<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File No. 1-8815
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EQK REALTY INVESTORS I
----------------------
(Exact name of Registrant as specified in its Charter)
Massachusetts 23-2320360
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3424 Peachtree Road NE, Suite 800, Atlanta, GA 30326
- ---------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(404) 848-8600
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to file such filing
requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ]No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of the issuer's classes of common
stock, as of the latest practicable date: 9,632,212 as of August 13, 1999.
-------------------------------
<PAGE> 2
EQK REALTY INVESTORS I
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1999
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Balance Sheets as of June 30, 1999
and December 31, 1998 3
Statements of Operations for the three
and six months ended June 30, 1999 and
June 30, 1998 4
Statements of Cash Flows for the six
months ended June 30, 1999 and
June 30, 1998 5
Notes to the Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 13
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 22
PART II - OTHER INFORMATION
Items 1 through 6. 23
SIGNATURES 25
</TABLE>
2
<PAGE> 3
EQK REALTY INVESTORS I
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
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<S> <C> <C>
ASSETS
Real estate held for sale $ 39,473 $ 39,360
Cash and cash equivalents:
Cash Management Agreement 3,576 3,390
Other 255 471
Accounts receivable and other assets (net of allowance of $5 1,765 1,881
and $67, respectively)
--------- ---------
TOTAL ASSETS $ 45,069 $ 45,102
========= =========
LIABILITIES AND DEFICIT IN SHAREHOLDERS' EQUITY
Liabilities:
Mortgage note payable $ 43,794 $ 43,794
Term loan payable to bank 1,572 1,580
Accounts payable and other liabilities (including amounts due
affiliates of $3,130 and $3,107, respectively) 4,146 4,560
--------- ---------
49,512 49,934
Commitments and Contingencies (Note 1 and 5)
Deficit in Shareholders' Equity:
Shares of beneficial interest, without par value: 10,055,555 shares
authorized, 9,632,212 shares issued and outstanding 135,875 135,875
Accumulated deficit (140,318) (140,707)
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(4,443) (4,832)
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TOTAL LIABILITIES AND DEFICIT IN SHAREHOLDERS' EQUITY $ 45,069 $ 45,102
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3
<PAGE> 4
EQK REALTY INVESTORS I
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues from rental operations $1,519 $ 1,337 $3,131 $ 2,890
Operating expenses, net of tenant
reimbursements (including property
management fees earned by an affiliate of
$0, $72, $0 and $146, respectively) 336 281 469 439
Depreciation and amortization 19 0 19 547
------ ------- ------ -------
Income from rental operations 1,164 1,056 2,643 1,904
Interest expense 1,027 1,099 2,046 2,199
Other expenses, net of interest income
(including portfolio management fees
earned by an affiliate of $52, $55
$103, and $118, respectively) 95 102 208 185
------ ------- ------ -------
Net income (loss) $ 42 $ (145) $ 389 $ (480)
====== ======= ====== =======
Net income (loss) per share $ 0.00 ($ 0.02) $ 0.04 ($ 0.05)
====== ======= ====== =======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 5
EQK REALTY INVESTORS I
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 389 $ (480)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 19 547
Amortization of deferred financing costs 34 176
Changes in assets and liabilities:
Decrease in accounts payable and
other liabilities (414) (293)
Decrease in accounts receivable
and other assets 107 362
------- -------
Net cash provided by operating activities 135 312
------- -------
Cash flows from investing activities:
Additions to real estate investments (132) (270)
------- -------
Net cash used in investing activities (132) (270)
------- -------
Cash flows from financing activities:
Payment of deferred financing costs (25) (361)
Scheduled repayments of debt (8) (3)
------- -------
Net cash used in financing activities (33) (364)
------- -------
Decrease in cash and cash equivalents (30) (322)
Cash and cash equivalents
beginning of period 3,861 3,323
------- -------
Cash and cash equivalents
end of period $ 3,831 $ 3,001
======= =======
Supplemental disclosure of cash flow information:
Interest paid $ 2,031 $ 2,023
======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS
EQK Realty Investors I, a Massachusetts business trust ("EQK" or the
"Trust"), was formed pursuant to an Amended and Restated Declaration of
Trust dated February 27, 1985, as amended on March 5, 1986, 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. Lend Lease Portfolio Management, Inc.
("LLPM") serves as the "Advisor" to the Trust.
At June 30, 1999, the Trust's remaining real estate investment is
Harrisburg East Mall (the "Mall"), a regional shopping center in
Harrisburg, Pennsylvania, which is currently held for sale. On December
8, 1995, the Trust sold its remaining interest in Castleton Park, an
office park in Indianapolis, Indiana. The Trust sold office buildings
comprising an office complex located in Atlanta, Georgia, formerly
known as Peachtree-Dunwoody Pavilion, during 1992 and 1993. In 1991,
the Trust completed the sale of two office buildings at Castleton.
The Declaration of Trust provides for the Trust's existence and a
maximum holding period for its real estate investments of 14 years. The
Declaration of Trust further provides that this 14-year term may be
extended by up to two years upon the recommendation of the Trustees and
the affirmative vote of a majority of its shareholders. Recognizing
that the disposition of the Mall would not be completed prior to the
initial maturity date of the Trust's term (March 5, 1999), the Board of
Trustees recommended a two-year extension of the Trust's life (through
March 5, 2001). This recommendation was approved by the shareholders at
a Special Meeting of Shareholders held on February 23, 1999.
Effective December 23, 1997, the Trust entered into an Agreement and
Plan of Merger (the "Merger Agreement"), pursuant to which an affiliate
of American Realty Trust, Inc. ("ART") is to merge with and into the
Trust (the "Merger"), with the Trust being the surviving entity. The
Merger contemplates, among other things, an extension of the life of
the Trust through December 31, 2018.
The Merger Agreement was amended on August 25, 1998 (as further amended
on April 22, 1999 and on June 4, 1999, the "Revised Merger Agreement")
to provide for, among other matters, the right of the Trust to sell the
Mall and distribute proceeds of such sale to the Trust's shareholders
prior to completing the Merger and a corresponding reduction in the
Merger consideration to be paid to the Trust's shareholders.
An Annual Meeting of Shareholders (the "Annual Meeting") convened on
August 3, 1999 to consider and vote upon (1) the Revised Merger
Agreement (the "Merger Proposal"), (2) an amendment and restatement of
EQK's Amended and Restated Declaration of Trust (the "Declaration
Amendment Proposal"), (3) the termination of EQK's advisory agreement
with Lend Lease Portfolio Management, Inc. and the execution by EQK of
a new advisory agreement with Basic Capital Management Inc., an
affiliate of ART, as advisor (the "New
6
<PAGE> 7
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
Advisory Agreement Proposal"), and (4) the election of the Board of
Trustees of EQK (the "Board of Election Proposal" and, together with
the Merger Proposal, the Declaration Amendment Proposal, and the New
Advisory Agreement Proposal, the "Proposals"). The Annual Meeting was
adjourned until August 26, 1999.
The affirmative vote of holders of 75% of the outstanding shares of EQK
("Requisite Shareholder Approval") is required for the approval of the
Merger Proposal, the Declaration Amendment Proposal and the New
Advisory Agreement Proposal (collectively, the "Merger Related
Proposals"). None of the Merger Related Proposals will take effect
unless all such proposals receive Requisite Shareholder Approval.
The Merger consideration will be comprised entirely of ART Series F
Cumulative Convertible Preferred Stock with a par value of $2.00 per
share and a liquidation value of $10.00 per share. ("ART Preferred
Shares"). The Merger will be effected by (i) ART's acquisition of up to
4,376,056 shares currently held by four EQK shareholders including
LLPM, Summit Venture LP ("Summit"), Sutter Opportunity Fund LLC
("Sutter"), and Maurice A. Halperin ("Halperin"), (the "Selling
Shareholders") pursuant to the terms of separate stock purchase
agreements (each a "Stock Purchase Agreement" and collectively, the
"Block Purchase"), and (ii) ART's receipt of 673,976 shares newly
issued by the Trust (the "ART Merger Consideration" which, together
with Shares currently outstanding, constitutes "EQK Shares"), the
combined effect of which will give ART up to an approximate 49%
interest in EQK.
The number of EQK Shares acquired by ART and the number of EQK Shares
issued to ART may be adjusted if, due to certain circumstances, less
than all of the Selling Shareholders complete their transaction with
ART. The Selling Shareholders will receive for each EQK Share sold
0.030 of an ART Preferred Share with a corresponding liquidation value
of $0.30 per EQK Share sold. The remaining EQK shareholders (the
"Public EQK Shareholders") will be entitled to retain their Shares at
the time of the Merger, but will be compensated for the dilution in
their percentage ownership interest through the receipt of 0.014 of an
ART Preferred Share with a corresponding liquidation value of $0.14 per
EQK Share held (the "EQK Merger Consideration"). In addition, ART
currently intends (but is not legally obligated) to acquire the
remaining EQK Shares from such other Public EQK Shareholders at some
time after the third anniversary of the consummation of the Merger for
not less than 0.0486 of an ART Preferred Share with a liquidation value
of $0.486 for each EQK Share tendered.
At this time, Halperin has not agreed to sell his EQK Shares to ART. If
Halperin does not agree to sell such shares to ART prior to the Merger,
and the Merger-Related Proposals receive Requisite Shareholder
Approval, Halperin will be entitled to receive the same EQK Merger
Consideration per share as the consideration to be paid to the other
Public EQK Shareholders and ART will be entitled to receive the ART
Merger Consideration without modification. Upon consummation of the
Block Purchase (excluding Haplerin's EQK Shares)
7
<PAGE> 8
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
and the Merger, ART would own not more than 41% of the issued and
outstanding EQK Shares and the Public EQK Shareholders (including
Halperin) will have effectively "sold" approximately 4.15% of their EQK
Shares to ART.
If Summit and Sutter elect to terminate their respective Stock Purchase
Agreements (which termination could occur subsequent to the Annual
Meeting) and ART determines to proceed with the closing of the Merger,
Summit and Sutter would be entitled to receive the same EQK Merger
Consideration per share as the other Public EQK Shareholders and ART
will be entitled to receive the same ART Merger Consideration per share
as the other Public EQK Shareholders without modification. In such
event, ART would own not more than 23% of the issued and outstanding
EQK Shares and the Public EQK Shareholders (including Halperin, Summit,
and Sutter) will have effectively "sold" approximately 5.4% of their
EQK Shares to ART.
Upon completion of the sale of the Mall and receipt of Requisite
Shareholder Approval for the Merger Related Proposals, the Merger would
be completed. Immediately prior to the closing of the Merger, ART will
convey one of its properties to the Trust. The total consideration paid
by the Trust to ART for this property will be a $1,250,000 non-recourse
five-year promissory note. The Trust will also assume approximately
$1,498,000 of existing debt.
ART has agreed to permit the Trust to continue to solicit, or respond
to, offers from third parties for the Trust. In the event the Trust
accepts an offer from a party other than ART and elects not to proceed
with the Merger, the Trust generally will be obligated to pay ART a
break-up fee of $200,000 plus its share of transaction expenses
(collectively, the "Break-Up Consideration").
The Revised Merger Agreement is currently terminable by either ART or
the Trust if the Merger has not been accomplished by October 29, 1999.
The Revised Merger Agreement also may be terminated by the Trust if (i)
the Trust secures a more favorable offer from another party subject to
the payment of the Break-Up Consideration; or (ii) the Revised Merger
Agreement in any way impairs or delays the sale of the Mall, or is
likely to result in a material reduction in proceeds.
Proceeds from the sale of the Mall and, if applicable, the completion
of the Merger, will be distributed to the shareholders of the Trust in
one or more payments once the Trust's liabilities have been settled
(including retirements of its Mortgage Note and Term Loan) and related
transaction costs have been paid.
The Trust, its trustees, and its Advisor have been named as defendants
in a purported class action complaint filed in Massachusetts State
court, which seeks to enjoin the Merger. The
8
<PAGE> 9
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
complaint also seeks other relief including unspecified damages. The
Management of the Trust is pursuing its legal defenses and believes
that the disposition of this matter will not have a material adverse
effect on the financial position of the Trust.
As previously announced, on March 5, 1999, the Trust entered into a
non-binding letter of intent to sell the Mall to a private real estate
group (the "Prospective Purchaser") for $51 million. Closing was
subject to a number of conditions, including the satisfactory
completion of due diligence, the Prospective Purchaser's obtaining
financing and the execution of a definitive purchase and sale
agreement. The Letter of Intent provided for an exclusivity period,
which expired May 15, 1999, during which time the Trust could not
solicit, negotiate, or execute other offers for the sale of the Mall.
There is substantial doubt that the Trust will be able to close any
transaction with the Prospective Purchaser based upon certain terms
that the Prospective Purchaser has proposed. As a result, the Trust has
commenced additional marketing activities relating to the sale of the
Mall.
NOTE 2: BASIS OF PRESENTATION
The financial statements have been prepared by the Trust, without
audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Trust
believes that the disclosures are adequate to make the information
presented not misleading. The financial statements should be read in
conjunction with the audited financial statements and related notes
thereto included in the Annual Report on Form 10-K for the year ended
December 31, 1998.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
The Trust is actively attempting to sell the Mall and, therefore, has
classified its investment in real estate on the balance sheet as held
for sale effective April 1, 1998. Accordingly, all real estate assets,
including deferred leasing costs, are recorded at the lower of cost or
estimated fair market value, less estimated costs to sell. Depreciation
is not recorded for real estate assets held for sale. Therefore, the
Trust discontinued recording depreciation and amortization of real
estate assets on April 1, 1998. The depreciation recorded in the second
quarter of 1999 represents the write off of a non-recoverable tenant
allowance.
In the opinion of the Trust, all adjustments, which include only normal
recurring adjustments necessary to present fairly its financial
position as of June 30, 1999, its results of operations for the three
and six months ended June 30, 1999 and 1998 and its cash flows for the
six months ended June 30, 1999 and 1998, have been included in the
accompanying unaudited financial statements.
9
<PAGE> 10
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
NOTE 3: CASH MANAGEMENT AGREEMENT
In connection with the Trust's Mortgage Debt agreement (as amended and
extended), the Trust entered into a Cash Management Agreement with
Prudential (the "Mortgage Note Lender") and assigned all lease and rent
receipts to the Mortgage Note 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 Mortgage Note
Lender. As of June 30, 1999, a balance of $2,110,000 was held by the
third-party escrow agent in accordance with the Cash Management
Agreement. The agreement also provides for the establishment of a
capital reserve account, which is maintained by the escrow agent.
Disbursements from this account, which are funded each month with any
excess operating cash flow, are limited to capital expenditures
approved by the Mortgage Note Lender. As of June 30, 1999 the balance
of the capital reserve account was $1,466,000.
NOTE 4: ADVISORY AND MANAGEMENT AGREEMENTS
The Advisor is a wholly owned subsidiary of Lend Lease Real Estate
Investments, Inc. 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. However, given the Shares of the
Trust are no longer traded on a market with readily available market
values, the Trustees agreed on a stipulated rate of $0.75 per share to
be used for purposes of calculating the management fee for the period
May 4, 1998 through December 31, 1998 and $0.37 per share for the
period January 1, 1999 through June 30, 1999.
Commencing with the December 1995 extension of debt and continuing with
the December 1996 debt extension, the Mortgage Note Lender has
requested, and the Advisor has agreed to, a partial deferral of payment
of its fee. Whereas the fee continues to be computed as described
above, payments to the Advisor are limited to $37,500 per quarter.
Accrued but unpaid amounts will be eligible for payment upon the
repayment of the Mortgage Note. For the six months ended June 30, 1999
and 1998, portfolio management fees were $103,000 and $118,000,
respectively. The balance of deferred portfolio management fees at June
30, 1999 was $327,000.
10
<PAGE> 11
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
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. As of June 30,
1999, the liability for deferred management fees was $2,720,000.
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. The Trust incurred no disposition fees
as of June 30, 1999.
In connection with the December 15, 1996 extension of debt, the Advisor
earned a refinancing fee of $50,000, which will be paid upon the
retirement of the debt.
The Trust entered into an agreement with ERE Yarmouth Retail, Inc. (the
"Manager"), for the on-site management of the Mall. ERE Yarmouth
Retail, Inc. was a wholly owned subsidiary of Lend Lease Real Estate
Investments, Inc. On September 30, 1998, Lend Lease Real Estate
Investments, Inc. sold the Manager to LaSalle Partners, Incorporated
("LaSalle"), which is not affiliated with the Trust or the Advisor. An
affiliate of LaSalle continues to manage the Mall pursuant to the terms
of the original management agreement.
NOTE 5: DEBT MATURITIES
The Trust's debt instruments (aggregate principal outstanding of
$45,366,000) had original maturity dates of December 15, 1995. The
Trust's Mortgage Note Lender and Term Loan Lender have agreed to extend
the maturity date of the loans twice, first for a period of one year
through December 15, 1996, and second for a period of 18 months through
June 15, 1998. Following the June 15, 1998 maturity date, the Mortgage
Note Lender granted three six-month forbearance arrangements (most
recently through December 15, 1999) wherein it agreed not to exercise
remedies for non-repayment of the outstanding principal balance. The
Term Loan Lender has granted three six-month extensions of its maturity
date so as to coincide with such forbearance periods. These forbearance
arrangements are conditioned upon, among other things, the Trust
continuing to make timely debt service payments in monthly amounts
equal to those amounts stipulated in the December 1996 debt extension
agreements.
In consideration for the extension of the forbearance agreement
relating to the Mortgage Note through December 15, 1999, the Trust paid
an extension fee of $25,000. In consideration for the extension of the
maturity date of the Term Loan through December 15, 1999, the Trust
agreed to pay an extension fee of $15,700.
11
<PAGE> 12
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
As discussed above, the Trust's expiration date of its forbearance and
extension arrangements is December 15, 1999. The potential inability of
the Trust to refinance this debt or to generate sufficient proceeds
from the sale of the Mall to repay the debt raises substantial doubt
about the Trust's ability to continue as a going concern. In the event
the Trust is unable to complete the disposition of the Mall prior to
December 15, 1999, Management will propose to its lenders that further
forbearance and extension arrangements be granted. However, no
assurances can be given that the lenders will grant such relief. The
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
NOTE 6: SUBSEQUENT EVENT
On July 1, 1999 the Registration Statement relating to the ART
Preferred Shares that would be issued upon a closing pursuant to the
Revised Merger Agreement was declared effective by the SEC.
The Annual Meeting convened on August 3, 1999 to consider and vote on
the Proposals discussed in Note 1. The Meeting has been adjourned to
Thursday August 26, 1999.
12
<PAGE> 13
EQK REALTY INVESTORS I
MANAGEMENT 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 on pages 3-12.
FINANCIAL CONDITION
Capital Resources
Trust Background
As of June 30, 1999, the Trust's remaining real estate investment is Harrisburg
East Mall (the "Mall"), a regional shopping center located in Harrisburg,
Pennsylvania. During the period 1992 to 1995, the Trust completed the
disposition of its two other real estate investments. Castleton Park, an office
park in Indianapolis, Indiana was sold in 1995, and Peachtree Dunwoody Pavilion,
an office park in Atlanta, Georgia, was sold in three separate transactions
during 1992 and 1993.
Management intends to dispose of its remaining real estate investment, the Mall,
as soon as commercially practicable. Recognizing that the disposition of the
Mall would not be completed prior to the June 15, 1999 expiration date of its
forbearance and extension agreements, Management proposed to its lenders that
further forbearance and extension arrangements be granted and the lenders
granted such relief through December 15, 1999.
The Declaration of Trust provides for the Trust's existence and a maximum
holding period for its real estate investments of 14 years. The Declaration of
Trust further provides that this 14 year term may be extended by up to two years
upon the recommendation of the Trustees and the affirmative vote of a majority
of its shareholders. Recognizing that the disposition of the Mall would not be
completed prior to the initial maturity date of the Trust's term (March 5,
1999), the Board of Trustees recommended a two-year extension of the Trust's
life (through March 5, 2001). This recommendation was approved by the
shareholders at a Special Meeting of Shareholders held on February 23, 1999.
Proposed Merger with American Realty Trust
Effective December 23, 1997, the Trust entered into an Agreement and Plan of
Merger (the "Merger Agreement"), pursuant to which an affiliate of American
Realty Trust, Inc. ("ART") is to merge with and into the Trust (the "Merger"),
with the Trust being the surviving entity. The Merger contemplates, among other
things, an extension of the life of the Trust through December 31, 2018.
13
<PAGE> 14
EQK REALTY INVESTORS I
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Merger Agreement was amended on August 25, 1998 (as further amended on
April 22, 1999 and June 4, 1999, the "Revised Merger Agreement") to provide for,
among other matters, for the right of the Trust to sell the Mall and distribute
proceeds of such sale to the Trust's shareholders prior to completing the Merger
and a corresponding reduction in the Merger consideration to be paid to the
Trust's shareholders.
An Annual Meeting of Shareholders (the "Annual Meeting") convened on August 3,
1999 to consider and vote upon (1) the Revised Merger Agreement (the "Merger
Proposal"), (2) an amendment and restatement of EQK's Amended and Restated
Declaration of Trust (the "Declaration Amendment Proposal"), (3) the termination
of EQK's advisory agreement with Lend Lease Portfolio Management, Inc. and the
execution by EQK of a new advisory agreement with Basic Capital Management Inc.,
an affiliate of ART, as advisor (the "New Advisory Agreement Proposal"), and (4)
the election of the Board of Trustees of EQK (the "Board of Election Proposal"
and, together with the Merger Proposal, the Declaration Amendment Proposal, and
the New Advisory Agreement Proposal, the "Proposals"). The Annual Meeting was
adjourned until August 26, 1999.
The affirmative vote of holders of 75% of the outstanding shares of EQK
("Requisite Shareholder Approval") is required for the approval of the Merger
Proposal, the Declaration Amendment Proposal and the New Advisory Agreement
Proposal (collectively, the "Merger Related Proposals"). None of the Merger
Related Proposals will take effect unless all such proposals receive Requisite
Shareholder Approval.
The Merger consideration will be comprised entirely of ART Series F Cumulative
Convertible Preferred Stock with a par value of $2.00 per share and a
liquidation value of $10.00 per share. ("ART Preferred Shares"). The Merger will
be effected by (i) ART's acquisition of up to 4,376,056 shares currently held by
four EQK shareholders including LLPM, Summit Venture L.P. ("Summit"), Sutter
Opportunity Fund LLC ("Sutter"), and Maurice A. Halperin ("Halperin"), (the
"Selling Shareholders") pursuant to the terms of separate stock purchase
agreements (each a "Stock Purchase Agreement" and collectively, the "Block
Purchase"), and (ii) ART's receipt of 673,976 shares newly issued by the Trust
(the "ART Merger Consideration" which, together with shares currently
outstanding, constitutes "EQK Shares"), the combined effect of which will give
ART up to an approximate 49% interest in EQK.
The number of EQK Shares acquired by ART and the number of EQK Shares issued to
ART may be adjusted if, due to certain circumstances, less than all of the
Selling Shareholders complete their transaction with ART. The Selling
Shareholders will receive for each EQK Share sold 0.030 of an ART Preferred
Share with a corresponding liquidation value of $0.30 per EQK Share sold. The
remaining shareholders (the "Public EQK Shareholders") will be entitled to
retain their Shares at the time of the Merger, but will be compensated for the
dilution in their percentage ownership interest through the receipt of 0.014 of
an ART Preferred Share with a corresponding liquidation value of $0.14 per EQK
Share held. In addition, ART currently intends (but is not legally obligated) to
acquire the remaining EQK
14
<PAGE> 15
EQK REALTY INVESTORS I
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Shares from such other Public EQK Shareholders at some time after the third
anniversary of the consummation of the Merger for not less than 0.0486 of an ART
Preferred Share with a liquidation value of $0.486 for each EQK Share tendered.
At this time, Halperin has not agreed to sell his EQK Shares to ART. If Halperin
does not agree to sell such shares to ART prior to the Merger, and the
Merger-Related Proposals receive the Requisite Shareholder Approval, Halperin
will be entitled to receive the same EQK Merger Consideration per share as the
consideration to be paid to the other Public EQK Shareholders and ART will be
entitled to receive the ART Merger Consideration without modification. Upon
consummation of the Block Purchase (excluding Haplerin's EQK Shares) and the
Merger, ART would own not more than 41% of the issued and outstanding EQK Shares
and the Public EQK Shareholders (including Halperin) will have effectively
"sold" approximately 4.15% of their EQK Shares to ART.
If Summit and Sutter elect to terminate their respective Stock Purchase
Agreements (which termination could occur subsequent to the Annual Meeting) and
ART determines to proceed with the closing of the Merger, Summit and Sutter
would be entitled to receive the same EQK Merger Consideration per share as the
other Public EQK Shareholders and ART will be entitled to receive the ART Merger
Consideration per share as the other Public EQK Shareholders without
modification. In such event, ART would own not more than 23% of the issued and
outstanding EQK Shares and the Public EQK Shareholders (including Halperin,
Summit, and Sutter) will have effectively "sold" approximately 5.4% of their EQK
Shares to ART.
Upon completion of the sale of the Mall and receipt of Requisite Shareholder
Approval, for the Merger Related Proposals, the Merger would be completed.
Immediately prior to the closing of the Merger, ART will convey one of its
properties to the Trust. The total consideration paid by the Trust to ART for
this property will be a $1,250,000 non-recourse five-year promissory note. The
Trust will also assume approximately $1,498,000 of existing debt.
ART has agreed to permit the Trust to continue to solicit, or respond to, offers
from third parties for the Trust. In the event the Trust accepts an offer from a
party other than ART and elects not to proceed with the Merger, the Trust
generally will be obligated to pay ART a break-up fee of $200,000 plus its share
of transaction expenses (collectively, the "Break-Up Consideration").
The Revised Merger Agreement is currently terminable by either ART or the Trust
if the Merger has not been accomplished by October 29, 1999. The Revised Merger
Agreement also may be terminated by the Trust if (i) the Trust secures a more
favorable offer from another party subject to the payment of the Break-Up
Consideration; or (ii) the Revised Merger Agreement in any way impairs or delays
the sale of the Mall, or is likely to result in a material reduction in
proceeds.
15
<PAGE> 16
EQK REALTY INVESTORS I
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Proceeds from the sale of the Mall and, if applicable, the completion of the
Merger, will be distributed to the shareholders of the Trust in one or more
payments once the Trust's liabilities have been settled (including retirements
of its Mortgage Note and Term Loan) and related transaction costs have been
paid.
The Trust, its trustees, and its Advisor have been named as defendants in a
purported class action complaint filed in Massachusetts State court, which seeks
to enjoin the Merger. The complaint also seeks other relief including
unspecified damages. Management of the Trust is pursuing its legal defenses and
believes that the disposition of this matter will not have a material adverse
effect on the financial position of the Trust.
Harrisburg East Mall Disposition Plan
Management commenced marketing and sales activities relating to the Mall during
the second quarter of 1998, which included the retention of an outside broker.
Since the commencement of sales activities, changing conditions in the capital
markets have had an adverse effect on the real estate market, and especially on
the market for regional shopping malls. This unfavorable environment has been
characterized by a reduction in available sources of financing for real estate
transactions and by reduced purchasing interest on the part of many traditional
buyers, including many of the public real estate investment trusts.
As previously announced, on March 5, 1999, the Trust entered into a non-binding
letter of intent to sell the Mall to a private real estate group (the
"Prospective Purchaser") for $51 million. Closing was subject to a number of
conditions, including the satisfactory completion of due diligence, the
Prospective Purchaser's obtaining financing and the execution of a definitive
purchase and sale agreement. The Letter of Intent provided for an exclusivity
period, which expired May 15, 1999, during which time the Trust could not
solicit, negotiate, or execute other offers for the sale of the Mall. There is
substantial doubt that the Trust will be able to close any transaction with the
Prospective Purchaser based upon certain terms that the Prospective Purchaser
has proposed. As a result, the Trust has commenced additional marketing
activities relating to the sale of the Mall.
The Trust understands that two of its former officers are affiliated with a
company that has entered into a relationship with the Prospective Purchaser in
connection with this transaction.
Mortgage Debt Extensions
The Trust's debt instruments (aggregate principal outstanding of $45,366,000)
had original maturity dates of December 15, 1995. The Trust's Mortgage Note
Lender and Term Loan Lender have agreed to extend the maturity date of the loans
twice, first for a period of one year through December 15, 1996, and second for
a period of 18 months through June 15, 1998. Following the June 15, 1998
maturity date, the Mortgage Note Lender granted three six-month forbearance
arrangements (most recently through
16
<PAGE> 17
EQK REALTY INVESTORS I
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
December 15, 1999) wherein it agreed not to exercise remedies for non-repayment
of the outstanding principal balance. The Term Loan Lender has granted three
six-month extensions of its maturity date so as to coincide with such
forbearance periods. These forbearance and extension arrangements are
conditioned upon, among other things, the Trust continuing to make timely debt
service payments in monthly amounts equal to those amounts stipulated in the
December 1996 debt extension agreements.
In consideration for the extension of the forbearance agreement relating to the
Mortgage Note through December 15, 1999, the Trust paid an extension fee of
$25,000. In consideration for the extension of the maturity date of the Term
Loan through December 15, 1999, the Trust agreed to pay an extension fee of
$15,700.
As discussed above, the Trust's expiration date of its forbearance and extension
arrangements is December 15, 1999. The potential inability of the Trust to
refinance this debt or to generate sufficient proceeds from the sale of the Mall
to repay the debt raises substantial doubt about the Trust's ability to continue
as a going concern. Given the uncertainty surrounding the timing of the
disposition of the Mall, Management will propose to its lenders that further
forbearance and extension arrangements be granted. However, no assurances can be
given that the lenders will grant such relief. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Liquidity
General
Cash flows provided by operating activities for the six month period ended June
30, 1999 and June 30, 1998 were $135,000 and $312,000, respectively,
representing a decrease of $177,000 over the prior year period. Although income
from operations increased over the prior year (as discussed in "Results of
Operations"), this increase was offset by the timing of payment of certain
recurring operating expenses. Further, the Trust received certain reimbursements
from ART in accordance with the Revised Merger Agreement during the first half
of 1998.
Cash flows used in investing activities during the six months ended June 30,
1999 ($132,000) and June 30, 1998 ($270,000) were for routine capital
expenditures at the Mall. The Trust anticipates capital expenditures of
approximately $1,623,000 for the remainder of 1999, which is primarily comprised
of forecasted tenant allowances of $1,355,000.
17
<PAGE> 18
EQK REALTY INVESTORS I
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the six months ended June 30, 1999 cash flows used in financing activities
were $33,000 which represents payments made for extension fees to the Mortgage
Note Lender ($25,000) and principal payments on the Trust's Term Loan ($8,000).
Cash flows used in financing activities for the six months ended June 30, 1998
represents payments made for extension fees to the Mortgage Note Lender
($273,000) and the Term Loan Lender ($88,000) as well as principal payments on
the Term Loan ($3,000). The Mortgage Note requires monthly payments of interest
only.
The Trust's liquidity requirements for the remainder of 1999 also will include
principal and interest payments of approximately $2,015,000 through December 15,
1999, pursuant to the existing loan and forbearance agreements. The forbearance
and extension agreements specify that the remaining loan balances of $45,366,000
be paid in full by December 15, 1999. In the event the sale of the Mall is not
completed by December 15, 1999, Management will propose to its lenders that
further forbearance and extensions be granted. However, no assurance can be
given that the lenders will grant such relief.
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 Mortgage
Note Lender. The Trust believes that its cash flow for 1999 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. 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 monthly
debt service requirements.
The Trust intends to sell the Mall and, therefore, has classified its real
estate as held for sale at April 1, 1998. Accordingly, the investment in real
estate, including deferred leasing costs, is recorded at the lower of cost or
estimated fair market value, less estimated costs to sell. Depreciation is not
recorded for real estate assets held for sale. Therefore, the Trust discontinued
recording depreciation and amortization of real estate assets on April 1, 1998.
The depreciation expense recorded in the second quarter of 1999 represents the
write off of a non-recoverable tenant allowance.
The Trust has not written up the cost basis of its investment in the Mall to its
substantially higher fair value. Therefore, the Trust does not believe that its
deficit in shareholders' equity of $4,443,000 at June 30, 1999 is indicative of
its current liquidity or the net distribution that its shareholders would
receive upon liquidation.
18
<PAGE> 19
EQK REALTY INVESTORS I
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Year 2000 Readiness Disclosure
The inability of computers, software and other equipment to recognize and
properly process data fields containing a two-digit year is commonly referred to
as the Year 2000 compliance issue ("Y2K"). As the year 2000 approaches, such
systems may be unable to accurately process certain date-based information.
Y2K exposures of the Trust and the Mall are currently being assessed. Potential
critical exposures include reliance on third party vendors and building systems
that are not Y2K compliant. The Trust continues to communicate with its third
party service vendors to assess Y2K compliance status and the adequacy of Y2K
efforts.
The Mall has been assessed in an effort to identify critical Y2K issues.
Remediation efforts are expected to be complete by September 30, 1999. The
remediation strategy has been developed based on the assessment findings.
The Trust and the Mall have incurred costs to date relating to Y2K of
approximately $18,600, which is comprised of total assessment cost of
approximately $15,200 and total cost for quality assurance for third party
engineers and consultants of approximately $3,400. Estimated remediation costs
of $30,500 are expected to be incurred to remediate and test non-compliant
building systems.
The failure to adequately address the Year 2000 issue may result in the closure
of the Mall. In order to reduce the potential impact on the operations of the
Trust and the Mall, Trust contingency plans are expected to be completed by
September 30, 1999.
A building contingency plan has been developed. A contingency plan may involve
the engagement of additional security services, implementation of temporary
systems modifications, and the identification and engagement of alternative
service vendors. Additional contingency plans may be developed as circumstances
warrant.
19
<PAGE> 20
EQK REALTY INVESTORS I
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
For the six months ended June 30, 1999, the Trust reported net income of
$389,000 ($.04 per share) compared to a net loss of $480,000 ($.05 per share)
for the six months ended June 30, 1998. For the three months ended June 30,
1999, the Trust reported net income of $42,000 ($.00 per share) while the three
months ended June 30, 1998 reported a net loss of $145,000 ($.02 per share).
The Trust's revenue from rental operations for the three and six months ended
June 30, 1999 was $1,519,000 and $3,131,000, respectively, representing an
increase of $182,000 for the quarter and $241,000 for the six month period as
compared to the prior periods presented. The second quarter variance is
attributable to a higher reimbursement ratio for utility income, a non-recurring
billing adjustment for one of the Mall's department stores and a higher level of
percentage rental income for certain food court tenants. The remaining portion
of the second quarter variance is attributable to several other increases in
income, none of which are considered individually material. The six month
variance is a result of the quarterly variances described above as well as the
Trust recognizing income from a bankruptcy settlement and income received from
the Pennsylvania Department of Transportation for its purchase of a 0.8 acre
remote land parcel owned by the Trust.
The Trust's operating expenses for the three and six months ended June 30, 1999
were $336,000 and $469,000, respectively, representing an increase of $55,000
for the second quarter and $30,000 for the six month period as compared to the
prior year periods presented. The three month and the six month period variances
are comprised of several operating expense variances, none of which are
considered significant.
The decrease in the depreciation and amortization expense between periods is
primarily due the cessation of depreciation and amortization expense relating to
the real estate investment and deferred leasing costs. The Trust's depreciation
expense for the current year represents the write off a non-recoverable tenant
allowance.
Interest expense decreased $72,000 for the current quarter and $153,000 for the
six months ended June 30, 1999 as compared to the prior year periods presented
primarily due to recording the amortization of the extension fees associated
with the 1996 debt extension in the prior year. The majority of the 1996 debt
extension costs were fully amortized in the first half of 1998.
20
<PAGE> 21
EQK REALTY INVESTORS I
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Trust's other expenses for the three and six months ended June 30, 1999 were
$95,000 and $208,000, respectively, representing a decrease of $7,000 for the
second quarter and an increase of $23,000 for the six month period as compared
to the same periods in 1998. The second quarter decrease in expense is comprised
of several expense variances, none of which are considered significant. The six
month period increase in expense of $23,000 is primarily due to the costs
incurred by the Trust for the administration of the Special Meeting of
Shareholders held on February 23, 1999.
21
<PAGE> 22
EQK REALTY INVESTORS I
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
A 10% change in the fixed and variable interest rate would not have a material
effect on the Trust's financial statements due to the related terms of its debt
instruments.
22
<PAGE> 23
EQK REALTY INVESTORS I
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On February 3, 1998, the Trust, its trustees, and its Advisor were
named as defendants in a purported class action complaint filed by a
shareholder in Massachusetts State court. The complaint seeks to enjoin
the Merger and also seeks other relief including unspecified damages.
Management of the Trust is pursuing its legal defenses and believes
that the disposition of this matter will not have a material adverse
effect on the financial position of the Trust.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
An Annual Meeting of Shareholders (the "Meeting") convened on August 3,
1999 to consider and vote upon (1) the Revised Merger Agreement, (2) an
amendment and restatement of EQK's Amended and Restated Declaration of
Trust, (3) the termination of EQK's advisory agreement with Lend Lease
Portfolio Management, Inc. and the execution by EQK of a new advisory
agreement with Basic Capital Management Inc., an affiliate of ART, as
advisor, and (4) the election of the Board of Trustees of EQK. The
Meeting has been adjourned to Thursday August 26, 1999.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2. None
4. None
10. Material Contracts
(1) Agreement between EQK Realty Investors I and
Prudential Insurance Company of America dated
June 14, 1999
(2) Fifth Amendment to Second Amended and Restated Loan
Agreement from PNC Bank National Association dated
June 15, 1999
(3) Sixth Amended and Restated Note from PNC Bank
Association dated June 15, 1999
(4) Mutual Estoppel and Modification Agreement dated June
15, 1999 between the Registrant and the Prudential
Insurance Company of America and PNC Bank National
Association
(5) Disclosure for Confession of Judgment from PNC Bank
National Association dated June 15, 1999
(6) EQK Realty Investors I Incumbency Certificate dated
June 15, 1999.
(7) First Amendment to Amended and Restated Agreement and
Plan of Merger by and among the Registrant, American
Realty Trust, Inc., ART Newco, LLC, Basic Capital
Management, Inc., EQK Realty Investors I, and Lend
Lease Portfolio Management, Inc. (a)
23
<PAGE> 24
11. See Note 2 to Financial Statements
15. Not Applicable
18. Not Applicable
19. None
22. None
23. Not Applicable
24. None
27. Included in EDGAR transmission only (for SEC use only)
(b) Reports on Form 8-K
None
(a) Incorporated herein by reference to exhibit filed with Registration
Statement on July 1, 1999 on Amendment #7 to form S-4 filed by American
Realty Trust, Inc. (Registration Statement Number 333-43777)
24
<PAGE> 25
SIGNATURES
Pursuant to 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.
Date: August 13, 1999 EQK REALTY INVESTORS I
By: /s/Samuel F. Hatcher
-------------------------------------------
Samuel F. Hatcher
President (Principal Executive Officer)
and Trustee
By: /s/Don Henry
-------------------------------------------
Don Henry
Vice President (Principal Financial Officer)
and Controller
25
<PAGE> 1
EXHIBIT 10.1
[PRUDENTIAL LETTERHEAD]
June 11, 1999
EQK Realty Investors I
c/o Lend Lease
3424 Peachtree Road, N.E., Suite 800
Atlanta, GA 30326
Attn: Donald Henry
Subject: Prudential Loan No. 7501488
Harrisburg East Mall, Harrisburg, PA
Forbearance Agreement
Dear Mr. Henry:
As you are aware, the above-referenced Loan held by The Prudential Insurance
Company of America ("Prudential") encumbering property of EQK Realty Investors
I (EQK or Borrower) is due and payable in full as of June 15, 1999 ("Maturity
Date"). You have indicated the Borrower's inability to pay the Loan in full on
the Maturity Date and have requested some relief or extension. Although
Prudential is unwilling to extend or reinstate the Loan, Prudential is willing
to forbear exercising remedies (other than any remedies continuing to be
exercised under the Loan documents) from the date of Borrower's execution of
this letter until December 15, 1999 ("Forbearance Period"), provided the
following terms and conditions are met ("Forbearance Conditions"):
1. The Borrower executes this letter where indicated below and returns
the same to Prudential by June 16, 1999 along with an administrative
fee of $25,000.00 which fee is hereby deemed fully earned and shall
not be applied to sums due under the Loan documents.
2. Payments ("Forbearance Payments") shall be made to Prudential as
follows: principal and interest payments of $324,076.70 shall be due
on the fifteenth of each month during the Forbearance Period.
Prudential will have the right, at its sole discretion, to apply
Forbearance Payments received to principal first, then to any other
sums due under the Loan documents, then to interest.
3. The entire remaining Loan balance must be paid in full by the end of
the Forbearance Period.
4. No defaults exist or shall hereafter occur during the Forbearance
Period under the Loan documents other than the failure to pay the
Loan in full on the Maturity Date.
If the Borrower complies in a timely fashion with all of the
Forbearance Conditions, Prudential will waive default interest accruing prior
to or during the Forbearance Period, and interest will be collected only at the
Contract Rate of 8.88% upon payoff in full. However, in the event Borrower does
not comply in a timely fashion with all of the Forbearance Conditions, interest
will remain due at the default rate of 13.92% from and after the Maturity Date.
<PAGE> 2
EQK Realty
Forbearance Agreement
June 11, 1999
Page 2
By countersigning this letter where indicated below, Borrower represents,
warrants, covents and agrees to and with Prudential as follows:
1. Prudential holds a valid and perfect first priority mortgage lien
against the property known as the Harrisburg Mall (the "Premises"), as set
forth in an Amended and Restated Open-End Mortgage and Security Agreement
dated as of December 15, 1992, as amended (the "Mortgage").
2. All leases of and rents generated by the Premises have been
absolutely assigned to Prudential, as assignee, and First Union National
Bank of Georgia, as Central Collection Agent, pursuant to the Absolute
Assignment of Leases and Rents and Rental Collection Agreement dated
December 16, 1992, as amended (the "Absolute Lease Agreement"), all rents,
security deposits and other sums paid under leases for the Premises have
been and shall continue to be paid to said Rental Collection Agent and all
such sums have been and continue to be deposited with the Escrow Agent and
applied in accordance with the Cash Management and Security Agreement dated
as of December 15, 1992, as amended (the "Cash Management Agreement"), by
and among Borrower, Prudential and First Union National Bank of Georgia, as
Escrow Agent.
3. Borrower hereby ratifies and confirms all Loan documents,
including, without limitation, the Second Amended and Restated Note dated
December 16, 1992, as amended (the "Note"), from Borrower to Prudential;
the Mortgage; the Absolute Lease Assignment; the Cash Management Agreement;
and the Confession of Judgment contained in the Note; the Acknowledgment of
Confession of Judgment executed by Borrower and acknowledged December 19,
1996; and the Warrant Agreement") by and between Borrower and Prudential.
4. Borrower does not have or hold any defenses, setoffs, demands or
claims against the Loan, Prudential or Prudential's officers,
representatives or agents.
5. As of the date of this letter, the outstanding principal balance
of the Loan is $43,794,149.14.
This is a one-time forbearance and Prudential does not presently intend to
forbear beyond the date set forth above.
In the event any of the Forbearance Conditions are not met in a timely
fashion, Prudential's obligation to forbear shall terminate and be null and
void, and Prudential shall be entitled to exercise any available remedies for
default under the Loan Documents and/or applicable law. Except for the limited
forbearance set forth above, Prudential reserves all of its rights and remedies
under the Loan documents or under applicable law, and this Forbearance Agreement
shall not be deemed an election of remedies, nor shall it constitute a waiver of
any rights or remedies otherwise available to Prudential.
As a further material inducement for Prudential to enter into this
Forbearance Agreement without which Prudential would not have agreed to a
Forbearance Period, Borrower hereby makes the following irrevocable waivers:
a) BORROWER WAIVES AND RELEASES ANY EXISTING OFFSETS, DEFENSES OR
COUNTERCLAIMS RELATING TO THE LOAN OR THE LOAN DOCUMENTS.
<PAGE> 3
EQK Realty
Forbearance Agreement
June 11, 1999
Page 3
b) BORROWER ALSO WAIVES THE RIGHT TO A TRIAL BY JURY IN THE EVENT THE
LOAN DOCUMENTS OR THIS FORBEARANCE AGREEMENT BECOME THE BASIS OF
LITIGATION.
Sincerely,
/s/ David A. Graham
---------------------------------
David A. Graham
Vice President
Accepted and agreed to this 14 day of June, 1999.
BORROWER:
- ------------------------------------
/S/ Don Henry
- ------------------------------------
BY: Don Henry
---------------------------------
Title: VP
------------------------------
cc: Paul Egan
Jack McDonald
Brian Hansen
Michele Whiteside
Mary Phillips
<PAGE> 1
EXHIBIT 10.2
FIFTH AMENDMENT TO SECOND AMENDED AND
RESTATED LOAN AGREEMENT
THIS FIFTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT
(this "Amendment") is made as of this 15th day of June, 1999, 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 (the "Loan Agreement") dated as of December 16, 1992, by and between
the Borrower and the Bank, pursuant to which the Bank extended to Borrower a
term loan in the amount of $3,525,000 (the "Loan"), which Loan Agreement was
amended by a First Amendment to Second Amended and Restated Loan Agreement dated
as of December 15, 1995 (the "First Amendment"), by a Second Amendment to Second
Amended and Restated Loan Agreement dated as of December 15, 1996 (the "Second
Amendment"), by a Third Amendment to Second Amended and Restated Loan Agreement
dated as of June 15, 1998 (the "Third Amendment") and by a Fourth Amendment to
Second Amended and Restated Loan Agreement dated as of December 15, 1998 (the
"Fourth Amendment") (collectively, 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, by a certain Second Amended and
Restated Note (the "Second Amended and Restated Note") dated as of December
1
<PAGE> 2
15, 1995 in the principal amount of $1,587,430, by a certain Third Amended and
Restated Note (the "Third Amended and Restated Note") dated as of December 15,
1996 in the principal amount of $1,585,010.00, by a certain Fourth Amended and
Restated Note (the "Fourth Amended and Restated Note") dated as of June 15,
1998 in the original principal amount of $1,581,769 and by a certain Fifth
Amended and Restated Note (the "Fifth Amended and Restated Note") dated as of
December 15, 1998 in the original principal amount of $1,580,420 (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 in Section 2 hereof), the New Provident Mortgage, the New
Provident Lease Assignment, the Intercreditor Agreement (all as defined in the
Original Loan Agreement) and all other documents and instruments evidencing
and/or securing the Loan are sometimes hereinafter collectively referred to as
the "Loan Documents."
D. The Borrower has requested that the Bank extend the Maturity
Date (as defined in the Original Note) from June 15, 1999 to the earlier of (i)
December 15, 1999; (ii) the termination or dissolution of the Borrower; or (iii)
the sale or refinancing of the Harrisburg Mall (as defined in the Original
Note).
E. The Bank has agreed to extend the Maturity Date and to make
certain modifications to the Loan Documents, upon the terms and 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
2
<PAGE> 3
2. The Original Loan Agreement is hereby amended as follows:
(i) Section 3(b) of the First Amendment shall be deleted in
its entirety and the following shall be substituted therefore:
"3(b) Terms of Payment; Maturity: Subject to the terms of the
Intercreditor Agreement, the Loan shall be payable in
accordance with the Original Note as amended by the Sixth
Amended and Restated Note dated as of June 15, 1999
(collectively, the "Note")."
(ii) The definition of "Euro-Based Rate" contained in Section 1 of
the First Amendment shall be deleted in its entirety and the following shall be
substituted therefore:
"Euro-Based Rate" shall mean a rate equal to three and one
half percent (3.5%) above the Euro-Rate as applied to that
portion of the Loan comprising any particular Borrowing
Tranche."
(iii) The following shall be added to Section 3(a)(ii) of the First
Amendment after current Section 3(a)(ii)(D):
"(E) Notwithstanding the foregoing, the Borrower shall be
deemed to have selected the Euro-Based Rate for a Euro-Based
Interest Period of three (3) months, commencing on June 15,
1999 and ending on September 15, 1999."
3. From and after the date hereof, all references to the "Loan
Agreement" or the "Note" contained herein or in any of the other Loan Documents
shall be to the Original Loan Agreement or the Original Note, as the case may
be, as amended by this Amendment and the Sixth Amended and Restated Note,
respectively.
4. Execution of this Amendment shall be conditioned on the
Bank's receipt of the following, all in form and substance satisfactory to the
Bank:
(a) the execution and delivery by Borrower of the (i)
Sixth Amended and Restated Note in the form of
Exhibit A attached hereto and (ii) the Disclosure For
Confession of Judgment in the form of Exhibit B
attached hereto;
(b) certified copy of the authorizing resolutions of
Borrower;
(c) certificate from Borrower as to the incumbency of
its officers and that the Declaration of Trust,
By-Laws and other organizational documents have not
been amended since December 15, 1992 and remain in
full force and effect;
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<PAGE> 4
(d) Mutual Estoppel and Modification Agreement with
respect to the Subordination and Intercreditor
Agreement among the Bank, Prudential and Borrower
(the "Intercreditor Agreement");
(e) payment of an extension fee in the amount of $15,700
in good funds; and
(f) evidence satisfactory to Bank, that the Prudential
Note (defined in the Loan Documents) has been
extended at least through the Maturity Date on
market terms.
5. The Borrower hereby certifies that, as of the date hereof:
(a) each of the representations and warranties contained
in the Loan Agreement and the other Loan Documents,
as modified by this Amendment, are true and correct;
(b) the Borrower is in compliance with all of the terms,
covenants and conditions contained in the Loan
Agreement and the other Loan Documents, as modified
by this Amendment, including, without limitation,
all of the financial covenants;
(c) there exists no Default or Event of Default under
the Loan Agreement or any of the other Loan
Documents; and
(d) the Borrower has reviewed the areas within its
business and operations which could be adversely
affected by, and has developed or is developing a
program to address on a timely basis the risk that
certain computer applications used by the Borrower
may be unable to recognize and perform properly
date-sensitive functions involving dates prior to
and after December 31, 1999 (the "Year 2000
Problem"). The Year 2000 Problem is not reasonably
expected to result in any material adverse effect on
the business, properties, assets, financial
condition, results of operations or prospects of
Borrower, or the ability of Borrower to duly and
punctually pay or perform its obligations under the
Note, the Loan Agreement and the Loan Documents.
6. All of the terms, conditions, provisions and covenants in the
Original Loan Agreement, the Original Note or any of the other Loan Documents
executed in connection with any of the foregoing shall remain unaltered and in
full force and effect except as modified by this Amendment and the Sixth
Amended and Restated Note.
7. This Amendment shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
4
<PAGE> 5
8. Each and every one of the terms and provisions of this
Amendment shall be binding upon and shall inure to the benefit of the Borrower,
the Bank and their respective successors and assigns.
9. This Amendment may be executed in one or more counterparts,
each of which shall be deemed to be an original as against any party whose
signature appears thereon, and all of which shall constitute but one and the
same instrument.
10. Borrower agrees that it has no defenses or set-offs against
Bank, its officers, directors, employees, agents or attorneys with respect to
the Note, the Loan Agreement, the New Provident Mortgage or any of the other
Loan Documents, and that the Note, the Loan Agreement, the New Provident
Mortgage, and the other Loan Documents are in full force and effect and shall
remain in full force and effect unless and until modified or amended in writing
in accordance with their respective terms. Borrower hereby ratifies and confirms
its obligations under the Note, the Loan Agreement, the New Provident Mortgage,
and the other Loan Documents, and the execution and delivery of this Amendment
does not in any way diminish or invalidate any of Borrower's obligations under
the Note, the Loan Agreement and the other Loan Documents. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, BORROWER RATIFIES AND CONFIRMS THE WARRANT OF
ATTORNEY AND THE WAIVER OF JURY TRIAL GIVEN IN THE SIXTH AMENDED AND RESTATED
NOTE.
11. This Amendment does not and shall not be deemed to constitute
a waiver by Bank of any Event of Default, or of any event which with the passage
of time or the giving of notice or both would constitute an Event of Default,
under the Note, the Loan Agreement, the New Provident Mortgage or any of the
other Loan Documents, nor does it obligate Bank to agree to any further
modifications of the terms of the Note, the Loan Agreement or any of the other
Loan Documents,
5
<PAGE> 6
or constitute a waiver of any of Bank's other rights or remedies, which may be
effected only (if at all) by an instrument in writing signed by an authorized
representative of the Bank.
IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have
caused this Amendment to be duly executed as a document under seal by their
respective authorized officers as of the day and year first above written.
EQK REALTY INVESTORS I, a
Massachusetts business trust
By: /s/ Don Henry
---------------------
Name: Don Henry
-------------------
Title: VP
------------------
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Andrew D. Coler
---------------------
Name: Andrew D. Coler
Title: Vice President
6
<PAGE> 7
EXHIBIT A
<PAGE> 8
EXHIBIT B
<PAGE> 1
EXHIBIT 10.3
SIXTH AMENDED AND RESTATED NOTE
Dated as of: June 15, 1999
Philadelphia, PA
For value received and intending to be legally bound, EQK REALTY
INVESTORS I ("Maker"), a Massachusetts business trust whose address is 3424
Peachtree Road, N.E., Suite 800, Atlanta, Georgia 30326, 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 Banking Division, 1600 Market Street, Philadelphia, Pennsylvania 19103
or such other place as Payee may designate in writing, the principal sum of ONE
MILLION FIVE HUNDRED SEVENTY-ONE THOUSAND FIVE HUNDRED TWENTY-EIGHT DOLLARS AND
NINETEEN CENTS ($1,571,528.19) 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 dated as of December
15, 1995, a Second Amendment to Second Amended and Restated Loan Agreement (the
"Second Amendment") dated as of December 15, 1996, a Third Amendment to Second
Amended and Restated Loan Agreement (the "Third Amendment") dated June 15,
1998, a Fourth Amendment to Second Amended and Restated Loan Agreement (the
"Fourth Amendment") dated as of December 15, 1998 and a Fifth Amendment to
Second Amended and Restated Loan Agreement (the "Fifth Amendment") dated as of
the date hereof (collectively, the "Loan Agreement"). All interest shall be
calculated in accordance with the Loan Agreement.
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<PAGE> 2
The Note shall be payable as follows:
(a) Interest from and including June 1, 1999 through June 14,
1999 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 July 1,
1999.
(b) Interest from and including June 15, 1999 (the "Effective
Date") through June 30, 1999 on the outstanding principal balance hereof shall
be paid by Maker to Payee at the Interest Rate on July 1, 1999.
(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 August, 1999 and on the first day of
each month thereafter until the earlier of: (i) December 15, 1999; (ii) the
termination or dissolution of the Maker; or (iii) the sale or refinancing of
the Harrisburg Mall (as hereinafter defined) (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 and any
other charges due and owing to Bank by Maker.
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
2
<PAGE> 3
payment. Such ten (10) day period shall not be construed in any way to extend
the 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 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 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
3
<PAGE> 4
percent (5%) above the rate then extant hereunder or (ii) the 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 JUDGMENT MAY BE CONFESSED AS AFORESAID FROM TIME TO TIME
AS OFTEN AS THERE IS OCCASION THEREFOR.
MAKER ACKNOWLEDGES THAT THE PROVISIONS FOR CONFESSION
4
<PAGE> 5
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 as amended from time to
time.
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 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.
5
<PAGE> 6
Maker and all endorsers, 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 endorsers,
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, endorsers,
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 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
6
<PAGE> 7
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.
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
7
<PAGE> 8
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 (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, as amended and restated by a certain Second Amended and
Restated Note from Maker in favor of Payee dated as of December 15, 1995 in the
principal amount of $1,587,430 as amended and restated by a certain Third
Amended and Restated Note from Maker in favor of Payee dated as of December 15,
1996 in the principal amount of $1,585,010.00 as amended and restated by a
certain Fourth Amended and Restated Note from Maker in favor of Payee dated as
of June 15, 1998 in the principal amount of $1,581,769.00 and as amended and
restated by a certain Fifth Amended and Restated Note from Maker in favor of
Payee dated as of December 15, 1998 in the principal amount of $1,580,420
(collectively, 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.
8
<PAGE> 9
IN WITNESS WHEREOF, Maker has duly executed this Note the day and year
first above mentioned.
EQK REALTY INVESTORS I
Massachusetts business trust
By: /s/ Sam F. Hatcher
-----------------------
Name: Sam F. Hatcher
---------------------
Title: President
--------------------
9
<PAGE> 1
EXHIBIT 10.04
MUTUAL ESTOPPEL AND MODIFICATION AGREEMENT
THIS MUTUAL ESTOPPEL AND MODIFICATION AGREEMENT is made as of this 15th
day of June, 1999, 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, pursuant to the terms of a certain Mutual Estoppel and
Modification Agreement (the "Modification"), the parties set forth certain
agreements concerning the Intercreditor Agreement; and
WHEREAS, the parties wish to make certain statements and agreements
regarding the Modification, 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:
1
<PAGE> 2
(a) The outstanding principal amount of the New
Provident Note, as amended and restated by the Sixth Amended and Restated Note
(the "PNC Restated Note") dated as of June 15, 1999 (collectively, the "PNC
Note") is $1,571,528.19;
(b) The rate of interest under the PNC Note is either
three hundred and fifty basis points (3.5%) 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 PNC Note and the Subordinate 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 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 and further amended by a First Amended
Note, Mortgage and Loan Modification Agreement dated as of December 15, 1996,
and as amended by a Second Amended Note, Mortgage and Loan Modification
Agreement dated as of December 15, 1997 (the "Prudential Modification
Agreement") between Prudential and EQK (collectively, the "Prudential Note") is
$43,794,149.14;
2
<PAGE> 3
(b) The rate of interest under the Prudential Note is
8.88% per annum;
(c) The monthly payment of interest required to be paid
under the Prudential Note is $324,076.70;
(d) the maturity date (or the date on which the entire
outstanding principal balance plus all accrued interest thereon and any other
changes due and owing shall become due and payable) of the Prudential Note is
December 15, 1999; and
(e) To the best of Prudential's knowledge, there exist no
defaults under the Prudential Note and the other 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 and Borrower as
follows: (a) that the Subordinate Loan Documents, including the amendments and
modifications hereinabove and that certain Fifth Amendment to Second Amended
and Restated Loan Agreement dated as of June 15, 1999 (the "PNC Fifth
Amendment"), remain subordinate to the Senior Loan Documents, including the
amendments and modifications thereto referred to hereinabove; (b) calculation
of the Contract
3
<PAGE> 4
Amount referred to in Section 4(b)(i)(A) of the Intercreditor Agreement shall
be based on the interest rate set forth in the PNC Note; (c) the Prudential Pay
Rate referred to in Section 4(b)(i)(B) of the Intercreditor Agreement shall be
the interest rate set forth in the Prudential Note (e.g. 8.88% per annum); (d)
notwithstanding the fact that the Contract Amount may be less than the Cap
Amount, EQK is permitted and EQK hereby agrees to make debt service payments to
the Bank in an amount equal to, but not exceeding, the Cap Amount; and (e)
paragraph 4(b)(i)(B) of the Intercreditor Agreement shall be modified by
deleting the un-numbered paragraph in the middle of page five commencing with
the phrase "Whenever the Contract Amount..." and ending with the phrase
"...interest at the Contract Rate" and substituting the following therefore:
"If the Contract Amount exceeds the Cap Amount at any time, the amount by which
the Contract Amount exceeds the Cap Amount shall accrue (and, if applicable,
shall be added to any previous excess) (but shall not be payable currently) and
shall represent a supplemental loan fee to Bank (the "Supplemental Loan Fee").
The Supplemental Loan Fee shall bear interest at the stated rate of interest
under the New Provident Note (the "Contract Rate") and shall be payable, along
with all accrued and unpaid interest thereon, on the maturity date of the New
Provident Note. In addition to and not in limitation of the foregoing, to the
extent any debt service permitted to be payable to Provident exceeds the amount
available for payment on the New Provident Note under the Cash Management
Agreement of even date herewith among EQK, Prudential and Provident (the "Cash
Management Agreement") or is not otherwise paid by EQK from operating reserves
or other sources, such excess shall not be payable currently, but shall accrue
and shall be added to the principal of the New Provident Note and shall bear
interest at the Contract Rate.
4
<PAGE> 5
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 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 Fifth 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.
[SIGNATURES ARE ON THE FOLLOWING PAGE]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Mutual Estoppel
Agreement as of this 15th day of June, 1999.
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Andrew D. Coler
---------------------------
Title: Vice President
-------------------------
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/ David Graham
---------------------------
Title: Vice President
-------------------------
EQK REALTY INVESTORS I
By: /s/ Don Henry
---------------------------
Title: VP
-------------------------
6
<PAGE> 1
EXHIBIT 10.5
PNCBANK
DISCLOSURE FOR CONFESSION OF JUDGMENT
<TABLE>
<S> <C>
Undersigned: EQK REALTY INVESTORS I
3424 Peachtree Road, N.E.
Suite 800
Atlanta, Georgia 30326
Lender: PNC BANK, NATIONAL ASSOCIATION
1600 Market Street,
Philadelphia, Pennsylvania 19103
</TABLE>
The undersigned has executed, and/or is executing, on or about the
date hereof, the following document(s) under which the undersigned is obligated
to repay monies to Lender:
1. $1,571,528.19 Sixth Amended and Restated Note
A. THE UNDERSIGNED ACKNOWLEDGES AND AGREES THAT THE ABOVE DOCUMENT
CONTAINS 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 DOCUMENT
CONTAINS 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.
EQK REALTY INVESTORS I, a
Massachusetts business trust
By: /s/ SAM F. HATCHER
--------------------------
Name: Sam F. Hatcher
------------------------
Title: President
-----------------------
DATED: As of June 15, 1999
<PAGE> 1
EXHIBIT 10.06
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, Mr. Henry having been elected at the Annual
Meeting of the Trustees on May 29, 1996, Mr. Hatcher having been elected at a
special meeting of the Trustees held January 15, 1999, and Ms. Griffin having
been elected at the meeting of the Board of Trustees of August 19, 1998, 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>
NAME: TITLE:
Samuel F. Hatcher President
Donald R. Henry Vice President
Pamela P. Griffin Secretary
</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, (the "Declaration") 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; however, pursuant to section 5.1 of the Declaration, the
life of the Trust has been extended to March 2001 by a shareholder vote at a
Special Meeting of Shareholders on February 23, 1999.
The undersigned Secretary further certifies that no formal resolution
of the Trustees is required for the extension of the Trust's loan with PNC
Bank, National Association, and that the officers of the Trust have the full
authority to execute any and all documents in connection with the extension of
such loan.
This 15th day of June, 1999.
/s/ PAMELA P. GRIFFIN
----------------------------
Pamela P. Griffin, Secretary
<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 JUNE 30,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,831
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 45,069
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 135,875
<OTHER-SE> (140,318)
<TOTAL-LIABILITY-AND-EQUITY> 45,069
<SALES> 0
<TOTAL-REVENUES> 3,131
<CGS> 0
<TOTAL-COSTS> 469
<OTHER-EXPENSES> 227
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,046
<INCOME-PRETAX> 389
<INCOME-TAX> 0
<INCOME-CONTINUING> 389
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 389
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
</TABLE>
