share) and $3,780,000 ($.41 per share) for the years ended December 31,
1994 and 1993, respectively. The current year results include a write-down of
the investment in Castleton of $3,200,000 ($.35 per share). For the quarter
ended December 31, 1995, the Trust reported a net loss of $526,000 ($.06 per
share), compared to a net loss of $1,290,000 ($.14 per share) for the quarter
ended December 31, 1994. During the fourth quarter of 1995, the Trust
recognized a $229,000 gain on the sale of Castleton. The 1994 annual period was
impacted by a fourth quarter write-off of $429,000 of capitalized
pre-development costs, while the 1993 annual period was impacted by the fourth
quarter recognition of a $282,000 gain on the sale of real estate, and a
$1,711,000 extraordinary charge for early retirement of debt.
The Trust's revenues for the fourth quarter and year ended
December 31, 1995 were $3,692,000 and $15,761,000, respectively, which
represented a decline from 1994 amounts of $4,193,000 and $16,512,000,
respectively. The annual decline is primarily attributable to a decrease in
rental revenue of $584,000 for Harrisburg, which in
23
<PAGE> 25
turn is primarily the result of rental reductions pursuant to cotenancy
provisions of certain tenant leases relating to department store vacancies.
Such cotenancy provisions first became applicable upon the closure of Hess's
Department Store in November 1994. Hess's replacement, Hecht's, re-opened in
October 1995. These cotenancy provisions continued to be operable upon the
October 1995 closure of John Wanamakers (as discussed above). The decrease in
Harrisburg rental revenues is also attributable to the partial year vacancy of
the outparcel building during its renovation in 1995, and lower net utility
income due to an increase in maintenance expenses. The fourth quarter decline
is primarily due to the sale of Castleton on December 8 1995, and the proration
of December rents with the new owner.
Revenue from rental operations of $16,512,000 during 1994
declined from $18,458,000 during 1993, primarily due to the December 1993 sale
of the remaining buildings at Peachtree, which had accounted for 1993 revenues
of $2,164,000. The decline in annual revenues for 1994 was partially offset
by the receipt of certain insurance recoveries and higher income from temporary
tenant leasing at Harrisburg. Revenues at Castleton were comparable between
1994 and 1993.
Operating expenses for the fourth quarter and year ended
December 31, 1995 were $1,282,000 and $5,403,000, respectively, which also
declined from the related 1994 amounts of $1,527,000 and $5,836,000
respectively. The fourth quarter and annual declines were attributable to
lower operating expenses for both Harrisburg and Castleton. At Castleton,
operating expenses decreased due to a reduction in repairs and maintenance
expenses and a reduction in real estate tax expense resulting from both a
valuation reassessment and the proration of real estate tax expense effective
with the December 8, 1995 sale. These declines were partially offset by an
increase in security costs. Harrisburg's operating expenses decreased in 1995
due to unexpected recoveries of previously recognized bad debts and reductions
in legal and consulting costs.
Operating expenses for the year ended December 31, 1994 were
$5,836,000, which declined from the 1993 amount of $6,384,000. The declines
were primarily attributable to the sale of certain buildings at Peachtree in
1993, which had accounted for 1993 operating expenses of $1,342,000. The
decline was partially offset by increases in net operating expenses at both
Harrisburg and Castleton. At Harrisburg, 1994 operating expenses exceeded
1993 amounts due to higher snow removal costs and to increases in temporary
tenant leasing costs and bad debt expense. Castleton's annual net operating
costs were higher due to operating expenses coupled with a decline in tenant
reimbursements, and to one-time repairs to street lighting.
Interest expense for the years ended December 31, 1995, 1994,
and 1993 was $8,302,000, $8,132,000, and $8,706,000, respectively. The increase
in interest expense in 1995 as compared to 1994 is due to an increase in the
Mortgage Note principal balance from accrued but not currently payable
interest and the amortization of non-cash expense arising from the issuance of
warrants to the lender. The decrease in interest expense in 1994 as compared to
1993 was due primarily to the retirement of the Harrisburg mortgage notes,
which accounted for $1,150,000 of interest expense in 1993. This decrease was
partially offset by an increase in interest expense also due to an increase in
the Mortgage Note principal balance from accrued but not currently payable
interest and the amortization of non-cash expense arising from the issuance of
warrants to the lender.
24
<PAGE> 26
Other expenses consist of portfolio management fees, other
costs related to the operation of the Trust, and interest income earned on cash
balances. There was no significant fluctuation in other expenses between 1995
and 1994. In the aggregate, there was no significant fluctuation in other
expenses between 1994 and 1993. However, in 1994 there was a decrease in
interest income and an increase in administrative costs related to efforts to
sell Harrisburg that were largely offset by decreases in portfolio management
and other professional fees associated with reductions in the Trust's real
estate holdings over the past two years.
As discussed in the liquidity section above, Management
believes that its existing cash reserves and its anticipated cash flow
generated from operations will be sufficient to meet its capital and debt
service requirements. However, due to the effects of non-cash accounting
adjustments (principally depreciation and amortization), Management anticipates
that the Trust will continue to incur net losses.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Registrant's financial statements and supplementary data
listed in Item 14(a) appear immediately following the signatures page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
25
<PAGE> 27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated by reference to the Trust's Proxy Statement
relating to its 1996 Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference to the Trust's Proxy Statement
relating to its 1996 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Incorporated by reference to the Trust's Proxy Statement
relating to its 1996 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference to the Trust's Proxy Statement
relating to its 1996 Annual Meeting of Shareholders.
26
<PAGE> 28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
(a) The following documents are filed as part of this
report:
1. Financial Statements
--------------------
Balance Sheets at December 31, 1995 and 1994
Statements of Operations for the years ended
December 31, 1995, 1994 and 1993
Statements of Shareholders' Equity
for the years ended December 31, 1995,
1994 and 1993
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
Notes to financial statements, including
supplementary data
2. Financial Statement Schedule
----------------------------
Schedule III: Real Estate and Accumulated
Depreciation
Independent Auditors' Report
All other schedules are omitted as the required
information is inapplicable or the information
is presented in the financial statements, or the
related notes thereto.
3. Exhibits
--------
(2) None.
(3) (a) Form of Amended and Restated
Declaration of Trust, as amended.(2)
(b) Trustees' Regulations, as amended.(2)
(4) Form of certificate for Shares of
Beneficial Interest.(1)
(9) None.
(10) (a) Form of Advisory Agreement between
the Registrant and EQK Partners.(1)
(e) Property management agreement
between Salomon Brothers Peachtree
Properties Inc. and Equitable Real
Estate Investment Management, Inc.
with respect to Peachtree-Dunwoody
Pavilion.(1)
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
(f) Form of property management
agreement between the Registrant
and Castleway Management Corp.
with respect to Castleton
Commercial Park.(1)
(k) Mortgage encumbering Harrisburg
East Mall in favor of Continental
Assurance Company and related
documents.(1)
(m) Mortgage encumbering Harrisburg
East Mall in favor of The
Philadelphia Savings Fund Society
and related documents.(1)
(n) Amended and Restated Zero Coupon
Mortgage Note due December 1992 in
the principal amount of $45,000,000.(1)
(o) Mortgage encumbering Harrisburg East
Mall in favor of Salomon Brothers
Realty Corp.(2)
(p) Mortgages encumbering Peachtree-Dunwoody
Pavilion in favor of Salomon Brothers Realty Corp.(2)
(q) Mortgages encumbering Castleton
Commercial Park in favor of Salomon
Brothers Realty Corp.(2)
(r) Zero Coupon Mortgage Note due
December 1992 in the principal
amount of $5,000,000.(3)
(s) Form of Amendments dated February 4,
1988 to Exhibits 10(o), 10(p) and 10(q).(3)
(t) Form of Mortgages securing 10(r).(3)
(u) First Amendment to Advisory Agreement
dated as of December 31, 1989.(4)
(v) Form of property management
agreement between Registrant and
Compass Retail, a division of
Equitable Real Estate Investment
Management, Inc.(5)
(w) Agreement of sale dated June 25, 1991
between McCready and Keene, Inc.
and the Registrant.(6)
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
(x) Agreement for release of collateral between
The Prudential Insurance Company of America
and the Registrant dated August 30, 1991.(6)
(y) Agreement of sale dated September 23, 1991
between the Wesleyan Church Corporation
and the Registrant.(6)
(z) Agreement of sale dated June 24, 1992
between Computer Generation Incorporated
and the Registrant.(7)
(aa) Purchase and Sale Agreement dated
October 21, 1992 between Minneapolis
Investment Associates L.P. and the Registrant(7)
(bb) Second Amended and Restated Note
dated as of December 16, 1992 from the
Registrant to The Prudential Insurance
Company of America(7)
(cc) Cash Management and Security Agreement
dated as of December 15, 1992, among
the Registrant, The Prudential Insurance
Company of America and First Union
National Bank of Georgia(7)
(dd) Amended and Restated Deed to Secure
Debt and Security Agreement (Peachtree)
dated as of December 16, 1992 by Successor
Trustees of the Registrant as Debtor in
favor of The Prudential Insurance Company
of America as Secured Party(7)
(ee) Amended and Restated Open-End Mortgage
and Security Agreement (Harrisburg) dated
as of December 15, 1992 by Successor
Trustees of the Registrant as Debtor in
favor of The Prudential Insurance Company
of America as Secured Party(7)
(ff) Amended and Restated Mortgage and Security
Agreement (Castleton) dated as of December 15,
1992 by the Registrant as Debtor in favor of
The Prudential Insurance Company of
America as Secured Party(7)
</TABLE>
29
<PAGE> 31
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
(gg) Absolute Assignment of Leases and Rents
and Rental Collection Agreement
(Peachtree) dated as of December 16,
1992 among Successor Trustees of the
Registrant as Assignor, The Prudential
Insurance Company of America as
Assignee and First Union National Bank
of Georgia as Rental Collection Agent(7)
(hh) Absolute Assignment of Leases and Rents
and Rental Collection Agreement
(Harrisburg) dated as of December 16,
1992 among Successor Trustees of the
Registrant as Assignor, The Prudential
Insurance Company of America as
Assignee and First Union National Bank
of Georgia as Rental Collection Agent(7)
(ii) Absolute Assignment of Leases and Rents
and Rental Collection Agreement (Castleton)
dated as of December 15, 1992 among
the Registrant as Assignor, The Prudential
Insurance Company of America as Assignee
and First Union National Bank of Georgia
as Rental Collection Agent(7)
(jj) Warrant Agreement dated as of December 18,
1992 between the Registrant and
The Prudential Insurance Company of America(7)
(kk) Subordination and Intercreditor Agreement
dated as of December 16, 1992
among Provident National Bank,
The Prudential Insurance Company of America
and the Registrant(7)
(ll) Second Amended and Restated Loan
Agreement dated as of December 16,
1992 from the Registrant to
Provident National Bank(7)
(mm) Amended and Restated Note dated as of
December 16, 1992 from the
Registrant to Provident National Bank(7)
(nn) Mortgage and Security Agreement (Castleton)
dated as of December 16, 1992 between
the Registrant and Provident National Bank(7)
(oo) Deed to Secure Debt and Security
Agreement (Peachtree) dated as of
December 16, 1992 between the
Registrant and Provident National Bank(7)
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
(pp) Open-End Mortgage and Security
Agreement (Harrisburg) dated as of
December 16, 1992 between the
Registrant and Provident National Bank(7)
(qq) Assignment of Lessor's Interest in Leases
(Castleton) dated as of December 16,
1992 between the Registrant and
Provident National Bank(7)
(rr) Assignment of Lessor's Interest in Leases
(Peachtree) dated as of December 16,
1992 between the Registrant and
Provident National Bank(7)
(ss) Assignment of Lessor's Interest in Leases
(Harrisburg) dated as of December 16,
1992 between the Registrant and
Provident National Bank(7)
(tt) Assignment of Cash Collateral Account
and Security Agreement dated as of
December 16, 1992 between the
Registrant and Provident National Bank(7)
(uu) Purchase and Sale Agreement dated
July 6, 1993 between Lawrence E.
Cooper and the Registrant(8)
(vv) Amendment dated October 1, 1993
to Exhibit 10(cc)(8)
(ww) Amendment dated December 3, 1993
to Exhibits 10(ll) and 10(mm)(8)
(xx) Purchase Agreement for Real Property and
Escrow Instructions (9)
(yy) Note, Mortgage, and Modification agreement
dated December 15, 1995 between the
Registrant and The Prudential
Insurance Company of America
(zz) Mutual Estoppel and Modification Agreement
dated December 15, 1995 between the
Registrant and The Prudential Insurance
Company of America
(aaa) Amended Mutual Estoppel and Modification
Agreement dated December 15, 1995
between the Registrant, PNC Bank, National
Association and The Prudential Insurance
Company of America
(bbb) Extension and Partial Paydown of loan from
PNC Bank National Association, dated
December 15, 1995 to EQK Investors I
(11) See Note 1 to the Financial Statements.
(12) Inapplicable.
</TABLE>
31
<PAGE> 33
(13) Inapplicable.
(16) None.
(18) None.
(21) None.
(22) None.
(23) None.
(24) None.
(27) Included in EDGAR transmission only.
(28) None.
(b) Reports on Form 8-K
Report on Form 8-K dated November 22, 1995 regarding the sale of
Castleton Park.
Report on Form 8-K dated December 8, 1995 regarding the sale of
Castleton Park.
(c) See paragraph (a) 3. above
(d) See paragraph (a) 2. above
- -------------------------
(1) Incorporated herein by reference to exhibit filed with
Registrant's Registration Statement on Form S- 11, File No.
2-93936.
(2) Incorporated herein by reference to exhibit filed with
Registrant's Form 10-K dated for fiscal year ended December
31, 1985.
(3) Incorporated herein by reference to exhibit filed with
Registrant's Form 10-K dated for fiscal year ended December
31, 1987.
(4) Incorporated herein by reference to exhibit filed with
Registrant's Form 10-K for fiscal year ended December 31,
1989.
(5) Incorporated herein by reference to exhibit filed with
Registrant's Form 10-K for fiscal year ended December 31,
1990.
(6) Incorporated herein by reference to exhibit filed with
Registrant's Form 10-K for fiscal year ended December 31,
1991.
(7) Incorporated herein by reference to exhibit filed with
Registrant's Form 10-K for fiscal year ended December 31,
1992.
(8) Incorporated herein by reference to exhibit filed with
Registrant's Form 10-K for fiscal year ended December 31,
1993.
(9) Incorporated herein by reference to exhibit filed with
Registrant's Form 8-K dated November 22, 1995.
32
<PAGE> 34
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, on the 28th day of
March, 1996.
EQK Realty Investors I
By: /s/Phillip E. Stephens
--------------------------------
Phillip E. Stephens
President and Trustee
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on March 28, 1996 by the following persons on
behalf of the Registrant and in the capacities indicated.
<TABLE>
<CAPTION>
Signatures Title
- ---------- -----
<S> <C>
/s/Phillip E. Stephens President (Principal Executive
- ------------------------------- Officer) and Trustee
Phillip E. Stephens
/s/Gregory R. Greenfield Executive Vice President and Treasurer
- ------------------------------- (Principal Financial Officer)
Gregory R. Greenfield
/s/William G. Brown, Jr. Vice President and Controller
- -------------------------------
William G. Brown, Jr.
/s/Sylvan M. Cohen Trustee
- -------------------------------
Sylvan M. Cohen
/s/Alton G. Marshall Trustee
- -------------------------------
Alton G. Marshall
/s/George R. Peacock Trustee
- -------------------------------
George R. Peacock
/s/Robert C. Robb, Jr. Trustee
- -------------------------------
Robert C. Robb, Jr.
</TABLE>
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
Board of Trustees and Shareholders
EQK Realty Investors I:
We have audited the accompanying balance sheets of EQK Realty Investors I (a
Massachusetts business trust) as of December 31, 1995 and 1994 and the related
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. Our audits also included the
financial statement schedule listed in the Index at Item 14. These financial
statements and the financial statement schedule are the responsibility of the
Trust's management. Our responsibility is to express an opinion on the financial
statements and financial statement schedule 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, such financial statements present fairly, in all material
respects, the financial position of EQK Realty Investors I as of December 31,
1995 and 1994 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements, presents fairly, in all material respects, the information set forth
therein.
As discussed in Note 2 to the financial statements, the Trust's existing
mortgage note and its term loan mature on December 15, 1996. Management's plans
with regard to the maturity of the mortgage note and term loan are also
described in Note 2.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 8, 1996
<PAGE> 36
EQK REALTY INVESTORS I
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
----------- ------------
<S> <C> <C>
ASSETS
Investments in real estate held for sale, at lower of cost
or net realizable value:
Harrisburg East Mall $ 52,033 $ 47,819
Castleton Park, net of valuation allowance of $19,565 -- 61,706
----------- ------------
52,033 109,525
Less accumulated depreciation 13,446 31,793
----------- ------------
38,587 77,732
Cash and cash equivalents:
Cash Management Agreement 2,972 3,734
Other -- 967
Accounts receivable and other assets 6,650 7,825
----------- ------------
TOTAL ASSETS $ 48,209 $ 90,258
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Liabilities:
Mortgage note payable, net of debt discount of $413 in 1994 $ 44,125 $ 77,186
Term loan payable to bank 1,587 2,846
Accounts payable and other liabilities (including amounts due
affiliates of $2,765 and $ 2,475, respectively) 4,030 5,413
----------- ------------
49,742 85,445
Shareholders' equity (deficit):
Shares of beneficial interest, without par value: 10,055,555 shares
authorized, 9,264,344 shares issued and outstanding 135,875 135,875
Accumulated deficit (137,408) (131,062)
----------- ------------
(1,533) 4,813
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 48,209 $ 90,258
=========== ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE> 37
EQK REALTY INVESTORS I
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Years ended December 31,
1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues from rental operations $15,761 $16,512 $18,458
Operating expenses, net of tenant
reimbursements (including property management
fees earned by an affiliate of $291, $314 and
$306, respectively) 5,403 5,836 6,384
Depreciation and amortization 4,848 4,612 4,761
Real estate tax refund (400) -- --
Write-off of capitalized predevelopment costs -- 429 --
Write-down of investment in real estate 3,200 -- --
- --------------------------------------------------------------------------------------------
Income from rental operations 2,710 5,635 7,313
Interest expense 8,302 8,132 8,706
Other expenses, net of interest income
(including portfolio management fees earned by
an affiliate of $403, $430 and $481, respectively) 983 962 958
- --------------------------------------------------------------------------------------------
Loss before gain on sales of real estate and
extraordinary loss (6,575) (3,459) (2,351)
Gain on sales of real estate 229 -- 282
- --------------------------------------------------------------------------------------------
Loss before extraordinary loss (6,346) (3,459) (2,069)
Extraordinary loss from early retirement of debt -- -- (1,711)
- --------------------------------------------------------------------------------------------
Net loss ($6,346) ($3,459) ($3,780)
============================================================================================
Loss per share:
Loss before gain on sales of real estate
and extraordinary loss ($0.71) ($0.37) ($0.25)
Gain on sales of real estate 0.03 -- 0.03
- --------------------------------------------------------------------------------------------
Loss before extraordinary loss (0.68) (0.37) (0.22)
Extraordinary loss from early retirement of debt -- -- (0.19)
- --------------------------------------------------------------------------------------------
Net loss ($0.68) ($0.37) ($0.41)
============================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE> 38
EQK REALTY INVESTORS I
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Shares of
Beneficial Accumulated
Interest Deficit Total
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1992 $135,382 ($123,823) $11,559
Net loss -- (3,780) (3,780)
Issuance of 151,556 warrants in
connection with financing 397 -- 397
- ----------------------------------------------------------------------
Balance, December 31, 1993 135,779 (127,603) 8,176
- ----------------------------------------------------------------------
Net loss -- (3,459) (3,459)
Issuance of 51,226 warrants in
connection with financing 96 -- 96
- ----------------------------------------------------------------------
Balance, December 31, 1994 135,875 (131,062) 4,813
- ----------------------------------------------------------------------
Net Loss -- (6,346) (6,346)
BALANCE, DECEMBER 31, 1995 $135,875 ($137,408) ($1,533)
======================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE> 39
EQK REALTY INVESTORS I
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Years ended December 31,
1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($6,346) ($3,459) ($3,780)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Extraordinary loss from early retirement of debt -- -- 1,711
Write-down of investment in real estate 3,200 -- --
Depreciation and amortization 4,848 4,612 4,761
Amortization of debt discount 460 334 139
Imputed and deferred interest 1,494 1,320 1,295
Gain on sales of real estate (229) -- (282)
Changes in assets and liabilities:
Decrease in accounts
payable and other liabilities (1,661) (388) (119)
Increase (decrease) in accounts receivable
and other assets (643) (235) 362
- ---------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,123 2,184 4,087
- ---------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sales of real estate 38,507 -- 10,768
Additions to real estate investments (5,362) (2,976) (5,226)
Payment of real estate disposition fee -- (216) --
- ---------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 33,145 (3,192) 5,542
- ---------------------------------------------------------------------------------------------
Cash flows from financing activities:
Scheduled repayments of debt (7) (7) (852)
Repayments of debt due to sales of properties (35,990) -- (9,626)
- ---------------------------------------------------------------------------------------------
Net cash used in financing activities (35,997) (7) (10,478)
- ---------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (1,729) (1,015) (849)
Cash and cash equivalents
beginning of year 4,701 5,716 6,565
- ---------------------------------------------------------------------------------------------
Cash and cash equivalents
end of year $2,972 $4,701 $5,716
=============================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE> 40
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS:
EQK Realty Investors I, a Massachusetts business trust (the "Trust"),
was formed pursuant to a Declaration of Trust dated October 8, 1984 to acquire
certain income-producing real estate investments. Commencing with the period
beginning April 1, 1985, the Trust qualified for and elected real estate
investment trust ("REIT") status under the provisions of the Internal Revenue
Code.
At December 31, 1995, the Trust's remaining real estate investment is
Harrisburg East Mall ("Harrisburg" or the "Mall"), a regional shopping center
in Harrisburg, Pennsylvania. On December 8, 1995, the Trust sold its interest
in Castleton Park ("Castleton"), an office park in Indianapolis, Indiana (see
Note 3). During 1993, the Trust sold its two remaining office buildings within
its office complex located in Atlanta, Georgia, formerly known as Peachtree-
Dunwoody Pavilion or "Peachtree" (see Note 3). Prior to 1993, the Trust
completed the sale of two office buildings at Castleton (1991) and five office
buildings at Peachtree (1992).
The Declaration of Trust established the Trust as a finite life REIT
with an investment holding period of up to 12 years, after which it is required
to dispose of its assets in an orderly fashion within two years. The Trust's
management is currently pursuing the sale of Harrisburg.
CAPITALIZATION, DEPRECIATION AND AMORTIZATION:
Property additions are recorded at cost. Costs directly associated
with major renovations and improvements, including interest on funds borrowed
to finance construction, are capitalized to the point of substantial
completion.
Depreciation of real estate investments is provided on a straight-line
basis over the estimated useful lives of the related assets, ranging generally
from 5 to 40 years. Tenant improvements are amortized over their estimated
useful lives, which do not exceed the terms of the respective tenant leases.
Intangible assets are amortized on a straight-line basis over their estimated
useful lives.
OTHER ASSETS:
Other assets primarily consist of deferred leasing costs. Costs
incurred in connection with the execution of a new lease including leasing
commissions, costs associated with the acquisition or buyout of existing
leases, and legal fees are deferred and amortized over the term of the new
lease. At December 31, 1995 and 1994, deferred leasing costs, net of
accumulated amortization, amounted to $4,331,000 and $4,816,000, respectively.
Included in deferred leasing costs is a 1990 payment of $5,500,000 made to an
anchor tenant at Harrisburg in exchange for the tenant relinquishing space that
was subsequently converted into leasable area for mall shops.
<PAGE> 41
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
REVENUE RECOGNITION:
Minimum rents are recognized on a straight-line basis over the term of
the related leases. Percentage rents are recognized on an accrual basis.
NET LOSS PER SHARE:
The net loss per share calculation is based on the weighted average
number of shares outstanding during the year, which was 9,264,344 for all years
presented.
Share warrants issued in connection with the Trust's 1992 debt
restructuring (see Note 2) are considered common share equivalents. However,
the warrants have not been included in the net loss per share calculation
since the effect on such calculation would be anti-dilutive.
INCOME TAXES:
The Trust has complied with all applicable provisions established by
the Internal Revenue Code for maintaining its REIT status. Accordingly, no
income tax provision or benefit has been recognized in the accompanying
financial statements.
STATEMENTS OF CASH FLOWS:
Cash equivalents include short-term investments with an original
maturity of three months or less. Included in the statements of cash flows are
cash payments for interest of $6,703,000, $6,746,000, $7,439,000 in 1995, 1994
and 1993, respectively. Such amounts are net of interest costs capitalized of
$69,000 and $115,000 in 1995 and 1993, respectively.
As of December 31, 1993, the Trust accrued additions to investments
in real estate and a real estate disposition fee payable to the Advisor in the
amounts of $489,000 and $216,000, respectively. Such amounts were paid in
1994.
As a condition of the Trust's debt restructuring (see Note 2), the
Trust issued a total of 367,868 share warrants since December 1992, to its
primary mortgage lender. The value of the warrants at the time of issuance was
recorded as a debt discount and an increase in Shareholders' equity.
FAS 107:
The Trust values the financial instruments as required by FAS No. 107,
"Disclosures about Fair Values of Financial Instruments". The carrying amounts
of cash and cash equivalents, the Mortgage Note, and the Term Loan approximate
fair value.
<PAGE> 42
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
FAS 121:
The Trust adopted FAS No. 121, "Accounting for Long Lived Assets and
Long Lived Assets to be Disposed of", in the fourth quarter of 1994. There was
no material impact on the financial statements upon such adoption.
MANAGEMENT ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2: MORTGAGE DEBT AND RESTRUCTURING ACTIVITIES
On December 15, 1992, the Trust completed a restructuring of its
existing mortgage debt through the issuance of a "Mortgage Note" and a "Term
Loan", both due December 15, 1995, with original principal balances of
$75,689,000 and $2,859,000, respectively. The Mortgage Note bore interest at
an average rate of 9.79% per annum during its three year term, although
interest was payable at 8.54% per annum. The Term Loan bore interest at 8.33%
and was subject to the same pay rate of 8.54%. The differences between the
accrual and pay rates of interest under both debt instruments were reflected in
the principal balances due at maturity. Accordingly, the scheduled amount of
principal due under the Mortgage Note and the Term Loan on the original
maturities date (assuming no prepayments due to property dispositions) was
$78,928,000 and $2,839,000, respectively.
Pursuant to its Mortgage Note agreement, the Trust issued the lender
warrants to purchase 367,868 of its shares of beneficial interest at $.0001 per
share, none of which has been exercised.
As part of the 1992 restructuring, the Trust entered into a Cash
Management Agreement with the mortgage lender and assigned all lease and rent
receipts to the lender as additional collateral. Pursuant to this agreement, a
third- party escrow agent has been appointed to receive all rental payments
from tenants and to fund monthly operating expenses in accordance with a budget
approved by the lender. The agreement also provides for the establishment of a
capital reserve account, which is maintained by the escrow agent.
Disbursements from this account, which is funded each month with any excess
operating cash flow, are limited to capital expenditures approved by the
lender. As of December 31, 1995 the balance of the capital reserve account
was $2,083,000.
<PAGE> 43
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
On December 8, 1995, the Trust completed the sale of Castleton Park
(see Note 3) and used the net proceeds of $35,990,000 (reflecting reductions of
$2,517,000 for customary prorations) to prepay such debt obligations in the
amounts of $34,738,000 and $1,252,000, respectively.
EXTENSIONS OF DEBT
The remaining principal balances outstanding under the Mortgage Note
and the Term Loan at December 15, 1995, $44,125,000 and $1,587,000,
respectively, were extended for one year through December 15, 1996, under terms
substantially unchanged from those previously in effect, except as described
below. The Mortgage Note remains collateralized by a first mortgage lien on
Harrisburg, an assignment of leases and rents, and certain cash balances. The
Term Loan remains collateralized by a subordinate lien on Harrisburg.
The Mortgage Note agreement was amended to provide for monthly
payments of principal (assuming a 30 year amortization) and interest (at an
accrual rate equal to the former pay rate of 8.54%) in the aggregate amount of
$341,000. The Term Loan agreement was amended to provide for an accrual rate
that resets periodically and is computed at the Trust's discretion at either 2
5/8% above the Euro-Rate (as defined) or 1 1/8% above the Prime Rate (as
defined). The accrual rate in effect for the period January 5, 1996 through
April 7, 1996 is 8.25%.
Upon completion of the extension, the Term Loan lender consented to
the removal of a provision that required a $300,000 escrow deposit. The escrow
account was established with funds borrowed from the Advisor. The release of
these funds enabled the Trust to repay the $300,000 obligation, plus accrued
interest to the Advisor in March 1996.
Management continues to pursue the sale of Harrisburg as a means of
paying its remaining outstanding debt balances. In the event the Trust does
not sell Harrisburg during 1996, Management has continued to explore its
external financing alternatives, including the refinancing of its debt with its
existing lenders in anticipation of the Mortgage Note and the Term Loan
maturities on December 15, 1996. Based on its current assessment of the credit
markets, Management believes that it can refinance its existing debt, and that
such new facility will be in place on or before the maturity date of the
existing debt. However, if the Trust is unable of refinance or replace the
existing debt at commercially reasonable terms or at all, Management's plans
with respect to the sale of Harrisburg will be accelerated to satisfy its debt
obligations.
NOTE 3: VALUATION AND SALES OF REAL ESTATE
As discussed in Note 1, the Trust is currently holding Harrisburg for
sale, and intends to complete the disposition at any time prior to March 1999,
depending upon the prevailing conditions in the relevant real estate market and
subject to its ability to extend or refinance its maturing mortgage debt.
<PAGE> 44
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
On December 8, the Trust completed the sale of its remaining
forty-four buildings at Castleton. The Trust received net sales proceeds of
$38,507,000 before reduction for customary prorations of $2,517,000. As
discussed in Note 2, the Trust prepaid portions of its Mortgage Note and Term
Loan in the amounts of $34,738,000 and $1,252,000, respectively, with such
proceeds, prior to the extension of such debt on December 15, 1995.
Management has recorded its real estate investments (including
Peachtree, which was sold during the period 1992 - 1993), at the lower of
historical cost or market. Market values have been determined in connection
with independent appraisals, but ultimately may differ from such indication of
market value as determined through negotiations with prospective buyers. In
contemplation of completing the sale of Castleton, Management wrote down its
investment in Castleton by $3,200,000 during the third quarter of 1995 to its
then current estimate of net realizable value. The $229,000 gain on sale of
Castleton recognized during the fourth quarter of 1995 took into consideration
this write-down as well as earlier write-downs aggregating $19,565,000 recorded
since 1990.
In December 1993, the Trust completed the sale of its remaining two
office buildings at Peachtree. In the aggregate, the Trust received cash
proceeds of $10,552,000 net of associated costs of $248,000, and recognized a
gain on sale of $282,000. These proceeds were used to fully retire certain
mortgage indebtedness then outstanding (See Note 6).
NOTE 4: LEASING ARRANGEMENTS
The Trust leases shopping center space generally under noncancelable
operating leases, some of which contain renewal options. The shopping center
leases generally provide for minimum rentals, plus percentage rentals based
upon the retail stores' sales volume. Percentage rentals amounted to $270,000,
$295,000, and $154,000 for the years ended December 31, 1995, 1994, and 1993,
respectively. In addition, the tenants pay certain utility charges to the
Trust and, in most leases, reimburse their proportionate share of real estate
taxes and common area expenses.
Future minimum rentals under existing, non-cancelable leases at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Years ending December 31, Amount
------------------------- ------------
<S> <C>
1996 $ 4,512,000
1997 4,406,000
1998 4,220,000
1999 3,778,000
2000 3,211,000
Thereafter 11,524,000
------------
$ 31,651,000
============
</TABLE>
<PAGE> 45
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
Due to a department store vacancy, certain tenants at Harrisburg have
elected under cotenancy provisions provided for under the terms of their
leases, to pay percentage rent in lieu of fixed minimum rents (See Note 9).
Future minimum rentals for these tenants which have not been included in the
above schedule, are $878,000, $878,000, $830,000, $825,000, $825,000, and
$3,490,000, for the years 1996, 1997, 1998, 1999, 2000 and thereafter,
respectively.
Rental revenues from one tenant at Castleton approximated 10% of total
revenues from rental operations for the year ended December 31, 1995.
NOTE 5: INVESTMENTS IN REAL ESTATE
The Trust's investments in real estate at December 31, 1995 and 1994
consisted of the following:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Land $ 4,700,000 $ 15,411,000
Buildings and improvements 44,975,000 101,957,000
Tenant improvements 2,195,000 11,497,000
Personal property 163,000 225,000
------------- -------------
52,033,000 129,090,000
Less valuation allowance -- 19,565,000
------------- -------------
$ 52,033,000 $ 109,525,000
============= =============
</TABLE>
During 1995, the Trust renovated Harrisburg's outparcel building to
accommodate the relocation of Toys 'R Us. The final cost of the renovation
project was approximately $3,440,000.
NOTE 6: EXTRAORDINARY LOSS ON EARLY RETIREMENT OF DEBT
The Trust used proceeds of $9,626,000 from the 1993 sale of its
remaining two buildings at Peachtree (see Note 3) to retire the Harrisburg
mortgage notes that had been assumed by the Trust in connection with its
purchase of the Mall. The Harrisburg mortgage notes, with stated interest
rates of 8.8% and 8.562% per annum, had been discounted for financial reporting
purposes using a market interest rate of 14%. At retirement, the Harrisburg
mortgage notes had a carrying value of $7,975,000, net of a $1,547,000
discount. The Trust also paid accommodation fees of $60,000 to the holders of
its mortgage note and term loan. In connection with the retirement of the
Harrisburg mortgage notes, the Trust recognized an extraordinary charge to
earnings of $1,711,000.
<PAGE> 46
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
NOTE 7: ADVISORY AND MANAGEMENT AGREEMENTS
ADVISORY AGREEMENT
The Trust has entered into an agreement with Equitable Realty
Portfolio Management, Inc. (successor in interest to EQK Partners), a wholly
owned subsidiary of Equitable Real Estate Investment Management, Inc.
("Equitable Real Estate"), to act as its "Advisor". The Advisor makes
recommendations to the Trust concerning investments, administration and
day-to-day operations.
Under the terms of the advisory agreement, as amended in December
1989, the Advisor receives a management fee that is based upon the average
daily per share price of the Trust's shares plus the average daily balance of
outstanding mortgage indebtedness. Such fee is calculated using a factor of
42.5 basis points (0.425%) and generally has been payable monthly without
subordination. In connection with the December 1995 extension of debt (see
Note 2), the Advisor has agreed to a partial deferral of payment of its 1996
fee. Whereas the fee will continue to be computed as described, payments to
the Advisor will be limited to $37,500 per quarter. Accrued but unpaid amounts
will be eligible for payment upon the repayment of The Mortgage Note. For the
years ended December 31, 1995, 1994 and 1993, portfolio management fees were
$403,000, $430,000, and $484,000, respectively.
As of December 31, 1989, portfolio management fees of $5,440,000
payable to the Advisor were deferred in accordance with subordination
provisions contained in the original advisory agreement. Pursuant to the
amended advisory agreement, the Advisor forgave one-half, or $2,720,000, of the
deferred balance. The remaining deferred fees are to be paid upon the
disposition of the Trust's properties. For financial reporting purposes, the
deferred balance is being discounted at the rate of 13% per year from December
1, 1996. As of December 31, 1995, the discounted liability for deferred
management fees was $2,418,000.
Upon the sale of all or any portion of any real estate investment of
the Trust, the Advisor will receive a disposition fee equal to 2% of the gross
sale price (including outstanding indebtedness taken subject to or assumed by
the buyer and any purchase money indebtedness taken back by the Trust). The
disposition fee will be reduced by the amount of any brokerage commissions and
legal expenses incurred by the Trust in connection with such sales. For the
years ended December 31, 1995 and 1993, disposition fees earned by the Advisor
were $788,000 and $216,000, respectively.
PROPERTY MANAGEMENT AGREEMENTS
The Trust has also entered into agreements for the on-site management
of each of its properties. Harrisburg East Mall is managed by Compass Retail,
Inc. ("Compass"), an affiliate of Equitable Real Estate. The buildings at
Peachtree were managed by another affiliate of Equitable Real Estate up until
the time of their respective sales. Castleton Park was managed by an
unaffiliated third-party management company up until the time of its sale.
<PAGE> 47
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
Management fees paid to each of the Equitable Real Estate management
affiliates are generally based upon a percentage of rents and certain other
charges. For Peachtree, the Trust also paid leasing commissions based upon a
percentage of total minimum future rents. Such fees and commissions are
comparable to those charged by unaffiliated third-party management companies
providing comparable services. For the years ended December 31, 1995, 1994 and
1993, management and leasing fees paid to Equitable Real Estate were $291,000,
$314,000, and $403,000, respectively.
In connection with the redevelopment of Harrisburg's outparcel
building as described in Note 5, Compass received a $150,000 development fee in
1995. Compass also received development and construction management fees of
$185,000 in connection with a 1993 renovation of Harrisburg.
SHARE OWNERSHIP
In connection with a debt restructuring in December 1992, the Trust
issued 1,675,000 previously repurchased shares to its Advisor. Upon issuance,
the Trust received proceeds of $6,700,000, or $4.00 per share. In total, the
Advisor owns 1,685,556 shares, or 18.2% of the total shares outstanding. The
Advisor earned a $500,000 fee in connection with this refinancing, which was
paid in 1993-1994.
NOTE 8: RELATED PARTY TRANSACTIONS
In addition to providing management and advisory services to the Trust
as described in Note 7, Equitable Real Estate and certain of its affiliates,
including the Advisor, leased space at Peachtree. As discussed in Note 3, the
Trust sold its office buildings at Peachtree during 1992 and 1993. The Trust
received rent payments of approximately $1,167,000 for the year ended December
31, 1993 with respect to such leases.
As a condition of the Term Loan issuance in December 1992 (Note 2), an
escrow deposit of $300,000 was required as additional collateral. The Trust
borrowed this amount from its Advisor. In connection with the December 15,
1995 extension of this debt, the escrow deposit was released and the Advisor
was repaid.
NOTE 9: COMMITMENTS AND CONTINGENCIES
JOHN WANAMAKER
On August 8, 1995, the U.S. Bankruptcy Court approved the sale of
certain Woodward & Lothrop department stores to May Department Stores Company
("May Company"), including the John Wanamaker location at Harrisburg. On
October 9, 1995, the John Wanamaker store ceased operations. On October 19,
1995, May Company opened a Hecht's store at Harrisburg
<PAGE> 48
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
Mall. Given its existing presence at Harrisburg, May Company indicated that it
would pursue an assignment of the Wanamaker leasehold interest to another
department store retailer.
This anchor store location is subject to a continuous operating
covenant set forth in the applicable lease agreement, but no assignment has
occurred to date and the store remains dark, although May Company continues to
make rental payments in accordance with its lease agreement. On October 11,
1995, Management notified May Company of its violation of the lease and of its
intentions to exercise its remedies provided for under such lease, including
the right to terminate the lease and regain possession of the premises, if a
Trust approved retailer did not open within the specified cure period.
Management granted three extensions to the cure period, (without waiving the
Trust's default remedies provided for in the lease agreement) to allow May
Company additional time to identify a replacement retailer. However, upon
concluding that May Company's actions and plans with respect to identifying a
replacement retailer lacked the specificity and timeliness that Management
believed necessary to protect the interests of the Trust, management filed
complaints of ejectment (eviction) and money damages on March 22, 1996 in the
local jurisdiction to gain control of the premises on the basis that the lease
and May Company's right of possession have been terminated. May Company had
previously submitted the dispute to arbitration, but the Trust is contesting
the availability of that remedy. Although Management believes it has a
meritorious case, the pending status of this matter prevents Management from
being able to determine its ultimate outcome.
Despite Management's belief that the filing of this complaint will
accelerate the resolution of this matter, management believes it is likely that
the former Wanamaker store space will remain vacant for a substantial portion,
if not all, of 1996. As a result, certain tenants will be permitted, pursuant
to co-tenancy provisions provided for under the terms of their leases, to pay
percentage rent in lieu of fixed minimum rentals. Until a new retailer opens
for business in the former Wanamaker space, Management anticipates that these
tenants will continue to exercise their co-tenancy rights.
<PAGE> 49
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
NOTE 10: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of selected quarterly financial data for
the years ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
Quarter Ended
------------------------------------------------------------
1995 March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
Revenues from rental operations $ 3,966 $ 4,113 $ 3,990 $ 3,692
Write down of investment in real estate -- -- (3,200) --
Income from rental operations 1,286 1,487 (1,388) 1,325
Loss before gain on sale of real estate (1,128) (890) (3,802) (755)
Gain on sale of real estate -- -- -- 229
Net loss (1,128) (890) (3,802) (526)
Net loss per share before write down
of investment in real estate -- -- (.06) --
Net loss per share before gain on sale
of real estate -- -- -- (.08)
Net loss per share (.12) (.10) (.41) (.06)
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------
1994 March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
Revenues from rental operations $ 4,018 $ 4,169 $ 4,132 $ 4,193
Income from rental operations 1,346 1,598 1,586 1,105
Net loss (928) (621) (620) (1,290)
Net loss per share (.10) (.07) (.06) (.14)
</TABLE>
During the third quarter of 1995, as a result of a successful
valuation appeal, the Trust received and recognized a $400,000 refund of
Castleton real estate taxes relating to years 1989 to 1994. Also in the third
quarter of 1995, in contemplation of completing the sale of Castleton,
Management wrote down its investment in Castleton by $3,200,000 to its then
current estimate of net realizable value. In the fourth quarter of 1995, the
Trust completed the sale of Castleton and recognized a gain on the sale of
$229,000 (Note 3).
During the period 1992 to 1994, management explored the possibility
of expanding Harrisburg by possibly acquiring an adjacent tract of land and/or
by developing additional leasable space contiguous with the existing mall
structure. In light of the anchor tenant changes and redevelopment activities
discussed in Note 9, coupled with the on-going efforts to sell the Property,
management concluded during the fourth quarter of 1994 that further development
activity currently was not feasible. Accordingly, the related capitalized
predevelopment costs of $429,000, including payments made under a land purchase
option agreement, were written off in the fourth quarter of 1994.
<PAGE> 50
- --------------------------------------------------------------------------------
FINANCIAL STATEMENT SCHEDULE
December 31, 1995
(in thousands)
- --------------------------------------------------------------------------------
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cost
Capitalized
Subsequent
to Gross Amount at which Carried at
Initial Cost Acquisition Close of Period(3)
----------------------------------- ------------ ---------------------------------
Bldg & Bldg & Accum.
Description Encumbrance Land Improve. Improvements Land Improve. Total Deprec.
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Harrisburg East Mall $45,712(1) $4,700(2) $ 31,287(2) $ 16,046 $4,700(2) $ 47,333(2) $52,033 $13,446
Harrisburg, PA
- ---------------------------------------------------------------------------------------------------------------------------
Totals $45,712 $4,700 $ 31,287 $ 16,046 $4,700 $ 47,333 $52,033 $13,446
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Life on which
Depreciation in
Latest Income
Date of Date Stmt. is
Description Construction Acquired Computed
- -----------------------------------------------------------------
<S> <C> <C> <C>
Harrisburg East Mall 1969(4) 3/13/85 30 yrs.
Harrisburg, PA
- -----------------------------------------------------------------
Totals
- -----------------------------------------------------------------
</TABLE>
(1) Encumbrance is a mortgage note payable constituting first liens on the
Harrisburg real estate and a term loan payable to a bank constituting
subordinated liens on the property.
(2) Initial cost is net of imputed interest of $5,280 at date of acquisition.
(3) The aggregate tax basis of the Trust's property is $52 million as of
December 31, 1995.
(4) Renovation of Harrisburg was completed in 1993.
<TABLE>
<S> <C> <C> <C>
RECONCILIATION OF GROSS CARRYING AMOUNT OF REAL RECONCILIATION OF ACCUMULATED DEPRECIATION:
ESTATE: Balance, December 31, 1992 27,997
Balance, December 31, 1992 114,666 Depreciation expense 3,812
Improvements and Additions 5,715 Deductions -- Accumulated depreciation of real
Deductions -- costs of real estate sold (13,299) estate sold (3,691)
-------- --------
Balance, December 31, 1993 107,082 Balance, December 31, 1993 28,118
Improvements and Additions 2,487 Depreciation expense 3,719
Deductions -- Reversal of net book value of fully Deductions -- Reversal of net book value of fully
depreciated assets (44) depreciated assets (44)
-------- --------
Balance, December 31, 1994 $109,525 Balance, December 31, 1994 $ 31,793
Improvements and Additions 2,823 Depreciation Expense 4,016
Deductions -- Sale of Castleton Commercial Park (60,315) Deductions -- Sale of Castleton Commercial Park (22,363)
-------- --------
Balance, December 31, 1995 52,033 Balance, December 31, 1995 13,446
======== ========
</TABLE>
<PAGE> 1
NOTE, MORTGAGE AND LOAN MODIFICATION AGREEMENT
NOTE, MORTGAGE AND LOAN MODIFICATION AGREEMENT (this "Agreement") dated
as of December 15, 1995 by and between SYLVAN M. COHEN, GEORGE R. PEACOCK,
PHILIP E. STEPHENS, ALTON G. MARSHALL and ROBERT C. ROBB, JR., as Successor
Trustees of EQK REALTY INVESTORS I, a Massachusetts business trust ("EQK"),
having its principal office and place of business at 5775 Peachtree-Dunwoody
Road, Suite 200-D, Atlanta, Georgia 30342, and THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA, a New Jersey corporation ("Prudential"), having an office at 1200
"K" Street, N.W., Suite 1000, Washington, D.C. 20005.
BACKGROUND
On December 18, 1985, EQK executed and delivered to Solomon Brothers
Realty Corp. ("Solomon") a certain Zero Coupon Mortgage Note due December 18,
1992 in the face amount of $94,719,904 (the "Zero Coupon Note"). The Zero
Coupon Note was amended and restated in its entirety by an Amended and Restated
Note Agreement dated as of February 4, 1988 by and between EQK and Solomon (the
"First Amended Note"). Immediately following EQK's execution and delivery of
the First Amended Note, the First Amended Note was endorsed to, and all of the
security therefore was assigned to, Prudential in accordance with a certain
Note and Mortgage Purchase and Sale Agreement between Solomon and Prudential.
On or about December 16, 1992, the First Amended Note was partially
paid and was amended and restated in its entirety pursuant to a Second Amended
and Restated Note dated December 16, 1992 in the principal amount of
$75,688,720 (the "Second Amended Note") which inter alia, extended the Maturity
Date of the Second Amended Note to December 15, 1995. On December 8, 1995, the
Second Amended Note was partially prepaid and all collateral relating to the
Castleton Property was released by Prudential. Prior to the date hereof,
Prudential has also released all collateral relating to the Peachtree Property.
The Second Amended Note is presently secured by:
1. An Amended and Restated Open-End Mortgage and Security Agreement
(Harrisburg Mall) dated as of December 15, 1992 from EQK to Prudential (the
"Amended Harrisburg Mortgage") encumbering certain property located in Dauphin
County, Pennsylvania (the "Harrisburg Property"); the Amended Harrisburg
Mortgage was recorded on December 22, 1992 in The Recorder's Office of Dauphin
County, Pennsylvania (the "Dauphin Recorder") in Book 1886, page 298, et seq.;
<PAGE> 2
2. An Absolute Assignment of Leases and Rents and Rental Collection
Agreement dated as of December 15, 1992 by and between EQK, Prudential and
First Union National Bank of Georgia, as Rental Collection Agent (the "Rental
Collection Agent") with respect to the Harrisburg Property (the "Harrisburg
Assignment"); the Harrisburg Assignment was recorded on December 22, 1992 by
the Dauphin Recorder in Book 1886, page 373; et seq.;
3. A Cash Management and Security Agreement by and among EQK,
Prudential and First Union National Bank of Georgia, as Escrow Agent; and
4. A Hazardous Substances Covenant and Indemnity Agreement dated as of
December 16, 1995 from EQK to and for the benefit of Prudential (the
"Environmental Agreement").
The Second Amended Note, the Amended Harrisburg Mortgage, the
Harrisburg Assignment, the Cash Management Agreement, the Environmental
Indemnity Agreement, and all financing statements and other instruments
securing the Second Amended Note are herein collectively referred to as the
"Loan Documents."
Concurrently with the execution of the Loan Documents, the parties
executed: a Warrant Agreement ("Warrant Agreement") dated December 18, 1992 by
and between EQK and Prudential pursuant to which a Warrant was granted to
Prudential to purchase Shares of beneficial interest in EQK; and a
Subordination and Intercreditor Agreement ("Intercreditor Agreement") dated as
of December 16, 1992 by and among Prudential, EQK and PNC Bank, National
Association, formerly known as Provident National Bank ("PNC") pursuant to
which Prudential, inter alia, consented to the creation of subordinate
mortgages to secure sums owned by EQK to PNC and PNC agreed that all sums owned
to PNC would remain subordinate to the Loan Documents. The Intercreditor
Agreement was recorded on December 22, 1992 by the Dauphin Recorder in Book
1886, page 459 et seq.
Pursuant to a letter application dated December 15, 1995 (the
"Application"), EQK has requested Prudential to extend the maturity of the
Second Amended Note and to modify certain of the provisions of the Loan
Documents. The Application was countersigned by Prudential and, as so
countersigned, constitutes the "Commitment". This Agreement is intended to
amend and modify certain provisions of the Loan Documents in accordance with
the Commitment.
Capitalized terms used herein and not defined shall have their
respective meanings set forth in the Loan Documents, the Warrant Agreement and
the Intercreditor Agreement.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
-2-
<PAGE> 3
1. INCORPORATION BY REFERENCE
Section 1.1 Incorporation by Reference. The recitals set forth in the
Background section of this Agreement, the Loan Documents, the Warrant Agreement
and the Intercreditor Agreement are hereby incorporated herein by reference as
though set forth in full in the text of this Agreement.
2. SECOND AMENDED NOTE
Section 2.1 Principal Balance. EQK and Prudential confirm and agree
that the principal balance of the Second Amended Note, including all accrued
and unpaid interest through and including December 14, 1995, is $44,125,054.68.
Section 2.2 Contract Interest Rate. Section 2(a) of the Second Amended
Note is hereby amended by adding thereto a new subsection (iv) which reads as
follows:
"(iv) From and after December 15, 1995 through and including December
14, 1996, the principal sum outstanding from time to time under this Note
shall bear interest at the rate of eight and fifty-four one-hundredths
percent (8.54%) per annum."
Section 2.3 Payment. Effective as of December 15, 1995, Section 3(a)
through 3(c) of the Second Amended Note shall be deleted in their entirety and
the following shall be substituted in lieu thereof:
"(a) Commencing January 15, 1996 and on the fifteenth (15th) day of
each month thereafter (the "Monthly Payment Date") through and including
November 15, 1996, Maker shall pay to Payee installments of principal and
interest in the amount of $340,536.00 (the "Monthly Payment Amount") each,
which installments shall be applied first to accrued and unpaid interest on
this Note and then to the payment of principal of this Note without premium
or penalty.
"(b) Intentionally omitted.
"(c) If a portion of the Loan is prepaid, the Monthly Payment Amount
shall be reduced in proportion to the ratio of the unpaid principal balance
of the Second Amended Note immediately following such prepayment divided by
the unpaid principal balance of the Second Amended Note immediately prior
to such prepayment."
-3-
<PAGE> 4
Section 2.4 Maturity Date. The Maturity Date set forth in Section 3(d)
of the Second Amended Note is hereby amended to read "December 15, 1996."
Section 2.5 Security. All references in Section 5 of the Second
Amended Note to the Peachtree Property and the Castleton Property and the
security held by Prudential with respect thereto are hereby deleted in their
entirety from the Second Amended Note as the Peachtree Property and the
Castleton Property have been sold and all security held with respect to the
Peachtree Property and the Castleton Property have been released by Prudential.
Section 2.6 Prepayment. Section 7(a) of the Second Amended Note is
hereby amended by adding the following at the end thereof:
"Notwithstanding the foregoing, Payee hereby waives any prepayment
premium pursuant to (i) the prepayment made by Maker on December 8, 1995
and (ii) any prepayment from and after the date hereof and prior to the
occurrence of an Event of Default pursuant to which all sums payable under
this Note and all agreements securing this Note are paid in full."
Section 2.7 Confession of Judgment. EQK, knowingly, intentionally and
voluntarily, and with the advise of separate counsel, hereby ratifies and
confirms the confessions of judgment and warrants of attorney to confess
judgment set forth in Section 10 of the Second Amended Note.
Section 2.8 Seconded Amended Note Ratified and Confirmed. Except as
amended and modified hereby or inconsistent with the provisions hereof, the
Second Amended Note is hereby ratified and confirmed.
3. AMENDMENTS TO AMENDED HARRISBURG MORTGAGE
Section 3.1 Senior Mortgages. EQK hereby represents and warrants to
Prudential that the Senior Mortgages referred to in the Amended Harrisburg
Mortgage have been paid in full and satisfied. Accordingly all references in
the Amended Harrisburg Mortgage to "Senior Mortgages" are hereby deleted in
their entirety.
Section 3.2 Peachtree and Castleton Properties. All references in the
Amended Harrisburg Mortgage to the Peachtree Property and the Castleton
Property and the security held by Prudential with respect thereto are hereby
deleted in their entirety.
-4-
<PAGE> 5
Section 3.3 Confession of Judgment. EQK, knowingly, intentionally and
voluntarily, and with the advise of separate counsel, hereby ratifies and
confirms the confessions of judgment and warrants of attorney to confess
judgment set forth in Section 6.2 of the Amended Harrisburg Mortgage.
Section 3.4 Ratification of Harrisburg Mortgage. The Amended
Harrisburg Mortgage is hereby ratified and confirmed in its entirety, subject
only to the provisions of this Agreement.
4. ASSIGNMENTS
Section 4.1 Peachtree and Castleton Properties. All references in the
Harrisburg Assignment to the Peachtree Property and the Castleton Property and
the security held by Prudential with respect thereto are hereby deleted in
their entirety.
Section 4.2 Ratification of Harrisburg Assignment. The Harrisburg
Assignment is hereby ratified and confirmed in their entirety, subject only to
the provisions of this Agreement.
5. CASH MANAGEMENT AGREEMENT
Section 5.1 Peachtree and Castleton Properties. All references to the
Peachtree Property and the Castleton Property and to the security held by
Prudential with respect thereto in the Cash Management Agreement are hereby
deleted in their entirety.
Section 5.2 Asset Management Fee. Section 6.2 of the Cash Management
Agreement is hereby amended to substitute the amount "$150,000" for the amount
of "$500,000" as set forth therein.
Section 5.3 Includible Asset Management Fee. The definition of the
term "Includible Asset Management Fee" set forth in Exhibit A to the Cash
Management Agreement is hereby amended to substitute the amount "$150,000" for
the amount "$500,000", and the quarterly payments of the Includible Asset
Management Fee shall be reduced to "$37,500".
Section 5.4 Prepayment. Section 6.6(d) of the Cash Management
Agreement is hereby deleted in its entirety and the following shall be
substituted in lieu thereof:
"(d) Except for (i) payments of principal as a part of a scheduled
Monthly Payment Amount, (ii) the prepayment of principal by EQK on December
8, 1995 and (iii) a prepayment of the Second Amended Note in full prior to
the occurrence of an Event of Default hereun-
-5-
<PAGE> 6
der, upon a principal payment to Prudential prior to the Maturity Date,
EQK shall pay to Prudential a prepayment premium calculated in accordance
with the Yield Maintenance Formula attached hereto as Exhibit "L"."
Section 5.5 Ratification of Cash Management Agreement. The Cash
Management Agreement is hereby ratified and confirmed in tis entirety, subject
only to the provisions of this Agreement.
6. WARRANT AGREEMENT
Section 6.1 Representation, Warranty and Confirmation. EQK hereby
represents, warrants and confirms to Prudential that the Warrant Agreement
remains in full force and effect, the number of Shares of EQK issuable to
Prudential upon exercise of the Warrant are 367,868 Shares; EQK currently holds
in its treasury duly authorized and previously issued Shares in such amount and
such Shares are reserved for issuance to Prudential upon exercise of the
Warrant; and the Exercise Period remains open and can only be terminated in
accordance with the express provisions of the Warrant Agreement.
Section 6.2 Ratification of Warrant Agreement. The Warrant Agreement
is hereby ratified and confirmed.
7. OTHER AGREEMENTS
Section 7.1 Ratification of Other Agreements. The provisions of the
Environmental Indemnity Agreement and the Intercreditor Agreement are hereby
ratified and confirmed.
8. NO DEFAULTS
Section 8.1 No Default. To induce Prudential to enter into this
Agreement and extend the Maturity Date of the Second Amended Note, EQK
represents and warrants to Prudential that:
(a) No Event of Default, as defined in any of the Loan Documents,
presently exists under any of the Loan Documents, the Warrant Agreement or the
Intercreditor Agreement;
(b) No event has occurred which, with the passage of time or the
giving of notice or both, would constitute an Event of Default under any
Loan Documents, the Warrant Agreement or the Intercreditor Agreement;
(c) EQK has no defenses, counterclaims or set-offs against the
Prudential Debt, as defined in the Cash Management Agreement; and
-6-
<PAGE> 7
(d) EQK hereby ratifies and confirms its obligation to repay the
Prudential Debt on the terms and conditions set forth in the Loan
Documents, as amended hereby.
9. RELEASE AND COVENANT NOT TO SUE
Section 9.1 Release and Covenant Not to Sue. To induce Prudential to
enter into this Agreement and extend the Maturity Date of the Second Amended
Note, EQK does hereby:
(a) remise, release, acquit, satisfy and forever discharge Prudential
and all of its past, present and future officers, directors, employees, agents,
attorneys, representatives, heirs, successors and assigns, from any and all
actions, claims, demands and causes of action of any nature whatsoever, whether
at law or in equity, either now accrued or hereafter maturing, which EQK now
has or hereafter can, shall or may have by reason of any matter, cause or
things from the beginning of the world to and including the date of this
Agreement with respect to any matters, transactions, occurrences, agreements,
actions and/or events arising out of, in connection with or relating to, the
loan by Prudential to EQK represented by the Second Amended Note and its
predecessor notes, including, but not limited to, the modification and
extension of the Second Amended Note pursuant to the provisions of the
Commitment and this Agreement, the calculation and payment of interest under
the Second Amended Note, the issuance of the Warrant and the calculation of
the Shares issuable thereunder and all matters relating to the administration
of the loan and/or the collateral held for the benefit of Prudential
thereunder; and
(b) covenant and agree never to institute or cause to be instituted or
continue prosection of any suit or other form of action or proceeding of any
kind or nature whatsoever against Prudential, or any of its past, present or
future officers, directors, employees, agents, attorneys, representatives,
heirs, successors or assigns, by reason of or in connection with any of the
foregoing matters, claims or causes of action.
This release and covenant not to sue is intended to be legally binding
upon EQK and shall cover all actions of Prudential in its consideration of the
Application and this Agreement and/or the enforcement of Prudential's rights
under the Loan Documents, as amended hereby.
-7-
<PAGE> 8
10. MISCELLANEOUS
Section 10.1 Loan Documents Remain Effective. Except as expressly
amended hereby, the Loan Documents shall remain in full force and effect and
are enforceable against EQK in accordance with their respective terms. Without
limiting the generality of the foregoing, all rights and remedies available to
Prudential under the Loan Documents shall survive the making of this Agreement
and shall continue in full force and effect. EQK shall have no right to further
extend the Maturity Date of the Second Amended Note.
Section 10.2 Integration Clause. This Agreement embodies the complete
understanding and agreement among the parties hereto with respect to the
subject matter hereof and supersedes any and all prior or contemporaneous
understandings with respect thereto, whether oral or written.
Section 10.3 Binding Effect. This Agreement shall not be modified or
amended except by a writing signed by the party against whom enforcement is
sought. This Agreement shall inure to the benefit of, and be binding upon, the
parties hereto and their respective successors and assigns.
Section 10.4 Notices. The notice address for Prudential in the Loan
Documents shall be amended as follows:
Mr. Christian T. Miles, Vice President
The Prudential Insurance Company of America
1200 "K" Street, N.W., Suite 1000
Washington, D.C. 20005
with a copy to:
F. Wayne Jarvis, Esquire
The Prudential Insurance Company of America
1200 "K" Street, N.W., Suite 1000
Washington, D.C. 20005
with a copy to:
Clifford H. Swain, Esquire
Drinker Biddle & Reath
1345 Chestnut Street, Suite 1100
Philadelphia, Pennsylvania 19107
Section 10.5 Counterpart Copies. This Agreement may be executed in any
number of counterparts which, taken together, shall constitute one and the same
instrument.
-8-
<PAGE> 9
Section 10.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
Section 10.7 Time of the Essence. When time is mentioned herein, time
shall be the essence of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, under seal, on and as of the date first above written.
EQK REALTY INVESTORS I
By /s/ GARY L. WERKHEISER
------------------------
Name: Gary L. Werkheiser
Title: Vice President
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
By /s/ CHRISTIAN T. MILES
-------------------------
Name: Christian T. Miles
Title: Vice President
-9-
<PAGE> 10
STATE OF GEORGIA :
: SS.
COUNTY OF FULTON :
On this, the 15th day of December, 1995, before me, the undersigned
officer, personally appeared GARY L. WERKHEISER, who acknowledged himself to be
a duly elected VICE PRESIDENT of EQK REALTY INVESTORS I, a Massachusetts
business trust, and that he as such officer, being authorized to do so,
executed the foregoing instrument for the purposes therein contained by signing
the name of the business trust by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
[NOTARIAL SEAL]
/s/
-------------------------------
Notary Public
My Commission Expires:
:
DISTRICT OF COLUMBIA : SS.
:
On this, the 29th day of December, 1995, before me, the undersigned
officer, personally appeared CHRISTIAN T. MILES, who acknowledged himself to be
a Vice President of THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a corporation,
and that he as such officer, being authorized to do so, executed the foregoing
instrument for the purposes therein contained by signing the name of the
corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
[NOTARIAL SEAL]
/s/ Viola L. Jones
--------------------------------------
Notary Public
My Commission Expires:
VIOLA L. JONES
Notary Public District of Columbia
My Commission Expires June 30, 1998
<PAGE> 11
MUTUAL ESTOPPEL AND MODIFICATION AGREEMENT
THIS MUTUAL ESTOPPEL AGREEMENT is made as of this 15th day of December,
1995 by and among PNC BANK, NATIONAL ASSOCIATION (successor by merger to
Provident National Bank) (the "Bank"), THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA ("Prudential") and EQK REALTY INVESTORS I ("EQK").
RECITALS
WHEREAS, the Bank, Prudential and EQK entered into a certain
Subordination and Intercreditor Agreement dated as of December 16, 1992 (the
"Intercreditor Agreement"); and
WHEREAS, the parties wish to make certain statements and agreements
regarding the Intercreditor Agreement and the loans governed thereunder;
NOW THEREFORE, for good and valuable consideration, the adequacy and
receipt of which are hereby acknowledged, the parties hereto, intending to be
legally bound, agree as follows:
1. All capitalized terms not defined herein shall have the meanings
given such terms in the Intercreditor Agreement.
2. The Bank hereby certifies as follows:
<PAGE> 12
(a) The outstanding principal amount of the New Provident Note, as
amended and restated by the Second Amended and Restated Note (the "PNC Restated
Note") dated as of December 15, 1995 (collectively, the "PNC Note") is
$1,587,430;
(b) The rate of interest under the PNC Note is either 1 5/8% above
the Euro-Rate (as such term is defined in the First Amendment to Second
Amended and Restated Loan Agreement dated as of December 15, 1995 (the "PNC
First Amendment") between EQK and the Bank) or 1 1/8% above the Prime Rate (as
such term is defined in the PNC First Amendment);
(c) There are no scheduled monthly payments of principal required
under the PNC Note; and
(d) To the best of PNC's knowledge, there exist no defaults under the
Note and the Subordinate Loan Documents, nor do any circumstances exist with
which the passage of time, or the giving of notice, or both, would constitute a
default under the PNC Note or the other Subordinated Loan Documents.
3. Prudential hereby certifies as follows:
(a) The outstanding principal amount under the New Prudential Note,
as amended by the Note, Mortgage and Loan Modification Agreement dated as of
December 15, 1995 (the "Prudential Modification Agreement") between Prudential
and EQK (collectively, the "Prudential Note") is $44,125,054.68;
(b) The rate of interest under the Prudential Note is 8.54% per
annum;
<PAGE> 13
(c) The monthly payment of principal and interest required to be paid
under the Prudential Note is $340,536.00; and
(d) To the best of Prudential's knowledge, there exist no defaults
under the Prudential Note and the Senior Loan Documents, nor do any
circumstances exist which with the passage of time, or the giving of notice,
or both, would constitute a default under the Prudential Note or the other
Senior Loan Documents.
4. Borrower hereby certifies that the statements made by the Bank and
Prudential in paragraphs 2 and 3 above, respectively are true and correct that
there exist no defaults under any of the Subordinate Loan Documents or Senior
Loan Documents nor do any circumstances exist which with the passage of time,
or the giving of notice, or both, would constitute a default under any of the
Subordinate Loan Documents or the Senior Loan Documents.
5. Bank confirms to and agrees with Prudential as follows: (a) that the
Subordinate Loan Documents, including the amendments and modifications
hereinabove, remain subordinate to the Senior Loan Documents, including the
amendments and modifications thereto referred to hereinabove; (b) the Contract
Amount referred to in Section 4(b)(i)(A) of the Intercreditor Agreement shall be
in the interest rate on the PNC Restated Note; (c) the Pay Rate referred to in
Section 4(b)(i)(B) of the Intercreditor Agreement shall be the interest rate on
the Prudential Note (i.e. 8.54% per annum).
6. The parties hereby agree and confirm (a) that all references to any
or all of the Senior Loan Documents or Subordinate Loan Documents contained in
the
3
<PAGE> 14
Intercreditor Agreement shall mean the Senior Loan Documents as amended by
the Prudential Modification Agreement and the Subordinate Loan Documents as
amended by the PNC First Amendment and the PNC Restated Note; (b) all of the
terms and conditions of the Intercreditor Agreement shall be extended until all
sums under the Senior Loan Documents have been paid in full; and (c) that all of
the terms and conditions of the Intercreditor Agreement remain in full force and
effect and binding upon the parties hereto and their respective successors and
assigns.
7. This Agreement may be executed in any number of counterparts which,
taken together, shall constitute one and the same instrument.
8. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties have executed this Mutual Estoppel
Agreement as of this 15th day of December, 1995.
PNC BANK, NATIONAL ASSOCIATION
By: /s/
---------------------------------
Title: Vice President
-------------------------------
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
By: /s/
---------------------------------
Title:
-------------------------------
EQK REALTY INVESTORS I
By: /s/ Gary L. Werkheiser
---------------------------------
Title: Vice President
-------------------------------
4
<PAGE> 15
AMENDED MUTUAL ESTOPPEL AND MODIFICATION AGREEMENT
THIS AMENDED MUTUAL ESTOPPEL AND MODIFICATION AGREEMENT is made as of
this 15th day of December, 1995 by and among PNC BANK, NATIONAL ASSOCIATION
(successor by merger to Provident National Bank) (the "Bank"), THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA ("Prudential") and EQK REALTY INVESTORS I ("EQK").
RECITALS
WHEREAS, the Bank, Prudential and EQK entered into a certain
Subordination and Intercreditor Agreement dated as of December 16, 1992 (the
"Intercreditor Agreement"); and
WHEREAS, the parties entered into a Mutual Estoppel and Modification
Agreement dated as of December 15, 1995 (the "Original Estoppel"); and
WHEREAS, the parties wish to correct a typographical error contained in
the Original Estoppel and confirm certain understandings as set forth herein;
NOW, THEREFORE, for good and valuable consideration, the adequacy and
receipt of which are hereby acknowledged, the parties hereto, intending to be
legally bound, agree as follows:
1. All capitalized terms not defined herein shall have the meanings
given such terms in the Intercreditor Agreement.
<PAGE> 16
2. Paragraph 2(b) of the Original Estoppel is hereby amended by deleting
the number "1 5/8%" appearing on the first line thereof and substituting the
number "2 5/8%" in its place.
3. Borrower hereby certifies that the correction to the Original
Estoppel as set forth above is true and correct.
4. The parties agree that notwithstanding the fact that the contract
Amount may be less than the Prudential Pay Rate, EQK shall be permitted to make
debt service payments to the Bank based on the Prudential Pay Rate (i.e. 8.54%
per annum); provided, however, such payments shall not exceed the Cap Amount.
All of the other terms set forth in Section 4(b)(i) of the Intercreditor
Agreement shall remain in full force and effect.
5. The parties hereby agree and confirm that except as modified hereby,
all of the terms and conditions of the Original Estoppel and Intercreditor
Agreement remain in full force and effect and binding upon the parties hereto
and their respective successors and assigns.
6. This Agreement may be executed in any number of counterparts which,
taken together, shall constitute one and the same instrument.
7. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania.
2
<PAGE> 17
IN WITNESS WHEREOF, the parties have executed this Amended Mutual
Estoppel and Modification Agreement as of this 15th day of December, 1995.
PNC BANK, NATIONAL ASSOCIATION
By: /s/
--------------------------------
Title: Vice President
------------------------------
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
By: /s/
--------------------------------
Title: Vice President
------------------------------
EQK REALTY INVESTORS I
By: /s/ William G. Brown, Jr.
--------------------------------
Title: Vice President
------------------------------
3
<PAGE> 1
MUTUAL ESTOPPEL AND MODIFICATION AGREEMENT
THIS MUTUAL ESTOPPEL AGREEMENT is made as of this 15th day of December,
1995 by and among PNC BANK, NATIONAL ASSOCIATION (successor by merger to
Provident National Bank) (the "Bank"), THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA ("Prudential") and EQK REALTY INVESTORS I ("EQK").
RECITALS
WHEREAS, the Bank, Prudential and EQK entered into a certain
Subordination and Intercreditor Agreement dated as of December 16, 1992 (the
"Intercreditor Agreement"); and
WHEREAS, the parties wish to make certain statements and agreements
regarding the Intercreditor Agreement and the loans governed thereunder;
NOW, THEREFORE, for good and valuable consideration, the adequacy and
receipt of which are hereby acknowledged, the parties hereto, intending to be
legally bound, agree as follows:
1. All capitalized terms not defined herein shall have the meanings
given such terms in the Intercreditor Agreement.
2. The Bank hereby certifies as follows:
<PAGE> 2
(a) The outstanding principal amount of the New Provident Note, as
amended and restated by the Second Amended and Restated Note (the "PNC Restated
Note") dated as of December 15, 1995 (collectively, the "PNC Note") is
$1,587,430;
(b) The rate of interest under the PNC Note is either 1 5/8% above
the Euro-Rate (as such term is defined in the First Amendment to Second
Amended and Restated Loan Agreement dated as of December 15, 1995 (the "PNC
First Amendment") between EQK and the Bank) or 1 1/8% above the Prime Rate (as
such term is defined in the PNC First Amendment);
(c) There are no scheduled monthly payments of principal required
under the PNC Note; and
(d) To the best of PNC's knowledge, there exist no defaults under the
Note and the Subordinate Loan Documents, nor do any circumstances exist with
which the passage of time, or the giving of notice, or both, would constitute a
default under the PNC Note or the other Subordinate Loan Documents.
3. Prudential hereby certifies as follows:
(a) The outstanding principal amount under the New Prudential Note,
as amended by the Note, Mortgage and Loan Modification Agreement dated as of
December 15, 1995 (the "Prudential Modification Agreement") between Prudential
and EQK (collectively, the "Prudential Note") is $44,125,054.68;
(b) The rate of interest under the Prudential Note is 8.54% per
annum;
2
<PAGE> 3
(c) The monthly payment of principal and interest required to be paid
under the Prudential Note is $340,536.00; and
(d) To the best of Prudential's knowledge, there exist no defaults
under the Prudential Note and the Senior Loan documents, nor do any
circumstances exist which with the passage of time, or the giving of notice,
or both, would constitute a default under the Prudential Note or the other
Senior Loan Documents.
4. Borrower hereby certifies that the statements made by the Bank and
Prudential in paragraphs 2 and 3 above, respectively are true and correct and
that there exist no defaults under any of the Subordinate Loan Documents or
Senior Loan Documents nor do any circumstances exist which with the passage of
time, or the giving of notice, or both, would constitute a default under any of
the subordinate Loan Documents or the Senior Loan Documents.
5. Bank confirms to and agrees with Prudential as follows: (a) that the
Subordinate Loan Documents, including the amendments and modifications
hereinabove, remain subordinate to the Senior Loan Documents, including the
amendments and modifications thereto referred to hereinabove; (b) the Contract
Amount referred to in Section 4(b)(i)(A) of the Intercreditor Agreement shall be
in the interest rate on the PNC Restated Note; (c) the Pay Rate referred to in
Section 4(b)(i)(B) of the Intercreditor Agreement shall be the interest rate on
the Prudential Note (i.e. 8.54% per annum).
6. The parties hereby agree and confirm (a) that all references to any
or all of the Senior Loan Documents or Subordinate Loan Documents or Subordinate
Loan Documents contained in the
3
<PAGE> 4
Intercreditor Agreement shall mean the Senior Loan Documents as amended
by the Prudential Modification Agreement and the Subordinate Loan Documents as
amended by the PNC First Amendment and the PNC Restated Note; (b) all of the
terms and conditions of the Intercreditor Agreement shall be extended until all
sums under the Senior Loan Documents have been paid in full; and (c) that all of
the terms and conditions of the Intercreditor Agreement remain in full force and
effect and binding upon the parties hereto and their respective successors and
assigns.
7. This Agreement may be executed in any number of counterparts which,
taken together, shall constitute one and the same instrument.
8. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties have executed this Mutual Estoppel
Agreement as of this 15th day of December, 1995.
PNC BANK, NATIONAL
ASSOCIATION
By: /s/
--------------------------------
Title: Vice President
-----------------------------
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/
--------------------------------
Title: Vice President
-----------------------------
EQK REALTY INVESTORS I
By: /s/ Gary L. Werkheiser
--------------------------------
Title: Vice President
-----------------------------
4
<PAGE> 1
AMENDED MUTUAL ESTOPPEL AND MODIFICATION AGREEMENT
THIS AMENDED MUTUAL ESTOPPEL AND MODIFICATION AGREEMENT is made as of
this 15th day of December, 1995 by and among PNC BANK, NATIONAL ASSOCIATION
(successor by merger to Provident National Bank) (the "Bank"), THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA ("Prudential") and EQK REALTY INVESTORS I ("EQK").
RECITALS
WHEREAS, the Bank, Prudential and EQK entered into a certain
Subordination and Intercreditor Agreement dated as of December 16, 1992 (the
"Intercreditor Agreement"); and
WHEREAS, the parties entered into a Mutual Estoppel and Modification
Agreement dated as of December 15, 1995 (the "Original Estoppel"); and
WHEREAS, the parties wish to correct a typographical error contained in
the Original Estoppel and confirm certain understandings as set forth herein;
NOW, THEREFORE, for good and valuable consideration, the adequacy and
receipt of which are hereby acknowledged, the parties hereto, intending to be
legally bound, agree as follows:
1. All capitalized terms not defined herein shall have the meanings
given such terms in the Intercreditor Agreement.
<PAGE> 2
2. Paragraph 2(b) of the Original Estoppel is hereby amended by deleting
the number "1 5/8%" appearing on the first line thereof and substituting the
number "2 5/8%" in its place.
3. Borrower hereby certifies that the correction to the Original
Estoppel as set forth above is true and correct.
4. The parties agree that notwithstanding the fact that the Contract
Amount may be less than the Prudential Pay Rate, EQK shall be permitted to make
debt service payments to the Bank based on the Prudential Pay Rate (i.e. 8.54%
per annum); provided, however, such payments shall not exceed the Cap Amount.
All of the other terms set forth in Section 4(b)(i) of the Intercreditor
Agreement shall remain in full force and effect.
5. The parties hereby agree and confirm that except as modified hereby,
all of the terms and conditions of the Original Estoppel and Intercreditor
Agreement remain in full force and effect and binding upon the parties hereto
and their respective successors and assigns.
6. This Agreement may be executed in any number of counterparts which,
taken together, shall constitute one and the same instrument.
7. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania.
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Amended Mutual
Estoppel and Modification Agreement as of this 15th day of December, 1995.
PNC BANK, NATIONAL ASSOCIATION
By: /s/
----------------------------
Title: Vice President
-------------------------
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/
----------------------------
Title: Vice President
-------------------------
EQK REALTY INVESTORS I
By: /s/ William G. Brown, Jr.
----------------------------
Title: Vice President
-------------------------
<PAGE> 4
EQK REALTY INVESTORS I
SECRETARY'S CERTIFICATE
The undersigned, being the duly elected Secretary of EQK Realty
Investors I, a Massachusetts business trust (the "Trust"), does hereby certify
that the following resolutions were unanimously adopted at a meeting of the
Trustees held on December 12, 1995 and remain in full force and effect as of
this date:
Whereas, the Trust's existing financing with The Prudential Insurance
Company of America ("Prudential") and PNC Bank, National Association ("PNC")
matures on December 15, 1995;
Whereas, both Prudential and PNC have presented the Trust with
proposals to extend the maturity date of their respective loans to December
15, 1996;
Whereas, Harrisburg East Mall remains as the only real estate asset of
the Trust, the Trust has previously established its need to sell Harrisburg
East Mall at such a time as a buyer willing and able to pay a reasonable price
therefor can be identified and the Trust's adviser has identified and continues
to work with entities which may prove to be capable buyers of such property;
Whereas, the continuing uncertainty surrounding the use or assignment
of the Wanamaker building at Harrisburg East Mall will likely have to be
resolved before the true interest of such potential buyers and the price they
would offer can be determined;
Whereas, such uncertainty also seriously impacts the ability of the
Trust to refinance its existing debt with another lender and any new lender
would in any event require the Trust to undertake a due diligence effort
exposing the Trust to substantial costs which may not be warranted by the
likely remaining holding period of the property;
Whereas, the Declaration of Trust provides in Section 5.2(i) that the
borrowings of the Trust shall not exceed 50% of the Trust's Total Assets, as
therein defined (not including intangibles) unless and until the Trustees
determine that the borrowings in excess of such percentage are in the best
interest of the Trust;
Whereas, at the time of the 1992 extension and restructuring of the
Prudential and PNC loans, the Trustees determined that due to the decline in
the value of the Trust's Total Assets, the borrowings of the Trust had at some
point in time previously exceeded and at the time of such 1992 extension and
restructuring exceeded 50% of the value of the Trust's Total Assets;
<PAGE> 5
Whereas, the Trustees have determined that the continuation of the
Trust's current borrowings with Prudential and PNC, as recently reduced by
application of the net proceeds from the Trust's sale of Castleton Park, is in
the best interest of the Trust as it is not advisable to attempt a refinancing
of such debt at the current time given the uncertainty as to the disposition or
use of the Wanamker building and the expected short holding period of such
property;
Whereas, the total of the Prudential and PNC loans, together with such
other items as must be considered "borrowings" (including deferred fees of the
Trust's adviser), does not exceed the 75% limitation set forth in the Indenture
of Trust; and
Whereas, in light of the factors outlined above, the terms and
conditions proposed by Prudential and PNC appear reasonable and in the best
interests of the Trust.
IT IS HEREBY RESOLVED, that the Trustees, including the Independent
Trustee, hereby approve the extension of the Prudential loan for a period of
one year, upon terms and conditions consistent with those outlined in the
attached letter from Drinker Biddle & Reath and the accompanying draft loan
application document or such other terms and conditions as the Trust's adviser
may deem to be in the best interests of the Trust;
FURTHER RESOLVED, that the Trustees, including the Independent
Trustees, hereby approve the extension of the PNC loan for a period of one
year, upon terms and conditions consistent with those outlined in the attached
Summary of Terms and conditions from PNC or such other terms and conditions as
the Trust's adviser may deem to be in the best interest of the Trust;
FURTHER RESOLVED, that the Trustees find it appropriate and in the
best interest of the Trust for the borrowings of the Trust to exceed 50% of
the value of the Trust's Total Assets (not including intangibles), subject to
the 75% limitation set forth in Section 5.2(i) of the Indenture of Trust;
FURTHER RESOLVED, that the Trust's adviser and officers are authorized
to employ the services of such attorneys. surveyors, title examiners and other
third party service providers as may be necessary to effect the transactions
contemplated by the foregoing resolutions, and to pay reasonable fees for their
services;
FURTHER RESOLVED, that as the Trust's adviser has waived any right to
a fee for handling the loan extensions hereby approved, the adviser shall be
reimbursed for in-house legal fees at a rate of $100 per hour plus expenses
incurred in effecting such transactions;
FURTHER RESOLVED, that Phillip E. Stephens, Gregory R. Greenfield,
William G. Brown, Jr., Gary L. Werkheiser of Linda K. Schear, as officers of
the
<PAGE> 6
Trust, each acting alone, be and hereby are authorized to take such actions and
execute such documents on behalf of the Trust as they may deem necessary or
appropriate in connection with the foregoing resolutions including, but not
limited to extension agreements, notes, mortgages and affidavits.
FURTHER RESOLVED, that all documents executed by any of said officers
on behalf of the Trust shall be binding on and enforceable against the Trust
as if such documents were executed by each of the Trustees.
This 15th day of December, 1995.
/s/ Linda K. Schear
------------------------------------
Linda K. Schear, Secretary
<PAGE> 7
EQK REALTY INVESTORS I
INCUMBENCY CERTIFICATE
The undersigned Secretary of EQK Realty Investors I, a Massachusetts
business trust (the "Trust") does hereby certify that the following persons are
duly elected officers of the Trust, having been elected at the Annual Meeting of
the Trustees on June 6, 1995, to serve until the next Annual Meeting of the
Trustees or until such time as their successors are duly elected and qualified:
<TABLE>
<S> <C>
Phillip E. Stephens.............................. President
Gregory R. Greenfield............................ Executive Vice President
and Treasurer
Gary Werkheiser.................................. Vice President
Linda K. Schear.................................. Secretary
William G. Brown, Jr............................. Vice President and
Controller
Scott Boggio..................................... Vice President
</TABLE>
The undersigned Secretary further certifies that there have been no
amendments or modifications to the Amended and Restated Declaration of Trust of
EQK Realty Investors I, as executed as of February 27, 1985 and amended as of
March 5, 1986, nor to the Trustees' regulations of EQK Realty Investors I as
adopted as of October 11, 1984 and amended on June 3, 1985 and September 16,
1986.
This 15th day of December, 1995.
/s/ Linda K. Schear
--------------------------------------
Linda K. Schear, Secretary
<PAGE> 8
[EQK
REALTY INVESTORS
LETTERHEAD]
December 15, 1995
5775 Peachtree Dunwoody Road
PNC Bank, National Association Suite 200-D
Real Estate Finance Division Atlanta, GA 30342-1505
P.O. Box 7648 (404) 303-6100
Broad and Chestnut Streets
Philadelphia, Pennsylvania 19101
Ballard Spahr Andrews & Ingersoll
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania 19103-7599
Ladies and Gentleman:
I refer to the Summary of Terms and Conditions dated December 7, 1995
(the "Term Sheet"), by and between EQK Realty Investors I, a Massachusetts
business trust ("EQK") and PNC Bank, National Association ("PNC") for the
extension and amendment of an existing mortgage loan (the "Loan").
The Loan will be extended and modified by that certain Second Amended
and Restated Note between EQK and PNC, dated as of December 15, 1995 (the
"Restated Note"), the First Amendment to Second Amended and Restated Loan
Agreement between EQK and PNC, dated as of December 15, 1995 (the "Loan
Agreement Amendment") and the Disclosure for Confession of Judgment dated as of
December 15, 1995 (the "Disclosure"). In addition, EQK has executed that certain
Mutual Estoppel and Modification Agreement among EQK, The Prudential Insurance
Company of America and PNC, dated as of December 15, 1995 (the "Estoppel
Agreement"), modifying and extending the Intercreditor Agreement, as referred to
therein.
Pursuant to the Term Sheet, and as additional consideration to induce
PNC to extend and modify the Loan, EQK has paid to PNC a Fee of $15,874.30.
The Restated Note, Loan Agreement Amendment, Disclosure and the Estoppel
Agreement are hereinafter referred to as the "Loan Extension Documents."
I have acted as inside counsel to EQK in connection with the transaction
contemplated by the Loan Extension Documents. This opinion is based on my
knowledge of the EQK documents, the conduct of its business and the validity and
binding effect of such documents under the authorizing documents of EQK and the
laws of the State of Georgia.
In connection with this opinion, I have reviewed the executed Loan
Extension Documents and have also reviewed the following:
1. Amended and Restated Declaration of Trust of EQK, as executed as of
February 27, 1985 and amended as of March 4, 1986.
THE NAME EQK REALTY INVESTORS I IS THE DESIGNATION OF THE TRUSTEES UNDER A
DECLARATION OF TRUST DATED OCTOBER 8, 1984, AS AMENDED. NEITHER THE TRUSTEES,
SHAREHOLDERS, OFFICERS OR AGENTS OF THE TRUST SHALL BE LIABLE FOR THE
OBLIGATIONS OF THE TRUST, AND ALL PERSONS SHALL LOOK SOLELY TO THE TRUST ESTATE
OF EQK REALTY INVESTORS I FOR THE PAYMENT, PERFORMANCE OR OBLIGATIONS OF THE
TRUST.
<PAGE> 9
PNC and Ballard Spahr
December 15, 1995
page two
2. Trustees Regulations dated as of October 11, 1984, as amended.
3. Trustees Resolutions dated as of December 12, 1995.
Based upon and subject to the foregoing, it is my opinion that:
a. The Loan Extension Documents have been duly authorized, executed and
delivered by EQK and constitute the legal, valid and binding obligation of EQK,
enforceable against EQK in accordance with their respective terms.
b. The execution, delivery and performance of the Loan Extension
Documents by EQK will not violate (i) any provision of the Organizational
Documents relating to EQK; (ii) to my knowledge, any order, judgment,
injunction, decree, determination or award presently in effect applicable to
EQK; or (iii) to my knowledge, any instrument under which EQK is bound.
c. No consent, approval or other authorization of or by any court,
administrative agency or governmental authority is required in connection with
the execution, delivery and performance of any of the Loan Extension Documents
by EQK.
d. To my knowledge, there are no actions, suits, proceedings or
investigations pending or threatened against EQK which, if determined adversely
to EQK, would bring into question the validity of the Loan Extension Documents
or the ability of EQK to perform its obligations thereunder.
The opinions set forth herein are subject to the qualification that the
enforcement of the is subject to applicable fraudulent conveyance, creditors
rights, bankruptcy, reorganization and other laws of general application
relating to or affecting the enforcement or creditors' rights or the enforcement
of the security provided by such instruments.
Very truly yours,
/s/ Linda K. Schear
- -------------------
Linda K. Schear
Counsel, EQK Realty Investors I
LKS: ms
<PAGE> 10
COMMONWEALTH LAND TITLE INSURANCE COMPANY
A Reliance Group Company
8 Penn Center, Philadelphia, Pa. 19103
ENDORSEMENT
To be annexed to and form a part of Commitment/Policy No. D049935CP,
insuring PNC Bank, National Association,
as set forth in said Commitment/Policy.
The said Commitment/Policy is hereby amended in the following manner:
1) date of the policy is hereby amended to be 2/15/1996
2) See attached Schedule B Section 1, Schedule B Section 2 and
endorsements.
TIRBOP -- PA ENDORSEMENT 1070 (GENERAL ENDORSEMENT)
OWNER'S/LESSEE AND/OR LOAN POLICY
The total liability of the Company under said commitment/policy and any
endorsements attached thereto shall not exceed, in the aggregate, the face
amount of said policy and costs which the Company is obligated under the
provisions of said commitment/policy to pay. This endorsement is made a part of
said commitment/policy and is subject to the exclusions, schedules,
endorsements, conditions, stipulations and terms thereof, except as modified by
the provisions hereof. Nothing herein contained shall be construed as extending
or changing the effective date of said Commitment/Policy, unless otherwise
expressly stated.
Dated:
--------------------------------------
Authorized Signatory
TIRBOP -- PA ENDORSEMENT 1070 (General Endorsement)
OWNER'S/LESSEE AND/OR LOAN POLICY
<PAGE> 11
COMMONWEALTH LAND TITLE INSURANCE COMPANY
17 SOUTH MARKET SQ. SUITE 2-A,
HARRISBURG, PA 17101
717.232.6615
FAX: 717.232.6507
SECOND REVISED
TITLE INSURANCE COMMITMENT
Effective Date: February 15, 1996
Order No. : D145246CPA
HARRISBURG/ LINDA K. TRIVELY (29410)
SCHEDULE A
1. Policy or Policies to be issued:
ALTA Owner's Policy -- Form B 1992 (Rev 10/17/1992)
a. Proposed Insured:
Amount of Insurance:
ALTA Loan Policy -- 1992 (Rev 10/17/1992)
b. Proposed Insured: PNC Bank, National Association
Amount of Insurance: $1,587,430.00
2. The estate or interest in the land described or referred to in this
Schedule and covered herein is a fee simple, and title thereto is
at the effective date hereto vested in:
EQK Realty Investors I, a Massachusetts business trust
3. The land referred to in this Commitment is described below and in
Schedule C attached hereto and made a part hereof.
Note For Information Only:
The land referred to in this Commitment is commonly known as:
Harrisburg East Mall Harrisburg, PA
Swatara Township
Dauphin County, Pennsylvania
mss/lsd
PAGE 1
<PAGE> 12
SCHEDULE B SECTION 1
REQUIREMENTS
THE FOLLOWING REQUIREMENTS MUST BE MET:
2. Payment of the full consideration to or for the account of the grantors
or mortgagors.
3. Payment of the premiums, fees and charges for the policy.
4. Possible unfiled mechanics liens and municipal claims.
5. rights of parties in possession as tenants only.
6. Proof that all natural persons in this transaction are of full age and
legally competent.
7. Proof of identity of parties as set forth in Recital.
8. Possible additional assessments for taxes for new construction or for
any major improvements pursuant to provisions of Acts of Assembly
relating thereto, not yet assessed due or payable.
9. TAXES:
Receipts for Township, County and School Taxes for the years 1991 to
1992 inclusive.
Township, County and School Taxes for current year 1996, not yet due and
payable.
(Payment should be verified).
Assessment $34,254,000.00 #64-024-055.
10. WATER AND SEWER RENTS:
Receipts for Water and Sewer Rents for the years 1990 to 1994.
Water and Sewer Rents for current period.
Not yet due and payable.
11. MECHANICS AND MUNICIPAL CLAIMS: None.
INSURING INSTRUMENT OF RECORD:
Mortgage of $3,525,000.000 EQK Realty Investors I to Provident National
Bank (now PNC Bank, National Association) dated 12/16/1992 Recorded
12/22/1992 in Mortgage Book 1886 page 408.
PAGE 2
<PAGE> 13
ATTACHED TO AND FORMING A PART OF TITLE INSURANCE COMMITMENT Order No.:
D145246CP
1. $94,719,904.00.
Myles E. Tanenbaum, Raymond H. Wiffcoff, Alton G. Marshall,
Russell E. Palmer, Robert F. Froehlke, Howard Gittis and Henry E.
Beck, Jr., individually but as Trustees of EQK Realty Investors I, a
Massachusetts business trust, under that certain Declaration of Trust
dated as of October 8, 1984.
TO: Salomon Brothers Realty Corp. Dated: December 18, 1985
Recorded: December 20, 1985 in Record Book 699 page 34. Amendment No.
1 to Mortgage dated February 4, 1988 and recorded February 11, 1988
in Record Book 1069, page 261.
ASSIGNED TO: The Prudential Insurance Company of America
Dated: Recorded: February 11, 1988 in Assignment of Mortgage Book
1069 Page 276.
2.
3. $75,688,720.00.
EQK Realty Investors I, a Massachusetts business trust
TO: The Prudential Insurance Company of America
Dated: December 15, 1992 Recorded: December 22, 1992 in Record Book
1886 page 298.
4. $3,525,000.00.
EQK Realty Investors I, a Massachusetts business trust
TO: Provident National Bank
Dated: December 16, 1992 Recorded: December 22, 1992 in Mortgage Book
1886 page 408. Insured.
12.JUDGMENTS: None.
13.FINANCING STATEMENTS:
EQK Realty Investors I (Debtor) filed November 5, 1991 in
Recorder of Deeds Office in Secure Transaction Docket #6532 to The
Prudential Insurance Company of America (Secured Party).
EQK Realty Investors I (Debtor) filed December 22, 1992 in Recorder
of Deeds Office to #6973 to Provident National Bank (Secured Party).
PAGE 3
<PAGE> 14
ATTACHED TO AND FORMING A PART OF TITLE INSURANCE COMMITMENT Order No.:
D145246CP
EQK Realty Investors I (Debtor) filed December 22, 1992 in
Prothonotary's Office to #2408 ST 1992 to Provident National Bank
(Secured Party).
EQK Realty Investors I (Debtor) filed December 22, 1992 in
Recorder of Deeds Office to #6972 to The Prudential Insurance
Company of America (Secured Party).
EQK Realty Investors I (Debtor) filed December 22, 1992 in
Prothonotary's Office to #2409 ST 1992 to The Prudential Insurance
Company of America (Secured Party).
14. Proof that the trusts EQK Realty Investors I are still subsisting.
15. Disclosure of Authority of Trustees to encumber real estate.
16. Except attached mortgage.
PAGE 4
<PAGE> 15
Mortgage of $94,719,904.00 Myles H. Tannenbaum, Raymond H. Wiffcoff, Alton
G. Marshall, Russell E. Palmer, Robert F. Froehlke, Howard Gittis and Henry E.
Beck, Jr., Trustees of EQK Realty Investors I, a Massachusetts Business Trust
under that certain Declaration of Trust dated as of 10/8/1984 to Salomon
Brothers Realty Corp. dated 12/18/1985 and recorded 12/20/1985 in Record Book
1069 page 261, as same was assigned to The Prudential Insurance Company of
America by Assignment of Mortgage recorded 2/11/1988 in Assignment of Mortgage
Book 1069 page 388, as same was amended and restated by an Amended and Restated
Open End Mortgage and Security Agreement between EQK Realty Investors I and The
Prudential Insurance Company of America dated 12/15/1992 and recorded 12/22/1992
in Record Book 1886 page 298, as same was further amended by a certain Note,
Mortgage and Loan Modification Agreement between the Successor Trustees of EQK
Realty Investors, I and the Prudential Insurance Company of America (showing the
principal due on said Mortgage as $44,125,054.68) dated as of 12/15/1995 and
recorded / /1996 in Record Book Page .
<PAGE> 16
SCHEDULE B SECTION 2
EXCEPTIONS
ANY POLICY WE ISSUE WILL HAVE THE FOLLOWING EXCEPTIONS UNLESS THEY ARE TAKEN
CARE OF TO OUR SATISFACTION.
1. Unrecorded easements, discrepancies or conflicts in boundary lines,
shortages in area and encroachments which an accurate and complete
survey would disclose.
2. Rights granted to Pennsylvania Power and Light Company in Misc. Book
"N", Volume 11, Page 408; Record Book 1208, Page 536 and Record Book
1208, Page 539.
3. Reservations, conditions and restrictions as set forth in Deed Book "H",
Volume 47, Page 543 and Deed Book "V", Volume 45, Page 455.
4. Declaration of easements, restrictions and covenants by Swatara
Associates dated March 4, 1968, recorded April 22, 1988 in Misc. Book
"R", Volume 12, Page 155.
5. Assignment of Rents and Lessor's Interest in Leases: Swatara Associates
to The Western Savings Fund Society of Philadelphia dated November 4,
1971 and recorded in Misc. Book "C", Volume 14, Page 504. Assignments of
Rents Modification Agreement dated June 17, 1974 recorded June 21, 1974
in Misc. Book "L", Volume 15, Page 700. (This was subordinated to the
lien of Mortgage from Swatara Associates to Continental Assurance
Company by Agreement recorded in Misc. Book "M", Volume 15, Page 435).
6. Terms and conditions as contained in Lease between Swatara Associates,
Lessor, to John Wanamaker, a Memorandum thereof dated March 14, 1968
and recorded in Misc. Book "U", Volume 12, Page 390.
7. Assignment: Swatara Associates to Continental Assurance Company dated
July 12, 1974 in Misc. Book "M", Volume 15, Page 445.
8. Non-Disturbance Agreement: John Wanamaker to Continental Assurance
Company dated July 2, 1974 and recorded July 12, 1974 in Misc. Book
"M", Volume 15, Page 453.
9. Assignment of Rents: Swatara Associates to Continental Assurance Company
dated July 9, 1974 and recorded July 12, 1974 in Misc. Book "M", Volume
15, Page 450.
10. Terms and conditions of Lease, a Memorandum thereof between Swatara
Associates to G.C. Murphy Co., dated September 6, 1968 and recorded in
Misc. Book "V", Volume 12, Page 196.
<PAGE> 17
11. Terms and conditions of Lease, a Memorandum thereof between Swatara
Associates to J.C. Penney Co., Inc., dated November 15, 1968 in
Misc. Book "X", Volume 12, Page 633; dated August 11, 1969, recorded
in Misc. Book "M", Volume 13, Page 212. Lease Term Agreements recorded
in Misc. Book "Z", Volume 13, Page 162 and in Misc. Book "D", Volume
14, Page 32 and Misc. Book "F", Volume 16, Page 172.
12. Terms and conditions of Lease and Memorandum thereof between Swatara
Associates to Lane Bryant, Harrisburg East, Inc., dated
September 5, 1969 and recorded in Misc. Book "G", Volume 13, Page 146.
13. Terms and conditions of Lease, a Memorandum thereof between Swatara
Associates to Dauphin Deposit Trust Company, dated October 3,
1969 and recorded in Misc. Book "H", Volume 13, Page 143.
14. Terms and conditions of Lease, a Memorandum thereof between Swatara
Associates to Commonwealth Trading, Inc., dated March 26, 1972
and recorded in Misc. Book "F", Volume 16, Page 955.
15. Terms and conditions of Lease, a Memorandum thereof between Swatara
Associates to Friendly Ice Cream Corp., dated September 30,
1975 and recorded in Misc. Book "N", Volume 16, Page 68.
16. Agreement dated February 15, 1978, Swatara Associates to Harrisburg
Second Company, recorded March 3, 1978 in Misc. Book "X", Volume 16,
Page 681.
17. Deed of Easement: Swatara Associates to Harrisburg Second Company,
recorded March 3, 1978 in Misc. Book "X", Volume 16, Page 698.
18. Adjoining Landowner's Agreement and Crosseasement Agreement between
Swatara Associates and Gimbel Brothers, Inc., dated January 31,
1978 and recorded February 1, 1978 in Misc. Book "W", Volume 16, Page
838.
19. Assignment of Rents and Leases dated January 31, 1978 and recorded
February 1, 1978 in Misc. Book "W", Volume 16, Page 832.
20. Deed of Easement: Swatara Associates to the Commonwealth of
Pennsylvania, Department of Highways, dated October 12, 1967
and recorded February 7, 1968 in Misc. Book "P", Volume 12, Page 543.
21. Subject to public and private rights in that portion of the premises in
the beds of Poor House Road; Legislative Route 618, Friendship Road and
Legislative Route No. 139.
22. Rights granted to Dauphin Consolidated Water Supply Company in Misc.
Book "L", Volume 15, Page 164.
23. Easement: Swatara Associates to Dauphin Consolidated Water Supply
Company in Misc. Book "R", Volume 14, Page 223.
<PAGE> 18
24. Landlords Subordination and Consent between Swatara Associates and
Hess's dated July 21, 1978 and recorded August 2, 1978 in Misc.
Book "B", Volume 17, Page 724 and re-recorded October 16, 1978 in
Misc. Book "D", Volume 17, Page 925.
25. Terms of any unrecorded lease or rights of parties in possession, as
tenants only.
26. Rights granted to Bell Telephone Company in Record Book 1511, Page 144.
27. Rights granted to Swatara Township Authority in Misc. Book Y 10, page
465.
28. Conditions as shown on Survey by Gannett Fleming Civil Engineers dated
December, 1992, including the following:
(1) Sewer line right of way to Swatara Township Authority in Misc.
Book Y 10, page 465
(2) Building setback lines of 100 feet from Center line of Paxton
Street and Poor House Road, 40 feet from rights of way lines of
County Prison Road and Friendship Road
29. Memorandum of Lease: EQK Realty Investors I to Hess's Department
Stores, Inc., dated November 30, 1994 and recorded December 13,
1994 in Record Book 2338, page 454.
30. Memorandum of First Amendment to Lease: EQK Realty Investors I to Toys
R Us-PENN, Inc. dated December 5, 1994 and recorded February
28, 1995 in Record Book 2370, page 380.
31. Memorandum of Lease Agreement: EQK Realty Investors I to County of
Dauphin dated April 24, 1995 and recorded June 21, 1995 in
Record book 2428, page 24. (For 100 parking spaces).
32. Rights granted to General Waterworks of Pennsylvania, Inc. in Record
Book 2462, page 451.
33. Subordination and Intercreditor Agreement: Provident National Bank to
The Prudential Insurance Company dated December 16, 1992 and
recorded December 22, 1992 in Record Book 1886, page 459.
34. Absolute Assignment of Leases and Rents and Rental Collection
Agreement: EQK Realty Investors I to The Prudential Insurance
Company of America dated December 15, 1992 and recorded December 22,
1992 in Record Book 1886, page 373.
35. Assignment of Lessor's Interest in Leases: EQK Realty Investors I to
Provident National Bank dated December 16, 1992 and recorded
December 22, 1992 in Record Book 1886, page 439.
<PAGE> 19
36. Subordination, Non-disturbance and Attornment Agreement: Prudential
Insurance Company of America, EQK Realty Investors I and The
May Department Stores Company dated October 9, 1995 and recorded
December 21, 1995 in Record Book , page .
ENDORSEMENTS:
The following endorsements will appear in Policy if indicated.
Endorsement Pa. 300 Endorsement Endorsement
<PAGE> 20
SCHEDULE C
DESCRIPTION AND RECITAL
ALL THAT CERTAIN parcel of ground with the improvements erected thereon,
situated in Swatara Township, Dauphin County, Pennsylvania as follows:
BEGINNING at a point at the intersection of the eastern right of way line of
Dauphin County Prison Road (50 feet) with the southern legal right of way line
of Paxton Street (80 feet) (Pennsylvania Legislative Route 139, U.S. Route 322
and 422); thence along the southern legal right of way line of Paxton Street,
the following courses and distances: (1) on a curve to the left, having a
radius of 2904.93 feet, an arc length of 1094.32 feet, (a chord bearing and
distance, South 76 degrees 05 minutes 17 seconds East, 1087.85 feet, having a
delta of 21 degrees 35 minutes 02 seconds to the left) to a P.O.C. (Point of
Curve); (2) South 03 degrees 13 minutes 01 second West, 15.50 feet; (3) on a
curve to the right, having a radius of 3057.33 feet, an arc length of 99.01
feet (a chord bearing and distance, South 85 degrees 51 minutes 19 seconds
East, 99.01 feet, having a delta of 01 degree 51 minutes 20 seconds to the
right); (4) South 84 degrees 55 minutes 39 seconds East, 368.47 feet; (5) on a
curve to the left, having a radius of 1940.08 feet, an arc length of 154.25
feet (a chord bearing and distance, South 87 degrees 12 minutes 19 seconds
East, 154.21 feet, having a delta of 04 degrees 33 minutes 20 seconds to the
left); (6) South 89 degrees 28 minutes 59 seconds East, 459.67 feet; (7) North
00 degrees 31 minutes 01 second East, 14.00 feet; (8) South 89 degrees 28
minutes 59 seconds East, 55.42 feet; thence along properties now or formerly of
AMP, Inc., Miller Bros. Venders, Incorporated and Robert M. Mumma, South 42
degrees 44 minutes 39 seconds West, 1015.95 feet; thence along property now or
formerly of Robert M. Mumma, South 42 degrees 15 minutes 24 seconds East,
261.67 feet, to a point in the center of Friendship Road (Dedicated 50.00 feet
right of way); thence along the center line of Friendship Road, South 47
degrees 24 minutes 36 seconds West, 710.75 feet, to a point marked with a
railroad spike on the center line of Friendship Road and Poor House Road
(Pennsylvania Legislative Route 618, Route 441); thence along the centerline of
Poor House Road the following courses and distances: (1) North 40 degrees 39
minutes 11 seconds West, 200.07 feet; (2) North 44 degrees 47 minutes 49
seconds West, 99.80 feet; (3) North 51 degrees 08 minutes 21 seconds West,
100.00 feet; (4) North 62 degrees 07 minutes 21 seconds West, 100.00 feet; (5)
North 71 degrees 26 minutes 21 seconds West, 100.00 feet; (6) North 80 degrees
41 minutes 21 seconds West, 100.00 feet; (7) North 88 degrees 28 minutes 21
seconds West, 499.37 feet; (8) North 81 degrees 35 minutes 47 seconds West,
531.70 feet; to a point marked with a 1/2 inch iron pin; thence North 43
degrees 49 minutes 13 seconds East, 19.05 feet, to a point located on the north
side of Poor House Road; thence along the north side of Poor House Road, the
following courses and distances: (1) North 81 degrees 37 minutes 02 seconds
West, 401.59 feet, to a point marked with a six inch square concrete monument;
(2) North 76 degrees 39 minutes 35 seconds West, 96.614 feet, to a point at the
northeastern corner of Dauphin County Prison Road; thence along the eastern
right of way line of Dauphin County Prison Road (Dedicated 50.00 feet right of
way, August 9, 1968) the following courses and distances: (1) North 18 degrees
43 minutes 11 seconds East 106.87 feet; (2) on a curve to the right, having a
radius of 175.00 feet, an arc
<PAGE> 21
length of 99.74 feet (a chord bearing and distance, North 35 degrees 02 minutes
52 seconds East, 98.40 feet, having a delta of 32 degrees 39 minutes 22
seconds); (3) North 51 degrees 22 minutes 33 seconds East, 637.82 feet; (4) on a
curve to the left, having a radius of 425.00 feet, an arc length of 194.33 feet
(a chord bearing and distance North 38 degrees 16 minutes 33 seconds East,
192.65 feet, having a delta of 26 degrees 12 minutes 00 seconds); (5) North 25
degrees 10 minutes 33 seconds East, 481.42 feet, to the point of BEGINNING.
CONTAINING 61.9152 acres of land as shown on Drawing No. I-24046, dated
December 16, 1985, prepared by Gannett Fleming Civil Engineers, Harrisburg,
Pennsylvania.
AND FURTHER, the Commonwealth of Pennsylvania, Department of Highways vacated a
portion of the premises, along Paxton Street, being shown as 0.354 acres on
highway plan, Plot No. 22 of right of way plan for Route No. 767, Section No.
5B, approved by the Governor on July 20, 1967.
BEING the same premises which Swatara Associates, a Pennsylvania limited
partnership, by Deed dated March 6, 1985 and recorded March 13, 1985 in Dauphin
County in Record Book 591, Page 170, conveyed unto Myles H. Tanenbaum, Raymond
H. Wittcoff, Alton G. Marshall, Russell E. Palmer, Robert F. Froehlke, Howard
Gittis and Henry C. Beck, Jr., not individually but as Trustees of EQK Realty
Investors I, a Massachusetts business trust, under that certain Declaration of
Trust dated as of October 8, 1984 as amended.
<PAGE> 22
COMMONWEALTH LAND TITLE INSURANCE COMPANY
ENDORSEMENT
USURY -- (SPECIMEN)
To be annexed to and form a part of Commitment/Policy No. insuring
as set forth in said Commitment/Policy.
The said Commitment/Policy is hereby amended in the following manner:
The Company hereby insures the insured against loss or damage, including
attorneys' fees and costs of litigation, which the insured shall sustain by
reason of the entry of any court order or judgment which constitutes a final
determination and adjudges:
That the lien of the mortgage/deed of trust/deed to secure debt referred to in
Schedule A is invalid or unenforceable as to the principal and interest due on
the note or notes secured thereby, said interest being computed in accordance
with the provisions of such mortgage/deed of trust/deed to secure debt or of
said note or notes on the ground that the loan evidenced by the note or notes
secured thereby are usurious under the laws of the State of Pennsylvania at the
date of policy.
The total liability of the Company under said commitment/policy and any
endorsements attached thereto shall not exceed, in the aggregate, the face
amount of said policy and cost which the Company is obligated under the
provisions of said commitment/policy to pay.
This endorsement is made a part of said commitment/policy and is subject to the
exclusions, schedules, endorsements, conditions, stipulations and terms
thereof, except as modified by the provisions hereof.
Nothing herein contained shall be construed as extending or changing the
effective date of said Commitment/Policy, unless otherwise expressly stated.
IN WITNESS WHEREOF COMMONWEALTH LAND TITLE INSURANCE COMPANY has caused its
corporate name and seal to be hereunto affixed by its duly authorized officers
on the day of 19 .
Countersigned COMMONWEALTH LAND TITLE INSURANCE COMPANY
<PAGE> 23
length of 99.74 feet (a chord bearing and distance, North 35 degrees 02 minutes
52 seconds East, 98.40 feet, having a delta of 32 degrees 39 minutes 22
seconds); (3) North 51 degrees 22 minutes 33 seconds East, 637.82 feet; (4) on a
curve to the left, having a radius of 425.00 feet, an arc length of 194.33 feet
(a chord bearing and distance North 38 degrees 16 minutes 33 seconds East,
192.65 feet, having a delta of 26 degrees 12 minutes 00 seconds); (5) North 25
degrees 10 minutes 33 seconds East, 481.42 feet, to the point of BEGINNING.
CONTAINING 61.9152 acres of land as shown on Drawing No. I-24046A, dated
November 30, 1984, last recertified and updated December 4, 1992, prepared by
Gannett Fleming Civil Engineers, Harrisburg, Pennsylvania.
AND FURTHER, the Commonwealth of Pennsylvania, Department of Highways
vacated a portion of the premises, along Paxton Street, being shown as 0.354
acres on highway plan, Plot No. 22 of right of way plan for Route No. 767,
Section No. 5B, approved by the Governor on July 20, 1967.
BEING the same premises which Swatara Associates, a Pennsylvania limited
partnership, by Deed dated March 6, 1985 and recorded March 13, 1985 in Dauphin
County in Record Book 591, Page 170, conveyed unto Myles H. Tanenbaum, Raymond
H. Wittcoff, Alton G. Marshall, Russell E. Palmer, Robert F. Froehlke, Howard
Gittis and Henry C. Beck, Jr., not individually but as Trustees of EQK Realty
Investors I, a Massachusetts business trust, under that certain Declaration of
Trust dated as of October 8, 1984 as amended.
<PAGE> 24
[COMMONWEALTH
LAND TITLE COMPANY
LOGO] ENDORSEMENT
To be annexed to and form a part of Commitment/Policy No. insuring
as set forth in said Commitment/Policy.
The said Commitment/Policy is hereby amended in the following manner:
Pursuant to and subject to the provisions of the policy, the Company insures
against loss or damage (including without limitation, costs, attorney's fees
and expenses) arising out of the invalidity, unenforceability or impairment of
the priority of the lien of the Insured Mortgage by reason of a final decree of
a court of competent jurisdiction adjudicating that the Insured, by reason of
the Insured having been given, as additional consideration, warrants to
purchase shares in the Mortgagor.
The total liability of the Company under said commitment/policy and any
endorsements attached thereto shall not exceed, in the aggregate, the face
amount of said policy and costs which the Company is obligated under the
provisions of said commitment/policy to pay.
This endorsement is made a part of said commitment/policy and is subject to
the exclusions, schedules, endorsements, conditions, stipulations and terms
thereof, except as modified by the provisions hereof.
Nothing herein contained shall be construed as extending or changing the
effective date of said Commitment/Policy, unless otherwise expressly stated.
IN WITNESS WHEREOF COMMONWEALTH LAND TITLE INSURANCE COMPANY has caused its
corporate name and seal to be hereunto affixed by its duly authorized officers
on the day of A.D. of 19 .
Countersigned COMMONWEALTH LAND TITLE INSURANCE COMPANY
By
President
By
----------------------------------
Authorized Officer or Agent (SEAL)
Attest:
Secretary
ORIGINAL
<PAGE> 25
[COMMONWEALTH
LAND TITLE INSURANCE
COMPANY
LOGO] ENDORSEMENT
insuring
To be annexed to and form a part of Commitment/Policy No.
as set forth in said Commitment/Policy.
The said Commitment/Policy is hereby amended in the following manner:
The Company hereby insures the Insured that said land abuts a
physically open street known as Paxton Street, Poor House Road and County
Prison Road; and the Company hereby insures said Assured against loss which
said Assured shall sustain in the event said assurances herein shall prove
to be incorrect.
The total liability of the Company under said commitment/policy and any
endorsements attached thereto shall not exceed, in the aggregate, the face
amount of said policy and costs which the Company is obligated under the
provisions of said commitment/policy to pay.
This endorsement is made a part of said commitment/policy and is subject to the
exclusions, schedules, endorsements, conditions, stipulations and terms
thereof, except as modified by the provisions hereof.
Nothing herein contained shall be construed as extending or changing the
effective date of said Commitment/Policy, unless otherwise expressly stated.
IN WITNESS WHEREOF COMMONWEALTH LAND TITLE INSURANCE COMPANY has caused its
corporate name and seal to be hereunto affixed by its duly authorized officers
on the day of A.D. of 19 .
Countersigned COMMONWEALTH LAND TITLE INSURANCE COMPANY
By
President
By
----------------------------------
Authorized Officer or Agent (SEAL)
Attest:
Secretary
ORIGINAL
<PAGE> 26
[COMMONWEALTH
LAND TITLE INSURANCE
COMPANY
LOGO] ENDORSEMENT
POLICY NO.
The Company insures that the covenants, conditions and restrictions
affecting the title to the land contained in
have not been violated and that a future violation thereof will not cause a
forfeiture or reversion of title.
The total liability of the Company under said policy and any endorsement
thereon shall not exceed, in the aggregate, the face amount of said policy and
costs which the Company is obligated, under the conditions and stipulations
thereof, to pay.
This endorsement is made a part of said policy and is subject to the
schedule, conditions and stipulations therein, except as modified by the
provisions hereof.
Nothing herein contained shall be construed as extending or changing the
effective date of said Policy, unless otherwise expressly stated.
IN WITNESS WHEREOF COMMONWEALTH LAND TITLE INSURANCE COMPANY has caused its
corporate name and seal to be hereunto affixed by its duly authorized officers
on the day of 19 .
Countersigned:
By:
President
- ----------------------------
Authorized Signatory (SEAL)
Attest:
Secretary
<PAGE> 27
[COMMONWEALTH LAND
TITLE INSURANCE
COMPANY
LOGO]
ENDORSEMENT
POLICY NO.
THE COMPANY ELIMINATES FROM ITS LOAN POLICY THE EXCEPTION READING AS
FOLLOWS:
Unrecorded easements, discrepancies or conflicts in boundary lines, shortages
in area and encroachments which an accurate and complete survey would disclose.
and further insures, except as set forth above, against loss by reason of
encroachment, other than by party walls, whether by the building on the land
encroaching upon adjacent property or by any building on adjacent property
encroaching upon the said land.
The total liability of the Company under said policy and any endorsement
thereon shall not exceed, in the aggregate, the face amount of said policy and
costs which the Company is obligated, under the conditions and stipulations
thereof, to pay.
This endorsement is made a part of said policy and is subject to the
schedule, conditions and stipulations therein, except as modified by the
provisions hereof.
Nothing herein contained shall be construed as extending or changing the
effective date of said Policy, unless otherwise expressly stated.
IN WITNESS WHEREOF COMMONWEALTH LAND TITLE INSURANCE COMPANY has caused its
corporate name and seal to the hereunto affixed by its duly authorized officers
on the day of , 19 .
COUNTERSIGNED: BY:
- ------------------------------------ President
Authorized Signatory (SEAL) ATTEST:
Secretary
<PAGE> 28
The Company insures the owner of the indebtedness secured by the insured
mortgage against loss or damage sustained by reason of:
1. Any incorrectness in the assurance that, at Date of Policy:
(a) There are no covenants, conditions or restrictions under which
the lien of the mortgage referred to in Schedule A can be divested,
subordinated or extinguished, or its validity, priority or
enforceability impaired.
(b) Unless expressly excepted in Schedule B:
(1) There are no present violations on the land of any
enforceable covenants, conditions or restrictions nor
do any existing improvements on the land violate any
building setback lines shown on a plat of subdivision
recorded or filed in the public records.
(2) Any instrument referred to in Schedule B as containing
covenants, conditions or restrictions on the land does
not, in addition, (i) establish an easement on the land;
(ii) provide a lien for liquidated damages; (iii) provide
for a private charge or assessment; (iv) proved for an
option to purchase, a right of first refusal or the prior
approval of a future purchaser or occupant.
(3) There is no encroachment of existing improvements located on
the land onto adjoining land, nor any encroachment onto
the land of existing improvements located on adjoining
land.
(4) There is no encroachment of existing improvements located on
the land onto that portion of the land subject to any
easement excepted in Schedule B.
2. Any future violation on the land of any existing covenants,
conditions or restrictions occurring prior to the acquisition of
title to the estate or interest in the land by the insured, provided
the violations results in:
(a) impairment or loss of the lien of the insured mortgage; or
(b) loss of title to the estate or interest in the land if the
insured shall acquire title in satisfaction of the
indebtedness secured by the insured mortgage.
<PAGE> 29
3. Damage to existing improvements, including lawns, shrubbery or
trees:
(a) Which are located on or encroach upon that portion of the land
subject to any easement excepted in Schedule B, which
damage results from the exercise of the right to maintain the
easement for the purposes for which it was granted or
reserved;
(b) Resulting from the future exercise of any right to use the
surface of the land for the extraction or development
of minerals excepted from the description of the land or
excepted in Schedule B.
4. Any final court order or judgment requiring the removal from any
land adjoining the land or any encroachment excepted in Schedule B.
5. Any final court order or judgment denying the right to maintain any
existing improvements on the land because of any violation of
covenants, conditions or restrictions or building setback lines
shown on a plan or subdivision recorded or filed in the public
records.
Whenever in this endorsement the words "covenants, conditions
or restrictions" appear they shall not be deemed to refer to or
include the terms, covenants, condition or limitations contained
in an instrument creating a lease.
The total liability of the Company under said Policy and any
endorsements attached thereto shall not exceed, in the aggregate,
the face amount of said Policy and costs which the Company is
obligated under the provisions of said Policy to pay.
This endorsement is made a part of said Policy and is subject
to the exclusions, schedules, endorsements, conditions,
stipulations and terms thereof, except as modified by the
provisions hereof.
Nothing herein contained shall be construed as extending or
changing the effective date of said Policy, unless otherwise
expressly stated.
<PAGE> 30
NOTE, MORTGAGE AND LOAN MODIFICATION AGREEMENT
NOTE, MORTGAGE AND LOAN MODIFICATION AGREEMENT (this "Agreement") dated
as of December 15, 1995 by and between SYLVAN M. COHEN, GEORGE R. PEACOCK,
PHILIP E. STEPHENS, ALTON G. MARSHALL AND ROBERT C. ROBB, JR., as Successor
Trustees of EQK REALTY INVESTORS I, a Massachusetts business trust ("EQK"),
having its principal office and place of business at 5775 Peachtree-Dunwoody
Road, Suite 200-D, Atlanta, Georgia 30342, and THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA, a New Jersey corporation ("Prudential"), having an office at 1200
"K" Street, N.W., Suite 1000, Washington, D.C. 20005.
BACKGROUND
On December 18, 1985, EQK executed an delivered to Solomon Brothers
Realty Corp. ("Solomon") a certain Zero Coupon Mortgage Note due December 18,
1992 in the face amount of $94,719,904 (the "Zero Coupon Note"). The Zero
Coupon Note was amended and restated in its entirety by an Amended and Restated
Note Agreement dated as of February 4, 1988 by and between EQK and Solomon (the
"First Amended Note"). Immediately following EQK's execution and delivery of
the First Amended Note, the First Amended Note was endorsed to, and all of the
security therefore was assigned to, Prudential in accordance with a certain
Note and Mortgage Purchase and Sale Agreement between Solomon and Prudential.
On or about December 16, 1992, the First Amended Note was partially
paid and was amended and restated in its entirety pursuant to a Second Amended
and Restated Note dated December 16, 1992 in the principal amount of
$75,688,720 (the "Second Amended Note") which, inter alia, extended the
Maturity Date of the Second Amended Note to December 15, 1995. On December 8,
1995, the Second Amended Note was partially prepaid and all collateral relating
to the Castleton Property was released by Prudential. Prior to the date hereof,
Prudential has also released all collateral relating to the Peachtree Property.
The Second Amended Note is presently secured by:
1. An Amended and Restated Open-End Mortgage and Security Agreement
(Harrisburg Mall) dated as of December 15, 1992 from EQK to Prudential (the
"Amended Harrisburg Mortgage") encumbering certain property located in Dauphin
County, Pennsylvania (the "Harrisburg Property"); the Amended Harrisburg
Mortgage was recorded on December 22, 1992 in The Recorder's Office of Dauphin
County, Pennsylvania (the "Dauphin Recorder") in Book 1886, page 298, et seq.;
<PAGE> 31
2. An Absolute Assignment of Leases and Rents and Rental Collection
Agreement dated as of December 15, 1992 by and between EQK, Prudential and
First Union National Bank of Georgia, as Rental Collection Agent (the "Rental
Collection Agent") with respect to the Harrisburg Property (the "Harrisburg
Assignment"); the Harrisburg Assignment was recorded on December 22, 1992 by
the Dauphin Recorder in Book 1886, page 373; et seq.;
3. A Cash Management and Security Agreement by and among EQK,
Prudential and First Union National Bank of Georgia, as Escrow Agent; and
4. A Hazardous Substances Covenant and Indemnity Agreement dated as of
December 16, 1995 from EQK to and for the benefit of Prudential (the
"Environmental Agreement").
The Second Amended Note, the Amended Harrisburg Mortgage, the
Harrisburg Assignment, the Cash Management Agreement, the Environmental
Indemnity Agreement, and all financing statements and other instruments
securing the Second Amended Note are herein collectively referred to as the
"Loan Documents."
Concurrently with the execution of the Loan Documents, the parties
executed: a Warrant Agreement ("Warrant Agreement") dated December 18, 1992 by
and between EQK and Prudential pursuant to which a Warrant was granted to
Prudential to purchase Shares of beneficial interest in EQK; and a
Subordination and Intercreditor Agreement ("Intercreditor Agreement") dated as
of December 16, 1992 by and among Prudential, EQK and PNC Bank, National
Association, formerly known as Provident National Bank ("PNC") pursuant to
which Prudential, inter alia, consented to the creation of subordinate
mortgages to secure sums owed by EQK to PNC and PNC agreed that all sums owed
to PNC would remain subordinate to the Loan Documents. The Intercreditor
Agreement was recorded on December 22, 1992 by the Dauphin Recorder in Book
1886, Page 459 et seq.
Pursuant to a letter application dated December 15, 1995 (the
"Application"), EQK has requested Prudential to extend the maturity of the
Second Amended Note and to modify certain of the provisions of the Loan
Documents. The Application was countersigned by Prudential and, as so
countersigned, constitutes the "Commitment". This Agreement is intended to
amend and modify certain provisions of the Loan Documents in accordance with
the Commitment.
Capitalized terms used herein and not defined shall have their
respective meanings set forth in the Loan Documents, the Warrant Agreement and
the Intercreditor Agreement.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
<PAGE> 32
1. INCORPORATION BY REFERENCE
Section 1.1 Incorporation by Reference. The recitals set forth in the
Background section of this Agreement, the Loan Documents, the Warrant Agreement
and the Intercreditor Agreement are hereby incorporated herein by reference as
though set forth in full in the text of this Agreement.
2. SECOND AMENDED NOTE
Section 2.1 Principal Balance. EQK and Prudential confirm and agree
that the principal balance of the Second Amended Note, including all accrued
and unpaid interest through and including December 14, 1995, is $44,125,054.68.
Section 2.2 Contract Interest Rate. Section 2(a) of the Second
Amended Note is hereby amended by adding thereto a new subsection (iv) which
reads as follows:
"(iv) From and after December 15, 1995 through and including December
14, 1996, the principal sum outstanding from time to time under this Note
shall bear interest at the rate of eight and fifty-four one-hundredths
percent (8.54%) per annum."
Section 2.3 Payment. Effective as of December 15, 1995, Sections 3(a)
through 3(c) of the Second Amended Note shall be deleted in their entirety and
the following shall be substituted in lieu thereof:
"(a) Commencing January 15, 1996 and on the fifteenth (15th) day of
each month thereafter (the "Monthly Payment Date") through and including
November 15, 1996, Maker shall pay to Payee installments of principal and
interest in the amount of $340,536.00 (the "Monthly Payment Amount") each,
which installments shall be applied first to accrued and unpaid interest on
this Note and then to the payment of principal of this Note without premium
or penalty.
"(b) Intentionally omitted.
"(c) If a portion of the Loan is prepaid, the Monthly Payment Amount
shall be reduced in proportion to the ratio of the unpaid principal balance
of the Second Amended Note immediately following such prepayment divided by
the unpaid-principal balance of the Second Amended Note immediately prior
to such prepayment."
<PAGE> 33
Section 2.4 Maturity Date. The Maturity Date set forth in Section
3(d) of the Second Amended Note is hereby amended to read "December 15, 1996."
Section 2.5 Security. All references in Section 5 of the Second
Amended Note to the Peachtree Property and the Castleton Property and the
security held by Prudential with respect thereto are hereby deleted in their
entirety from the Second Amended Note as the Peachtree Property and the
Castleton Property have been sold and all security held with respect to the
Peachtree Property and the Castleton Property have been released by Prudential.
Section 2.6 Prepayment. Section 7(a) of the Second Amended Note is
hereby amended by adding the following at the end thereof:
"Notwithstanding the foregoing, Payee hereby waives any prepayment
premium pursuant to (i) the prepayment made by Maker on December 8,
1995 and (ii) any prepayment from and after the date hereof and prior to
the occurrence of an Event of Default pursuant to which all sums payable
under this Note and all agreements securing this Note are paid in full."
Section 2.7 Confession of Judgment. EQK, knowingly, intentionally and
voluntarily, and with the advise of separate counsel, hereby ratifies and
confirms the confessions of judgment and warrants of attorney to confess
judgment set forth in Section 10 of the Second Amended Note.
Section 2.8 Second Amended Note Ratified and Confirmed. Except as
amended and modified hereby or inconsistent with the provisions hereof, the
Second Amended Note is hereby ratified and confirmed.
3. AMENDMENTS TO AMENDED HARRISBURG MORTGAGE
Section 3.1 Senior Mortgages. EQK hereby represents and warrants to
Prudential that the Senior Mortgages referred to in the Amended Harrisburg
Mortgage have been paid in full and satisfied. Accordingly all references in
the Amended Harrisburg Mortgage to "Senior Mortgages" are hereby deleted in
their entirety.
Section 3.2 Peachtree and Castleton Properties. All references in the
Amended Harrisburg Mortgage to the Peachtree Property and the Castleton
Property and the security held by Prudential with respect thereto are hereby
deleted in their entirety.
<PAGE> 34
Section 3.3 Confession of Judgment. EQK, knowingly, intentionally and
voluntarily, and with the advise of separate counsel, hereby ratifies and
confirms the confessions of judgment and warrants of attorney to confess
judgment set forth in Section 6.2 of the Amended Harrisburg Mortgage.
Section 3.4 Ratification of Harrisburg Mortgage. The Amended
Harrisburg Mortgage is hereby ratified and confirmed in its entirety, subject
only to the provisions of this Agreement.
4. ASSIGNMENTS
Section 4.1 Peachtree and Castleton Properties. All references in the
Harrisburg Assignment to the Peachtree Property and the Castleton Property and
the security held by Prudential with respect thereto are hereby deleted in
their entirety.
Section 4.2 Ratification of Harrisburg Assignment. The Harrisburg
Assignment is hereby ratified and confirmed in their entirety, subject only to
the provisions of this Agreement.
5. CASH MANAGEMENT AGREEMENT
Section 5.1 Peachtree and Castleton Properties. All references to the
Peachtree Property and the Castleton Property and to the security held by
Prudential with respect thereto in the Cash Management Agreement are hereby
deleted in their entirety.
Section 5.2 Asset Management Fee. Section 6.2 of the Cash Management
Agreement is hereby amended to substitute the amount "$150,000" for the amount
of "$500,000", as set forth therein.
Section 5.3 Includible Asset Management Fee. The definition of the
term "Includible Asset Management Fee" set forth in Exhibit A to the Cash
Management Agreement is hereby amended to substitute the amount "$150,000" for
the amount "$500,000", and the quarterly payments of the Includible Asset
Management Fee shall be reduced to "$37,500".
Section 5.4 Prepayment. Section 6.6(d) of the Cash Management
Agreement is hereby deleted in its entirety and the following shall be
substituted in lieu thereof:
"(d) Except for (i) payments of principal as a part of a scheduled
Monthly Payment Amount, (ii) the prepayment of principal by EQK on December
8, 1995 and (iii) a prepayment of the Second Amended Note in full prior to
the occurrence of an Event of Default hereun-
<PAGE> 35
der, upon a principal payment to Prudential prior to the Maturity Date,
EQK shall pay to Prudential a prepayment premium calculated in
accordance with the Yield Maintenance Formula attached hereto as Exhibit
"L"."
Section 5.5 Ratification of Cash Management Agreement. The Cash
Management Agreement is hereby ratified and confirmed in its entirety, subject
only to the provisions of this Agreement.
6. WARRANT AGREEMENT
Section 6.1 Representation, Warranty and Confirmation. EQK hereby
represents, warrants and confirms to Prudential that the Warrant Agreement
remains in full force and effect, the number of Shares of EQK issuable to
Prudential upon exercise of the Warrant are 367,868 Shares; EQK currently holds
in its treasury duly authorized and previously issued Shares in such amount and
such Shares are reserved for issuance to Prudential upon exercise of the
Warrant; and the Exercise Period remains open and can only be terminated in
accordance with the express provisions of the Warrant Agreement.
Section 6.2 Ratification of Warrant Agreement. The Warrant Agreement
is hereby ratified and confirmed.
7. OTHER AGREEMENTS
Section 7.1 Ratification of Other Agreements. The provisions of the
Environmental Indemnity Agreement and the Intercreditor Agreement are hereby
ratified and confirmed.
8. NO DEFAULTS
Section 8.1 No Default. To induce Prudential to enter into this
Agreement and extent the Maturity Date of the Second Amended Note, EQK
represents and warrants to Prudential that:
(a) No Event of Default, as defined in any of the Loan Documents,
presently exists under any of the Loan Documents, the Warrant Agreement or
the Intercreditor Agreement;
(b) No event has occurred which, with the passage of time or the
giving of notice or both, would constitute an Event of Default under any
Loan Documents, the Warrant Agreement or the Intercreditor Agreement;
(c) EQK has no defenses, counterclaims or setoffs against the
Prudential Debt, as defined in the Cash Management Agreement; and
<PAGE> 36
(d) EQK hereby ratifies and confirms its obligation to repay the
Prudential Debt on the terms and conditions set forth in the Loan
Documents, as amended hereby.
9. RELEASE AND COVENANT NOT TO SUE
Section 9.1 Release and Covenant Not to Sue. To induce Prudential to
enter into this Agreement and extend the Maturity Date of the Second Amended
Note, EQK does hereby:
(a) remise, release, acquit, satisfy and forever discharge
Prudential and all of its past, present and future officers, directors,
employees, agents, attorneys, representatives, heir, successors and
assigns, from any and all actions, claims, demands and causes of action of any
nature whatsoever, whether at law or in equity, either now accrued or hereafter
maturing, which EQK now has or hereafter can, shall or may have by reason of
any matter, cause or things from the beginning of the world to and including
the date of this Agreement with respect to any matters, transactions,
occurrences, agreements, actions and/or events arising out of, in connection
with or relating to, the loan by Prudential to EQK represented by the Second
Amended Note and its predecessor notes, including, but not limited to, the
modification and extension of the Second Amended Note pursuant to the
provisions of the Commitment and this Agreement, the calculation and payment of
interest under the Second Amended Note, the issuance of the Warrant and the
calculation of the Shares issuable thereunder and all matters relating to the
administration of the loan and/or the collateral held for the benefit of
Prudential thereunder; and
(b) covenant and agree never to institute or cause to be instituted or
continue prosecution of any suit or other form of action or proceeding of any
kind or nature whatsoever against Prudential, or any of its past, present or
future officers, directors, employees, agents, attorneys, representatives,
heirs, successors or assigns, by reason of or in connection with any of the
foregoing matters, claims or causes of action.
This release and covenant not to sue is intended to be legally
binding upon EQK and shall cover all actions of Prudential in its consideration
of the Application and this Agreement and/or the enforcement of Prudential's
rights under the Loan Documents, as amended hereby.
<PAGE> 37
10. MISCELLANEOUS
Section 10.1 Loan Documents Remain Effective. Except as expressly
amended hereby, the Loan Documents shall remain in full force and effect and
are enforceable against EQK in accordance with their respective terms. Without
limiting the generality of the foregoing, all rights and remedies available to
Prudential under the Loan Documents shall survive the making of this Agreement
and shall continue in full force and effect, EQK shall have no right to further
extend the Maturity Date of the Second Amended Note.
Section 10.2 Integration Clause. This Agreement embodies the complete
understanding and agreement among the parties hereto with respect to the
subject matter hereof and supersedes any and all prior or contemporaneous
understandings with respect thereto, whether oral or written.
Section 10.3 Binding Effect. This Agreement shall not be modified or
amended except by a writing signed by the party against whom enforcement is
sought. This Agreement shall inure to the benefit of, and be binding upon, the
parties hereto and their respective successors and assigns.
Section 10.4 Notices. The notice address for Prudential in the Loan
Documents shall be amended as follows:
Mr. Christian T. Miles, Vice President
The Prudential Insurance Company of America
1200 "K" Street, N.W., Suite 1000
Washington, D.C. 20005
with a copy to:
F. Wayne Jarvis, Esquire
The Prudential Insurance Company of America
1200 "K" Street, N.W., Suite 1000
Washington, D.C. 20005
with a copy to:
Clifford H. Swain, Esquire
Drinker Biddle & Reath
1345 Chestnut Street, Suite 1100
Philadelphia, Pennsylvania 19107
Section 10.5 Counterpart Copies. This Agreement may be executed in
any number of counterparts which, taken together, shall constitute one and the
same instrument.
<PAGE> 38
Section 10.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
Section 10.7 Time of the Essence. When time is mentioned herein, time
shall be the essence of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, under seal, on and as of the date first above written.
EQK REALTY INVESTORS I
By: /s/ GARY L. WERKHEISER
--------------------------------------
Name: Gary L. Werkheiser
Title: Vice President
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
By: /s/ CHRISTIAN T. MILES
--------------------------------------
Name: Christian T. Miles
Title: Vice President
<PAGE> 39
STATE OF GEORGIA :
: SS.
COUNTY OF FULTON :
On this, the 15th day of December, 1995, before me, the undersigned
officer, personally appeared GARY L. WERKHEISER, who acknowledged himself to be
a duly elected VICE PRESIDENT of EQK REALTY INVESTORS I, a Massachusetts
business trust, and that he as such officer, being authorized to do so, executed
the foregoing instrument for the purposes therein contained by signing the name
of the business trust by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
[NOTARIAL SEAL] ---------------------------------------
Notary Public
My Commission Expires:
STATE OF :
: SS.
COUNTY OF :
On this, the day of December, 1995, before me, the undersigned
officer, personally appeared CHRISTIAN T. MILES, who acknowledged himself to be
a Vice President of THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a corporation,
and that he as such officer, being authorized to do so, executed the foregoing
instrument for the purposes therein contained by signing the name of the
corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
[NOTARIAL SEAL] ----------------------------------------
Notary Public
My Commission Expires:
<PAGE> 1
EXTENSION AND PARTIAL PAYDOWN OF
$3,525,000 LOAN FROM PNC BANK, NATIONAL ASSOCIATION
TO EQK REALTY INVESTORS I
CLOSING DOCUMENT INDEX
<TABLE>
<CAPTION>
DOCUMENT TAB NO.
- -------- -------
<S> <C>
First Amendment to Second Amended and Restated Loan Agreement....................... 1
Second Amended and Restated Note.................................................... 2
Disclosure for Confession of Judgment............................................... 3
Mutual Estoppel and Modification Agreement.......................................... 4
Amended Mutual Estoppel and Modification Agreement.................................. 5
EQK Realty Investors I Secretary's Certificate...................................... 6
EQK Realty Investors I Incumbency Certificate....................................... 7
Borrower's Counsel Opinion Letter................................................... 8
Marked-up Title Endorsement......................................................... 9
Note, Mortgage and Loan Modification Agreement with Prudential...................... 10
</TABLE>
<PAGE> 2
FIRST AMENDMENT TO SECOND AMENDED AND
RESTATED LOAN AGREEMENT
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT (this
"Amendment") is made as of this 15th day of December, 1995, by and between EQK
REALTY INVESTORS I, a Massachusetts business trust (the "borrower"), and PNC
BANK, NATIONAL ASSOCIATION, a national banking association, (successor by merger
to Provident National Bank) (the "Bank").
BACKGROUND
A. Reference is made to the Second Amended and Restated Loan Agreement
dated as of December 16, 1992, by and between the Borrower and the Bank (the
"Original Loan Agreement") pursuant to which the Bank extended to Borrower a
term loan in the amount of $3,525,000 (the "Loan"). Capitalized terms used
herein and not otherwise defined herein shall have the meaning provided in the
Original Loan Agreement.
B. The Loan was evidenced by Borrower's Amended and Restated Note dated
December 16, 1992 in the principal amount of $3,525,000, as amended by a Note
Modification Agreement dated May 17, 1993 (collectively, the "Original Note").
The Original Note was secured by, among other things, the New Provident
Mortgage, the New Provident Security Interest and the New Provident Lease
Assignment (all as defined in the Original Loan Agreement).
C. This Amendment, the Original Loan Agreement, the Note (as hereinafter
defined), and the New Provident Mortgage, the New Provident Lease Assignment,
the Intercreditor Agreement (all as defined in the Original Loan Agreement) and
all other
<PAGE> 3
documents and instruments evidencing and/or securing the Loan are sometimes
hereinafter collectively referred to as the "Loan Documents."
D. The Borrower has paid down the principal balance of the Loan to
$1,587,430 and has requested that the Bank extend the Maturity Date (as defined
in the Original Note) to December 15, 1996, and to make certain other amendments
to the Loan Documents.
E. The Bank has agreed to extend the Maturity Date and to make such
other amendments, subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Capitalized terms not otherwise defined herein shall have the meaning
given to such terms in the Original Loan Agreement. In addition, the following
terms shall have the following respective meanings:
"Borrowing Tranche" shall mean (i) with respect to that portion of the
Loan subject to the Euro-Rate Option, that portion of the Loan to which the
Euro-Rate Option applies by reason of the selection of or conversion to or
renewal of such Euro-Rate Option, and (ii) with respect to that portion of the
Loan subject to the Prime-Based Rate Option, that portion of the Loan to which
the Prime-Based Rate Option applies by reason of the selection of or conversion
to such Prime-Based Rate Option.
"Business Day" shall mean any day other than a Saturday or Sunday or a
legal holiday on which commercial banks are authorized or required to be closed
for business in Philadelphia, Pennsylvania.
"Euro-Rate" shall mean, with respect to a Borrowing Tranche to which the
Euro-Rate Option applies for any Interest Period, the interest rate per annum
determined by the Bank by dividing (the resulting quotient rounded upward by the
nearest 1/100th of 1% per annum) (i) the rate of interest determined by the Bank
in accordance with its usual procedures (which determination shall be conclusive
absent manifest error) to be the "ask" eurodollar rate evidenced by Telerate
page 314 as quoted by Noonan, Astley & Pierce (or
2
<PAGE> 4
appropriate successor or, if Noonan, Astley & Pierce or its successor ceases
to provide such quotes, a comparable replacement as determined by the Bank)
two (2) Business Days prior to the first day of such Interest Period for an
amount comparable to such Borrowing Tranche and having a borrowing date and a
maturity comparable to such Interest Period by (ii) a number equal to 1.00 minus
the Euro-Rate Reserve Percentage. The Euro-Rate may also be expressed by the
following formula:
Telerate page 314 as quoted by Noonan,
Euro-Rate = Astley & Pierce or appropriate successor
----------------------------------------
1.00 - Euro-Rate Reserve Percentage
Each determination by the Bank of the Euro-Rate or of the non-exclusive or
non-determinability through its customary means of any Euro-Rate shall be
conclusive and binding, absent manifest error. The Euro-Rate shall be adjusted
with respect to any Euro-Rate Option outstanding on the effective date of any
change in the Euro-Rate Reserve Percentage as of such effective date. The Bank
shall give prompt notice to the Borrower of the Euro-Rate as determined or
adjusted in accordance herewith, which determination shall be conclusive absent
manifest error.
"Euro-Based Rate" shall mean a rate equal to two and five-eighths
percent (2 5/8%) above the Euro-Rate as applied to that portion of the Loan
comprising any particular Borrowing Tranche.
"Euro-Rate Reserve Percentage" shall mean the maximum percentage
(expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined
by the Bank (which determination shall be conclusive absent manifest error)
which is in effect during any relevant period, as specified by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
reserves (including, without limitation, supplemental, marginal and emergency
reserve requirements) with respect to eurocurrency funding (currently referred
to as "Eurocurrency Liabilities") of a member bank in such System. Each
determination by the Bank of a Euro-Rate Reserve Percentage, in the absence of
manifest error, shall be conclusive and binding.
"Prime-Based Rate" shall mean a floating rate equal to the Prime Rate
plus one and one-eighth percent (1 1/8%) per annum.
"Prime Rate" shall mean the interest rate announced from time to time by
Bank at its principal office as its "primate rate." Borrower acknowledges that
the Prime Rate is not necessarily the lowest interest rate charged by Bank on
other credit and that such term does not imply or indicate that the interest
rate designated from time to time by Bank as its "prime rate" is equal to or
lower than the interest rate on other credit extended by Bank.
3
<PAGE> 5
highest aggregate rate of interest permitted by law, and all other sums due
by Maker hereunder or under the provisions of the Collateral or the Loan
Agreement, shall at the option of Payee and without notice to Maker become due
and payable immediately, anything herein or in the Collateral or the Loan
Agreement to the contrary notwithstanding; and payment of the same may be
enforced and recovered in whole or in part at any time by one or more of the
remedies provided to Payee in this Note or in the Collateral or in the Loan
Agreement; and in such case Payee may also recover all costs of suit and other
expenses in connection therewith, including a reasonable attorney's fee for
collection.
MAKER HEREBY AUTHORIZES AND EMPOWERS ANY ATTORNEY OR ATTORNEYS OR THE
PROTHONOTARY OR CLERK OF ANY COURT OF RECORD IN THE COMMONWEALTH OF
PENNSYLVANIA, UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, TO APPEAR FOR MAKER IN
ANY SUCH COURT, WITH OR WITHOUT DECLARATION FILED, AS OF ANY TERM OR TIME THERE
OR ELSEWHERE TO BE HELD AND THEREIN TO CONFESS OR ENTER JUDGMENT AGAINST MAKER
IN FAVOR OF PAYEE FOR ALL SUMS DUE OR TO BECOME DUE BY MAKER TO PAYEE UNDER THIS
NOTE, WITH COSTS OF SUIT AND RELEASE OF ERRORS AND WITH THE GREATER OF FIVE
PERCENT (5%) OF SUCH SUMS OR $5,000 ADDED AS A REASONABLE ATTORNEY'S FEE AND FOR
DOING SO THIS NOTE OR A COPY VERIFIED BY AFFIDAVIT SHALL BE SUFFICIENT WARRANT.
SUCH AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY ANY EXERCISE THEREOF, AND
4
<PAGE> 6
JUDGMENT MAY BE CONFESSED AS AFORESAID FROM TIME TO TIME AS OFTEN AS THERE
IS OCCASION THEREFOR.
MAKER ACKNOWLEDGES THAT THE PROVISIONS FOR CONFESSION OF JUDGMENT
CONTAINED IN THE ABOVE PARAGRAPH WAIVE ANY RIGHT TO A HEARING THAT WOULD
OTHERWISE BE A CONDITION TO THE PAYEE'S OBTAINING THE JUDGMENT AUTHORIZED BY
SUCH PARAGRAPH, AND THAT THE JUDGMENT SO OBTAINED WILL CONSTITUTE A LIEN ON THE
PROPERTY OF MAKER IN THE COUNTY WHERE THE JUDGMENT IS ENTERED.
The remedies of Payee as provided herein, in the Collateral or in the
Loan Agreement shall be cumulative and concurrent, and may be pursued singly,
successively or together against Maker and/or the property covered by the
Collateral and/or any other property mortgaged, pledged or assigned to Payee as
security for this Note, at the sole discretion of Payee, and such remedies
shall not be exhausted by any exercise thereof but may be exercised as often as
occasion therefor shall occur; provided, however, the exercise of any such
remedies shall be subject to the terms of the Intercreditor Agreement between
Maker, Payee and Prudential dated December 16, 1992.
Maker hereby waives and releases all errors, defects and imperfections
in any proceedings instituted by Payee under the terms of this Note or of the
Loan Agreement or the Collateral, as well as all benefit that might accrue to
Maker by virtue of any present or future laws exempting any of the property
covered by the Collateral or any other property, real or personal, or any part
of the proceeds arising from any sale of such property, from
5
<PAGE> 7
attachment, levy or sale under execution or providing for any stay of
execution, exemption from civil process or extension of time for payment, as
well as the right of inquisition on any real estate that may be levied upon
under a judgment obtained by virtue hereof, and Maker hereby voluntarily
condemns the same and authorizes the entry of such voluntary condemnation on any
writ of execution issued thereon, and agrees that such real estate may be sold
upon any such writ in whole or in part in any order desired by Payee.
Maker and all indorsers, sureties and guarantors hereof jointly and
severally waive presentment for payment, demand, notice of nonpayment, notice
of protest and protest of this Note, and all other notices in connection with
the delivery, acceptance, performance, default or enforcement of the payment of
this Note except such notices as are specifically required by this Note or by
the Loan Agreement, and they agree that the liability of each of them shall be
unconditional without regard to the liability of any other party and shall not
be in any manner affected by any indulgence, extension of time, renewal, waiver
or modification granted or consented to by Payee; and Maker and all indorsers,
sureties and guarantors hereof consent to any and all extensions of time,
renewals, waivers or modifications that may be granted by Payee with respect to
the payment or other provisions of this Note, and to the release of the
Collateral, or any part thereof, or any property now or hereafter securing this
Note with or without substitution, and agree that additional makers, indorsers,
guarantors or sureties may become parties hereto without notice to them or
affecting their liability hereunder.
Payee shall not by any act of omission or commission be deemed to have
waived any of its rights or remedies hereunder unless such waiver be in writing
and signed
6
<PAGE> 8
by Payee, and then only to the extent specifically set forth therein; a
waiver on one event shall not be construed as continuing or as a bar to or
waiver of such right or remedy on a subsequent event.
Maker shall pay the cost of any revenue, tax or other stamps now or
hereafter required by law at any time to be affixed to this Note or the
Collateral; and if any taxes be imposed with respect to debts secured by
mortgages or deeds of trust, or with respect to notes evidencing debts so
secured, Maker agrees to pay to the holder hereof upon demand the amount of
such taxes, and hereby waives any contrary provisions of any laws or rules of
court now or hereafter in effect.
Notwithstanding any provision contained herein, the total liability of
Maker for payment of interest pursuant hereto, shall not exceed the maximum
amount of such interest permitted by law to be charged, collected or received
from Maker, and if any payments by Maker include interest in excess of such a
maximum amount, Payee shall apply such excess to the reduction of the unpaid
principal amount due pursuant hereto, or if none is due, such excess shall be
refunded to Maker. Any such application or refund shall not cure or waive any
Event of Default. In determining whether or not any interest payable under this
Note or the Loan Agreement or the Collateral exceeds the highest rate permitted
by law, any non-principal payment (except payments specifically stated in this
Note to be "interest"), including without limitation prepayment premiums and
late charges, shall be deemed, to the extent permitted by applicable law, to be
an expense, fee, premium or penalty rather than interest.
7
<PAGE> 9
If any provision hereof is found by a court of competent jurisdiction
to be prohibited or unenforceable, it shall be ineffective only to the extent
of such prohibition or unenforceability, and such prohibition or
unenforceability shall not invalidate the balance of such provision to the
extent it is not prohibited or unenforceable, nor invalidate the other
provisions hereof, all of which shall be liberally construed in favor of Payee
in order to effect the provisions of the Note.
The words "Payee" and "Maker" whenever occurring herein shall be deemed
and construed to include the respective successors and assigns of Payee and
Maker. This instrument shall be construed according to and governed by the
substantive laws of the Commonwealth of Pennsylvania.
MAKER ACKNOWLEDGES THAT THIS NOTE CONTAINS CONFESSION OF JUDGMENT
LANGUAGE AND MAKER HAS HAD THE ASSISTANCE OF COUNSEL IN THE REVIEW AND
EXECUTION OF THIS NOTE. MAKER FURTHER ACKNOWLEDGES THAT THE MEANING AND EFFECT
OF THE CONFESSION OF JUDGMENT HAVE BEEN FULLY EXPLAINED TO MAKER BY SUCH
COUNSEL.
The Amended and Restated Declaration of Trust establishing Maker dated
February 27, 1985, as amended (the "Declaration"), provides and Payee agrees
that neither to Shareholders nor the Trustees (as such terms are defined in the
Declaration) nor officers, employees or agents of the Trust shall, in their
respective capacities as such, be personally liable, jointly or severally, for
payment of the principal of or interest hereunder or any other amount due under
the Loan Agreement, and all persons shall look solely to the Trust Estate
8
<PAGE> 10
(as defined in the Declaration), for the payment of any claim hereunder or
under the Loan Agreement or the performance hereof or thereof.
This Note is intended to amend and restate that certain Amended and
Restated Note from Maker in favor of Payee dated December 16, 1992 in the face
amount of $3,525,000 (the "Prior Note") in its entirety as set forth herein
with respect to the unpaid principal balance of the Prior Note as of the date
hereof. This Note evidences the same indebtedness evidenced by the Prior Note,
reduced by the amount of principal payments made by Maker from the date of the
Prior Note through the date hereof and is entitled to all of the security and
rights afforded the Prior Note. This Note does not constitute, nor is it
intended to be, a novation of the Prior Note.
9
<PAGE> 11
IN WITNESS WHEREOF, Maker has duly executed this Note the day and year
first above mentioned.
EQK REALTY INVESTORS I, a
Massachusetts business trust
By: /s/ Gary L. Werkheiser
----------------------
Gary L. Werkheiser
Vice President
10
<PAGE> 12
EXHIBIT B
DISCLOSURE FOR CONFESSION OF JUDGMENT -- PNCBANK
Undersigned: EQK REALTY INVESTORS I
------------------------------
------------------------------
------------------------------
Lender: PNC Bank, NATIONAL ASSOCIATION
--------------------
------------------------------
------------------------------
The undersigned has executed, and/or is executing, on or about December
15, 1995, the following document(s) under which the undersigned is obligated to
repay monies to Lender:
1. Second Amended and Restated Note
2. First Amendment to Second Amended and Restated Loan Agreement
A. The undersigned acknowledges and agrees that the above documents
contain provisions under which Lender may enter judgment by confession against
the undersigned. Being fully aware of its rights to prior notice and a hearing
on the validity of any judgment or other claims that may be asserted against it
by Lender thereunder before judgment is entered, the undersigned hereby freely,
knowingly and intelligently waives these rights and expressly agrees and
consents to Lender's entering judgment against it by confession pursuant to the
terms thereof.
B. The undersigned also acknowledges and agrees that the above
documents contain provisions under which Lender may, after entry of judgment
and without either notice or a hearing, foreclose upon, attach, levy, take
possession of or otherwise seize property of the undersigned in full or partial
payment of the judgment. Being fully aware of its rights after judgment is
entered (including the right to move to open or strike the judgment), the
undersigned hereby freely, knowingly and intelligently waives its rights to
notice and a hearing and expressly agrees and consents to Lender's taking such
actions as may be permitted under applicable state and federal law without
prior notice to the undersigned.
C. The undersigned certifies that a representative of Lender
specifically called the confession of judgment provisions in the above
documents to the attention of the undersigned, and/or that the undersigned was
represented by legal counsel in connection with the above documents.
D. The undersigned hereby certifies: that its annual income exceeds
$10,000; that all references to "the undersigned" above refer to all persons
and entities signing below, and that the undersigned received a copy hereof at
the time of signing.
<TABLE>
<S> <C>
EQK REALTY INVESTORS I
- -------------------------------------------- --------------------------------------------
(Corporation, Partnership or other Entity) (Individual) (SEAL)
Print Name:
By: /s/ Gary L. Werkheiser --------------------------------
----------------------------------------
(SEAL)
Print Name: Gary L. Werkheiser
-------------------------------- --------------------------------------------
(Individual) (SEAL)
Title: Vice President Print Name:
------------------------------------- --------------------------------
</TABLE>
<PAGE> 13
SECOND AMENDED AND RESTATED NOTE
Dated as of: December 15, 1995
Philadelphia, PA
For value received and intending to be legally bound, EQK REALTY
INVESTORS I ("Maker"), a Massachusetts business trust whose address is 5775
Peachtree-Dunwoody Road, Suite 200-D, Atlanta, Georgia 30342, promises to pay to
the order of PNC BANK, NATIONAL ASSOCIATION (successor by merger to Provident
National Bank), a national banking association organized and existing under the
laws of the United States of America (hereinafter called "Payee"), at Real
Estate Finance Division, P.O. Box 7648, Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19101 or such other place as Payee may designate in
writing, the principal sum of ONE MILLION FIVE HUNDRED EIGHTY-SEVEN THOUSAND
FOUR HUNDRED THIRTY DOLLARS ($1,587,430.00) lawful money of the United States of
America, or so much thereof as shall have been advanced, together with interest
on the outstanding principal balance thereof at a rate or rates per annum (the
"Interest Rate") as provided in the Second Amended and Restated Loan Agreement
dated December 16, 1992 between Maker and Payee, as amended by a First Amendment
to Second Amended and Restated Loan Agreement (the "First Amendment") dated the
date hereof (collectively, the "Loan Agreement"). All interest shall be
calculated in accordance with the Loan Agreement.
The Note shall be payable as follows:
<PAGE> 14
(a) Interest from and including December 1, 1995 through December 15,
1995 on the outstanding principal balance of the Prior Note at the interest rate
set forth in the Prior Note shall be paid by Maker to Payee on January 1, 1996.
(b) Interest from and including December 16, 1995 (the "Effective
Date") through December 31, 1995 on the outstanding principal balance shall be
paid by Maker to Payee at the Interest Rate on January 1, 1996.
(c) Interest on the outstanding principal balance shall be paid by
Maker to Payee at the Interest Rate (the "Provident Monthly Interest Payment")
commencing on the first day of February, 1995 and on the first day of each month
thereafter until December 15, 1996 (the "Maturity Date").
On the Maturity Date, the entire amount of principal outstanding shall
be due and payable in full together with all unpaid accrued interest.
If Maker pays all or any portion of the outstanding principal balance
prior to the Maturity Date (whether a voluntary payment or acceleration or
otherwise), Maker shall pay to Payee the amounts as set forth in Section 3 of
the Loan Agreement.
If the Maker fails to make any payment of principal, interest or other
amount coming due pursuant to the provisions of this Note within ten (10)
calendar days of the date due and payable, the Maker shall also pay to the Payee
a late charge equal to five percent (5%) of the amount of such payment. Such ten
(10) day period shall not be construed in any way to extend to due date of any
such payment. The late charge is imposed for the purpose of defraying the
Payee's expenses incident to the handling of delinquent payments and is in
addition to, and not in lieu of, the exercise of the Payee of any rights and
remedies
2
<PAGE> 15
hereunder, under the Loan Agreement or any other documents in connection
therewith or under applicable laws, and any fees and expenses of any agents or
attorneys which the Payee may employ.
This Note was issued by Maker to Payee pursuant to the Loan Agreement,
all of the terms of which are incorporated herein by reference.
This Note continues to be secured by and entitled to all the benefits of
(i) a Mortgage and Security Agreement dated December 16, 1992 from Maker for the
benefit of Payee, secured upon certain land and improvements thereon in Dauphin
County, Pennsylvania (the "Harrisburg Mall") and intended to be forthwith
recorded in the office for the recording of deeds in and for said County (the
"Harrisburg Mortgage"); (ii) an Assignment of Lessor's Interest in Leases for
the Harrisburg Mall (the "Lease Assignment") dated December 16, 1992 between
Maker and Payee; and (iii) security interests (the "Security Interests") granted
to Payee under the Loan Agreement (the Mortgage, the Lease Assignment and the
Security Interests are hereinafter collectively called the "Collateral").
Reference to the Loan Agreement and the Collateral is made for a description of
the properties mortgaged, secured and pledged as security for this Note, the
nature and extent thereof, the rights of the holder of this Note and the Maker
in respect of such security and otherwise, and the terms upon which this Note is
issued.
If any event of default as defined in the Loan Agreement or the
Collateral (an "Event of Default") should occur, the entire unpaid balance of
said principal sum with interest accrued thereon at the rate hereinbefore
specified to the date of said default and thereafter at the lower of (i) five
percent (5%) above the rate then extant hereunder or (ii) the
3
<PAGE> 16
highest aggregate rate of interest permitted by law, and all other sums due
by Maker hereunder or under the provisions of the Collateral or the Loan
Agreement, shall at the option of Payee and without notice to Maker become due
and payable immediately, anything herein or in the Collateral or the Loan
Agreement to the contrary notwithstanding; and payment of the same may be
enforced and recovered in whole or in part at any time by one or more of the
remedies provided to Payee in this Note or in the Collateral or in the Loan
Agreement; and in such case Payee may also recover all costs of suit and other
expenses in connection therewith, including a reasonable attorney's fee for
collection.
MAKER HEREBY AUTHORIZES AND EMPOWERS ANY ATTORNEY OR ATTORNEYS OR THE
PROTHONOTARY OR CLERK OF ANY COURT OF RECORD IN THE COMMONWEALTH OF
PENNSYLVANIA, UPON THE OCCURRENCE OF AN EVENT OR DEFAULT, TO APPEAR FOR MAKER IN
ANY SUCH COURT, WITH OR WITHOUT DECLARATION FILED, AS OF ANY TERM OR TIME THERE
OR ELSEWHERE TO BE HELD AND THEREIN TO CONFESS OR ENTER JUDGMENT AGAINST MAKER
IN FAVOR OF PAYEE FOR ALL SUMS DUE OR TO BECOME DUE BY MAKER TO PAYEE UNDER THIS
NOTE, WITH COSTS OF SUIT AND RELEASE OF ERRORS AND WITH THE GREATER OF FIVE
PERCENT (5%) OF SUCH SUMS OR $5,000 ADDED AS A REASONABLE ATTORNEY'S FEE AND FOR
DOING SO THIS NOTE OR A COPY VERIFIED BY AFFIDAVIT SHALL BE SUFFICIENT WARRANT.
SUCH AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY ANY EXERCISE THEREOF, AND
4
<PAGE> 17
JUDGMENT MAY BE CONFESSED AS AFORESAID FROM TIME TO TIME AS OFTEN AS THERE
IS OCCASION THEREFOR.
MAKER ACKNOWLEDGES THAT THE PROVISIONS FOR CONFESSION OF JUDGMENT
CONTAINED IN THE ABOVE PARAGRAPH WAIVE ANY RIGHT TO A HEARING THAT WOULD
OTHERWISE BE A CONDITION TO THE PAYEE'S OBTAINING THE JUDGMENT AUTHORIZED BY
SUCH PARAGRAPH, AND THAT THE JUDGMENT SO OBTAINED WILL CONSTITUTE A LIEN ON THE
PROPERTY OF MAKER IN THE COUNTY WHERE THE JUDGMENT IS ENTERED.
The remedies of Payee as provided herein, in the Collateral or in the
Loan Agreement shall be cumulative and concurrent, and may be pursued singly,
successively or together against Maker and/or the property covered by the
Collateral and/or any other property mortgaged, pledged or assigned to Payee as
security for this Note, at the sole discretion of Payee, and such remedies shall
not be exhausted by any exercise thereof but may be exercised as often as
occasion therefor shall occur; provided, however, the exercise of any such
remedies shall be subject to the terms of the Intercreditor Agreement between
Maker, Payee and Prudential dated December 16, 1992.
Maker hereby waives and releases all errors, defects and imperfections
in any proceedings instituted by Payee under the terms of this Note or of the
Loan Agreement or the Collateral, as well as all benefit that might accrue to
Maker by virtue of any present or future laws exempting any of the property
covered by the Collateral or any other property, real or personal, or any part
of the proceeds arising from any sale of such property, from
5
<PAGE> 18
attachment, levy or sale under execution or providing for any stay of
execution, exemption from civil process or extension of time for payment, as
well as the right of inquisition on any real estate that may be levied upon
under a judgment obtained by virtue hereof, and Maker hereby voluntarily
condemns the same and authorizes the entry of such voluntary condemnation of any
writ of execution issued thereon, and agrees that such real estate may be sold
upon any such writ in whole or in part in any order desired by Payee.
Maker and all indorsers, sureties and guarantors hereof jointly and
severally waive presentment for payment, demand, notice of nonpayment, notice of
protest and protest of this Note, and all other notices in connection with the
delivery, acceptance, performance, default or enforcement of the payment of this
Note except such notices as are specifically required by this Note or by the
Loan Agreement, and they agree that the liability of each of them shall be
unconditional without regard to the liability of any other party and shall not
be in any manner affected by any indulgence, extension of time, renewal, waiver
or modification granted or consented to by Payee; and Maker and all indorsers,
sureties and guarantors hereof consent to any and all extensions of time,
renewals, waivers or modifications that may be granted by Payee with respect to
the payment or other provisions of this Note, and to the release of the
Collateral, or any part thereof, or any property now or hereafter securing this
Note with or without substitution, and agree that additional makers, indorsers,
guarantors or sureties may become parties hereto without notice to them or
affecting their liability hereunder.
Payee shall not by any act of omission or commission be deemed to have
waived any of its rights or remedies hereunder unless such waiver be in writing
and signed
6
<PAGE> 19
by Payee, and then only to the extent specifically set forth therein; a
waiver on one event shall not be construed as continuing or as a bar to or
waiver of such right or remedy on a subsequent event.
Maker shall pay the cost of any revenue, tax or other stamps now or
hereafter required by law at any time to be affixed to this Note or the
Collateral; and if any taxes be imposed with respect to debts secured by
mortgages or deeds of trust, or with respect to notes evidencing debts so
secured, Maker agrees to pay to the holder hereof upon demand the amount of such
taxes, and hereby waives any contrary provisions of any laws or rules of court
now or hereafter in effect.
Notwithstanding any provision contained herein, the total liability of
Maker for payment of interest pursuant hereto, shall not exceed the minimum
amount of such interest permitted by law to be charged, collected or received
from Maker, and if any payments by Maker include interest in excess of such a
maximum amount, Payee shall apply such excess to the reduction of the unpaid
principal amount due pursuant hereto, or if none is due, such excess shall be
refunded to Maker. Any such application or refund shall not cure or waive any
Event of Default. In determining whether or not any interest payable under this
Note or the Loan Agreement or the Collateral exceeds the highest rate permitted
by law, any non-principal payment (except payments specifically stated in this
Note to be "interest"), including without limitation prepayment premiums and
late charges, shall be deemed, to the extent permitted by applicable law, to be
an expense, fee, premium or penalty rather than interest.
7
<PAGE> 20
If any provision hereof is found by a court of competent jurisdiction to
be prohibited or unenforceable, it shall be ineffective only to the extent of
such prohibition or unenforceability, and such prohibition or unenforceability
shall not invalidate the balance of such provision to the extent it is not
prohibited or unenforceable, nor invalidate the other provisions hereof, all of
which shall be liberally construed in favor of Payee in order to effect the
provisions of the Note.
The words "Payee" and "Maker" whenever occurring herein shall be deemed
and construed to include the respective successors and assigns of Payee and
Maker. This instrument shall be construed according to and governed by the
substantive laws of the Commonwealth of Pennsylvania.
MAKER ACKNOWLEDGES THAT THIS NOTE CONTAINS CONFESSION OF JUDGMENT
LANGUAGE AND MAKER HAS HAD THE ASSISTANCE OF COUNSEL IN THE REVIEW AND EXECUTION
OF THIS NOTE. MAKER FURTHER ACKNOWLEDGES THAT THE MEANING AND EFFECT OF THE
CONFESSION OF JUDGMENT HAVE BEEN FULLY EXPLAINED TO MAKER BY SUCH COUNSEL.
The Amended and Restated Declaration of Trust establishing Maker dated
February 27, 1985, as amended (the "Declaration"), provides and Payee agrees
that neither the Shareholders nor the Trustees (as such terms are defined in the
Declaration) nor officers, employees or agents of the Trust shall, in their
respective capacities as such, be personally liable, jointly or severally, for
payment of the principal of or interest hereunder or any other amount due under
the Loan Agreement, and all persons shall look solely to the Trust Estate
8
<PAGE> 21
(as defined in the Declaration), for the payment of any claim hereunder or
under the Loan Agreement or the performance hereof or thereof.
This Note is intended to amend and restate that certain Amended and
Restated Note from Maker in favor of Payee dated December 16, 1992 in the face
amount of $3,525,000 (the "Prior Note") in its entirety as set forth herein with
respect to the unpaid principal balance of the Prior Note as of the date hereof.
This Note evidences the same indebtedness evidenced by the Prior Note, reduced
by the amount of principal payments made by Maker from the date of the Prior
Note through the date hereof and is entitled to all of the security and rights
afforded the Prior Note. This Note does not constitute, nor is it intended to
be, a novation of the Prior Note.
9
<PAGE> 22
IN WITNESS WHEREOF, Maker has duly executed this Note the day and year
first above mentioned.
EQK REALTY INVESTORS I,
a Massachusetts business trust
By: /s/ Gary L. Werkheiser
------------------------------------
Gary L. Werkheiser
Vice President
10
<PAGE> 23
DISCLOSURE FOR CONFESSION OF JUDGMENT -- PNCBANK
Undersigned: EQK REALTY INVESTORS I
------------------------------
------------------------------
------------------------------
Lender: PNC Bank, NATIONAL ASSOCIATION
--------------------
------------------------------
------------------------------
The undersigned has executed, and/or is executing, on or about December
15, 1995, the following document(s) under which the undersigned is obligated to
repay monies to Lender:
1. Second Amended and Restated Note
2. First Amendment to Second Amended and Restated Loan Agreement
A. The undersigned acknowledges and agrees that the above documents
contain provisions under which Lender may enter judgment by confession against
the undersigned. Being fully aware of its rights to prior notice and a hearing
on the validity of any judgment or other claims that may be asserted against it
by Lender thereunder before judgment is entered, the undersigned hereby freely,
knowingly and intelligently waives these rights and expressly agrees and
consents to Lender's entering judgment against it by confession pursuant to the
terms thereof.
B. The undersigned also acknowledges and agrees that the above documents
contain provisions under which Lender may, after entry of judgment and without
either notice or a hearing, foreclose upon, attach, levy, take possession of or
otherwise seize property of the undersigned in full or partial payment of the
judgment. Being fully aware of its rights after judgment is entered (including
the right to move to open or strike the judgment), the undersigned hereby
freely, knowingly and intelligently waives its rights to notice and a hearing
and expressly agrees and consents to Lender's taking such actions as may be
permitted under applicable state and federal law without prior notice to the
undersigned.
C. The undersigned certifies that a representative of Lender
specifically called the confession of judgment provisions in the above documents
to the attention of the undersigned, and/or that the undersigned was represented
by legal counsel in connection with the above documents.
D. The undersigned hereby certifies: that its annual income exceeds
$10,000; that all references to "the undersigned" above refer to all persons and
entities signing below, and that the undersigned received a copy hereof at the
time of signing.
<TABLE>
<S> <C>
EQK REALTY INVESTORS I
- -------------------------------------------- --------------------------------------------
(Corporation, Partnership or other Entity) (Individual) (SEAL)
Print Name:
By: /s/ Gary L. Werkheiser --------------------------------
----------------------------------------
(SEAL)
Print Name: Gary L. Werkheiser
-------------------------------- --------------------------------------------
(Individual) (SEAL)
Title: Vice President Print Name:
------------------------------------- --------------------------------
</TABLE>
<PAGE> 24
DISCLOSURE FOR CONFESSION OF JUDGMENT -- PNCBANK
Undersigned: EQK REALTY INVESTORS I
------------------------------
------------------------------
------------------------------
Lender: PNC Bank, NATIONAL ASSOCIATION
--------------------
------------------------------
------------------------------
The undersigned has executed, and/or is executing, on or about December
15, 1995, the following document(s) under which the undersigned is obligated to
repay monies to Lender:
1. Second Amended and Restated Note
2. First Amendment to Second Amended and Restated Loan Agreement
A. The undersigned acknowledges and agrees that the above documents
contain provisions under which Lender may enter judgment by confession against
the undersigned. Being fully aware of its rights to prior notice and a hearing
on the validity of any judgment or other claims that may be asserted against it
by Lender thereunder before judgment is entered, the undersigned hereby freely,
knowingly and intelligently waives these rights and expressly agrees and
consents to Lender's entering judgment against it by confession pursuant to the
terms thereof.
B. The undersigned also acknowledges and agrees that the above documents
contain provisions under which Lender may, after entry of judgment and without
either notice or a hearing, foreclose upon, attach, levy, take possession of or
otherwise seize property of the undersigned in full or partial payment of the
judgment. Being fully aware of its rights after judgment is entered (including
the right to move to open or strike the judgment), the undersigned hereby
freely, knowingly and intelligently waives its rights to notice and a hearing
and expressly agrees and consents to Lender's taking such actions as may be
permitted under applicable state and federal law without prior notice to the
undersigned.
C. The undersigned certifies that a representative of Lender
specifically called the confession of judgment provisions in the above documents
to the attention of the undersigned, and/or that the undersigned was represented
by legal counsel in connection with the above documents.
D. The undersigned hereby certifies: that its annual income exceeds
$10,000; that all references to "the undersigned" above refer to all persons and
entities signing below, and that the undersigned received a copy hereof at the
time of signing.
<TABLE>
<S> <C>
EQK REALTY INVESTORS I
- -------------------------------------------- --------------------------------------------
(Corporation, Partnership or other Entity) (Individual) (SEAL)
Print
Name:
By: /s/ Gary L. Werkheiser
----------------------------------------
(SEAL)
Print Name: Gary L. Werkheiser
-------------------------------- --------------------------------------------
(Individual) (SEAL)
Title: Vice President Print Name:
------------------------------------- ----------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EQK REALTY INVESTORS I FOR THE PERIOD ENDED DECEMBER 31,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,972
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 48,209
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 135,875
<OTHER-SE> (137,408)
<TOTAL-LIABILITY-AND-EQUITY> 48,209
<SALES> 0
<TOTAL-REVENUES> 15,761
<CGS> 0
<TOTAL-COSTS> 5,403
<OTHER-EXPENSES> 8,631
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,302
<INCOME-PRETAX> (6,346)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,346)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,346)
<EPS-PRIMARY> (.68)
<EPS-DILUTED> (.68)
</TABLE>
