SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
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Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
SHOPCO REGIONAL MALLS, L.P.
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee:
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
Depository Units of Limited Partnership Interests
2) Aggregate number of securities to which transaction applies:
70,250 Units of Limited Partnership Interests
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11(c)(2) (set forth the amount on
which the filing fee is calculated and state how it was
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determined): Based upon the aggregate cash to be paid to the
General Partner and Limited Partners of the Registrant for the sole
asset of the Registrant and the subsequent dissolution and
liquidation of the Registrant $8,571,000, which is the subject of
this Schedule 14A, the Registrant is paying a filing fee of $1,714
(one fiftieth of one percent of the cash to be distributed to the
General Partner and Limited Partners of the Registrant in the
subject transaction.)
4) Proposed maximum aggregate value of transaction: $8,571,000
5) Total fee paid: $1,714
/X/ Fee paid previously with preliminary materials: The total fee of $1,714
computed pursuant to Exchange Act Rules 14a-6(i)(1) and 0-11 was
previously paid in connection with the filing of preliminary proxy
materials on December 30, 1999.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing:
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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Shopco Regional Malls, L.P.
3 World Financial Center, 29th Floor
New York, New York 10285-2900
February 2, 2000
NOTICE OF CHANGE OF SPECIAL MEETING DATE
To the Limited Partners of
Shopco Regional Malls, L.P.:
Please be advised that the date for the special meeting of the limited
partners of Shopco Regional Malls, L.P. referred to in the attached proxy
statement is now scheduled for February 29, 2000.
Please return the enclosed blue proxy card by 5:00 p.m., Eastern Time,
on February 28, 2000.
When reading the attached proxy statement, please substitute: 1) the new
special meeting date of February 29, 2000 for the original special meeting
date of February 7, 2000 in each place where it appears; 2) the new proxy
card return date of February 28, 2000 for the original proxy card return date
of February 4, 2000 in each place where it appears.
We are mailing this notice and the attached proxy statement and enclosed
proxy card to the limited partners of Shopco Regional Malls, L.P. on
February 2, 2000.
Sincerely,
Michael T. Marron
President
Regional Malls Inc.,
the General Partner of Shopco Regional
Malls, L.P.
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Shopco Regional Malls, L.P.
3 World Financial Center, 29th Floor
New York, New York 10285-2900
January 12, 2000
To the Limited Partners of
Shopco Regional Malls, L.P.:
We are pleased to inform you that after extensive marketing and
negotiation, we have reached an agreement to sell Cranberry Mall, located in
Westminster, Maryland. Cranberry Properties MM Corp. will pay $33,500,000 in
cash to Shopco Malls L.P., the owner partnership, which holds title to
Cranberry Mall and in which Shopco Regional Malls, L.P. has a 99% general
partnership interest. We estimate that the limited partners will receive
distributions of approximately $122 per unit as a result of this sale and the
subsequent liquidation and dissolution of Shopco Regional Malls, L.P. This
distribution will include available cash of the partnership after paying or
providing for payment of transaction costs and all other outstanding
liabilities. It is possible, however, that prior to closing, the purchaser
may seek to renegotiate the purchase price if certain conditions to closing
are not met. In that event, we may use our reasonable discretion to agree
upon a lower purchase price that is believed by us to be in the best
interests of the limited partners, but in no event shall the purchase price
be reduced by more than 3%. (Shopco Regional Malls, L.P. is referred to as
the Partnership to distinguish it from its general partner, Regional Malls,
Inc. Shopco Malls L.P., which holds the direct interest in Cranberry Mall,
is referred to as the Owner Partnership.)
Together with the limited partner of the Owner Partnership, we will sell
our combined interest in Cranberry Mall pursuant to the terms of an agreement
with the purchaser. The agreed upon value of Cranberry Mall was based upon a
thorough marketing by Insignia/ESG Capital Advisors Group and an arm's length
negotiation between the purchaser and us on behalf of the Partnership and the
Owner Partnership. After the sale, both the Partnership and the Owner
Partnership will liquidate and distribute proceeds to their respective
partners.
We are asking the limited partners of the Partnership to approve the
sale of Cranberry Mall and the subsequent dissolution of the Partnership on
the terms described in the accompanying proxy statement. The vote will occur
at a special meeting of the limited partners to be held at the Partnership's
offices at 3 World Financial Center, 26th Floor, New York, New York
10285-2900 on February 7, 2000, at 9 a.m. local time.
If the sale is not consummated, there can be no assurance that any
future disposition of Cranberry Mall will occur, or that the proceeds of such
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a sale would be sufficient to pay down the outstanding mortgage on the
property. The outstanding principal of the current mortgage was due and
payable on April 1, 1999 and is in forbearance until April 1, 2000. Although
the General Partner intends to seek to have the mortgage extended and the
terms thereof modified or to otherwise refinance the mortgage, there can be
no assurances that such extension, modification or refinancing will be
obtained, or that the terms thereof will be favorable.
The General Partner recommends that the limited partners vote "FOR" the
sale.
Limited partners holding a majority of the limited partnership units
must approve the transaction by voting "FOR" on the enclosed proxy card for
the Partnership to proceed with the sale. Whether or not you plan to attend
the special meeting, please take the time to vote on the proposal submitted
to the limited partners by completing and mailing the enclosed proxy card.
If you sign, date and mail your proxy card without indicating how you wish to
vote, your proxy will be counted as a vote in favor of the sale of Cranberry
Mall. If you fail to return a properly executed proxy card, it will have the
same effect as a vote against the sale. YOUR VOTE IS VERY IMPORTANT.
If the sale is approved by the limited partners and certain other
conditions to the sale are met or waived, the sale will be consummated. The
Owner Partnership will sell Cranberry Mall and distribute the proceeds to the
Partnership and the limited partner of the Owner Partnership. The Owner
Partnership will then liquidate and distribute any remaining cash.
Thereafter, the Partnership will be liquidated and dissolved at such time as
the General Partner determines that all remaining Partnership assets are
available for distribution and all Partnership obligations and liabilities
have been paid or provisions have been made for their payment. If the sale
is not consummated, there can be no assurance that any future disposition of
Cranberry Mall will occur or what the terms of such a transaction might be.
The net cash proceeds from the sale of Cranberry Mall will be
distributed to you together with all other cash of the Partnership. The
estimated distributions of $122 per unit represent:
(1) the net proceeds from the sale of Cranberry Mall (after paying or
providing for payment of transaction costs) of approximately $20 per
unit; and
(2) additional cash reserves of the Owner Partnership (after paying or
providing for payment of outstanding and anticipated liabilities) and
the Partnership (after paying or providing for payment of outstanding
and anticipated liabilities), which the Partnership estimates will be
approximately $102 per unit.
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In the event that the purchaser renegotiates the purchase price and the
General Partner agrees to a lower price, the amounts distributed to you will
be lower. The availability of funds for distribution of additional
Partnership cash reserves will be determined, in part, by the collection
after the sale of certain rental and other payments due from tenants at
Cranberry Mall adjusted as of the closing date. To collect such funds sooner
than they would otherwise be paid, the Partnership may accept discounted
payments with respect to amounts due, which would result in limited partners
receiving their liquidating distribution sooner than would otherwise be the
case, but could reduce the amount of such liquidating distribution. An
initial distribution is contemplated to occur within 60 days of the
completion of the sale, and a final distribution of cash reserves not
utilized to meet Partnership obligations or liabilities will be made at such
time as we determine.
Please read the enclosed proxy statement and return the proxy card
indicating your vote in the enclosed, prepaid envelope to MacKenzie Partners,
Inc., 156 Fifth Avenue, 13th Floor, New York, New York 10010 or by facsimile
(212/929-0308), Attention: Charles Koons. Your vote is important and must
be received no later than February 7, 2000. The enclosed proxy statement
contains detailed instructions on completing and returning your proxy.
Our recommendation to approve the sale is based on a number of factors
more fully described in the enclosed proxy statement. Certain conflicts of
interest described in the enclosed proxy statement exist in connection with
our recommendation.
Again, your vote is very important. Please sign, date and return the
enclosed proxy card promptly. Should you have any questions, please contact
MacKenzie Partners, Inc., the Partnership's information agent, by calling the
following toll-free (1-800/322-2885).
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Your participation in this vote is important and greatly appreciated.
Sincerely,
Michael T. Marron
President
Regional Malls Inc.,
the General Partner of Shopco
Regional Malls, L.P.
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<PAGE>
NOTICE OF SPECIAL MEETING
of
THE LIMITED PARTNERS
of
SHOPCO REGIONAL MALLS, L.P.
To Be Held on February 7, 2000
To the Limited Partners of
Shopco Regional Malls, L.P.:
NOTICE IS HEREBY GIVEN that a special meeting of the limited partners of
Shopco Regional Malls, L.P., a Delaware limited partnership, will be held at
the offices of the partnership, 3 World Financial Center, 26th Floor, New
York, New York 10285-2900 on February 7, 2000, at 9 a.m., local time, for
the following purposes:
1. To approve the sale of Cranberry Mall, in Westminster, Maryland,
and the subsequent liquidation and dissolution of the partnership.
Cranberry Properties MM Corp., a Delaware corporation, will
purchase Cranberry Mall for $33,500,000. Regional Malls Inc., the
general partner of the partnership, anticipates that the limited
partners will receive distributions of approximately $122 per unit
of limited partnership interest in the partnership in cash,
representing (i) approximately $20 per unit of net proceeds from
the sale of the partnership's interest in Cranberry Mall (after the
partnership pays or provides for payment of transaction costs), and
(ii) additional cash reserves (after payment or provision for
payment of outstanding and anticipated liabilities), which the
partnership estimates will be approximately $102 per unit. It is
possible that distributions to the limited partners will be lower
if the purchaser renegotiates the purchase price, and the general
partner, in its reasonable discretion, agrees to a lower purchase
price which it believes to be in the best interests of the limited
partners, but in no event shall the purchase price be reduced by
more than 3%.
2. To transact such other business as may properly come before the
special meeting or any adjournment or postponement thereof.
Information regarding the matters to be acted upon at the special
meeting is set forth in the accompanying proxy statement.
If the sale is not consummated, there can be no assurance that any
future disposition of Cranberry Mall will occur, or that the proceeds of such
a sale would be sufficient to pay down the outstanding mortgage on the
property. The outstanding principal of the current mortgage was due and
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payable on April 1, 1999 and is in forbearance until April 1, 2000. Although
the General Partner intends to seek to have the mortgage extended and the
terms thereof modified or to otherwise refinance the mortgage, there can be
no assurances that such extension, modification or refinancing will be
obtained, or that the terms thereof will be favorable.
Regional Malls Inc., the General Partner of the Partnership,
Recommends That the Limited Partners Vote "For" the Sale.
You are invited to attend the special meeting. Even if you intend to
attend the special meeting, you are requested to sign and date the
accompanying proxy card and return it promptly either in the enclosed,
postage-prepaid envelope or by facsimile to (212) 929-0308, Attention:
Charles Koons. Whether or not you plan to attend the special meeting, please
take the time to vote on the proposal submitted to the limited partners by
completing and mailing the enclosed proxy card. If you sign, date and mail
your proxy card without indicating how you wish to vote, your proxy will be
counted as a vote in favor of the sale of Cranberry Mall and the subsequent
liquidation and dissolution of the partnership. If you fail to return a
properly executed proxy card, it will have the same effect as a vote against
the sale and liquidation.
The close of business on December 31, 1999, has been established as the
record date for determining the limited partners entitled to notice of, and
to direct the vote of units at, the special meeting. A quorum, defined as
the presence in person or by proxy of limited partners holding more than 50%
of the outstanding partnership interests, is required for the meeting. If a
quorum is not present, limited partners holding a majority interest of units
may adjourn the meeting from time to time until a quorum is obtained. Once a
quorum is present, limited partners holding a majority interest of the units
must submit a proxy or vote in person "For" the sale of Cranberry Mall and
the subsequent liquidation and dissolution of the partnership. In the event
that such a vote is not obtained, the sale and liquidation will not be
approved and the limited partners will not receive the distribution of
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proceeds described above. Attendance at the special meeting will be limited
to registered holders of units and invited guests of the partnership.
Regional Malls Inc.
General Partner
Michael T. Marron
President
New York, New York
January 12, 2000
Your Vote Is Very Important. To Ensure That Your Interests Will Be
Represented, Please Sign the Enclosed Proxy Card and Return It Promptly
Whether You Intend To Be Present at the Special Meeting or Not. Return the
Proxy Card in the Enclosed, Postage-Prepaid Envelope or by Facsimile
(212/929-0308), Attention: Charles Koons. Failure to Return a Proxy Card or
Abstention from Voting Will Have the Same Effect as a Vote "Against" the
Sale. Any Properly Executed Proxy Card on Which a Choice Is Not Indicated
Will Be Voted "For" the Sale.
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SHOPCO REGIONAL MALLS, L.P.
3 World Financial Center, 29th Floor
New York, New York 10285-2900
------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE GENERAL PARTNER
--------------------------------------------------------
The undersigned hereby appoints Michael T. Marron and Rocco F. Andriola,
and each of them, with full power of substitution, as attorneys, agents and
proxies to vote its limited partnership units on behalf of the undersigned at
the special meeting of the limited partners of Shopco Regional Malls, L.P.
called by Regional Malls Inc., the general partner of the partnership, to be
held at the offices of the partnership, 3 World Financial Center, 26th Floor,
New York, New York 10285-2900, on February 7, 2000 at 9 a.m., local time, or
any postponement or adjournment thereof, for the following purposes:
1. To consider the sale of Cranberry Mall owned by Shopco Malls L.P.,
and the subsequent liquidation and dissolution of the partnership,
in accordance with the terms described in the proxy statement.
THE GENERAL PARTNER RECOMMENDS THE PROPOSED SALE.
APPROVE / / DISAPPROVE / /
2. Any other business that may properly come before the meeting.
This proxy, when properly executed and duly returned, will be voted in
the manner directed herein by the undersigned limited partner. If no
direction is made on this properly executed proxy, this proxy will be
voted to APPROVE the sale and subsequent liquidation of the partnership.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THE LABEL AFFIXED
TO THIS PROXY. WHEN UNITS ARE HELD BY JOINT TENANTS, WHEN SIGNING
AS AN ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE
GIVE FULL TITLE OF SUCH. IF A CORPORATION, PLEASE SIGN NAME BY
AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME
BY AUTHORIZED PERSON.
Dated ____________________ ____, 2000
Signature: _________________________________
Name: ______________________________________
Signature (if held jointly): _________________
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Please sign and date this blue proxy card and return it in the enclosed
postage prepaid envelope or fax it to 212-929-0308 by 5:00 p.m.,
Eastern Time, on February 4, 2000 (unless such date and/or time
is extended in the sole discretion of the General Partners).
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The Proxy Solicitation Agent:
MACKENZIE
PARTNERS, INC.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
Call Toll Free (800) 322-2885
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SHOPCO REGIONAL MALLS, L.P.
3 World Financial Center, 29th Floor
New York, New York 10285-2900
PROXY STATEMENT
For the Special Meeting of the Limited Partners
To Be Held on February 7, 2000
We are mailing this proxy statement and the enclosed proxy card to the
limited partners of Shopco Regional Malls, L.P., a Delaware limited
partnership, on or around January 12, 2000. The purpose of this
communication is to solicit proxies for use at a special meeting of the
limited partners, which will be held at the offices of the Partnership, 3
World Financial Center, 26th Floor, New York, New York, 10285-2900, on
Monday, February 7, 2000, at 9 a.m., local time.
At the special meeting, we will ask the limited partners to consider the
approval of the sale of Cranberry Mall, located in Westminister, Maryland and
the subsequent dissolution and liquidation of the Partnership. Cranberry
Mall is the sole asset of Shopco Malls L.P., a Delaware limited partnership,
of which the Partnership, Shopco Regional Malls, L.P., is the general
partner. (In this proxy statement, Shopco Regional Malls, L.P. is referred
to as the Partnership to distinguish it from Regional Malls, Inc., its
General Partner. Shopco Malls L.P., which holds the direct interest in
Cranberry Mall, is referred to as the Owner Partnership.) Since the
Partnership is the managing general partner of the Owner Partnership, the
Partnership controls the Owner Partnership. Following the sale, the
Partnership and its limited partners will have no further ownership interest
in Cranberry Mall, and both the Partnership and the Owner Partnership will
liquidate their assets.
The purchase price for Cranberry Mall is based on a thorough marketing
by Insignia/ESG Capital Advisors Group and an arm's length negotiation
between the General Partner, on behalf of the Owner Partnership, and
Cranberry Properties MM Corp., a Delaware corporation located at 152 West
57th Street, 44th floor, New York, New York 10019 (the "Purchaser"). The
Purchaser will pay the Owner Partnership $33,500,000 in cash. The
Partnership will receive approximately $1,415,000 of this amount net of
certain transaction costs (including repayment or assumption by the Purchaser
of the current mortgage on the property). This represents approximately $20
per unit of limited partnership interest. If the Purchaser attempts to
renegotiate the purchase price prior to the closing, the General Partner, in
its reasonable discretion, may agree upon a lower purchase price which it
believes is in the best interests of the limited partners, but in no event
shall the purchase price be reduced by more than 3%. In that event, limited
partners will receive lower distributions than those specified above.
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The General Partner is required to act as a fiduciary with respect to
the Partnership and the limited partners in a manner that is fair and
reasonable to the limited partners in accordance with the Partnership's
investment objectives. Insignia Retail Group, Inc. was retained as manager
and leasing agent for Cranberry Mall. The Owner Partnership retained
Insignia/ESG Capital Advisors Group to assist with the marketing of Cranberry
Mall.
The terms of the sale are set forth in an Agreement of Purchase and
Sale, dated as of September 11, 1999 and amended by the First Amendment to
Agreement of Purchase and Sale, dated as of October 28, 1999 and the Second
Amendment to Agreement of Purchase and Sale, dated as of November 29, 1999
among Barker Pacific Group, Inc., the original purchaser, and the Owner
Partnership. Pursuant to an Assignment of Purchase and Sale Agreement, dated
as of November 11, 1999, Barker Pacific Group, Inc. assigned, sold and
transferred its rights and obligations under the Agreement of Purchase and
Sale to Cranberry Properties MM Corp. The Agreement of Purchase and Sale was
then further amended by the Third Amendment to Agreement of Purchase and
Sale, dated as of December 23, 1999 among Cranberry Properties MM Corp. and
the Owner Partnership. If the sale is approved by the limited partners and
certain other conditions to the sale are met or waived, the sale will be
consummated and the Partnership will have sold its indirect interest in
Cranberry Mall. We estimate that the limited partners will receive
distributions of approximately $122 per unit in cash as a result of the sale
of Cranberry Mall and the ultimate liquidation of both the Partnership and
the Owner Partnership, representing:
(1) net proceeds from the sale (after paying or providing for payment of
transaction costs) of approximately $20 per unit; and
(2) the Partnership's proportional share of additional cash reserves of
the Owner Partnership (after payment or provision for payment of
outstanding and anticipated liabilities) and additional cash reserves of
the Partnership (after payment or provision for payment of outstanding
and anticipated liabilities), which will be approximately $102 per unit.
In the event that prior to closing the purchaser renegotiates the purchase
price, the distributions to the limited partners will be lower.
The availability of funds for distribution of additional cash reserves
will be determined, in part, based on the collection after the closing of
certain rental and other payments due from tenants at Cranberry Mall adjusted
as of the closing date. To collect such funds sooner than they would
otherwise be paid, the Partnership may accept discounted payments with
respect to amounts due, which would result in limited partners receiving
their liquidating distribution sooner than would otherwise be the case but
could reduce the amount of such liquidating distribution. The actual
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distribution will be based upon the net cash proceeds of the sale, together
with all remaining cash after paying or providing for payment of the
Partnership's costs in connection with the proxy solicitation, the sale, and
the winding up of the Partnership. These costs may include the preparation
of the final audit and tax filings, as well as all other outstanding and
anticipated liabilities (including establishing reasonable reserves for any
contingent or unforeseen liabilities or obligations). The General Partner
will not receive a liquidating distribution.
If the sale is not consummated, there can be no assurance that any
future disposition of Cranberry Mall will occur, or that the proceeds of such
a sale would be sufficient to pay down the outstanding mortgage on the
property. The outstanding principal of the current mortgage was due and
payable on April 1, 1999 and is in forbearance until April 1, 2000. Although
the General Partner would seek to have the mortgage extended and the terms
thereof modified or to otherwise refinance the mortgage, there can be no
assurances that such extension, modification or refinancing will be obtained,
or that the terms thereof will be favorable.
The Amended and Restated Agreement of Limited Partnership of the
Partnership, dated as of October 6, 1988, as amended, gives limited partners
holding a majority of the issued and outstanding units of limited partnership
interest the right to approve or disapprove the sale of Cranberry Mall. The
General Partner is calling a special meeting of limited partners to provide
them with the opportunity to approve the sale. A quorum, defined as the
presence in person or by proxy of limited partners holding more than 50% of
the outstanding Partnership interests, is required for the meeting. If a
quorum is not present, holders of a majority interest may adjourn the meeting
from time to time until a quorum is obtained. Once a quorum is present,
limited partners holding a majority interest must submit a proxy or vote in
person "For" the sale, or it will not be approved and the limited partners
will not receive the distribution of proceeds described above. Neither
Delaware law nor the Partnership Agreement provide the limited partners
voting against the sale with dissenters' appraisal rights.
The close of business on December 31, 1999, has been established as the
record date for determining which limited partners are entitled to vote the
units at the special meeting. As of the record date, the Partnership had
outstanding and entitled to vote 70,250 units held of record by 4,376 limited
partners. Each unit entitles the holder to one vote on each matter submitted
to a vote of the limited partners.
The General Partner recommends that the limited partners vote "FOR" the
sale of Cranberry Mall and the subsequent liquidation and dissolution of the
Partnership.
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Our recommendation is based on a number of factors more fully described
in this proxy statement. Certain conflicts of interest exist in connection
with the General Partner's recommendation in that pursuant to the Partnership
Agreement, the General Partner is entitled to certain indemnification rights
by the Partnership. See "Risks Factors" beginning on page 11.
All duly executed proxy cards received from the limited partners prior
to the special meeting will be voted as directed on the card. If a duly
executed proxy card does not specify a choice, the relevant units will be
voted "FOR" the sale of Cranberry Mall and the subsequent liquidation and
dissolution of the Partnership. A limited partner may revoke a submitted
proxy at any time before it is voted at the special meeting.
The accompanying proxy is solicited by the General Partner on behalf of
the Partnership, to be voted at the special meeting and any adjournment or
postponement thereof. The Partnership's principal executive offices are
located at 3 World Financial Center, 29th Floor, New York, New York
10285-2900 (telephone: 212/526-3183). We have engaged MacKenzie Partners,
Inc. to act as Information Agent in connection with the proxy solicitation
process. All communications should be directed to MacKenzie Partners, Inc.
by calling toll-free (800/322-2885). In addition to the original
solicitation by mail, proxies may be solicited by telephone, facsimile
transmission or in person. All expenses of this solicitation, including the
cost of preparing and mailing this proxy statement, will be borne by the
Partnership.
The Partnership's Securities and Exchange Commission file number is 1-10217.
______________________
The date of this Proxy Statement is January 12, 2000.
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TABLE OF CONTENTS
Page
QUESTIONS AND ANSWERS ABOUT THE SALE OF CRANBERRY MALL AND THE
SUBSEQUENT DISSOLUTION OF SHOPCO REGIONAL MALLS, L.P. . . . . . . . 1
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Special Meeting; Vote Required . . . . . . . . . . . . . . . . 5
Purpose of and Reasons for the Sale . . . . . . . . . . . . . . . . 6
Effects of the Sale . . . . . . . . . . . . . . . . . . . . . . . . 6
Valuation of the Mall . . . . . . . . . . . . . . . . . . . . . . 8
Recommendation of the General Partner . . . . . . . . . . . . . . . 8
Risk Factors; Conflicts of Interest . . . . . . . . . . . . . . . . 9
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Risks of the Sale . . . . . . . . . . . . . . . . . . . . . . . . . 11
Indemnification under the Partnership Agreement . . . . . . . . . . 11
DISCUSSION OF THE SALE . . . . . . . . . . . . . . . . . . . . . . . . . 13
Reasons for the Sale . . . . . . . . . . . . . . . . . . . . . . . 13
Effects of the Sale . . . . . . . . . . . . . . . . . . . . . . . . 17
Valuation of Cranberry Mall . . . . . . . . . . . . . . . . . . . . 18
Recommendation of the General Partner . . . . . . . . . . . . . . 19
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . 21
Costs Associated with the Transaction . . . . . . . . . . . . . . . 21
SPECIAL MEETING OF THE LIMITED PARTNERS . . . . . . . . . . . . . . . . . 22
Special Meeting; Record Date . . . . . . . . . . . . . . . . . . . 22
Procedures for Computing Proxies . . . . . . . . . . . . . . . . . 22
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Solicitation Procedures . . . . . . . . . . . . . . . . . . . . . . 24
Revocation of Proxies . . . . . . . . . . . . . . . . . . . . . . . 24
TERMS OF THE SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
The Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . 25
Allocation of Costs Associated with the Sale . . . . . . . . . . . 26
Representations, Warranties and Covenants of the Parties . . . . . 26
Conditions to Closing the Sale . . . . . . . . . . . . . . . . . . 29
Termination of the Purchase Agreement . . . . . . . . . . . . . . . 30
Amendment of the Purchase Agreement . . . . . . . . . . . . . . . . 31
Dissolution and Liquidation of the Partnership . . . . . . . . . . 31
Determination of Cash Available for Distribution . . . . . . . . . 32
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . 33
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ACCOUNTING TREATMENT AND INCOME TAX CONSEQUENCES OF THE SALE . . . . . . 33
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . 33
Material U.S. Federal Income Tax Consequences of the Transaction . 33
CERTAIN INFORMATION ABOUT THE PARTNERSHIP . . . . . . . . . . . . . . . . 36
The Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . 36
The General Partner . . . . . . . . . . . . . . . . . . . . . . . . 36
The Property Manager . . . . . . . . . . . . . . . . . . . . . . . 36
Description of Cranberry Mall . . . . . . . . . . . . . . . . . . . 36
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 39
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Ownership of Units . . . . . . . . . . . . . . . . . . . . . . . . 40
Market for the Units . . . . . . . . . . . . . . . . . . . . . . . 40
Independent Certified Public Accountants . . . . . . . . . . . . . 41
Available Information . . . . . . . . . . . . . . . . . . . . . . . 41
Prior Related Transactions . . . . . . . . . . . . . . . . . . . . 41
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . 41
DOCUMENTS CONSTITUTING THIS PROXY STATEMENT . . . . . . . . . . . . . . . 42
ANNEX I: Amended and Restated Agreement of Limited Partnership of
Shopco Regional Malls, L.P., dated as of October 6, 1988 . . I-1
ANNEX II: Selected Financial Data . . . . . . . . . . . . . . . . . . II-1
ANNEX III: Unaudited Pro Forma Condensed Financial Information . . . . III-1
ANNEX IV: Purchase and Sale Agreement, dated as of September 11, 1999 IV-1
ANNEX V: First Amendment to Purchase and Sale Agreement,
dated as of October 28, 1999 . . . . . . . . . . . . . . . . V-1
ANNEX VI: Assignment of Purchase and Sale Agreement,
dated as of November 11, 1999 . . . . . . . . . . . . . . VI-1
ANNEX VII: Second Amendment to Purchase and Sale Agreement,
dated as of November 29, 1999 . . . . . . . . . . . . . . VII-1
ANNEX VIII: Third Amendment to Purchase and Sale Agreement,
dated as of December 23, 1999 . . . . . . . . . . . . . VIII-1
PART II: SHOPCO REGIONAL MALLS, L.P.'S ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
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PART III: SHOPCO REGIONAL MALLS, L.P.'S QUARTERLY REPORTS ON FORM 10-Q FOR
THE QUARTERS ENDED MARCH 31, 1999, JUNE 30, 1999 AND
SEPTEMBER 30, 1999
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QUESTIONS AND ANSWERS ABOUT THE SALE OF CRANBERRY MALL AND THE SUBSEQUENT
DISSOLUTION OF SHOPCO REGIONAL MALLS, L.P.
Q: What am I voting on?
A: The sale of Cranberry Mall and subsequent liquidation and dissolution of
Shopco Regional Malls, L.P.
Q: Who is entitled to vote?
A: The limited partners of Shopco Regional Malls, L.P. as of the close of
business on December 31, 1999 are entitled to one vote per unit of limited
partnership.
Q: What happens if I vote FOR the sale?
A: If the holders of a majority of the limited partnership units vote FOR
the sale, the sale will be consummated. Title to Cranberry Mall will be
transferred to the purchaser for the purchase price of $33,500,000. If
certain conditions to closing are not met, the purchaser may renegotiate the
purchase price and the General Partner may use its reasonable discretion to
agree upon a lower price which it believes to be in the best interests of the
limited partners, but in no event shall the purchase price be reduced by more
than 3%. Following the sale of Cranberry Mall, Shopco Regional Malls, L.P.
will liquidate and you will receive a liquidating distribution.
Q: Is the General Partner recommending that the limited partners vote for
the sale of Cranberry Mall?
A: Yes, because the General Partner believes it is in the best interests of
Shopco Regional Malls, L.P. and its limited partners to sell Cranberry Mall
at this time, the General Partner is recommending that the limited partners
vote for the sale of Cranberry Mall and the subsequent liquidation and
dissolution of Shopco Regional Malls, L.P.
Q: How much will my liquidating distribution be?
A: We estimate that you will receive $122 per limited partnership unit
after all liabilities and transaction costs are paid. If certain conditions
to closing are not met, the purchaser may renegotiate the purchase price, and
we may use our reasonable discretion to agree upon a lower price which,
although lower, we believe to be in the best interests of the limited
partners, but in no event shall the purchase price be reduced by more than
3%. In that event, your distribution will be lower.
Q: What happens if I vote AGAINST the sale?
A: If a majority of the limited partners vote AGAINST the sale, the sale
will not be consummated and Shopco Malls L.P. will remain the owner of
Cranberry Mall. Shopco Regional Malls, L.P. will not liquidate, and limited
partners will not receive a liquidating distribution. There can be no
assurance that another suitable buyer will be found, or that any future sale
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of Cranberry Mall will provide sufficient proceeds to pay off the mortgage
on the property which became due and payable on April 1, 1999 and is in
forbearance until April 1, 2000.
Q: Who owns Cranberry Mall, and what is the Owner Partnership?
A: Shopco Malls L.P., which is referred to as the Owner Partnership, holds
title to Cranberry Mall. Shopco Regional Malls, L.P. has a 99% general
partnership interest in the Owner Partnership. Consequently, the Partnership
controls the Owner Partnership.
Q: How do I vote?
A: Sign and date each proxy card you receive and return it in the prepaid
envelope. You may revoke your proxy by (1) voting in person at the meeting
or (2) at any time before the meeting sending a signed and dated written
notice of revocation to Shopco Regional Malls, L.P. If you return your
signed proxy card without indicating your voting preference, Michael T.
Marron and Rocco F. Andriola will vote FOR the sale on your behalf.
Q: What if I don't vote?
A: If you fail to return a properly executed proxy card, it will be the
same as if you had voted AGAINST the sale. Please return your proxy card!
Q: Is my vote confidential?
A: Yes, absolutely. MacKenzie Partners, Inc. is the information agent for
the meeting and will tabulate the votes in confidence, as well as certain
employees who are associated with processing proxy cards and counting the
vote.
Q: Will filling out one proxy card vote all of my units?
A: Yes. Properly filling out and mailing the enclosed proxy will ensure
that all of your units will be voted in the manner that you indicate.
Q: What constitutes a quorum for the meeting?
A: Limited partners representing a majority of the outstanding units must
be present at the meeting or represented by a proxy. If you submit a
properly executed proxy card, you will be considered part of the quorum.
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SUMMARY
Set forth below is a summary of certain information contained elsewhere
in this Proxy Statement. The information contained in this Summary is
qualified by the more complete information contained elsewhere in this Proxy
Statement. All limited partners are urged to read this Proxy Statement in
its entirety. This Proxy Statement consists of the following three parts:
(1) this document, (2) Shopco Regional Malls, L.P.'s Annual Report on Form
10-K for the year ended December 31, 1998, and (3) Shopco Regional Malls,
L.P.'s Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999,
June 30, 1999 and September 30, 1999.
This Proxy Statement Contains Forward-Looking Statements. Discussions
Containing Such Forward-Looking Statements May Be Found in the Material Set
Forth Under "-- Purpose of and Reasons for the Sale" and "DISCUSSION OF THE
SALE -- Reasons for the Sale" as Well as Within the Proxy Statement
Generally. In Addition, When Used in this Proxy Statement, the Words
"Believes," "Anticipates," "Expects" and Similar Expressions Are Intended to
Identify Forward-Looking Statements; However, Not All Forward-Looking
Statements Will Contain Such Expressions. Such Statements Are Subject to a
Number of Risks and Uncertainties. Actual Results or Events in the Future
Could Differ Materially from Those Described in the Forward-Looking
Statements. The Amount of Distributions to Limited Partners May Be More or
Less Than the Amount Described in this Proxy Statement. The Partnership
Further Cautions Limited Partners That the Discussion of Factors May Not Be
Exhaustive. The Partnership Undertakes No Obligation to Publicly Release Any
Revisions to These Forward-Looking Statements That May Be Made to Reflect Any
Future Events or Circumstances.
Background
The Partnership Shopco Regional Malls, L.P. is a Delaware
limited partnership formed on March 11,
1988. The Partnership is operated in
accordance with the Amended and Restated
Agreement of Limited Partnership, dated as
of October 6, 1988, as amended (the
"Partnership Agreement"). The affairs of
the Partnership are conducted by its
general partner, Regional Malls Inc. (the
"General Partner"). The Partnership was
formed to acquire a general partnership
interest in Shopco Malls L.P., a Delaware
limited partnership. Shopco Regional
Malls, L.P. is referred to as the
Partnership to distinguish it from its
general partner, Regional Malls, Inc.
Shopco Malls L.P., which holds the direct
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interest in Cranberry Mall, is referred to
as the Owner Partnership. The primary
assets of the Owner Partnership were
Cranberry Mall, located in Westminster,
Maryland ("Cranberry Mall" or, the "Mall")
and the Mall at Assembly Square.
Concurrent with the acquisitions of
Cranberry Mall and the Mall at Assembly
Square, the Partnership became the
managing general partner of the Owner
Partnership. The Partnership's primary
business was and is acting as general
partner for the Owner Partnership. All of
the Partnership's revenues, operating
profit or losses and assets relate solely
to its ownership interest in and operation
of the Owner Partnership.
The Owner Partnership The partners of the Owner Partnership are
the Partnership, which holds a general
partnership interest in the Owner
Partnership, and Shopco Limited
Partnership, a Delaware limited
partnership, which holds a limited
partnership interest in the Owner
Partnership. The Owner Partnership
transferred title to the Mall at Assembly
Square on December 20, 1996 to the holder
of the mortgage pursuant to a foreclosure
proceeding. Consequently, Cranberry Mall
is the only asset of the Owner
Partnership. The business affairs of the
Owner Partnership are carried out and
managed by the Partnership and the General
Partner which have effective discretion
with respect to the Owner Partnership.
All of the Owner Partnership's revenues,
operating profit or losses and assets
relate solely to its ownership interest in
and operation of Cranberry Mall. See
"CERTAIN INFORMATION ABOUT THE
PARTNERSHIP--The Partnership."
Cranberry Mall Cranberry Mall is a single-level, enclosed
regional shopping center located on
approximately 55.61 acres in Westminster,
Maryland, approximately 30 miles northwest
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of Baltimore. Cranberry Mall consists of
a central enclosed mall anchored by three
major department stores -- Belk (formerly
Leggett), Sears, Roebuck and Company and
Montgomery Ward -- and contains space for
approximately 90 retail stores, a health
club, a nine-theatre cinema complex, and a
fourth nationally recognized retail anchor
store. Cranberry Mall currently has gross
leasable space totaling approximately
530,000 square feet and has parking for
approximately 2,597 automobiles. For a
description of Cranberry Mall and its
operations, see the section entitled
"CERTAIN INFORMATION ABOUT THE
PARTNERSHIP--Description of Cranberry
Mall." Cranberry Mall is managed by
Insignia Retail Group, Inc. (the "Property
Manager"). The Property Manager is
responsible for rent collection, leasing
and day-to-day on-site management. See
"CERTAIN INFORMATION ABOUT THE
PARTNERSHIP--The Property Manager."
Insignia/ESG Capital Advisors Group, an
affiliate of the property manager, has
been engaged as a broker to sell Cranberry
Mall.
The Transaction
The Sale Pursuant to its capacity as the general
partner of the Owner Partnership, the
Partnership proposes to direct the Owner
Partnership to sell Cranberry Mall to
Cranberry Properties MM Corp., a Delaware
corporation (the "Purchaser") for a
purchase price of $33,500,000 in cash (the
"Sale"). If certain conditions to closing
of the Sale (the "Closing") are not met,
the Purchaser may attempt to renegotiate
the purchase price and the General
Partner, in its reasonable discretion, may
agree to a purchase price of less than
$33,500,000, which it believes to be in
the best interests of the limited partners
of the Partnership (the "Limited
Partners"), but in no event shall the
purchase price be reduced by more than 3%.
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The Partnership will receive approximately
$2,475,000 of this amount after repayment
or assumption by the Purchaser of the
principal balance of the mortgage loan and
before certain transaction costs. The
Sale of Cranberry Mall will result in
approximately $20 of net proceeds per unit
of limited partnership interest in the
Partnership (each, a "Unit") after paying
or providing for payment of transaction
costs, which the Partnership estimates
will be approximately $1,060,000 or $15
per Unit. In addition, the Sale will
represent the last asset held by both the
Owner Partnership and the Partnership.
Both entities will subsequently liquidate,
resulting in additional distributions of
approximately $102 per Unit. In the event
that the Purchaser renegotiates the
purchase price, distributions to the
Limited Partners will be lower. The terms
of the Sale are set forth in an Agreement
of Purchase and Sale, dated as of
September 11, 1999 and amended by the
First Amendment to Agreement of Purchase
and Sale, dated as of October 28, 1999 and
the Second Amendment to Agreement of
Purchase and Sale, dated as of November
29, 1999 among Barker Pacific Group, Inc.,
the original purchaser ("Barker") and the
Owner Partnership. Pursuant to an
Assignment of Purchase and Sale Agreement,
dated as of November 11, 1999, Barker
assigned, sold, and transferred its rights
and obligations under the Purchase
Agreement to the Purchaser. The Purchase
Agreement was then further amended by the
Third Amendment to Agreement of Purchase
and Sale, dated as of December 23, 1999
among Purchaser and the Owner Partnership.
The Agreement of Purchase and Sale, as
amended, is referred to herein as the
"Purchase Agreement." For a summary of
the terms of the Purchase Agreement, see
the section entitled "TERMS OF THE SALE."
The agreed upon value of Cranberry Mall
was based on a thorough marketing by
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Insignia/ESG Capital Advisors Group and an
arm's length negotiations between the
Purchaser and the General Partner on
behalf of the Partnership and the Owner
Partnership. See "DISCUSSION OF THE SALE
-- Reasons for the Sale."
Dissolution and
Liquidation If the Sale is approved by the Limited
Partners and certain other conditions are
met or waived, the Sale will be
consummated. The Owner Partnership will
distribute to the Partnership its share of
the proceeds of the Sale. The General
Partner will not receive any proceeds of
the Sale. The Owner Partnership will
subsequently liquidate and distribute to
the Partnership its proportional share of
additional Owner Partnership cash reserves
(after payment or provision for payment of
outstanding and anticipated liabilities),
and the Partnership will distribute its
share of additional cash reserves (after
payment or provision for payment of
outstanding and anticipated liabilities)
to the Limited Partners, which is
projected to be in the aggregate
approximately $7,156,000, or $102 per
Unit. The Partnership will subsequently
liquidate. See "TERMS OF THE SALE
Dissolution and Liquidation of the
Partnership" and "--Determination of
Cash Available for Distribution."
The Special Meeting;
Vote Required A special meeting of the Limited Partners
will be held on February 7, 2000. At the
special meeting, the Limited Partners will
consider and vote upon the Sale and the
subsequent dissolution and liquidation of
the Partnership. The close of business on
December 31, 1999, has been established as
the record date. As of the record date,
the Partnership had outstanding and
entitled to vote 70,250 Units, held of
record by 4,376 Limited Partners. Each
Unit entitles the holder to one vote on
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each matter submitted to a vote of the
Limited Partners. It is a condition to
the Closing of the Sale that Limited
Partners holding a majority of the Units
approve the Sale and the subsequent
liquidation and dissolution of the
Partnership. The General Partner on
behalf of the Partnership is therefore
soliciting proxies from the Limited
Partners to be voted at the special
meeting and any adjournment(s) or
postponement(s) thereof. A quorum,
defined as the presence in person or by
proxy of Limited Partners holding more
than 50% of the outstanding Units, is
required for the meeting. See "SPECIAL
MEETING OF THE LIMITED PARTNERS."
Purpose of and Reasons
for the Sale As part of the General Partner's
continuing effort to fulfill its fiduciary
responsibility to the Limited Partners by
enhancing the value of the Limited
Partners' investment in the Units, the
General Partner continually considers
various strategies and alternatives
available to the Partnership. One such
strategy is directing, in its capacity as
managing general partner of the Owner
Partnership, the Owner Partnership to sell
Cranberry Mall. For a discussion of these
various strategies and alternatives, see
"DISCUSSION OF THE SALE -- Reasons for the
Sale." The subsequent dissolution and
liquidation of the Partnership will allow
the Limited Partners to liquidate, on an
all cash basis, their illiquid investment
in their Units, which cash can then be
invested in alternative investments.
The considerations which resulted in the
determination to present the Sale to the
Limited Partners and to recommend the Sale
are described in the section entitled
"DISCUSSION OF THE SALE -- Reasons for the
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Sale." Although the Sale is not without
the risks described in the section
entitled "RISK FACTORS -- Risks of the
Sale," the General Partner believes that,
given the favorable terms of the Sale, it
is its fiduciary responsibility to present
the Sale to the Limited Partners for their
approval. The General Partner recommends
that the Limited Partners APPROVE the
Sale.
Effects of the Sale If the Sale is approved by the Limited
Partners and certain other conditions are
met or waived, the sale will be
consummated. The Partnership will have
sold its interest in Cranberry Mall
through the Owner Partnership to the
Purchaser. Thereafter, the Partnership
will be liquidated and dissolved at such
time as the General Partner determines
that all remaining Partnership assets are
available for distribution and all
Partnership obligations and liabilities
have been paid or provided for. The Owner
Partnership will be liquidated and
dissolved as well.
The General Partner estimates that the
Limited Partners will receive
distributions of approximately $122 per
Unit in cash as a result of the Sale and
the Partnership's ultimate dissolution,
representing (1) net proceeds from the
Sale (after paying or providing for
payment of transaction costs) of
approximately $20 per Unit; (2) additional
Partnership cash reserves (after payment
or provision for payment of outstanding
and anticipated Partnership liabilities)
and additional Owner Partnership cash
reserves (after payment or provision for
payment of outstanding and anticipated
Owner Partnership liabilities), which will
be approximately $102 per Unit. The
amounts distributed to the Limited
Partners will be less than the amounts
specified above if the Purchaser
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renegotiates the purchase price and the
General Partner, in its reasonable
discretion, agrees to a lower price which
it believes is in the best interests of
the Limited Partners, but in no event
shall the purchase price be reduced by
more than 3%. See "TERMS OF THE SALE--
Dissolution and Liquidation of the
Partnership" and "--Determination of Cash
Available for Distribution." The General
Partner will not receive a liquidating
distribution. Any reserves not utilized
to meet Partnership liabilities or
obligations will be distributed to the
Limited Partners at such time as
determined by the General Partner. Upon
liquidation and dissolution of the
Partnership, Limited Partners will cease
to have an ownership interest in the
Partnership and will no longer bear the
risks or benefits associated with such
ownership. See "DISCUSSION OF THE SALE--
Effects of the Sale." For a description
of certain tax consequences of the Sale,
see "ACCOUNTING ISSUES AND INCOME TAX
CONSEQUENCES OF THE SALE."
If the Sale is not consummated, there can
be no assurance that any future
disposition of Cranberry Mall will occur
or what the terms of such a transaction
might be. Any future sale may not be at a
purchase price sufficient to pay off the
mortgage on Cranberry Mall and may not
occur on or before April 1, 2000, the date
when such mortgage becomes due and
payable. If the Sale is not approved, the
General Partner will continue to operate
the Partnership in accordance with the
terms of the Partnership Agreement and in
fulfillment of its fiduciary duties,
including the review of any offers to
purchase Cranberry Mall or the
Partnership's interest in the Owner
Partnership (the "Interest"). In
addition, the General Partner will
continue to evaluate the various
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alternatives to the Sale, as described in
the section entitled "DISCUSSION OF THE
SALE -- Reasons for the Sale." Such
alternatives include: (1) continuing to
hold the Interest and consequently
Cranberry Mall; (2) an auction of the
Interest; (3) an auction of Cranberry
Mall; and (4) solicitation of bids for the
Interest or Cranberry Mall. Holding
Cranberry Mall will likely require
additional capital expenditures which
provide an uncertain return for investors.
In addition, the outstanding principal of
the current mortgage on Cranberry Mall was
due and payable April 1, 1999 and is in
forbearance until April 1, 2000, and the
General Partner will have to negotiate
with the holder of the mortgage for a
continuation of the forbearance past April
1, 2000. Therefore, the General Partner
has concluded that such options are not in
the best interest of the Limited Partners
at this time, particularly in light of the
Purchaser's offer. See "DISCUSSION OF THE
SALE--Effects of the Sale--Effects of
Failure to Approve the Sale."
Valuation of the Mall The agreed upon value of Cranberry Mall is
based on a thorough marketing by
Insignia/ESG Capital Advisors Group
("Insignia") and an arm's length
negotiation between the Purchaser and the
General Partner on behalf of the Owner
Partnership. Insignia is the real estate
capital markets subsidiary of Insignia
Financial Group, one of the nation's
largest commercial real estate service
providers. The General Partner, working
with Insignia, determined that a broad
based marketing effort would provide
maximum market exposure and Insignia
subsequently identified and mailed
marketing materials to over 100 qualified
mall investors as prospective purchasers
of Cranberry Mall. As a result of this
extensive marketing process, the General
Partner entered into negotiations with the
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Purchaser, and the Purchaser subsequently
entered into the Purchase Agreement.
In 1997, Cushman & Wakefield, Inc., an
independent third-party appraisal firm,
was engaged by the Partnership to prepare
an appraisal of Cranberry Mall as of
January 1, 1998. Pursuant to its
engagement, Cushman & Wakefield reported
to the Partnership that the valuation of
Cranberry Mall was $40,000,000 as of
January 1, 1998. The General Partner
believes that the January 1, 1998
valuation, which is almost two years old,
is not an accurate measure of a current,
realizable selling price for Cranberry
Mall for several reasons including,
without limitation: (i) a recent
deterioration in the Mall's net operating
income due in large part to the unforseen
and continuing vacancy of a large anchor
tenant space; (ii) a recent decline in
investment demand for regional malls;
(iii) increased interest rates for
commercial mortgage loans; (iv) the
increasing number of bankruptcies in
national chains in the retailing industry;
and (v) increased competition within the
Mall's primary and secondary trade areas.
See "DISCUSSION OF THE SALE--Valuation of
Cranberry Mall."
Recommendation of the
General Partner The General Partner recommends that the
Limited Partners vote "FOR" the Sale. The
General Partner's recommendation and its
determination that the terms of the Sale
are fair to the Limited Partners was based
on the following factors. See "DISCUSSION
OF THE SALE--Recommendation of the General
Partner" for a more detailed discussion of
the following factors.
Factors in Favor of the
Sale In determining the fairness of the Sale,
the General Partner considered the
following factors which weighed in favor
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of the Sale: (1) the thoroughness of the
marketing effort for Cranberry Mall and
the small likelihood that a superior offer
with a comparable probability of closing
the transaction could be obtained; (2) the
arm's-length negotiation between the
Purchaser and the General Partner on
behalf of the Partnership as the basis for
determining the agreed upon value of
Cranberry Mall; (3) the structure of the
Sale as an all-cash transaction with
reduced transaction costs; (4) uncertainty
regarding a future offer to purchase
Cranberry Mall at a price sufficient to
cover the outstanding principal of the
current mortgage; (5) the fact that the
outstanding principal of the current
mortgage was due and payable April 1, 1999
and is in forbearance until April 1, 2000,
with no assurance that such mortgage can
be extended or refinanced on acceptable
terms; (6) the fact that a significant
investment will be required for the
leasing of the vacant anchor tenant space
and general renovation of the Mall within
the next few years in order to maintain
its competitive position. Such lease-up
and renovation might necessitate continued
ownership of Cranberry Mall for several
years to realize a return on such
investment, thereby exposing the Limited
Partners to the additional market risk of
continued ownership of their Units; (7)
the fact that the longer that Cranberry
Mall is held, the greater the risk of
lease renegotiation at lower than market
or current rental rates and non-renewal
and early termination of leases; (8) the
termination in February 1999 of a prior
agreement for the purchase of Cranberry
Mall by the prior purchaser due to its
inability to execute its proposed
redevelopment scheme; (9) the high cost of
operating the Partnership as a publicly-
held entity; (10) the lack of an
established exchange or market for the
Units; and (11) the General Partner's
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industry knowledge regarding the
marketability of Cranberry Mall. See
"DISCUSSION OF SALE--Reasons for the
Sale."
Factors Against the
Sale In determining the fairness of the terms
of the Sale, the General Partner also
considered the following factors which
weighed against the Sale: (1) the
Purchaser may attempt to renegotiate the
purchase price downward prior to the
Closing if certain conditions to Closing
are not met; (2) the Limited Partners may
be unable to invest the cash received by
them in connection with the Sale in
alternative investments that will generate
a return equal to or greater than that
generated by the investment in the
Partnership; (3) after the consummation of
the Sale, the Limited Partners will no
longer share in any potential increases in
the value of Cranberry Mall; (4) there can
be no assurances that a better offer for
Cranberry Mall may not be available; and
(5) the Limited Partners may incur certain
tax liabilities as a result of the Sale.
See "ACCOUNTING ISSUES AND INCOME TAX
CONSEQUENCES OF THE SALE."
The General Partner concluded that the
factors weighing in favor of the Sale
outweighed the factors weighing against
the Sale and that, as with any investment
decision, the potential disadvantages and
risks of the Sale are speculative, cannot
be quantified and do not outweigh the
benefits.
Risk Factors;
Conflicts of Interest The Sale is subject to certain risks and
conflicts of interest as more fully
described in the section entitled "RISK
FACTORS." Such risks include the
possibility that prior to the Closing the
Purchaser may attempt to renegotiate the
purchase price downward if certain
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conditions to Closing are not met. The
General Partner, in its reasonable
discretion, may agree to a lower purchase
price which it believes is in the best
interests of the Limited Partners, but in
no event shall the purchase price be
reduced by more than 3%.
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RISK FACTORS
Risks of the Sale
The Sale is not without certain potential disadvantages and risks to
the Limited Partners. Such disadvantages and risks include the following:
- The Purchaser may attempt to renegotiate the purchase price downward
prior to the Closing if certain conditions to Closing are not met.
The General Partner, in its reasonable discretion, may agree to a
lower purchase price which it believes is in the best interests of
the Limited Partners, but in no event shall the purchase price be
reduced by more than 3%. This will result in lower distributions to
the Limited Partners.
- There can be no assurance that the cash distributions received by the
Limited Partners in connection with the Sale can be invested in
alternative investments that will generate a return equal to or
greater than that generated by the investment in the Partnership.
- Despite the approval of the Sale by the Limited Partners, it may not
be consummated because of the failure of the Purchaser or the Owner
Partnership to meet certain conditions to Closing. Such conditions
include the delivery of valid title to Cranberry Mall, the delivery
of estoppel certificates from tenants of Cranberry Mall and the
accuracy of certain representations made regarding authority,
litigation, leases and contracts.
- The Limited Partners will no longer have an ownership interest in
Cranberry Mall and thus will not share in any potential increases in
its value.
- There can be no assurances that a better offer for the acquisition of
the Partnership's interest in the Owner Partnership or Cranberry Mall
may not be available now or in the future.
- The Limited Partners may incur certain tax liabilities as a result of
the Sale.
Notwithstanding these risks, the General Partner has concluded that, as
with any investment, such potential disadvantages and risks are speculative,
cannot be quantified and do not outweigh the benefits of the Sale and the
subsequent liquidation of the Partnership.
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Indemnification under the Partnership Agreement
The Partnership Agreement that governs the Partnership provides that
the General Partner will not be liable for any loss incurred by the
Partnership or any of the Limited Partners as a result of any act or omission
of the General Partner acting in good faith on behalf of the Partnership or
the Owner Partnership. Such act must be reasonably believed by the General
Partner or such other person to be within the scope of the authority granted
by the Partnership Agreement and in the best interests of the Partnership, so
long as such act or omission does not constitute negligence or misconduct.
Under the terms of the Partnership Agreement, the General Partner is
indemnified by the Partnership for any claim, loss, expense, liability,
action or damage, including reasonable attorneys' fees, resulting from any
such act or omission. Any indemnity shall be paid from, and only to the
extent of, Partnership assets.
If a claim is made against the General Partner in connection with its
actions with respect to the Sale, the General Partner expects that it will
seek to be indemnified by the Partnership. As a result, a limited partner's
remedy with respect to claims against the General Partner and such other
Person relating to the General Partner's or such other person's involvement
in the Sale could be more limited than the remedies which would have been
available absent the existence of these rights in the Partnership Agreement.
A successful claim for indemnification, including the expenses of defending a
claim made, would reduce the Partnership's assets by the amount paid.
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DISCUSSION OF THE SALE
Reasons for the Sale
As part of our continuing effort to fulfill our fiduciary
responsibility to the Limited Partners by enhancing the value of the Limited
Partners' investment in the Units, we continually consider various strategies
and alternatives available to the Partnership. One such strategy is to
direct, in the Partnership's capacity as managing general partner, the Owner
Partnership to sell Cranberry Mall. Consummation of the sale of Cranberry
Mall (the "Sale") to the Purchaser will allow the Limited Partners to
liquidate, on an all-cash basis, their illiquid investment in the Units,
which cash can then be invested in alternative investments.
We believe the terms of the Sale are favorable to the Partnership and
the Limited Partners in part because: (1) the Sale will be consummated on an
all-cash basis at an agreed upon value of Cranberry Mall based, in part, on
the fair market value of the Mall as determined by a thorough marketing by
Insignia/ESG Capital Advisors Group and an arm's length negotiation between
the Purchaser and the General Partner on behalf of the Partnership; and (2)
the Limited Partners will no longer be subject to the risks inherent in the
ownership of a retail mall that has suffered deteriorating net operating
income and operates in a market that has suffered a recent decline in
property values. See "--Recommendation of the General Partner--Factors in
Favor of the Sale." Although the Sale is not without risks, as described in
the section entitled "RISK FACTORS--Risks of the Sale," the General Partner
believes that, given the favorable terms of the Sale, it has a fiduciary
responsibility to present it to the Limited Partners for their approval and
to recommend the Sale.
The considerations which resulted in the determination to present the
Sale to the Limited Partners and to recommend the Sale are described in more
detail below.
Background of the Sale
The General Partner considered several alternatives to the Sale,
including: (1) continuing to hold the Partnership's interest in the Owner
Partnership (the "Interest") and consequently Cranberry Mall; (2) an auction
of the Interest; (3) an auction of Cranberry Mall; and (4) solicitation of
third-party bids for the Interest or for Cranberry Mall.
Continuing to hold the Interest and Cranberry Mall, considered the
least desirable alternative, was rejected. The value of the Mall becomes
less certain the longer the property is held, increasing the risk in such
ownership. Cranberry Mall operates in a segment of the commercial real
estate market that has suffered a recent decline in property value due to
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several factors, including without limitation, internet retailing, oversupply
of regional malls and changing consumer tastes. The ownership of retail
properties is also subject to risks relating to conditions in the retailing
industry, which has seen a number of bankruptcies of national chains as well
as smaller local retailers. Certain of these risks were recently evidenced
at Cranberry Mall by the bankruptcy-related lease termination of Caldor, an
anchor tenant at Cranberry Mall, who filed for protection under the U.S.
Bankruptcy Code on September 18, 1995. Subsequently, in February 1998,
Caldor announced that it would close its store at Cranberry Mall, and did so
on May 10, 1998. In July 1998, Caldor rejected its lease with bankruptcy
court approval. Although the Partnership's claim for unpaid rent and
rejection damages under Caldor's lease was filed shortly thereafter, it would
have been preferable to retain Caldor as a tenant. Caldor did not submit a
plan for reorganization and on January 22, 1999 was ordered to wind down its
business operations and affairs under Chapter 11 of the Bankruptcy Code.
Since May, 1998, the General Partner and Insignia Retail have made efforts to
secure a new anchor tenant for Caldor's space. On July 1, 1999, the General
Partner executed letters of intent with two nationally recognized tenants to
lease approximately 31,000 square feet of Caldor's space. Improvements and
alterations necessary to accommodate these tenants will require substantial
capital outlays by the owner of the property. The total cost that will be
incurred to secure these tenants, which includes leasing commissions, tenant
improvements, and related capital improvements, is estimated to be in excess
of $2 million. Another example of a bankruptcy-related risk involves
Montgomery Ward, another Cranberry Mall anchor tenant. On July 7, 1997,
Montgomery Ward filed for protection under Chapter 11 of the U.S. Bankruptcy
Code, and as part of its bankruptcy process announced the closing of 48
stores on October 10, 1997. However, during bankruptcy Montgomery Ward
reaffirmed its lease at Cranberry Mall, has remained in possession of its
space, and is committed to paying all rent arrears under a confirmed plan of
reorganization. Another example of a bankruptcy-related risk involves a non-
anchor tenant, County Seat. On October 17, 1996, County Seat filed for
protection under Chapter 11 of the U.S. Bankruptcy Code in the United States
Bankruptcy Court in the District of Delaware. County Seat confirmed a plan
of reorganization, but was unable to meet certain of its obligations
thereunder. As a result, County Seat was forced to file a second Chapter 11
case, in the United States Bankruptcy Court in the Southern District of New
York, on January 22, 1999. Thereafter, County Seat announced that it would
close its store at Cranberry Mall, and rejected its lease with bankruptcy
court approval.
Both an auction of the Interest and an auction of Cranberry Mall were
rejected by the General Partner. In addition to the factors noted in the
preceding paragraph, it is the belief of the General Partner that real estate
auctions (as opposed to a solicitation of third-party bids through the use of
investment bankers or real estate brokers) are frequently viewed as a sale
method of last resort, making it even less likely that a price greater than
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the price reflected in the proposed Sale could be achieved, as the typical
buyer at such an auction is seeking below-market purchase prices.
In light of the above mentioned reasons, the General Partner determined
to pursue the sale of Cranberry Mall as the most desirable strategic
investment alternative available to the Partnership. During the second
quarter of 1998 the General Partner engaged Insignia/ESG Capital Advisors
Group ("Insignia") as broker to market Cranberry Mall for sale. The General
Partner selected Insignia as a broker based on Insignia's excellent
reputation as a premier national brokerage firm and its expertise in
marketing commercial retail real estate and negotiating sophisticated real
estate transactions. Insignia is the real estate capital markets subsidiary
of Insignia Financial Group, one of the nation's largest commercial real
estate service providers with 49 offices the continental United States plus
international operations in the United Kingdom, Germany, and Italy. During
1998, Insignia was responsible for over $3.4 billion in commercial investment
property sales. In its Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998, the Partnership reported that it engaged a broker to market
Cranberry Mall for sale, and in anticipation of the sale of the Mall,
recorded the Partnership's real estate on its June 30, 1998 balance sheet as
"Real Estate Assets Held for Disposition."
The General Partner, working with Insignia, determined that a broad
based marketing effort would provide maximum market exposure. Insignia
identified over 100 qualified mall investors as prospective purchasers of
Cranberry Mall, and sent them investment summaries and confidentiality
agreements in August 1998. In September 1998, 17 of these prospective
purchasers entered into confidentiality agreements with the Partnership and
received Confidential Offering Memoranda. Between September 22 and October
6, 1998, four of the prospective purchasers submitted non-binding offers to
purchase Cranberry Mall, ranging in price from $30 million to $39.75 million.
CenterCo, Inc. ("CenterCo") submitted the highest offer of $39.75 million
(which was $4 million higher than the second highest offer), based on its
plans to redevelop Cranberry Mall. The General Partner proceeded to
negotiate with CenterCo, and on December 3, 1998, the Owner Partnership
entered into an agreement to sell its ownership interest in Cranberry Mall to
CenterCo for $39,750,000. The agreement provided for termination by CenterCo
at any time during the due diligence review period. Pursuant to this
termination provision, CenterCo terminated the agreement on February 5, 1999
as it was unable to execute a viable redevelopment scheme. As a result of
this termination, the General Partner and Insignia resumed efforts to
actively market the property for sale.
In February 1999, Insignia identified 57 qualified mall investors as
prospective purchasers of Cranberry Mall, and sent them investment summaries
and confidentiality agreements. This group was largely composed of investors
who had indicated interest in the previous marketing effort. In March 1999,
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12 investors entered into confidentiality agreements with the Partnership and
received updated Confidential Offering Memoranda. Between March 22 and April
10, 1999, four of the prospective purchasers submitted non-binding offers to
purchase Cranberry Mall, ranging in price from $30 million to $34 million.
The General Partner, after discussions with Insignia and after assessing the
risks and considering several factors, including the certainty of closure,
proceeded to negotiate with one of the two highest bidders, Condor
Acquisition Partners LC ("Condor"), an affiliate of Barker Pacific Group,
Inc. ("Barker"). Condor is a Delaware limited liability company in which
Barker is a fifty percent shareholder, created for the purpose of acquiring
commercial retail real estate. Barker is a real estate investment firm
comprised of experienced real estate professionals active in asset
management, acquisitions, and development of major commercial projects.
On July 1, 1999, the Partnership executed a letter of intent to sell
Cranberry Mall to Barker. On September 11, 1999, pursuant to an Agreement of
Purchase and Sale, the Owner Partnership agreed to sell its ownership
interest in Cranberry Mall to Barker for a net purchase price of $34,000,000
in cash. The Agreement of Purchase and Sale was subsequently amended by a
First Amendment to Agreement of Purchase and Sale, dated as of October 28,
1999 and a Second Amendment to Agreement of Purchase and Sale, dated as of
November 29, 1999. Pursuant to an Assignment of Purchase and Sale Agreement,
dated as of November 11, 1999, Barker assigned, sold and transferred its
rights and obligations under the purchase agreement, as amended, to the
Cranberry Properties MM Corp. Cranberry Properties MM Corp. is a Delaware
corporation and a wholly-owned subsidiary of Phoenix Four ("Phoenix"), an
international business corporation based in Nassau, Bahamas. Phoenix,
established in 1993, is an open-ended opportunity fund publicly listed on the
Luxembourg Stock Exchange, and a Bahamas licensed mutual fund, specializing
in the acquisition of value-added commercial real estate debt and equity
assets. Pursuant to continuing negotiations between Cranberry Properties MM
Corp. and the General Partner on behalf of the Partnership and the Owner
Partnership, the two parties entered into a Third Amendment to Agreement of
Purchase and Sale dated as of December 23, 1999 to the purchase agreement
under which the Owner Partnership will sell its ownership interest in
Cranberry Mall to Cranberry Properties MM Corp. for a purchase price of
$33,500,000 in cash. The due diligence expiration date of the Agreement of
Purchase and Sale was extended, from time to time, by mutual agreement of the
parties, through December 23, 1999.
Risks and Related Costs Associated with Continued Ownership of the Mall
The ownership of retail properties is subject to risks relating to
conditions in the retailing industry, which has seen a number of bankruptcies
of national chains (commonly known as "national credit tenants") as well as
smaller local retailers. The longer the Partnership holds its Interest in
the Owner Partnership and Cranberry Mall, the greater the risk to the
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Partnership of lease defaults, lease renegotiation at rental rates lower than
market or current rates, and non-renewal and early termination of leases. At
Cranberry Mall, this risk is evidenced by the recent lease default of Caldor
pursuant to its bankruptcy filing. Such risks are not exclusively limited to
anchor stores; they also affect specialty stores, including County Seat and
several other former tenants at Cranberry Mall which have defaulted on their
leases pursuant to bankruptcy filings. Such lease defaults or non-renewals
often result in the need for substantial capital improvements or remodeling
to attract new tenants. The Owner Partnership and the Partnership have
previously reserved against such risks, and the maintenance of such reserves,
together with lease defaults, non-renewals and early terminations, has
resulted and could be expected to result in the future in lower distributions
to the Limited Partners.
The Mall is likely to require a significant investment for the leasing
of vacant anchor tenant space and a general renovation within the next few
years in order to maintain its competitive position. Any financing required
in connection with such lease-up or renovation would increase the liabilities
of the Owner Partnership or the Partnership and may result in lower
distributions to the Limited Partners. In addition, such lease-up or
renovation of the Mall might necessitate continued ownership of the Mall for
several years in order to enable the Partnership to realize a return on such
investment, which would expose the Limited Partners to the additional market
risks associated with continued ownership of the Mall and the lack of an
established trading market for the Units.
If the Sale is not approved, there can be no assurance as to whether
any future sale of the Interest or Cranberry Mall, or any future liquidation
or dissolution of the Partnership, will occur or on what terms such a sale,
or liquidation or dissolution, might occur. Any such future sale may not be
at a price sufficient to satisfy the mortgage on the property. As of
December 29, 1999 the principal balance of the mortgage is $31,025,000.
The outstanding principal balance on the mortgage on the property
became due and payable on April 1, 1999. The General Partner and the
mortgage lender, Metropolitan Life Insurance Company, agreed to allow the
Partnership to defer the repayment of the principal balance of the loan to
April 1, 2000, provided that the Partnership continues to pay interest at the
same rate and times set forth in the mortgage notes. If the sale is not
approved, the General Partner intends to seek to have the mortgage extended
and the terms thereof modified or to otherwise refinance the mortgage;
however, there can be no assurances that such extension, modification or
refinancing will be obtained or that the terms thereof will be favorable.
The Partnership incurs general and administrative costs related to its
status as a public reporting entity under the Federal securities laws. The
costs of preparing reports such as Annual Reports on Form 10-K and Quarterly
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Reports on Form 10-Q, as well as the expenses of printing and mailing these
materials, are significant. In addition, the Partnership incurs significant
legal and accounting fees in complying with the Federal securities laws.
There is no established trading market for the Units. As a result, the
Limited Partners and the Partnership incur all of the costs associated with
public-entity status, but have little of the benefits associated with
liquidity. The Units are not readily transferable; consequently, the Limited
Partners are essentially locked into their investment in the Units until the
Interest or Cranberry Mall is sold.
Benefits of the Sale
As a result of the sale of Cranberry Mall, the Limited Partners will
receive their proportionate share, on an all-cash basis, of the fair market
value of the Partnership's interest in Cranberry Mall, after the Owner
Partnership and the Partnership each pays or provides for payment of all
outstanding and anticipated liabilities (including establishing reserves for
any contingent or unforeseen liabilities or obligations). Such proceeds can
then be reinvested by the Limited Partners in other investments that could
possibly yield a higher return than the investment in the Partnership. In
addition, the structure of the Sale on an "as is" basis limits the need for
the Partnership to reserve substantial funds after the closing date of the
Sale (the "Closing Date") to satisfy any post-closing liabilities.
Effects of the Sale
General
If the Sale is approved by the Limited Partners and the remaining
conditions to the Sale are met or waived, the Sale will be consummated, and
the Owner Partnership will have sold Cranberry Mall to the Purchaser. The
Owner Partnership will then pay the Sale Costs (as defined in "Costs
Associated with the Transaction") and pay or make provision (including
establishing reserves) for the payment of all other outstanding and
anticipated liabilities. The remaining proceeds will be distributed to the
Partnership for distribution to the Limited Partners; the General Partner
will not receive any distribution from the Sale. The Partnership will be
liquidated and dissolved at such time as the General Partner determines that
all remaining Partnership assets are available for distribution and all
Partnership obligations and liabilities have been paid or provided for; the
General Partner will not receive any distribution from such liquidation and
dissolution. Thereafter, the registration of the Units under Section
12(g)(4) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), will be terminated. Further, upon dissolution, the Partnership will
no longer be subject to the periodic reporting requirements of the Exchange
Act and will cease filing information with the Securities and Exchange
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Commission (the "Commission"). The General Partner intends to conclude the
liquidation of the Partnership as soon as it deems appropriate.
Effects on the Limited Partners
Upon liquidation and dissolution of the Owner Partnership and the
Partnership, in accordance with the Partnership Agreement, the resulting
proceeds of the Sale, together with all cash on hand and reserves, will be
used to make distributions to the Limited Partners after payment of or making
provision for the payment of all other outstanding and anticipated
Partnership liabilities (including establishing reserves for any contingent
or unforeseen liabilities or obligations). The General Partner currently
anticipates that the Limited Partners will receive distributions of
approximately $122 per Unit as a result of the Sale and the Owner
Partnership's and the Partnership's ultimate dissolution, representing (1)
approximately $20 per Unit of net proceeds from the Sale after providing for
payment of transaction costs, and (2) the distribution of additional
Partnership cash reserves (after paying or providing for payment of
outstanding and anticipated Partnership liabilities) and additional cash
reserves of the Owner Partnership (after payment or provision for payment of
outstanding and anticipated liabilities), which the Partnership estimates
will be approximately $102 per Unit. The amounts distributed to the Limited
Partners will be less than the amounts specified above if the Purchaser
renegotiates the purchase price and the General Partner, in its reasonable
discretion, agrees to a lower price, which it believes is in the best
interests of the Limited Partners, but in no event shall the purchase price
be reduced by more than 3%. The availability of funds for distribution of
additional Partnership cash reserves may be determined, in part, based on the
collection after the Closing of certain rental and other payments due from
tenants at the Mall adjusted as of the Closing Date. To collect such funds
sooner than they would otherwise be paid, the Partnership may accept
discounted payments with respect to amounts due, which would result in
Limited Partners receiving their liquidating distribution sooner than would
otherwise be the case but could reduce the amount of such liquidating
distribution. See "TERMS OF THE SALE--Dissolution and Liquidation of the
Partnership" and "--Determination of Cash Available for Distribution." Based
on the estimated distributions to be made to the Limited Partners as a result
of the sale of Cranberry Mall and the subsequent liquidation of the Owner
Partnership and the Partnership, Limited Partners will not receive an amount
in excess of the preferred return to which they are entitled under the
Partnership Agreement.
Effects on the Partnership
The purchase price to be paid by the Purchaser for Cranberry Mall is
$33,500,000. Approximately 100% of the net proceeds from the purchase price
will be paid to the Partnership. This amount is based upon the Partnership's
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interest in the Owner Partnership (the "Interest") and was determined based
on the provisions in the Amended and Restated Agreement of Limited
Partnership of the Owner Partnership, dated as of October 6, 1988 (the "Owner
Partnership Agreement"). The Partnership will receive a liquidating
distribution, which will include (i) approximately $1,415,000 which
constitutes the net proceeds from the Sale and (ii) the distributions from
the Owner Partnership to the Partnership and the net cash reserves of the
Partnership, in an approximate aggregate amount of $7,156,000, for an
approximate total of $8,571,000, all in accordance with the terms of the
Owner Partnership Agreement. Any increase or decrease in total Partnership
distributions based on funds collected after the Closing and the amount
required to pay or provide for payment of the Partnership's obligations or
liabilities will increase or decrease the liquidating distribution to the
Limited Partners. See "TERMS OF THE SALE--Determination of Cash Available
for Distribution."
Effects of Failure to Approve the Sale
If the Sale is not consummated, there can be no assurance as to whether
any future liquidation or disposition of the Interest or Cranberry Mall,
either in whole or in part, will occur or on what terms they might occur.
Any future sale may not be at a purchase price sufficient to pay off the
mortgage on Cranberry Mall and may not occur on or before April 1, 2000, the
date when such mortgage becomes due and payable. However, if not approved,
the General Partner will continue to operate the Partnership in accordance
with the terms of the Partnership Agreement and in fulfillment of its
fiduciary duties, including the review of any third-party offers to purchase
the Interest or Cranberry Mall, in an effort to enhance the Partnership's
value on behalf of the Limited Partners. In addition, the General Partner
will continue to evaluate the various alternatives to the transaction, as
described in the section entitled "Purpose of and Reasons for the
Transaction." Such alternatives include: (1) continuing to hold the
Interest and Cranberry Mall; (2) an auction of the Interest or Cranberry
Mall; and (3) solicitation of bids for the Interest or Cranberry Mall. The
General Partner has concluded that such options are not in the best interest
of the Limited Partners at this time, particularly in light of the
Purchaser's offer.
Valuation of Cranberry Mall
Current Valuation
The purchase price is based on a thorough marketing by Insignia/ESG
Capital Advisors Group ("Insignia") and an arm's length negotiation between
the Purchaser and the General Partner on behalf of the Partnership and the
Owner Partnership. The General Partner, working with Insignia, determined
that a broad based marketing effort would provide maximum market exposure and
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Insignia subsequently identified and mailed marketing materials to over 100
qualified mall investors as prospective purchasers of Cranberry Mall. As a
result of this extensive marketing process, the General Partner entered into
negotiations with the Purchaser, and the Purchaser subsequently entered into
the Purchase Agreement.
Insignia is the real estate capital markets subsidiary of Insignia
Financial Group, one of the nation's largest commercial real estate service
providers with 49 offices in the continental United States plus international
operations in the United Kingdom, Germany, and Italy. During 1998, Insignia
was responsible for $3.4 billion in commercial investment property sales.
See "DISCUSSION OF THE SALE--Reasons for the Sale--Background of the Sale."
Prior Years Valuation
In 1997, Cushman & Wakefield, an independent third-party appraisal
firm, was engaged by the Owner Partnership to prepare an appraisal of the
Mall as of January 1, 1998. Pursuant to its engagement, Cushman & Wakefield
reported to the Partnership that the value of the Mall was $40,000,000 as of
January 1, 1998. However, appraisals are only estimates of value as of the
specific appraisal date, and certain conditions affecting the value of
Cranberry Mall are significantly different at the present time than at the
time the appraisal was completed. The General Partner believes that the
January 1, 1998 appraisal value, which is almost two years old, is not an
accurate measure of a current, realizable selling price for Cranberry Mall
for several reasons including, without limitation: (i) a recent deterioration
in the Mall's net operating income due in large part to the unforseen and
continuing vacancy of a large anchor tenant space; (ii) a recent decline in
investment demand for regional malls; (iii) increased interest rates for
commercial mortgage loans; (iv) the increasing number of bankruptcies in
national chains in the retailing industry; and (v) increased competition
within the Mall's primary and secondary trade areas.
Recommendation of the General Partner
Factors Considered
The General Partner believes that the terms of the Sale are fair to the
Partnership and the Limited Partners. The General Partner recommends that
the Limited Partners vote "FOR" the Sale. In determining the fairness of the
Sale and its decision to recommend the transaction, the General Partner
considered each of the factors discussed below. Although the General Partner
was unable to weigh each factor precisely, the factors are set forth below in
their approximate order of importance:
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Factors in Favor of the Sale:
- The thoroughness of the marketing effort for Cranberry Mall
and the small likelihood that a superior offer with a
comparable probability of closing the transaction could be
obtained.
- The agreed upon value of Cranberry Mall was based on a
thorough marketing by Insignia/ESG Capital Advisors and an
arm's length negotiation between the Purchaser and the
General Partner on behalf of the Partnership and the Owner
Partnership. See the section entitled "--Reasons for the
Sale."
- The fact that the Purchaser is willing to consummate the
Sale on an all-cash basis. This all-cash transaction will
allow substantially all of the Partnership's pro rata share
of the purchase price, after payment or provision for
payment of the Sale Costs and all other outstanding and
anticipated Partnership liabilities (including establishing
reserves for any contingent or unforeseen liabilities or
obligations), to be paid to the paid to the Limited
Partners, which can thereafter be reinvested by the Limited
Partners in other investments. An all-cash transaction also
significantly simplifies the Sale and lowers sale costs.
- The fact that another offer to buy Cranberry Mall may not,
after the payment of the expenses incurred in connection
with such a sale, be a large enough sum to cover the
outstanding principal of the current mortgage ($31,025,000).
- The fact that the outstanding principal of the current
mortgage was due and payable April 1, 1999 and is in
forbearance until April 1, 2000. Although the General
Partner intends to seek to have the mortgage extended and
the terms thereof modified or to otherwise refinance the
mortgage, there can be no assurances that such extension,
modification or refinancing will be obtained, or that the
terms thereof will be favorable.
- The fact that a significant investment will be required for
the releasing of the vacant anchor tenant space of Cranberry
Mall. In addition, the Mall is likely to require a
renovation within the next few years in order to maintain
its competitive position. Such lease-up and renovation
might necessitate continued ownership of the Mall for
several years to enable the Partnership to realize a return
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on such investment, which would expose the Limited Partners
to additional market risk. These costs and risks are
discussed in the section entitled "--Reasons for the Sale."
- The fact that the longer Cranberry Mall is held, the greater
the risk of lease renegotiation at lower than market or
current rental rates and non-renewal and early termination
of leases.
- The fact that a prior agreement for the purchase of
Cranberry Mall was terminated by the prior purchaser in
February 1999. The purchase price of $39.75 million offered
by the purchaser was based upon its potential redevelopment
of the property. The purchaser terminated the purchase
agreement after determining it was not possible to execute a
viable redevelopment scheme.
- The high cost of operating the Partnership as a
publicly-held entity.
- The lack of an established exchange or market for the Units
which makes it extremely difficult for the Limited Partners
to liquidate their investment.
- The General Partner's industry knowledge regarding the
marketability of Cranberry Mall.
Factors Against the Transaction:
- The Purchaser may attempt to renegotiate the purchase price
downward prior to Closing if certain conditions to Closing
are not met. The General Partner, in its reasonable
discretion, may agree to a lower purchase price which it
believes is in the best interests of the Limited Partners,
but in no event shall the purchase price be reduced by more
than 3%. This will result in lower distributions to the
Limited Partners.
- The Limited Partners may be unable to invest the cash
received by them in connection with the Sale in alternative
investments that will generate a return equal to or greater
than that generated by the investment in the Partnership.
- After the consummation of the Sale, the Limited Partners
will no longer have an ownership interest in the Interest or
Cranberry Mall and thus will not share in any potential
increases in its value.
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- There can be no assurances that a better offer for the
acquisition of the Interest or Cranberry Mall may not be
available now or in the future.
Conclusion
After evaluation of each of the foregoing factors, the General Partner
concluded that the factors weighing in favor of the Sale outweighed the
factors weighing against the Sale. In particular, the General Partner
concluded that, as with any investment decision, the potential disadvantages
and risks of the Sale are speculative, cannot be quantified and do not
outweigh the benefits of the Sale. Therefore, the General Partner recommends
that the Limited Partners vote "FOR" the Sale.
Appraisal Rights
Neither Delaware law nor the Partnership Agreement provide rights of
appraisal or similar rights to the Limited Partners who dissent from the vote
of the majority in approving the Sale. As a result, if Limited Partners
holding a majority of the Units approve the Sale and the Sale is consummated,
the Partnership will be liquidated and all Limited Partners, including those
who do not approve the Sale, will receive initial and liquidating
distributions pursuant to the terms of the Partnership Agreement.
Costs Associated with the Transaction
The following is an itemized statement of the approximate amount of
expenses incurred or estimated to be incurred by the Owner Partnership and
the Partnership in connection with the Sale (the "Sale Costs") and the
subsequent dissolution and liquidation of the Partnership and the Owner
Partnership (the "Liquidation Costs" and together with the Sale Costs, the
"Transaction Costs"):
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Sale Costs
Legal and Accounting fees . . . . . . . . . . . . $300,000
Proxy solicitation fees . . . . . . . . . . . . . $6,000
Printing and mailing costs . . . . . . . . . . . $25,000
Commissions . . . . . . . . . . . . . . . . . . . $502,000
Transfer and Conveyance taxes . . . . . . . . . . $201,000
Other, including filing fees . . . . . . . . . . $26,000
Total Sale Costs . . . . . . . . . . . . . . . . 1,060,000
Liquidation Costs $348,000
Transaction Costs $1,408,000
* Note: Although the Owner Partnership will pay the Sale Costs,
because the Partnership owns 99% of the Owner Partnership,
the Partnership will ultimately bear virtually all costs of
the Sale.
All of the foregoing fees and expenses will be paid by the Owner
Partnership or the Partnership from cash from operations. Of such fees and
expenses, approximately $1,714 has been paid through January 15, 2000. No
part of such funds is expected to be borrowed.
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SPECIAL MEETING OF THE LIMITED PARTNERS
Special Meeting; Record Date
Pursuant to the terms of the Partnership Agreement, the affirmative
vote or written consent of the Limited Partners holding more than 50% of the
issued and outstanding Units (a "Majority-in-Interest") is required to
approve the Sale. A Special Meeting of the Limited Partners will be held on
February 7, 2000, at the offices of the Partnership, 3 World Financial
Center, 26th Floor, New York, New York 10285-2900, at 9:00 a.m., local time,
to consider and vote upon the Sale and the subsequent liquidation and
dissolution of the Partnership. The Partnership Agreement provides that the
General Partner may call a special meeting of the Limited Partners at any
time and place convenient to Limited Partners, provided that the General
Partner gives written notice of such meeting to all Limited Partners, and
such meeting must be held no less than 15 days and no more than 60 days after
the General Partner sends such notice to the Limited Partners. The close of
business on December 31, 1999, has been established as the Record Date for
the Sale. A Limited Partner holding Units as of the Record Date will retain
the right to vote on the proposals set forth herein even if such Limited
Partner sells or transfers such Units after such date. As of the Record
Date, the Partnership had outstanding and entitled to vote 70,250 Units, held
of record by 4,376 Limited Partners. The presence in person or by proxy of
Limited Partners holding more than 50% of the outstanding Units shall
constitute a quorum; however, if no such quorum is present, holders of more
than 50% of the Units so present or so represented may adjourn the meeting
from time to time without further notice, until a quorum shall be obtained.
Even if a valid quorum is present, with respect to the Special Meeting, if
Limited Partners holding a majority of the Units do not submit a proxy or
vote in person at the Special Meeting in favor of the Sale, the Sale cannot
be approved.
All Limited Partners are invited to attend the Special Meeting.
However, even those Limited Partners intending to attend the Special Meeting
are requested to complete and return the enclosed proxy card promptly.
Procedures for Computing Proxies
Accompanying this Proxy Statement is a proxy card solicited by the
General Partner on behalf of the Partnership for use at the Special Meeting
and any adjournment(s) or postponement(s) thereof. When a proxy card is
returned, properly executed, and is received prior to or at the Special
Meeting and before the occurrence of the vote, and not revoked, the Units
represented thereby will be voted at the Special Meeting by the proxy or
proxies named therein in the manner specified on the proxy card. It is
important that you mark, sign and date your proxy card and return it either
in the enclosed, postage-prepaid envelope or by facsimile to (212) 929-0308,
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Attention: Charles Koons, as soon as possible. Return of your proxy card
prior to the Special Meeting does not prohibit you from attending the Special
Meeting. To be properly executed, the proxy card must be signed by and bear
the date of signature of the Limited Partner voting the Units represented
thereby. All questions as to the validity of proxies will be determined by
the General Partner, which determinations shall be final and binding. The
General Partner reserves the right to waive any defects or irregularities in
any proxy.
Each Unit entitles the holder thereof to one vote with respect to the
proxies solicited hereby. Only holders of record of Units on the Record Date
may grant a proxy with respect to those Units. If Units Are Held of Record
in the Names of Two or More Persons, All Such Persons Must Sign the Proxy
Card. When Signing as an Attorney, Executor, Administrator, Trustee or
Guardian, Your Full Title as Such Should Be Provided. If a Corporation Is
the Holder of Record, the Proxy Should Be Signed by the President or Other
Authorized Officer. If a Partnership Is the Holder of Record, the Proxy
Should Be Signed by an Authorized Person (A General or Managing Partner of
the Partnership).
A Limited Partner in favor of the Sale should mark the "FOR" box on the
enclosed proxy card, date and sign the proxy and return it either in the
enclosed, postage-prepaid envelope or by facsimile to (212) 929-0308,
Attention: Charles Koons, as soon as possible. If a proxy card is executed
but no indication is made as to what action is to be taken, it will be deemed
a vote "FOR" the Sale and subsequent liquidation and dissolution of the
Partnership. By voting "FOR" the Transaction by proxy, the holder of record
of Units returning the proxy authorizes Michael T. Marron and Rocco F.
Andriola, or either of them, to vote such holder's Units for the Transaction
at the Special Meeting and any adjournment(s) or postponement(s) thereof.
AS THE AFFIRMATIVE VOTE OF THE LIMITED PARTNERS HOLDING A
MAJORITY-IN-INTEREST OF THE ISSUED AND OUTSTANDING UNITS IS NECESSARY TO
APPROVE THE PROPOSED TRANSACTION, FAILURE TO RETURN A PROXY IN A TIMELY
MANNER OR TO VOTE AT THE SPECIAL MEETING, OR ABSTENTION FROM VOTING, WILL
HAVE THE SAME EFFECT AS A VOTE "AGAINST" THE TRANSACTION.
Questions and requests for assistance or for additional copies of this
Proxy Statement and proxy card may be directed to the Partnership's
Information Agent, MacKenzie Partners, Inc., 156 Fifth Avenue, 13th Floor,
New York, New York 10010, toll-free (800) 322-2885 or (212) 929-5500
(collect). In addition to soliciting proxies by mail, proxies may be
solicited in person and by telephone or facsimile transmission.
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Vote Required
Pursuant to the terms of the Partnership Agreement, the affirmative
vote of the Limited Partners holding a Majority-in-Interest is necessary to
approve the Sale. Each Unit entitles the holder to one vote on each matter
submitted to a vote of the Limited Partners. If the affirmative vote of the
Limited Partners holding a Majority-in-Interest of the Limited Partners
approves the Transaction and certain other conditions are met or waived, the
Sale will be consummated.
In connection with certain tender offers which have previously been
made for Units, the Partnership has entered into agreements with the
offerors. Among other provisions, these agreements have provided that for a
specified period of time, in the event of a vote of Limited Partners, the
Units acquired pursuant to a tender offer will be voted for or against any
proposal in the same percentages as the votes of the other Units. As of the
date of this Proxy Statement, 3,150 Units are subject to such agreements.
The General Partner plans to not dissolve the Partnership for at least
180 days after the Closing Date. Thereafter, the Partnership will be
liquidated and dissolved (the "Liquidation") at such time as the General
Partner determines that all remaining Partnership assets are available for
distribution and all Partnership obligations and liabilities have been paid
or provided for. A vote in favor of the Transaction, therefore, includes a
consent to both the Sale and the Liquidation.
Solicitation Procedures
The Partnership has retained MacKenzie Partners, Inc. to act as
Information Agent (the "Information Agent") and for advisory services in
connection with this proxy solicitation. In connection therewith, the
Information Agent will be paid reasonable and customary compensation and will
be reimbursed for its reasonable out-of-pocket expenses. The cost of
solicitation will be borne by the Partnership. See "DISCUSSION OF THE SALE--
Costs Associated with the Sale."
The Partnership will not pay any fees or commissions to any broker or
dealer or other person (other than to the Information Agent) for soliciting
proxies pursuant to this solicitation. Custodians, nominees and fiduciaries
will be requested to forward the solicitation material to the customers for
whom they hold Units, and the Partnership will reimburse them for reasonable
mailing and handling expenses incurred by them in forwarding proxy materials
to their customers.
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Revocation of Proxies
A proxy executed and delivered by a Limited Partner may subsequently be
revoked by submitting written notice of revocation to the Partnership. A
revocation may be in any written form validly signed by a Limited Partner as
long as it clearly states that such Limited Partner's proxy previously given
is no longer effective. To prevent confusion, the notice of revocation must
be dated. Notices of revocation should be delivered to the Information
Agent. A Limited Partner may also revoke its proxy by attending the Special
Meeting and voting in person. If a Limited Partner signs, dates and delivers
a proxy to the Partnership and, thereafter, on one or more occasions dates,
signs and delivers a later-dated proxy, the latest-dated proxy card is
controlling as to the instructions indicated therein and supersedes such
Limited Partner's prior proxy as embodied in any previously submitted proxy
card.
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TERMS OF THE SALE
The Purchase Agreement
Barker Pacific Group, Inc., a Delaware corporation located at 811 W.
Seventh Street, Suite 1050, Los Angeles, California 90017 ("Barker"), First
American Title Insurance Company, as escrow agent, and the Owner
Partnership, by its General Partner, entered into the Purchase Agreement,
dated as of September 11, 1999. Barker is a real estate investment firm
comprised of experienced real estate professionals active in asset
management, acquisitions, and development of major commercial projects.
Pursuant to an Assignment of Purchase and Sale Agreement, dated as of
November 11, 1999, Barker assigned, sold and transferred its rights and
obligations under the Purchase Agreement to Cranberry Properties MM Corp., a
Delaware corporation located at 152 West 50th Street, 40th floor, New York,
New York 10019 (the "Purchaser"). Cranberry Properties MM Corp. is a
Delaware corporation and a wholly-owned subsidiary of Phoenix Four
("Phoenix"), an international business corporation based in Nassau, Bahamas.
Phoenix, established in 1993, is an open-ended opportunity fund publicly
listed on the Luxembourg Stock Exchange, and a Bahamas licensed mutual fund,
specializing in the acquisition of value-added commercial real estate debt
and equity assets. Barker remains primarily liable under the Purchase
Agreement. The following summary is qualified by reference to the complete
form of Purchase Agreement. A copy of the Purchase Agreement will be sent to
any Limited Partner or his or her representative, at such Limited Partner's
expense, upon request to MacKenzie Partners, Inc., 156 Fifth Avenue, 13th
Floor, New York, New York 10010.
The purpose of the Sale is to transfer to the Purchaser all right,
title and interest to Cranberry Mall. Pursuant to the terms of the Purchase
Agreement, the Purchaser will pay the Owner Partnership $33,500,000 for
Cranberry Mall. However, if certain conditions to Closing are not met the
Purchaser may attempt to renegotiate the purchase price prior to Closing. In
that event, the General Partner, in its reasonable discretion, may agree upon
a lower purchase price which it believes is in the best interests of the
Limited Partners, but in no event shall the purchase price be reduced by more
than 3%.
The purchase price is payable as follows: (1) the Purchaser has paid
initial earnest money of $150,000 by wire transfer of funds to a designated
interest-bearing escrow account upon execution of the Purchase Agreement (the
"Initial Earnest Money"); and (2) the Purchaser will deposit by wire transfer
additional earnest money of $150,000 no later than the second business day
following receipt by the Purchaser of an acceptable written financing
commitment from Metropolitan Life Insurance Company, and in any event not
later than February 2, 2000 (the "Additional Earnest Money"). The Additional
Earnest Money will be held in the same interest-bearing escrow account as the
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Initial Earnest Money of $150,000 (collectively, the "Earnest Money"). On
the Closing Date, the Purchaser will deliver to the Owner Partnership the
purchase price, less the Earnest Money and any adjustments for closing costs
and prorations, by wire transfer of immediately available funds.
Subsequently, the escrow agent will deliver the Earnest Money to the Owner
Partnership.
The Purchaser and the Owner Partnership will apportion rents in
accordance with the Purchase Agreement. All fixed and overage rents paid or
payable by tenants under leases or licenses will be prorated as of the date
of closing, and to the extent such rents have been paid the net amounts will
be added to or deducted from the purchase price. Following the Closing, the
Purchaser will use commercially reasonable efforts to collect past due rent.
The Purchaser, however, is not obligated to sue any tenant for the non-
payment of any fixed or overage rent. Other than with respect to rent
arrearages due from Caldor, CVS Pharmacy and certain tenants which have ever
used their "co-tenancy rights," the Owner Partnership may pursue tenants to
collect delinquent rent and may sue tenants; however, the Owner Partnership
may not evict any delinquent tenants.
If the Closing does not occur for any reason and either party makes a
written demand on the escrow agent for payment of such amount, the escrow
agent will give written notice to the other party within 24 hours. If the
escrow agent does not receive written objection within five business days
after notice is given, the escrow agent is authorized to make such payment.
If the escrow agent does receive written objection to payment, or in good
faith elects not to make such payment for any other reason, the escrow agent
will continue to hold the payment until otherwise directed by joint written
instructions from the parties, or a court judgment orders otherwise. At any
time, the escrow agent may deposit the Earnest Money with the clerk of the
court of New York County and must give written notice of such deposit to the
Owner Partnership and the Purchaser. Upon such a deposit, the escrow agent
will be relieved and discharged of all further obligations and
responsibilities. The escrow agent is acting for the parties' convenience
and will not be liable to either party for any act or omission, other than
gross negligence or willful misconduct. The Owner Partnership and the
Purchaser will jointly indemnify the escrow agent from all costs, claims and
expenses, including attorneys' fees, incurred in connection with the
performance of the escrow agent duties.
Allocation of Costs Associated with the Sale
The Purchase Agreement provides for the allocation of costs associated
with the Sale. The Purchaser will pay for its due diligence investigation,
title reports and surveys, any owner and mortgage title insurance that it
chooses to obtain, and recording charges. The Owner Partnership and the
Purchaser will split the cost of transfer taxes, deed stamps, conveyance
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taxes and documentary stamp taxes ("Transfer Taxes"). If the Purchaser
elects to obtain financing, it will pay all the costs associated with such
financing. The Owner Partnership will pay the brokerage commissions due to
the broker retained by the General Partner to market Cranberry Mall for sale,
Insignia/ESG Capital Advisors Group.
Each party will be responsible for its own attorneys' fees and any
other professional fees incurred in connection with the Sale. In addition,
each party will indemnify the other party for expenses incurred due to the
party's failure to pay the costs for which it is responsible under the
Agreement.
Representations, Warranties and Covenants of the Parties
Pursuant to the Purchase Agreement, the Purchaser has represented,
warranted and covenanted to the Owner Partnership that: (1) it is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware; (2) it has all requisite power and authority
to enter into the Purchase Agreement and to perform its obligations
thereunder and has taken all necessary action to authorize the execution,
delivery and performance of the Purchase Agreement which is a legal, valid
and binding obligation of the Purchaser enforceable against the Purchaser in
accordance with its terms; (3) no consent is required to be obtained or made
in connection with the execution, delivery and performance of the Purchase
Agreement; (4) the execution, delivery and compliance with, and performance
of the terms and provisions of the Purchase Agreement will not conflict with
or result in any violation of the Purchaser's organizational documents, any
bond, note or other instrument of indebtedness or violate any writ, judgment,
law, rule or regulation; (5) it has made an examination of Cranberry Mall and
agrees that Cranberry Mall will be sold and conveyed to and accepted by it at
the Closing in its then existing condition, as is, where is, with all faults,
and without any written or verbal representations or warranties whatsoever,
whether express or implied or arising by operation of law, other than those
expressly set forth in the Purchase Agreement; (6) it will use its good faith
efforts to consummate the Closing and fulfill its obligations under the
Purchase Agreement; and (7) it assumes all obligations of the Owner
Partnership to pay the leasing commissions set forth in a schedule to the
Purchase Agreement.
Pursuant to the Purchase Agreement, the Owner Partnership has made the
following general representations and warranties to the Purchaser: (1) it is
a duly formed, validly existing limited partnership in good standing under
the laws of the State of Delaware and is or as of Closing will be qualified
to do business and in good standing under the laws of the State of Maryland;
(2) it has all requisite power and authority to enter into the Purchase
Agreement and to perform its obligations thereunder and has taken all
necessary action to authorize the execution, delivery and performance of the
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Purchase Agreement which is a legal, valid and binding obligation of the
Owner Partnership enforceable against the Owner Partnership in accordance
with its terms; (3) with the exception of obtaining Limited Partner approval
and the documents evidencing or securing the loan from Metropolitan Life
Insurance Company referred to in a schedule to the Purchase Agreement, no
consent is required to be obtained in connection with the execution, delivery
and performance of the Purchase Agreement, except the failure of which to
obtain will not materially adversely effect the Owner Partnership's ability
to consummate the transaction or its ownership or operation of the property;
(4) with the exception of obtaining Limited Partner approval, the execution,
delivery and compliance with, and performance of the terms and provisions of
the Purchase Agreement will not conflict with or result in any violation of
the Owner Partnership's organizational documents, any bond, note or other
instrument of indebtedness or violate any writ, judgment, law, rule or
regulation, except for any conflict or violation which will not materially
adversely effect the Owner Partnership's ability to consummate the
transaction or its ownership or operation of the property; and (5) the Owner
Partnership is not a "foreign person" under the Federal tax laws.
Pursuant to the Purchase Agreement, the Owner Partnership has made the
following representations and warranties to the Purchaser as to Cranberry
Mall: (1) it is the owner and holder of Cranberry Mall, holds Cranberry Mall
free and clear of any liens, restrictions or encumbrances except for the
permitted exceptions, has the right to sell Cranberry Mall, and the Purchaser
will receive Cranberry Mall free of any encumbrances (other than the
permitted exceptions); (2) to the Owner Partnership's knowledge (i) it has
provided a schedule of all material service, maintenance, supply,
construction, development and management contracts to its knowledge, and to
its knowledge all material contracts are terminable upon thirty days notice,
and (ii) the sole management and leasing contract for Cranberry Mall is with
Insignia Retail Group, Inc. and will be terminated as of the Closing Date and
Purchaser shall have no obligations under the contract other than the
commissions and fees payable pursuant to the brokerage agreement with
Insignia Retail Group, Inc.; (3) it has provided a schedule of the leases
relating to property under which to its knowledge the Owner Partnership holds
the landlord's interest; (4) no brokerage commissions or finder's fees are
currently payable with respect to the leases or licenses, other than the
commissions and fees payable pursuant to the brokerage agreement with
Insignia Retail Group, Inc.; (5) to its knowledge the Owner Partnership knows
of no threatened or pending condemnation affecting Cranberry Mall; (6) to its
knowledge, the Owner Partnership knows of no pending or threatened legal
actions against Cranberry Mall that would materially adversely affect the
Owner Partnership's ability to consummate the transactions and the ownership
or the operation of Cranberry Mall, except as set forth in a schedule to the
Purchase Agreement; (7) it does not have any employees at Cranberry Mall; and
(8) it has not received written notice from Sears, Roebuck and Co., Belk, or
Montgomery Ward & Co., Incorporated (collectively, the "Major Tenants"), that
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a Major Tenant has exercised the right pursuant to such tenant's lease to
vacate its demised premises, cease its present business operations or
terminate its lease or give any written intention to do so.
Pursuant to the Purchase Agreement, the Owner Partnership has made the
following covenants to the Purchaser for the period from the date of the
Purchase Agreement through the Closing:
The Owner Partnership has agreed that it will keep Cranberry Mall
insured against fire and other hazards covered by the insurance policies
maintained by it on the date of the Purchase Agreement and that it will
continue to operate and maintain Cranberry Mall in a businesslike manner and
substantially in accordance with its past practices.
The Owner Partnership has agreed it will not enter into any third party
contracts without the Purchaser's prior written consent (which shall not be
unreasonably withheld), with the exception of contracts necessary as a result
of an emergency at Cranberry Mall or a contract (other than a construction
contract) for improvements contemplated by proposed leases and not entered
into as of the date of the Purchase Agreement. If the Owner Partnership
enters into any third party contracts after the date of the Purchase
Agreement, the Owner Partnership will promptly provide written notice and a
copy of the contract to the Purchaser and unless the contract needed approval
which was not obtained, the Purchaser will assume the contract at Closing and
the schedule shall be deemed amended at the Closing to include such
contracts. If a new contract requires the Purchasers' approval and the
Purchaser does not object within five business days, then the Purchaser shall
be deemed to have approved the contract. The Owner Partnership will assist
the Purchaser in terminating any contract or delivering termination notices
although it is under no obligation to terminate any contract prior to Closing
or to deliver any payments to any parties.
The Owner Partnership has agreed that it will continue its present
rental program and efforts to rent vacant space at Cranberry Mall, but
without the prior consent of the Purchaser will not execute any new leases or
amend, terminate or accept the surrender of any existing tenancies, or
approve any subleases. The Owner Partnership is authorized to accept the
termination of leases at the end of their existing terms, enter into leases
with those tenants and specific spaces listed on a Schedule to the Purchase
Agreement, and amend, extend or renew any of the existing leases listed on a
Schedule to the Purchase Agreement. If the Owner Partnership enters into any
leases, the Purchaser will assume such leases and the schedules shall be
deemed amended at Closing to include such leases. The Owner Partnership has
agreed that it will continue to use the Purchaser as a consultant with
respect to the marketing and leasing of Cranberry Mall and in connection
therewith shall institute a procedure for regular weekly meeting and frequent
telephone consultations with Purchaser with respect to (i) the marketing
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efforts to secure prospective tenants for Cranberry Mall, (ii) all renewals,
extensions and space options of the present tenants and (iii) during the
early negotiation period with any prospective tenants, the (1) economic terms
of the proposed transaction, such as the fixed rent, any additional rent,
tenant improvement costs and term of lease, and (2) any design and location
issues.
The Owner Partnership has agreed that it will promptly advise the
Purchaser of any litigation, arbitration or administrative hearing instituted
after the date of the Purchase Agreement which if adversely determined would
materially adversely effect its ability to consummate the transactions
contemplated by the Purchase Agreement or the ownership or operation of
Cranberry Mall. The Owner Partnership has agreed that it will not transfer
or dispose of any item constituting personal property associated with
Cranberry Mall except for consumption of inventory, office and other supplies
and replacement of worn out or defective parts to any contracts. The Owner
Partnership has agreed that it will perform all obligations of landlord under
the existing leases and will cooperate with the Purchaser at no cost to the
Owner Partnership in delivering to tenants subordination, non-disturbance and
attornment agreements to be executed in connection with the Purchaser's
financing. The Owner Partnership has also agreed that it will use good faith
efforts to keep the Purchaser apprized of the status of the Limited Partner
approval and will deliver to Purchaser, within three business days of a
written request by Purchaser, an update with respect to Limited Partner
approval, and will promptly notify Purchaser when and if it is received. The
Owner Partnership has also agreed that in consideration of Purchaser's
efforts to negotiate an assumption of the mortgage loan in connection with
the transaction, and in order to more efficiently address the thirty (30) day
prepayment notice period (the "Prepayment Notice Period") under the mortgage
loan documents, the Owner Partnership shall use reasonable efforts to obtain
a written waiver from lender of the Prepayment Notice Period (or a written
agreement reducing same).
The representations and warranties contained in the Purchase Agreement
shall survive for a period of six months after the Closing provided that any
action suit or proceeding with respect to the representations and warranties
is properly commenced within this survival period. The covenants contained
in the Purchase Agreement to the extent to be performed prior to or at
Closing shall not survive after the Closing, but all other covenants shall
survive the Closing of the Purchase Agreement unless otherwise provided.
Conditions to Closing the Sale
The obligations of the Purchaser and the Owner Partnership to
consummate the Sale are subject to various conditions which include, in
addition to certain customary closing conditions such as the continued
correctness of representations and warranties in all material respects and
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due performance of obligations of the parties under the Purchase Agreement,
the following: (1) no order or injunction of any court or administrative
agency nor any statute, rule, regulation or executive order will be in effect
which restrains or prohibits the transfer of Cranberry Mall or the
consummation of any other transaction contemplated by the Purchase Agreement;
and (2) there will be no action pending brought by any third party seeking to
restrain, prohibit or change in any material respect the purchase and sale of
Cranberry Mall or seeking material damages with respect to such purchase and
sale or any other transaction contemplated by the Purchase Agreement.
Other conditions include the Purchaser's receipt of: (1) title to
Cranberry Mall in the form of a special warranty deed; (2) conforming tenant
estoppel certificates from (i) the Major Tenants and (ii) tenants occupying,
in the aggregate, 80% of the square feet of Cranberry Mall occupied by
tenants under leases of over 1000 square feet including the Major Tenants,
and Owner Partnership will use its good faith efforts to acquire tenant
estoppel certificates from tenants occupying spaces of less than 1,000 square
feet; (3) an assignment of leases; (4) a bill of sale relating to all
fixtures, chattels, equipment and articles of personal property located at
Cranberry Mall; (5) an assignment of contracts; (6) all keys to Cranberry
Mall which are in Owner Partnership's possession; (7) an affidavit that the
Owner Partnership is not a "foreign person" under the Federal tax laws; (8)
such other assignments, instruments of transfer, and documents as the
Purchaser may reasonably require in order to complete the transactions
contemplated under the Purchase Agreement or to evidence compliance by the
Owner Partnership with the covenants, agreements, representations and
warranties made by it thereunder; (9) a Secretary's Certificate from the
Owner Partnership certifying due authorization and execution of all documents
being delivered and of all transactions contemplated by the Purchase
Agreement; and (10) an Incumbency Certificate from the Owner Partnership
certifying the authority of the general partner to execute the Purchase
Agreement. In the event any property related to Cranberry Mall is not
assignable, the Owner Partnership will use commercially reasonable efforts to
enforce such property for the benefit and at the expense of Purchaser.
Other conditions include the Owner Partnership's receipt of: (1) the
Purchase Price and all other amounts due to it under the Purchase Agreement;
(2) Limited Partner approval, which if not obtained (and the Owner
Partnership is unable to transfer property to the Purchaser as a result) for
any reason other than the default, wilful act or misrepresentation of the
Purchaser will result in termination of the Purchase Agreement, the Earnest
Money shall be returned to the Purchaser, and the Owner Partnership shall pay
to Purchaser a break-up fee in an amount up to $300,000 (the "Break-Up Fee"),
equal to the sum of (i) due diligence costs up to but not in excess of
$200,000 and (ii) financing costs and expenses, including, without
limitation, lender's fees, commitment fees, and reasonable attorneys' fees;
(3) an assignment and assumption of landlord's interest in leases; (4) an
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assignment and assumption of contracts; (5) tenant notice letters as
specified in the Purchase Agreement; (6) such other assignments, instruments
of transfer, and documents as the Owner Partnership may reasonably require in
order to complete the transactions contemplated under the Purchase Agreement
or to evidence compliance by the Purchaser with the covenants, agreements,
representations and warranties made by it thereunder; (7) a Secretary's
Certificate from the Purchaser certifying due authorizations of all documents
being delivered and of all transactions contemplated by the Purchase
Agreement; (8) an Incumbency Certificate from the Purchaser certifying the
authority of its officers or general partner to execute the Purchase
Agreement; and (9) all consents, approvals or waivers listed on a schedule in
the Purchase Agreement.
These conditions may be waived by the appropriate party.
Termination of the Purchase Agreement
In the event the Limited Partner Approval has not been obtained by
sixty (60) days after February 7, 2000, either the Owner Partnership or the
Purchaser may terminate the Purchase Agreement and the Owner Partnership will
(i) cause the Earnest Money to be returned to the Purchaser, and (ii) deliver
the Break-Up Fee to the Purchaser.
If the Purchaser (i) is unable to obtain a written financing commitment
from Metropolitan Life Insurance Company which sets forth an agreement to
amend and restructure the mortgage on Cranberry Mall in terms acceptable to
the Purchaser by January 24, 2000, with a right in favor of the Purchaser to
extend such date for five business days if such commitment has not been
received (the Funding Expiration Date") and (ii) notifies the Owner
Partnership by written notice on or prior to such date that it is exercising
its right to terminate the Purchase Agreement, then (1) the Purchase
Agreement shall be deemed terminated; (2) the Initial Earnest Money shall be
retained by the Owner Partnership; and (3) neither party shall have any
further rights or obligations to the other, except for those expressly stated
to survive the termination of the Purchase Agreement.
If Purchaser (i) has not terminated the Purchase Agreement by 5:00 p.m.
E.S.T. on the Funding Expiration Date, and (ii) does not deposit the
Additional Earnest Money within two (2) business days of the Funding
Expiration Date, then (1) the Purchase Agreement shall be deemed terminated,
and (2) the Owner Partnership shall be entitled to retain the Initial Earnest
Money.
If prior to the Closing of the Sale, any portion of Cranberry Mall is
damaged or destroyed by fire or other casualty, or taken or threatened to be
taken as a result of any condemnation or eminent domain proceeding, the Owner
Partnership will promptly notify the Purchaser. As soon as practicable after
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the occurrence of such casualty or an actual condemnation (as opposed to
threatened), the Owner Partnership will notify the Purchaser of the estimated
cost of restoration as determined by written estimate of an independent
construction contracting firm satisfactory to both parties or the estimated
loss in value of the property as a result of the condemnation. If the
estimated cost of restoration is $3,500,000 or less, the Owner Partnership
shall allow as a credit against the purchase price an amount equal to the net
proceeds received by Owner Partnership for such casualty or condemnation less
any amounts spent by Owner Partnership with respect to restoration. If the
Owner Partnership has not received any insurance or condemnation proceeds as
of the Closing Date, than the Owner Partnership at the Closing shall assign
to the Purchaser, rights to the insurance or condemnation proceeds, and all
rights in connection with such casualty or condemnation. However, if the
estimated cost of restoration exceeds the foregoing amount, the Purchaser has
the option to either (1) terminate the Purchase Agreement, in which event the
Earnest Money will be returned to Purchaser and the Purchase Agreement will
be deemed null and void except with respect to those provisions which
explicitly survive such termination or (2) acquire Cranberry Mall in its "as
is" condition, together with an assignment from the Owner Partnership, of the
insurance or condemnation proceeds. In the event that a condemnation or
casualty occurs and either (a) the casualty or condemnation is in excess of
$3,500,000 and the Purchaser decides to proceed to Closing, or (b) if the
casualty or condemnation is less than $3,500,000, Owner Partnership shall,
(i) in the event Owner Partnership has not paid the deductible on the
insurance policy, credit to Purchaser an amount equal to such deductible to
be paid by Purchaser or (ii) in the event Owner Partnership has paid the
deductible, Owner Partnership shall not deduct such amount from any credits
taken by Owner Partnership in connection with monies spent to restore or
repair the property.
Amendment of the Purchase Agreement
The Purchase Agreement may be amended or an obligation under it be
waived only if such amendment or waiver is in writing and executed by the
Purchaser and the Owner Partnership.
Dissolution and Liquidation of the Partnership
If the Sale is approved by the Limited Partners and certain other
conditions to the Sale are met or waived, the Sale will be consummated, the
Owner Partnership will sell Cranberry Mall to the Purchaser and the Owner
Partnership will subsequently liquidate. The Partnership will distribute the
proceeds of the Sale and any remaining Partnership cash reserves net of
Partnership liabilities. Thereafter, the Partnership will be liquidated and
dissolved at such time as the General Partner determines that all remaining
Partnership assets are available for distribution and all Partnership
obligations and liabilities have been paid or provided for. The General
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Partner estimates that Limited Partners will receive distributions of
approximately $122 per Unit as a result of the Sale and the Partnership's
ultimate dissolution, representing (1) net proceeds of the Sale (net of
Transaction Costs and the repayment or assumption by the Purchaser of the
current mortgage on the property) of approximately $20 per Unit and (2)
additional Partnership cash (after paying or providing for payment of
outstanding and anticipated Partnership liabilities) and additional Owner
Partnership cash (after providing for payment of outstanding and anticipated
Owner Partnership Liabilities), which the Partnership estimates will be
approximately $102 per Unit. The amounts distributed to the Limited Partners
will be less than the amounts specified above if the Purchaser renegotiates
the purchase price and the General Partner, in its reasonable discretion,
agrees to a lower price which it believes is in the best interests of the
Limited Partners, but in no event shall the purchase price be reduced by more
than 3%.
The General Partner has elected to receive neither a distribution of
the Sale proceeds nor a liquidating distribution with respect to its
ownership interest in the Partnership.
The initial distributions of cash to the Limited Partners are
contemplated to occur within 60 days of the consummation of the Sale, and a
final liquidating distribution of reserves not utilized to meet Partnership
obligations or liabilities will be made at such time as determined by the
General Partner. There can be no assurance regarding the timing of such
distributions as circumstances beyond the control of the Partnership could
affect the determination of contingent liabilities of the Owner Partnership
and the Partnership and/or the timing of the Ownership Partnership's and the
Partnership's dissolution and liquidation and therefore the timing, as well
as the amount, of distributions to the Limited Partners. The General Partner
intends to conclude the liquidation and winding up of the Owner Partnership
and the Partnership as soon as possible after the Closing Date for the Sale.
Determination of Cash Available for Distribution
The agreed upon sale price of the Mall of $33,500,000 was based on a
thorough marketing by Insignia/ESG Capital Advisors and an arm's length
negotiation between the Purchaser and the General Partner on behalf of the
Partnership and the Owner Partnership. The Purchaser proposes to purchase
Cranberry Mall for $33,500,000 in cash. The Partnership will distribute to
the Limited Partners approximately $8,571,000 which constitutes net proceeds
from the Sale and net cash held by the Partnership and the Owner Partnership,
all of which will be distributed to the Limited Partners as the General
Partner has elected not to receive its share of such a distribution. The
amounts distributed to the Limited Partners will be less than the amounts
specified above if the Purchaser renegotiates the purchase price and the
General Partner, in its reasonable discretion, agrees to a lower price which
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it believes is in the best interests of the Limited Partners, but in no event
shall the purchase price be reduced by more than 3%. The availability of
funds for distribution of additional cash reserves will be determined, in
part, based on the collection after the Closing of certain rental and other
payments due from tenants at the Mall adjusted as of the Closing Date. In
order to collect such funds sooner than they would otherwise be paid, the
Owner Partnership may accept discounted payments with respect to amounts due,
which will result in the Partnership and, indirectly, the Limited Partners'
receiving their liquidating distribution sooner than would otherwise be the
case but could reduce the amount of such liquidating distribution. The
General Partner has estimated that Transaction Costs, including the Sale
Costs, estimated wind-up costs, and other outstanding and anticipated
liabilities of the Owner Partnership and the Partnership net of remaining
earnings of the Owner Partnership and the Partnership, respectively, will be
approximately $1,408,000 in the aggregate. The General Partner estimates the
ultimate cash available for distribution to be as follows:
Gross sales price . . . . . . . . . . . . . . $33,500,000
Less estimated sales costs . . . . . . . . . 1,060,000
------------
Estimated net sales proceeds . . . . . . . . 32,440,000
------------
Repayment of the mortgage note payable . . . (31,025,000)
------------
Estimated net proceeds after mortgage payment 1,415,000
Cash available at September 30, 1999 . . . . 7,082,000
Reserves for estimated costs related to
liquidation . . . . . . . . . . . . . . . . . (348,000)
General Partner Deficit restoration . . . . . 137,000
Liquidation of balance sheet accounts . . . . 285,000
----------
Total Cash Available for Distributions . . . $8,571,000
==========
The amounts distributed to the Limited Partners will be less than the
amounts specified above if the Purchaser renegotiates the purchase price and
the General Partner, in its reasonable discretion, agrees to a lower price
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which it believes is in the best interests of the Limited Partners, but in no
event shall the purchase price be reduced by more than 3%.
Based on the number of issued Units, the estimated cash available for
distribution is approximately $122 per Unit. However, pursuant to Section V
of the Partnership Agreement, cash will be distributed to the Limited
Partners in accordance with their positive capital accounts, after allocation
of gains and losses from the operations of the Partnership and the sale of
the Interest.
The cash available for distribution will be adjusted for changes
occurring prior to the Closing Date in the items set forth above and will be
based, in part, on the collection of certain amounts after the Closing, as
described above.
Regulatory Approvals
The Partnership is not aware of any approval or other action by any
Federal, state or local governmental authority that would be required for
consummation of the Sale. Should any such approval or other action be
required, it is presently contemplated that such approval or action would be
sought.
ACCOUNTING TREATMENT AND
INCOME TAX CONSEQUENCES OF THE SALE
Accounting Treatment
The Transaction, as currently proposed, will result in a loss from the
sale of the property for financial reporting purposes.
Material U.S. Federal Income Tax Consequences of the Transaction
The following is a summary of the material federal income tax
consequences to a U.S. Limited Partner resulting from the Sale and subsequent
liquidation of the Owner Partnership and the Partnership. It would be
impractical to discuss all aspects of federal income tax laws which may
affect the federal income tax consequences described herein and no attempt
has been made to do so. This summary is not intended as a substitute for
careful tax planning, particularly because the federal income tax
consequences of an investment in partnerships such as the Partnership are
often dependent on a variety of factors, and the impact of such factors may
vary from Limited Partner to Limited Partner according to its own particular
tax situation. Therefore, Each Limited Partner Should Satisfy Him or Herself
as to the Federal Income Tax Consequences of the Transaction Described Herein
by Obtaining Guidance from His or Her Own Tax Advisor.
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The following summary is based on the Internal Revenue Code of 1986, as
amended to date (the "Code"), the legislative history of the Code, existing
and proposed regulations thereunder, judicial decisions and current
administrative rulings and practices. No assurance can be given that
legislative, judicial or administrative changes may not be forthcoming which
would affect the accuracy of this summary. Any such changes may or may not
be retroactive with respect to transactions entered into or contemplated
prior to the effective date of such changes. This summary is based on the
assumption that Units are held as capital assets and does not address Limited
Partners in special tax situations such as insurance companies, banks,
thrifts, financial institutions, tax-exempt entities and Non-U.S. Limited
Partners (as defined below). For purposes of this discussion, a "U.S.
Limited Partner" is an individual who is a citizen of the United States or is
treated as a resident of the United States for federal income tax purposes, a
corporation or entity treated as a partnership for such purposes that in
either case is created or organized in or under the laws of the United States
or any political subdivision thereof, an estate the income of which is
subject to United States federal income taxation regardless of its source or
a trust (i) that is subject to the supervision of a court within the United
States and the control of one or more United States persons as described in
Section 7701(a)(30) of the Code or (ii) that has a valid election in effect
under applicable Treasury regulations to be treated as a United States
person. A "Non-U.S. Limited Partner" is a person or entity that is not a
U.S. Limited Partner. Capitalized terms not defined herein have the same
meanings as in the Partnership Agreement.
Limited Partners should be aware that the Internal Revenue Service (the
"IRS") may not agree with certain of the conclusions reached herein and that,
if challenged by the IRS, such conclusions might not be sustained by the
courts. If the tax treatment accorded to one or more items is disallowed,
Limited Partners may be assessed for additional taxes along with interest and
penalties in future years.
In addition, it should be noted that the Limited Partners may be
subject to taxes other than federal income taxes, such as state and local
income or franchise taxes and estate or inheritance taxes which may be
imposed by various jurisdictions.
Taxation of Limited Partners in General
The Partnership is a partnership for federal income tax purposes and
therefore is not subject to federal income tax; rather, each Limited Partner
is required to take into account its distributive share of the Partnership's
income, gains, losses, deductions, credits and tax preference items in
computing such Limited Partner's federal income tax liability for any taxable
year of the Partnership ending within or with the taxable year of such
Limited Partner, without regard to whether the Limited Partner has received
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or will receive any distribution from the Partnership. Such distributive
share is required to be reported by the Partnership to each Limited Partner
on Schedule K-l of IRS Form 1065; each Limited Partner is required to report
consistently with such Schedule K-l unless it discloses any inconsistent
position to the IRS when it files its federal income tax return. A Limited
Partner's distributive share of the Partnership's income or loss is
determined in accordance with the allocations set forth in the Partnership
Agreement.
Limited Partner's Loss Upon the Sale of Cranberry Mall
Each Limited Partner will be allocated for federal income tax purposes
its share of the loss allocated to the Partnership by the Owner Partnership
upon the disposition of Cranberry Mall pursuant to the Transaction. Loss
from the Sale allocated to the Partnership by the Owner Partnership and, in
turn, allocated to the Limited Partners by the Partnership will retain its
character when reported by the Limited Partners. Such loss will constitute
Code section 1231 loss (i.e., loss from disposition of real property used in
a trade or business and held for more than one year, other than property held
for sale to customers in the ordinary course of business). A Limited
Partner's share of the loss from the Sale will be netted with any other
section 1231 gains or section 1231 losses incurred by the Limited Partner
from other activities in the taxable year. Net section 1231 gains are
taxable as capital gains except to the extent of net section 1231 losses, if
any, incurred in the five preceding years. Net section 1231 losses are
taxable as ordinary losses.
Liquidation of the Partnership
The distribution of all of the Partnership's remaining assets to the
Limited Partners and the General Partner in connection with the Transaction
will constitute a liquidating distribution. Upon such liquidating
distribution, a Limited Partner may incur federal income tax. A Limited
Partner's adjusted basis in its Units will decrease by the amount of loss
allocated and the amount of money distributed to such Limited Partner in
connection with the disposition of Cranberry Mall. For purposes of
determining basis, a decrease in a Limited Partner's share of Partnership
liability is treated as a distribution of money from the Partnership. In
general, a Limited Partner will recognize gain upon receipt of the
liquidating cash distribution to the extent that the amount of cash received
exceeds such Limited Partner's adjusted basis in its Units. A Limited
Partner may recognize loss on the liquidating distribution to the extent that
such distribution consists of money and the amount of such money is less than
the Limited Partner's pre-distribution adjusted basis in its Units.
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Final Partnership Returns and Future Tax Issues
Upon the liquidation of the Partnership, the General Partner, on behalf
of the Partnership, will file a final U.S. federal tax return for the
Partnership, and on a timely basis will provide Schedule K-1 forms to all
Limited Partners setting forth their allocable shares of the Partnership's
items of income, gain, loss, deduction and credit. Limited Partners should
understand that although the Partnership will be terminated, such termination
will not eliminate the possibility that the IRS could challenge the tax
treatment of the Partnership's activities for the year of termination or any
prior year for which the statute of limitation for making adjustments has not
elapsed. If any adjustments are made to the Partnership's tax return, the
General Partner will so notify the Limited Partners. Any tax audit or
adjustments could result in assessment of additional tax liabilities upon the
Limited Partners which would be payable from their own funds and would not be
reimbursable by the General Partner of the Partnership.
The foregoing analysis cannot be, and is not intended as, a substitute
for careful tax planning. Limited Partners are urged to consult their own
tax advisors with respect to their own tax situation and the effects of this
transaction as to federal, state and local taxes including, but not limited
to, income, estate and inheritance taxes.
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CERTAIN INFORMATION ABOUT THE PARTNERSHIP
The Partnership
The Partnership is a Delaware limited partnership formed on March 11,
1988. The Partnership is governed by the Amended and Restated Agreement of
Limited Partnership dated October 6, 1988, which vests exclusive management
control over the Partnership in the General Partner, subject to the rights of
the Limited Partners to vote on certain limited matters. The address of the
Partnership's principal executive office is 3 World Financial Center, 29th
Floor, New York, New York 10285-2900, and the telephone number is
212/526-3183. All communications in connection with the proxy solicitation
process should be directed to MacKenzie Partners, Inc., the Partnership's
Information Agent, by calling toll-free 800/322-2885.
The Partnership was formed to acquire a general partnership interest in
Shopco Malls L.P. (formerly Shearson Shopco Malls L.P.), a Delaware limited
partnership (the "Owner Partnership"). The primary assets of the Owner
Partnership were two Malls--The Mall at Assembly Square and Cranberry Mall.
The Partnership became the managing general partner of the Owner Partnership.
The Owner Partnership consists of the Partnership, which holds a 99% general
partnership interest in the Owner Partnership; and Shopco Limited
Partnership, which holds a 1% limited partnership interest. The Mall at
Assembly Square was transferred in foreclosure to the holder of a mortgage on
the property.
All of the Partnership's revenues, operating profit or losses, and
assets relate solely to its interest as the general partner of the Owner
Partnership. Currently, all of the Owner Partnership's revenues, operating
profit or losses, and assets relate solely to its ownership interest in and
operation of Cranberry Mall. For a description of the Mall and its
operations, see the section entitled "--Description of Cranberry Mall." The
Partnership is authorized to act through the Owner Partnership to do all
things necessary to carry out the terms of the Partnership Agreement
including to accept, collect, hold, sell, exchange, mortgage, pledge or
otherwise dispose of the Mall.
The General Partner
The General Partner of the Partnership is Regional Malls Inc., a
Delaware corporation, with its principal business address at 3 World
Financial Center, 29th Floor, New York, New York 10285-2900.
The Property Manager
The Mall is managed on a day-to-day basis by the property manager,
Insignia Retail Group (the "Property Manager"). Insignia Retail Group
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replaced Shopco Management Corporation, the old property manager and an
affiliate of the Owner Partnership on May 1, 1997. The Property Manager is
responsible for rent collection, leasing and day-to-day on-site management of
Cranberry Mall. As Property Manager, Insignia Retail Group receives an
annual fee equal to 4% of the gross rents collected from Cranberry Mall. The
original agreement with Insignia Retail Group expired on April 30, 1998 and
provided for its annual renewal for one-year terms. For the year ended
December 31, 1998, the Property Manager received a management fee of $160,363
pursuant to the Property Management and Leasing Agreement.
Description of Cranberry Mall
Cranberry Mall is an enclosed regional shopping center located on
approximately 55.61 acres in Westminster, Maryland, approximately 30 miles
northwest of Baltimore. The Mall, which opened in March 1987, consists of a
central enclosed mall anchored by three major department stores--Belk, Inc.
("Belk"), Montgomery Ward ("Montgomery Ward") and, Sears, Roebuck and Company
("Sears") with space for a fourth. Parking is provided for over 2,597 cars.
The Mall currently has gross leasable space totaling 530,119 square feet.
Currently the Mall has an outstanding mortgage of $31,025,000 held by the
Metropolitan Life Insurance Company with a maturity date of April 1, 2000.
The total building area of the Mall is allocated as shown in the
table below.
Percent of
Anchors: Square Feet Total Area
Belk . . . . . . . . . . . . . 65,282 12%
Montgomery Ward . . . . . . . . 80,260 15%
Sears . . . . . . . . . . . . 70,000 13%
Unoccupied Anchor Store
(formerly Caldor) . . . . . . . 81,200 15%
Enclosed Mall Tenants . . . . . 224,377 43%
Outparcel Store (1) . . . . . . 9,000 2%
Total . . . . . . . . . . . . . 530,119 100%
(1) Outparcel Store is an auto service center leased to
Montgomery Ward.
Anchor Tenants
Sears leases approximately 70,000 square feet of gross leasable
building area. The Sears store opened in October 1987 and the initial term
of the lease expires in 2002, with two successive five-year renewal options.
Sears pays an annual fixed rent of $195,800 and an annual percentage rent
equal to 2.25% of new sales in excess of $10,000,000 up to $15,000,000 and 2%
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of net sales in excess of $15,000,000. Beginning in 1993, Sears commenced
paying its pro rata share of increases in real estate taxes, but such tax
payments may be deducted from percentage rent due on an annual non-cumulative
basis. Also commencing in 1993, Sears became responsible for contributing to
exterior common area maintenance on a flat rate basis. Sears currently pays
all utilities directly and is not required to carry its own fire insurance.
Sears is required to use the premises as a Sears retail store until the year
2002 or under such other trade name as the majority of Sears retail stores
are then operating. Thereafter, the tenant may assign or sublet the premises
with the landlord's consent, not to be unreasonably withheld.
On September 18, 1995, Caldor, an anchor tenant at Cranberry Mall,
filed for protection under the U.S. Bankruptcy Code. In February 1998,
Caldor announced that it would close its store at Cranberry, and did so on
May 10, 1998. In July 1998, Caldor rejected its lease with bankruptcy court
approval and the Partnership's claim for unpaid rent and rejection damages
under Caldor's lease was filed shortly thereafter. It would have been
preferable, however, to retain Caldor as a tenant. Caldor did not submit a
plan for reorganization and on January 22, 1999 was ordered to wind down its
business operations and affairs under Chapter 11 of the Bankruptcy Code. It
is not known at this time the extent to which these claims for unpaid rent
and rejection damages will be paid. Since the time Caldor vacated, the
General Partner and Insignia have been marketing the space and attempting to
attract a replacement anchor tenant. On July 1, 1999, the General Partner
executed non-binding letters of intent with two nationally recognized tenants
to lease approximately 31,000 square feet of Caldor's space. Improvements
and alterations necessary to accommodate these tenants will require
substantial capital outlays by the Purchaser. The total cost that will be
incurred to secure the new tenants, which includes leasing commissions,
tenant improvements, and related capital improvements, is estimated to be in
excess of $2 million.
On November 1, 1996, Belk acquired 100% in the stock of Leggett of
Virginia Inc. and its affiliated Leggett stores, which includes the Leggett
store at Cranberry Mall. Belk currently leases 65, 282 square feet of gross
leasable building area. The initial term of the lease expires in 2007 and
the lease provides four successive, five-year renewal options at the same
rent. Belk is obligated to pay an annual fixed rent of $228,487 and an
annual percentage rent equal to 2% of sales above $10,608,325. Belk is
responsible for its pro rata share of increases in real estate taxes after
the third year of full assessment but it may deduct one-half of these tax
payments on a cumulative basis from percentage rent due. Utility charges are
paid directly to the public utility and Belk is not required to carry its own
fire insurance or to pay for common area maintenance. During the first 15
years of the lease, ending March 4, 2002, the tenant is required to use the
premises as a Belk retail department store or under such other trade name as
Belk is then operating substantially all of its department stores. The
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tenant cannot assign or sublet the premises during the first 15 years of the
lease term without the landlord's consent to anyone other than another Belk
mercantile company of comparable net worth as the tenant.
Montgomery Ward leases approximately 80,000 square feet of gross
leasable building area and 9,000 square feet for an automotive center. The
Montgomery Ward store opened for business on November 4, 1990 and the initial
term of the lease expires in 2010 with four successive five-year renewal
options. Montgomery Ward pays an annual fixed rent of $348,114 and an annual
percentage rent equal to 2.5% of the net retail sales in excess of
$13,924,560. Montgomery Ward is required to reimburse the landlord for its
pro rata share of insurance and utility costs and real estate taxes based on
its gross leasable area of the building. Montgomery Ward will be required to
reimburse the landlord for a portion of the common area and maintenance
charges as set forth under the lease agreement. During the first 15 years of
the lease term, the tenant is required to use the premises as a retail store
under the trade name Montgomery Ward or under such other name as the tenant
is doing business in the majority of its retail department stores in the
State of Maryland. Montgomery Ward has the right to sublease the premises at
any time during its lease term with the landlord's written consent, however,
they will not be relieved of their obligations under the terms of the lease.
On July 7, 1997, Montgomery Ward filed for protection under Chapter 11
of the U.S. Federal Bankruptcy Code. On October 10, 1997, as part of its
bankruptcy reorganization process, Montgomery Ward announced the closing of
48 stores. During bankruptcy, Montgomery Ward reaffirmed its lease at
Cranberry Mall, has remained in possession of its space, and is committed to
paying all rent arrears under a confirmed plan of reorganization.
Competition
The General Partner believes that the primary trade area for Cranberry
Mall (i.e., the primary geographical area from which Cranberry Mall derives
its repeat sales and regular customers) is the area within a radius of
approximately 15 miles from Cranberry Mall. The General Partner believes the
secondary trade area is within a radius of 15 to 20 miles from Cranberry
Mall.
There are no competitive shopping malls in the primary trade area of
Cranberry Mall, although there is considerable retail activity in strip
centers and on local roads near Cranberry Mall. Also, a 116,000 square foot
free-standing WalMart opened in November of 1992 near Cranberry Mall in the
Englar Business Park and a Sam's Club store is under construction. In
addition, in 1996, a Target store opened approximately one mile southeast of
Cranberry. In the secondary trade area there are three competitive shopping
centers: Hunt Valley Mall, Carrolltowne Mall and Owings Mill Mall. Hunt
Valley Mall is a bi-level enclosed shopping center located approximately 25
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miles east of Cranberry Mall and is anchored by Macy's and Sears.
Carrolltowne Mall is located 25 miles from Cranberry Mall and was expanded
and enclosed during 1989. Carrolltowne Mall is oriented to the discount
shopper. Owings Mill Mall is located approximately 25 miles from Cranberry
Mall and is anchored by Macy's, Hechts and is adding a J.C. Penny store.
Owings Mill Mall caters to the upscale market. Cranberry Mall also competes
with the North Hanover Mall in Hanover, Pennsylvania, located 26 miles north
of Cranberry Mall. North Hanover Mall is a 450,000 square foot regional mall
anchored by Bon Ton, J.C. Penny, Kmart and Sears. Retail stores at malls
also compete with local shops, stores and power centers. Generally,
competition among retailers for customers is intense, with retailers
competing on the basis of quality, price, service and location.
Legal Proceedings
In December 1996, Aetna, the secured lender of the Assembly Square
Mall, foreclosed on the property. Following the foreclosure on the mortgage
of Assembly Square Mall, Aetna advised the Partnership it would pursue
environmental remediation claims for land contamination under the terms of
the mortgage. On September 3, 1997, the Partnership and Aetna entered into a
Settlement Agreement whereby the Partnership paid $400,000 to Aetna for a
complete release from the mortgage's loan covenants. The release excludes
environmental claims already made by Aetna regarding existing environmental
conditions and environmental claims which could arise in the future because
of existing conditions. The Partnership separately funded approximately
$500,000 to pay for work performed to address environmental conditions at the
Assembly Square property. Accordingly, the Partnership incurred $900,000 of
environmental remediation and settlement costs, which was recorded in fiscal
year 1997. The Partnership demanded and collected in 1999 a $300,000
contribution from a prior owner of the Assembly Square property for the
amounts the Partnership expended in connection with the environmental site
remediation. The Partnership also demanded and collected in 1999 a $25,000
contribution from another former owner for costs associated with the
environmental rededication at the property. The Commonwealth of
Massachusetts is performing a statutorily-required audit on the remediation
performed at Assembly Square; it is uncertain whether that audit will require
additional remediation to be performed. The Partnership has negotiated an
agreement with the current owner of Assembly Square Mall, under which that
owner acknowledges responsibility for responding to the audit and indemnifies
the Partnership from any liability arising from that audit or environmental
conditions on the property.
On or about June 9, 1999, a purported class action complaint was filed
in the Court of Chancery for New Castle County, Delaware on behalf of all
persons who purchased Units in the Partnership, against the General Partner,
the Partnership, and Lehman Brothers Inc. (the "Defendants"). The complaint
alleges, among other things, that the General Partner failed to protect the
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Partnership's assets and the interests of the holders of the Units in
connection with the default on the mortgage encumbering Assembly Square Mall,
the foreclosure sale of Assembly Square Mall and the efforts to sell
Cranberry Mall. The complaint purports to assert claims for breach of
fiduciary duty and breach of contract and seeks an accounting. The
Defendants have filed a motion to dismiss the complaint and intend to defend
the action vigorously.
Distributions
Since inception, Limited Partners have received cumulative
distributions of approximately $303 per Unit.
The Partnership's policy is to distribute to the Limited Partners (Unit
Holders) their allocable portion of Net Cash Flow (as defined in the
Partnership Agreement) (after making provision for the liabilities and
obligations of the Partnership) with respect to each fiscal year in quarterly
installments. Distributions of Net Cash Flow, if any, are paid on a
quarterly basis to registered holders of the Units on record dates
established by the Partnership, which generally are the last day of each
quarter.
In consideration of a decline in operations at The Mall at Assembly
Square, the General Partner suspended cash distributions beginning with the
1996 first quarter. Distributions have remained suspended since this time in
consideration of the foreclosure of Assembly Square, reduced Partnership cash
flow and issues concerning certain anchor tenants at Cranberry Mall.
For the first, second, and third quarters of calendar year 1999 and the
years ended December 31, 1998, 1997 and 1996, the Partnership made no cash
distributions other than a special distribution of $74.69 on October 19,
1998.
Below is a table summarizing the historical data for the
Partnership's distributions per Unit per annum:
Quarter 1999(a) 1998(a) 1997(a) 1996(a)(b) 1995(a)
- ------- ------- ------- ------- ---------- -------
First Quarter . . . . $ -- $ -- $ -- $ -- $ 3.70
Second Quarter . . . -- -- -- -- 3.74
Third Quarter . . . . -- -- -- -- 3.78
Fourth Quarter . . . -- 74.69(c) -- -- 3.78
---- ------ ---- ---- ------
Total . . . . . . . . $ -- $74.69 $ -- $ -- $15.00
==== ====== ==== ==== ======
(a) Regular distribution amounts are reflected in the period for which they
are declared. The record date is generally the last day of each month
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<PAGE>
of the respective quarter and the actual cash distributions are paid
approximately 45 days after the record date.
(b) In consideration of a decline in operations at The Mall at Assembly
Square, regular cash distributions to the Limited Partners were
suspended beginning with the first quarter of 1996 and have remained
suspended through the present in consideration of (i) the foreclosure of
The Mall at Assembly Square, (ii) reduced Partnership cash flow and
(iii) issues concerning certain anchor tenants at Cranberry Mall.
(c) The fourth quarter 1998 distribution was a special cash distribution
paid October 19, 1998 from excess cash reserves.
Ownership of Units
On the Record Date, there were issued and outstanding and entitled to
vote 70,250 Units, held by 4,376 Limited Partners. As of the Record Date, no
person (including any "group" as that term is used in Section 3(d)(3) of the
Exchange Act) is known to the Partnership to be the beneficial owner of more
than 5% of the outstanding Units. In connection with certain tender offers
previously made for Units, the offerers and the Partnership have entered into
agreements pursuant to which such offerers shall vote, for a specified period
of time, the Units acquired pursuant to a tender offer in the same
percentages as the votes of the other Units. As of the date of this Proxy
Statement, 3,150 Units are subject to such agreements.
As of the Record Date, neither the General Partner nor any director or
executive officer of the General Partner beneficially owned any Units.
Market for the Units
The Units are not traded on any established trading market, nor has
there been such a market. Thus, no information is available as to high and
low bid quotations or sales prices. It is not anticipated that there will be
a public market for the Units in the future.
Independent Certified Public Accountants
KPMG LLP, was the independent auditor of the Partnership's financial
statements for each of the years in the three-year period ended December 31,
1998. No representative of KPMG LLP is expected to be present at the Special
Meeting.
Available Information
The Units are registered pursuant to Section 12(g) of the Exchange Act.
As such, the Partnership is subject to the informational filing requirements
of the Exchange Act, and in accordance therewith, is obligated to file
reports and other information with the Commission relating to its business,
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<PAGE>
financial condition and other matters. Comprehensive financial information
is included in the Partnership's Annual Report on Form 10-K and Quarterly
Reports on Form 10-Q, and other documents filed by the Partnership with the
Commission, including the 1998 Annual Report on Form 10-K, which is included
in Part II of this Proxy Statement, and the Quarterly Reports on Form 10-Q
for the periods ended March 31, 1999, June 30, 1999 and September 30, 1999,
which are included in Part III of this Proxy Statement. Such reports and
other information are available for inspection and copying at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at 7 World
Trade Center, New York, New York 10048. Copies are available by mail upon
payment of the Commission's customary charges by writing to the Commission's
principal offices at 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, the Commission maintains an Internet Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The Partnership's
electronic filings are publicly available on this Web site at
http://www.sec.gov.
The General Partner is a privately held company and is not subject to
the reporting requirements of the Exchange Act.
Prior Related Transactions
On July 31, 1993, Shearson Lehman Brothers Inc. ("Shearson") sold
certain of its domestic retail brokerage and asset management businesses to
Smith Barney, Harris Upham & Company. Incorporated ("Smith Barney").
Subsequent to this sale, Shearson changed its name to Lehman Brothers Inc.
The transaction did not affect the ownership of the Partnership or the
Partnership's General Partner. However, the assets acquired by Smith Barney
included the name "Shearson." Consequently, the General Partner changed its
name to Regional Malls Inc. and the Owner Partnership changed its name to
Shopco Malls L.P. to delete any references to "Shearson."
SELECTED FINANCIAL DATA
The "Selected Historical Financial Data of the Partnership" table
attached hereto in Annex II provides a summary of certain financial data for
the Partnership. Such selected financial data should be read in conjunction
with the detailed information and financial statements included in the
Partnership's Annual Report on Form 10-K for the year ended December 31,
1998, which is included in Part II of this Proxy Statement, and the
Partnership's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999, June 30, 1999 and September 30, 1999, which are included in Part III of
this Proxy Statement.
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<PAGE>
The foregoing information contained in the "Selected Historical
Financial Data of the Partnership" table is derived from the audited
financial statements of the Partnership for 1994, 1995, 1996, 1997 and 1998
and the unaudited financial statements of the Partnership for the third
quarters of 1998 and 1999.
DOCUMENTS CONSTITUTING THIS PROXY STATEMENT
This Proxy Statement consists of the following three parts: (1) this
document, (2) Shopco Regional Malls, L.P.'s Annual Report on Form 10-K for
the year ended December 31, 1998, and (3) Shopco Regional Malls, L.P.'s
Quarterly Report on Form 10-Q for the quarters ended March 31, 1999, June 30,
1999 and September 30, 1999.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
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ANNEX IV
AGREEMENT OF PURCHASE AND SALE
among
SHOPCO MALLS L.P., the SELLER
and
BARKER PACIFIC GROUP, INC., the BUYER
As of September __, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
Page
ARTICLE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Defined Terms. . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SALE, PURCHASE PRICE AND CLOSING . . . . . . . . . . . . . . . . . . . . . 5
Section 2.1 Sale of Asset. . . . . . . . . . . . . . . . . . . . . . 5
Section 2.2 Earnest Money. . . . . . . . . . . . . . . . . . . . . . 6
Section 2.3 The Closing . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLER . . . . . . . . . . 8
Section 3.1 General Seller Representations and Warranties . . . . . 8
(a) Formation; Existence . . . . . . . . . . . . . . . . . . . 8
(b) Power and Authority . . . . . . . . . . . . . . . . . . . . 8
(c) No Consents . . . . . . . . . . . . . . . . . . . . . . . . 8
(d) No Conflicts . . . . . . . . . . . . . . . . . . . . . . . 8
(e) Foreign Person . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.2 Representations and Warranties of the Seller as to the
Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(a) Ownership of the Asset . . . . . . . . . . . . . . . . . . 8
(b) Material Contracts . . . . . . . . . . . . . . . . . . . . 9
(c) Space Leases . . . . . . . . . . . . . . . . . . . . . . . 9
(d) Brokerage Commissions . . . . . . . . . . . . . . . . . . . 9
(e) Condemnation . . . . . . . . . . . . . . . . . . . . . . . 9
(f) Litigation . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.3 Covenants of the Seller Prior to Closing . . . . . . . . 10
(a) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 10
(b) Operation . . . . . . . . . . . . . . . . . . . . . . . . . 10
(c) New Contracts . . . . . . . . . . . . . . . . . . . . . . . 10
(d) New Leases . . . . . . . . . . . . . . . . . . . . . . . . 10
(e) Litigation . . . . . . . . . . . . . . . . . . . . . . . . 11
(f) Sale of Personal Property . . . . . . . . . . . . . . . . . 11
(g) Performance Under Space Leases . . . . . . . . . . . . . . 12
(h) Subordination, Non-Disturbance and Attornment Agreements . . 12
Section 3.4 Survival of Representations and Warranties . . . . . . . 12
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BUYER . . . . . . . . . . 12
Section 4.1 Representations, Warranties and Covenants of the Buyer. 12
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<PAGE>
(a) Formation; Existence . . . . . . . . . . . . . . . . . . . 12
(b) Power; Authority . . . . . . . . . . . . . . . . . . . . . 12
(c) No Consents . . . . . . . . . . . . . . . . . . . . . . . . 12
(d) No Conflicts . . . . . . . . . . . . . . . . . . . . . . . 13
(e) Examination; No Contingencies . . . . . . . . . . . . . . . 13
(f) Good Faith Efforts . . . . . . . . . . . . . . . . . . . . 16
(g) Brokerage Commissions . . . . . . . . . . . . . . . . . . . 16
ARTICLE V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
CONDITIONS PRECEDENT TO CLOSING . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.1 Conditions Precedent To Seller's Obligations. . . . . . 16
Section 5.2 Conditions to the Buyer's Obligations. . . . . . . . . . 18
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
CLOSING DELIVERIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
INSPECTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.1 Right of Inspection. . . . . . . . . . . . . . . . . . . 21
Section 7.2 Due Diligence Period . . . . . . . . . . . . . . . . . . 22
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
TITLE AND PERMITTED EXCEPTIONS . . . . . . . . . . . . . . . . . . . . . . 22
Section 8.1 Permitted Exceptions . . . . . . . . . . . . . . . . . . 22
Section 8.2 Title Report . . . . . . . . . . . . . . . . . . . . . . 23
Section 8.3 Use of Purchase Price to Discharge Title Exceptions . . 23
Section 8.4 Inability to Convey . . . . . . . . . . . . . . . . . . 23
Section 8.5 Rights in Respect of Inability to Convey . . . . . . . . 24
Section 8.6 Voluntary Title Exceptions . . . . . . . . . . . . . . . 24
Section 8.7 The Buyer's Right to Accept Title . . . . . . . . . . . 25
Section 8.8 Cooperation . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
TRANSACTION COSTS; RISK OF LOSS . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.1 Transaction Costs. . . . . . . . . . . . . . . . . . . . 25
Section 9.2 Risk of Loss. . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.1 Fixed Rents. . . . . . . . . . . . . . . . . . . . . . 27
Section 10.2 Overage Rents. . . . . . . . . . . . . . . . . . . . . 28
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<PAGE>
Section 10.3 Taxes and Assessments. . . . . . . . . . . . . . . . . 30
Section 10.4 Water and Sewer Charges. . . . . . . . . . . . . . . . 31
Section 10.5 Utility Charges. . . . . . . . . . . . . . . . . . . . 31
Section 10.6 Material Contracts. . . . . . . . . . . . . . . . . . . 32
Section 10.7 Leasing Costs . . . . . . . . . . . . . . . . . . . . . 32
Section 10.8 Miscellaneous Revenues. . . . . . . . . . . . . . . . . 32
Section 10.9 Supplies. . . . . . . . . . . . . . . . . . . . . . . . 32
Section 10.10 Security Deposits. . . . . . . . . . . . . . . . . . . 33
Section 10.11 Employee Costs. . . . . . . . . . . . . . . . . . . . 33
Section 10.12 Other. . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.13 Re-Adjustment . . . . . . . . . . . . . . . . . . . . 33
ARTICLE XI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 11.1 Indemnification by the Seller . . . . . . . . . . . . . 33
Section 11.2 Indemnification by the Buyer . . . . . . . . . . . . . 34
Section 11.3 Survival . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.4 Indemnification as Sole Remedy . . . . . . . . . . . . 35
ARTICLE XII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
TAX CERTIORARI PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 12.1 Prosecution and Settlement of Proceedings. . . . . . . 35
Section 12.2 Application of Refunds or Savings. . . . . . . . . . . 35
Section 12.3 Survival. . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE XIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 13.1 Default. . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE XIV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 14.1 Exculpation of Seller. . . . . . . . . . . . . . . . . 36
Section 14.2 Brokers. . . . . . . . . . . . . . . . . . . . . . . . 37
Section 14.3 Confidentiality; Press Release,
IRS Reporting Requirements . . . . . . . . . . . . . 37
Section 14.4 Escrow Provisions . . . . . . . . . . . . . . . . . . 38
Section 14.5 Successors and Assigns; No Third-Party Beneficiaries . 39
Section 14.6 Assignment. . . . . . . . . . . . . . . . . . . . . . 39
Section 14.7 Further Assurances. . . . . . . . . . . . . . . . . . 39
Section 14.8 Notices. . . . . . . . . . . . . . . . . . . . . . . . 40
Section 14.9 Entire Agreement. . . . . . . . . . . . . . . . . . . 41
Section 14.10 Amendments. . . . . . . . . . . . . . . . . . . . . . 41
Section 14.11 No Waiver. . . . . . . . . . . . . . . . . . . . . . . 41
Section 14.12 Governing Law. . . . . . . . . . . . . . . . . . . . . 41
Section 14.13 Submission to Jurisdiction. . . . . . . . . . . . . . 41
Section 14.14 Severability. . . . . . . . . . . . . . . . . . . . . 42
Section 14.15 Section Headings. . . . . . . . . . . . . . . . . . . 42
Section 14.16 Counterparts. . . . . . . . . . . . . . . . . . . . . 42
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<PAGE>
Section 14.17 Acceptance of Deed. . . . . . . . . . . . . . . . . . 42
Section 14.18 Construction. . . . . . . . . . . . . . . . . . . . . 42
Section 14.19 Recordation. . . . . . . . . . . . . . . . . . . . . . 42
Section 14.20 Waiver of Jury Trial. . . . . . . . . . . . . . . . . 43
Exhibits
Exhibit A - Assignment of Leases
Exhibit B - Assignment of Contracts
Exhibit C - Tenant Notices
Exhibit D - Special Warranty Deed
Exhibit E - Bill of Sale
Exhibit F - FIRPTA Certificate
Schedules
Schedule A - Legal Description
Schedule B - Existing Title Policy and Survey
Schedule C - Third Party Loan
Schedule D - Consents
Schedule E - Material Contracts
Schedule F - Space Leases
Schedule F-1 - Temporary Leases
Schedule G - Brokerage Commissions
Schedule H - Litigation
Schedule I - Buyer Consents
Schedule J - Security Deposits Held By the Seller
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<PAGE>
AGREEMENT OF PURCHASE AND SALE
------------------------------
AGREEMENT OF PURCHASE AND SALE (this "Agreement"), made as of the
11th day of September, 1999 by and among SHOPCO MALLS L.P., a Delaware
limited partnership ("Seller"), and BARKER PACIFIC GROUP, INC., a Delaware
corporation ("Buyer"), and FIRST AMERICAN TITLE INSURANCE COMPANY, as escrow
agent ("Escrow Agent")
Background
----------
A. The Seller is the owner of the land described in Schedule A
attached hereto, together with the buildings and other improvements thereon
(collectively, the "Property"). The Property, together with the Asset-
Related Property (as defined below) with respect to the Property, shall be
referred to herein, collectively, as the "Asset".
B. The Seller desires to sell to the Buyer, and the Buyer desires
to purchase from the Seller, the Asset on the terms and conditions
hereinafter set forth.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.1 Defined Terms. The capitalized terms used herein
will have the following meanings.
"Additional Earnest Money" shall have the meaning assigned thereto
in subsection 2.2(b)(ii).
"Agreement" shall mean this Agreement of Purchase and Sale and all
amendments hereto, together with the exhibits and schedules attached hereto,
as the same may be amended, restated, supplemented or otherwise modified.
"Asset" shall have the meaning assigned thereto in "Background"
paragraph A.
<PAGE>
"Asset File" shall mean the materials with respect to the Property
previously delivered to the Buyer or its representatives by or on behalf of
the Seller.
"Asset-Related Property" shall have the meaning assigned thereto in
subsection 2.1(b).
"Assignment of Contracts" shall have the meaning assigned thereto
in Article VI.
"Assignment of Leases" shall have the meaning assigned thereto in
Article VI.
"Bill of Sale" shall have the meaning assigned thereto in Article
VI.
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which banks are authorized or required by law to be closed in
New York City, New York.
"Buyer" shall have the meaning assigned thereto in the Preamble to
this Agreement.
"Closing" shall have the meaning assigned thereto in subsection
2.3(a).
"Closing Date" shall have the meaning assigned thereto in
subsection 2.3(a).
"Condition of the Assets" shall have the meaning assigned thereto
in subsection 4.1(e)(ii).
"Deed" shall have the meaning assigned thereto in Article VI.
"Due Diligence Expiration Date" shall have the meaning assigned
thereto in subsection 7.2(a).
"Earnest Money" shall have the meaning assigned thereto in
subsection 2.2(b).
"Escrow Account" shall have the meaning assigned thereto in
subsection 14.5(a).
"Escrow Agent" shall have the meaning assigned thereto in
subsection 2.2(b)(i).
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<PAGE>
"Existing Survey" shall mean the survey with respect to the
Property listed on Schedule B attached hereto.
"Existing Title Policy" shall mean the title commitment with
respect to the Property listed on Schedule B attached hereto.
"Fixed Rents" shall have the meaning assigned thereto in subsection
10.1(a).
"Hazardous Materials" shall have the meaning assigned thereto in
subsection 4.1(e)(ii)(A).
"Initial Earnest Money" shall have the meaning assigned thereto in
subsection 2.2(b)(i).
"Insignia" shall mean Insignia/ESG, Inc.
"IRS" shall mean the Internal Revenue Service.
"IRS Reporting Requirements" shall have the meaning assigned
thereto in subsection 14.4(b).
"Lender" shall mean Metropolitan Life Insurance Company.
"Limited Partner Approval" shall mean approval to the transaction
by over 66.66% of the limited partners of Shopco Regional Malls, L.P.
"Material Contracts" shall have the meaning assigned thereto in
subsection 3.2(b).
"Overage Rent" shall have the meaning assigned thereto in
subsection 10.2(a).
"Permitted Exceptions" shall mean (i) the Space Leases and
Temporary Leases affecting the Property and any Space Leases, and Temporary
Leases entered into after the date, and in accordance with the terms, of this
Agreement, (ii) liens for current real estate taxes which are not yet due and
payable, (iii) standard exceptions and provisions contained in forms of title
insurance policies, (iv) subject to the adjustments provided for herein, any
service, installation, connection or maintenance charge due after Closing and
charges for sewer, water, electricity, telephone, cable television or gas,
(v) rights of vendors and holders of security interests on personal property
installed on the Property by tenants and rights of tenants to remove trade
fixtures at the expiration of the term of the Space Leases of such tenants,
(vi) matters contained in the updated title commitment or survey with respect
to the Property obtained by the Buyer as required under Section 8.2 which
matters do not qualify as Permitted Exceptions under one of the other clauses
-3-
<PAGE>
of this definition and with respect to which either (A) the Buyer has not
raised an objection within the time period required in Section 8.2 or (B) the
Buyer has raised an objection within the time period required in Section 8.2
and the Seller has not agreed to cause such title exception to be removed
prior to Closing, and (vii) any other restrictions, easements, encumbrances
and other exceptions encumbering the Property which do not individually
materially interfere with the continued use of the relevant Property (the
matters described in clauses (i) through (vi) above, collectively, the
"Permitted Exceptions").
"Person" shall mean a natural person, partnership, limited
partnership, limited liability company, corporation, trust, estate,
association, unincorporated association or other entity.
"Property" shall have the meaning assigned thereto in "Background"
paragraph A.
"Purchase Price" shall have the meaning assigned thereto in
subsection 2.2(a).
"Reporting Person" shall have the meaning assigned thereto in
subsection 14.4(b).
"Seller" shall have the meaning assigned thereto in the Preamble to
this Agreement.
"Seller-Related Entities" shall have the meaning assigned thereto
in subsection 10.2.
"Seller's Knowledge" shall mean the actual knowledge of the Seller
based upon the actual knowledge of Michael T. Marron, without any duty on the
part of any such executive officer or other Person to conduct any independent
investigation or make any inquiry of any Person.
"Space Lease" shall have the meaning assigned thereto in subsection
3.2(c).
"Temporary Lease" shall have the meaning assigned thereto in
subsection 3.2(c).
"Tenant Notices" shall have the meaning assigned thereto in Article
VI.
"Third Party Loan" shall mean the loan described on Schedule C
attached hereto.
"TI Costs" shall have the meaning assigned thereto in Section 10.7.
-4-
<PAGE>
"Voluntary Title Exceptions" shall mean with respect to the
Property, title exceptions affecting the Property that are knowingly and
intentionally created by the Seller after the date of this Agreement through
the execution by the Seller of one or more instruments creating or granting
such title exceptions; provided, however, that the term "Voluntary Title
Exceptions" as used in this Agreement shall not include the following: (a)
any Permitted Exceptions; (b) Space Leases or Temporary Leases for the
Property or any title exception created pursuant to a Space Lease or a
Temporary Lease for the Property by the tenant thereunder; (c) any title
exceptions that are approved, waived or deemed to have been approved or
waived by the Buyer or that are created in accordance with the provisions of
this Agreement; (d) any title exceptions which, pursuant to a Space Lease or
a Temporary Lease for the Property or otherwise, are to be discharged by a
tenant or occupant of the Property; (e) mechanic's or materialman's liens or
(f) any federal, state county and municipal tax liens.
ARTICLE II
SALE, PURCHASE PRICE AND CLOSING
--------------------------------
Section 2.1 Sale of Asset. (a) On the Closing Date and pursuant
to the terms and subject to the conditions set forth in this Agreement, the
Seller shall sell to the Buyer, and the Buyer shall purchase from the Seller,
the Asset.
(b) The transfer of the Asset to the Buyer shall include the
transfer of all Asset-Related Property with respect to the Asset. For
purposes of this Agreement, "Asset-Related Property" shall mean all of the
Seller's right, title and interest in and to (A) all easements, covenants and
other rights appurtenant to the Property and all right, title and interest of
the Seller, if any, in and to any land lying in the bed of any street, road,
avenue or alley, open or closed, in front of or adjoining the Property and to
the center line thereof, (B) all furniture, fixtures, equipment and other
personal property (except items owned or leased by tenants or which are
leased by the Seller) which are now, or may hereafter prior to the Closing
Date be, placed in or attached to the Property, (C) to the extent they may be
transferred under applicable law, all licenses, permits and authorizations
presently issued in connection with the operation of all or any part of the
Property as it is presently being operated, (D) to the extent assignable, all
warranties, if any, issued to the Seller by any manufacturer or contractor in
connection with construction or installation of equipment or any component of
the improvements included as part of the Property, (E) to the extent
assignable, all service, supply and maintenance contracts (if any) held by
the Seller with respect to the Property and its mechanical equipment,
elevators and other elements, (F) to the extent assignable, all trade names
-5-
<PAGE>
and general intangibles relating to the Property and (G) all leases,
licenses, contracts and other agreements, to the extent transferable, for the
use and occupancy of all or any part of the Property and all security and
escrow deposits held by the Seller in connection with any such leases,
licenses, contracts and other agreements.
Section 2.2 Earnest Money. (a) The consideration for the Asset
shall be equal to Thirty-Four Million Six Hundred and Eighty Thousand Dollars
($34,680,000) (the "Purchase Price"), which shall be paid by the Buyer to the
Seller at the Closing by wire transfer of funds, provided that such amount
shall be reduced by the Earnest Money (as defined below) and adjusted for
Closing adjustments as described in Article X below.
(b) The Purchase Price shall be paid to the Seller as follows:
(i) upon execution of this Agreement, the Buyer shall deposit with
Escrow Agent an amount equal to Two Hundred Thousand Dollars ($200,000)
(together with any interest earned thereon, the "Initial Earnest Money")
in immediately available funds by wire transfer to such account as
Escrow Agent shall designate to Escrow Agent.
(ii) on or before the Due Diligence Expiration Date (as
hereinafter defined), unless this Agreement is terminated pursuant to
the terms of Article VII or as may be otherwise provided in this
Agreement, Buyer shall deposit with Escrow Agent by wire transfer of
immediately available funds, an additional downpayment in the amount of
$200,000 (the "Additional Earnest Money"). The Initial Earnest Money
and all interest earned thereon, and, as of the Due Diligence Expiration
Date, the Additional Earnest Money and all interest earned thereon,
shall be hereinafter referred to as the Earnest Money.
The Earnest Money shall be held in escrow in accordance with the
provisions of Section 14.4 and shall be nonrefundable to the Buyer
except if all of the conditions set forth in Section 5.2 have not been
met by the Closing Date or otherwise as set forth in Article VII below.
(iii) on the Closing Date, (A) the Buyer shall deliver the
remainder of the Purchase Price to the Seller in immediately available
funds by wire transfer to such account or accounts that the Seller shall
designate to the Buyer and (B) the Escrow Agent shall deliver the
Earnest Money to Seller by wire transfer to such account or accounts
that Seller shall designate to Buyer.
(c) No adjustment shall be made to the Purchase Price except as
explicitly set forth in this Agreement.
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Section 2.3 The Closing. (a) The closing of the sale and purchase
of the Asset (the "Closing") shall take place on (i) the day that is thirty
(30) business days after the Due Diligence Expiration Date or (ii) on an
earlier date suggested by Buyer and reasonably acceptable to Seller (the
"Closing Date").
(b) Seller shall have the right from time to time to extend the
Closing Date for a total of sixty (60) days after the contemplated Closing
Date pending (i) Limited Partner Approval and (ii) Lender's scheduling of a
Closing. Buyer shall have the right from time to time to extend the Closing
Date for a total of sixty (60) days after the contemplated Closing Date if
required by Buyer's lender in connection with Buyer's financing of the
Purchase Price. Notwithstanding the foregoing, in the event the Closing has
not occurred on the date that is ninety (90) after the original Closing Date,
the Closing shall be held on such ninetieth day, TIME BEING OF THE ESSENCE
WITH RESPECT THERETO.
(c) The Closing shall be held on the Closing Date at 10:00 A.M. at
the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York,
New York, or at such other location agreed upon by the parties hereto.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLER
-------------------------------------------------------
Section 3.1 General Seller Representations and Warranties. The
Seller hereby represents, warrants and covenants to the Buyer as of the date
hereof and as of the Closing Date as follows:
(a) Formation; Existence. It is a limited partnership, duly
formed, validly existing and in good standing under the laws of the
state of Delaware. Seller either is or as of Closing will be qualified
to do business and be in good standing under the laws of the State of
Maryland.
(b) Power and Authority. It has all requisite power and authority
to enter into this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement and the consummation of the
transactions provided for in this Agreement have been duly authorized by
all necessary action on its part. This Agreement has been duly executed
and delivered by it and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms, except
as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights and
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by general principles of equity (whether applied in a proceeding at law
or in equity).
(c) No Consents. Except (i) as set forth in Schedule D and (ii)
for any consent, license, approval, order, permit, authorization,
registration, filing or declaration, the failure of which to obtain will
not materially adversely effect (A) the Seller's ability to consummate
the transactions contemplated by this Agreement, (B) the ownership of
the Asset or (C) the operation of the Property, no consent, license,
approval, order, permit or authorization of, or registration, filing or
declaration with, any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, is
required to be obtained or made in connection with the execution,
delivery and performance of this Agreement or any of the transactions
required or contemplated hereby.
(d) No Conflicts. To the Seller's Knowledge, the execution,
delivery and compliance with, and performance of the terms and
provisions of, this Agreement, and the sale of the Asset, will not (i)
except with respect to the consent disclosed on Schedule D hereto,
conflict with or result in any violation of its organizational
documents, (ii) except with respect to the consent disclosed on Schedule
D hereto, conflict with or result in any violation of any provision of
any bond, note or other instrument of indebtedness, contract, indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or
instrument to which it is a party in its individual capacity, or (iii)
violate any existing term or provision of any order, writ, judgment,
injunction, decree, statute, law, rule or regulation applicable to it or
its assets or properties except, in each case, for any conflict or
violation which (A) will not materially adversely effect (1) the
Seller's ability to consummate the transactions contemplated by this
Agreement, (2) the ownership of the Asset or (3) the operation of the
Property or (B) arises under the documents evidencing or securing the
Third Party Loan (which Third Party Loan documents shall be released on
or before Closing).
(e) Foreign Person. The Seller is not a "foreign person" as
defined in Internal Revenue Code Section 1445 and the regulations issued
thereunder.
Section 3.2 Representations and Warranties of the Seller as to the
Asset. The Seller hereby represents, warrants and covenants to the Buyer as
of the date hereof and as of the Closing Date, as follows:
(a) Ownership of the Asset. It is the owner and holder of the
Asset and the Asset is held by it free and clear of any lien, pledge,
charge, security interest, encumbrance, title retention agreement,
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adverse claim or restriction except for the Permitted Exceptions and
possible security interests which will be terminated prior to the
Closing. It has the right to sell the Asset pursuant to the terms of
this Agreement. Upon transfer of the Property by it to the Buyer and
upon delivery by the Buyer to the Seller of the Purchase Price, the
Buyer will receive the Property free and clear of any encumbrances
(other than the Permitted Exceptions and any encumbrances arising from
acts of the Buyer or its affiliates). It has not prior to the date
hereof sold (or entered into an agreement to sell) the Asset (except for
the possible granting of security interests, all of which will either be
terminated prior to, or taken subject to by Buyer at, the Closing).
(b) Material Contracts. To the Seller's Knowledge, all material
service, maintenance, supply, construction, development and management
contracts ("Material Contracts") affecting the Property are set forth on
Schedule E attached hereto and the same have not been modified or
amended, except as shown in such documents. To Seller's Knowledge, all
Material Contracts are terminable upon thirty days notice.
(c) Space Leases. With respect to the leases listed on Schedule F
attached hereto (the "Space Leases"), to the Seller's Knowledge such
Space Leases constitute all the leases of space for over 1000 square
feet relating to the Property under which the Seller is the holder of
the landlord's interest. True copies of the Space Leases have been
delivered or made available to the Buyer. With respect to the leases
listed on Schedule F-1 attached hereto ("Temporary Leases"), to the
Seller's knowledge, such Temporary Leases constitute all of the leases
of space under 1,000 square feet which the Seller is the holder of
landlord's interest.
(d) Brokerage Commissions. To the Seller's Knowledge, there
are no brokerage commissions or finders' fees payable by the
landlord with respect to the current or any renewal term of any of
the Space Leases or Temporary Leases other than those set forth on
Schedule G attached hereto and the Seller has no agreement with any
broker with respect to any renewal term of any Space Lease or
Temporary Lease except as set forth in Schedule G.
(e) Condemnation. To the Seller's Knowledge, the Seller
knows of no pending condemnation or similar proceedings affecting
the Property, nor does the Seller have knowledge that any such
action is threatened or contemplated.
(f) Litigation. To the Seller's Knowledge, except as
disclosed in Schedule H attached hereto, there are no actions,
suits or proceedings pending against or affecting the Asset in any
court or before or by an arbitration tribunal or regulatory
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commission, department or agency which, if adversely determined,
would materially adversely affect (1) the Seller's ability to
consummate the transactions contemplated by this Agreement, (2) the
ownership of the Asset or (3) the operation of the Property.
Section 3.3 Covenants of the Seller Prior to Closing. Until
Closing, the Seller or the Seller's agents shall:
(a) Insurance. Keep the Property insured against fire and
other hazards covered by the insurance policies maintained by the
Seller on the date of this Agreement.
(b) Operation. Operate and maintain the Property in a
businesslike manner and substantially in accordance with the
Seller's past practices with respect to the Property.
(c) New Contracts. Enter into third party contracts relating
to the Property, provided that, without the prior written consent
of the Buyer, which consent shall not be unreasonably withheld, the
Seller will not enter into any new third party contracts unless any
such contract (i) is necessary as a result of an emergency at the
Property, or (ii) is a contract other than a construction contract
being entered into for improvements contemplated by any proposed
Space Lease or Temporary Lease (not entered into prior to the date
hereof). If the Seller enters into any third party contracts after
the date of this Agreement, then the Seller shall promptly provide
written notice and a copy thereof to the Buyer and unless such
contract required the Buyer's approval pursuant to this paragraph
and such approval was not obtained, the Buyer shall assume such
contract at Closing, such contract shall be deemed added to
Schedule E attached hereto and Schedule E shall be deemed amended
at the Closing to include such contracts. If a new contract
requires the Buyer's approval and the Buyer does not object within
five (5) Business Days after receipt of a copy of such contract,
then the Buyer shall be deemed to have approved such contract.
Additionally, provided that Seller shall be under no obligation to
terminate, or deliver any notice of termination of, any Contracts
prior to the Closing and Seller shall not be required to deliver
any payments to any parties to any Contracts, Seller shall
coordinate with, and assist Buyer in preparing for the termination
of any Contracts Buyer desires to deliver notices of termination
for on the Closing Date.
(d) New Leases. (i) Continue its present rental program and
efforts at the Property to rent vacant space, provided that without
the prior consent of the Buyer, which consent shall not be
unreasonably withheld, the Seller will not execute any new Space
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Lease or Temporary Lease or amend, terminate or accept the
surrender of any existing tenancies or approve any subleases all
with respect to premises except that the Seller is authorized to
(i) accept the termination of Space Leases and Temporary Leases at
the end of their existing terms, (ii) enter into Space Leases and
Temporary Leases with any of the tenants listed on Schedule I with
respect to the specified space in the Property and (iii) amend,
extend or renew any existing Space Lease or Temporary Lease
provided that such amendment, extension or renewal is with any of
the tenants listed on Schedule I. If a new Space Lease or
Temporary Lease or an amendment, renewal or extension of an
existing Space Lease or Temporary Lease requires the Buyer's
consent and the Buyer does not object within five (5) Business Days
after receipt of a copy of such lease, amendment, extension or
renewal, then the Buyer shall be deemed to have approved such Space
Lease or Temporary Lease.
(ii) If Seller enters into any Temporary Leases or any Space
Leases after the date of this Agreement, then (unless Buyer's approval
was required pursuant to this subsection (d) and such approval was not
obtained), the Buyer shall assume such Temporary Leases and such Space
Leases at Closing, such Temporary Leases and such Space Leases shall be
deemed added to Schedule F and Schedule F-1 hereto, as applicable, and
such Schedules shall be deemed amended at the Closing to include such
Temporary Leases and such Space Leases.
(e) Litigation. The Seller will advise the Buyer promptly of
any litigation, arbitration proceeding or administrative hearing
(including condemnation) before any governmental agency which
affects any Asset in any material respect, which is instituted
after the date of this Agreement and which, if adversely
determined, would materially adversely affect (1) the Seller's
ability to consummate the transactions contemplated by this
Agreement, (2) the ownership of the Asset or (3) the operation of
the Property.
(f) Sale of Personal Property. The Seller will not transfer
or dispose of, or permit to be sold, transferred or otherwise
disposed of, any item or group of items constituting personal
property associated with the Property, except for the use and
consumption of inventory, office and other supplies and spare
parts, and the replacement of worn out, obsolete and defective
tools, equipment and appliances, in the ordinary course of
business.
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(g) Performance Under Space Leases. The Seller will perform,
or cause its agents to perform, all obligations of landlord or
lessor under the Temporary Leases and the Space Leases.
(h) Subordination, Non-Disturbance and Attornment Agreements.
Seller shall, prior to Closing, cooperate with Buyer, at no cost or
expense to Seller, in connection with delivering to tenants under
Space Leases and Temporary Leases subordination, non-disturbance
and attornment agreements to be executed in connection with Buyer's
financing of the Purchase Price.
Section 3.4 Survival of Representations and Warranties. The
representations and warranties of Seller contained in Sections 3.1 and 3.2
hereof shall survive the Closing subject to the limitations set forth in
Article XI hereof.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BUYER
------------------------------------------------------
Section 4.1 Representations, Warranties and Covenants of the
Buyer. The Buyer hereby represents, warrants and covenants to the Seller as
of the date hereof and as of the Closing Date as follows:
(a) Formation; Existence. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Delaware.
(b) Power; Authority. The Buyer has all requisite power and
authority to enter into this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement, the
purchase of the Asset and the consummation of the transactions
provided for herein have been duly authorized by all necessary
action on the part of the Buyer. This Agreement has been duly
executed and delivered by the Buyer and constitutes the legal,
valid and binding obligation of the Buyer enforceable against the
Buyer in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights and by general
principles of equity (whether applied in a proceeding at law or in
equity).
(c) No Consents. No consent, license, approval, order,
permit or authorization of, or registration, filing or declaration
with, any court, administrative agency or commission or other
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governmental authority or instrumentality, domestic or foreign, is
required to be obtained or made in connection with the execution,
delivery and performance of this Agreement or any of the
transactions required or contemplated hereby.
(d) No Conflicts. The execution, delivery and compliance
with, and performance of the terms and provisions of, this
Agreement, and the purchase of the Asset, will not (a) conflict
with or result in any violation of its organizational documents,
(b) conflict with or result in any violation of any provision of
any bond, note or other instrument of indebtedness, contract,
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which it is a party in its individual
capacity, or (c) violate any existing term or provision of any
order, writ, judgment, injunction, decree, statute, law, rule or
regulation applicable to it or its assets or properties.
(e) Examination; No Contingencies. (i) Except as provided
in Article VII below, before entering into this Agreement, the
Buyer has made such examination of the Asset and all other matters
affecting or relating to the transactions contemplated hereunder as
the Buyer has deemed necessary. In entering into this Agreement,
the Buyer has not been induced by and has not relied upon any
written or oral representations, warranties or statements, whether
express or implied, made by the Seller, any partner of Seller, or
any agent, employee, or other representative of any of the
foregoing or by any broker or any other person representing or
purporting to represent the Seller, with respect to the Asset, the
Condition of the Asset or any other matter affecting or relating to
the transactions contemplated hereby, other than those expressly
set forth in this Agreement. The Buyer's obligations under this
Agreement shall not be subject to any contingencies, diligence or
conditions except as expressly set forth in this Agreement. The
Buyer acknowledges and agrees that, except as expressly set forth
herein, the Seller makes no representations or warranties
whatsoever, whether express or implied or arising by operation of
law, with respect to the Asset or the Condition of the Asset. The
Buyer agrees that the Asset will be sold and conveyed to (and
accepted by) the Buyer at the Closing in the then existing
condition of the Asset, AS IS, WHERE IS, WITH ALL FAULTS, AND
WITHOUT ANY WRITTEN OR VERBAL REPRESENTATIONS OR WARRANTIES
WHATSOEVER, WHETHER EXPRESS OR IMPLIED OR ARISING BY OPERATION OF
LAW, other than representations and warranties of the Seller
expressly set forth in this Agreement. Without limiting the
generality of the foregoing, except for the representations and
warranties of the Seller contained in this Agreement, the
transactions contemplated by this Agreement are without statutory,
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express or implied warranty, representation, agreement, statement
or expression of opinion of or with respect to (A) the Condition of
the Asset or any aspect thereof, including, without limitation, any
and all statutory, express or implied representations or warranties
related to the suitability for habitation, merchantability, or
fitness for a particular purpose, (B) the nature or quality of
construction, structural design or engineering of the improvements
included in the Property, (C) the quality of labor or materials
included in the improvements included in the Property, (D) the soil
conditions, drainage, topographical features, flora, fauna, or
other conditions of or which affect the Property, (E) any
conditions at or which affect the Property with respect to a
particular use, purpose, development, potential or otherwise, (F)
areas, size, shape, configuration, location, access, capacity,
quantity, quality, cash flow, expenses, value, condition, make,
model, composition, accuracy, completeness, applicability,
assignability, enforceability, exclusivity, usefulness,
authenticity or amount, (G) any statutory, express or implied
representations or warranties created by any affirmation of fact or
promise, by any description of the Asset or by operation of law,
(H) any environmental, botanical, zoological, hydrological,
geological, meteorological, structural, or other condition or
hazard or the absence thereof heretofore, now or hereafter
affecting in any manner the Property and (I) all other statutory,
express or implied representations or warranties by the Seller
whatsoever. The Buyer acknowledges that the Buyer has knowledge
and expertise in financial and business matters that enable the
Buyer to evaluate the merits and risks of the transactions
contemplated by this Agreement.
(ii) For purposes of this Agreement, the term "Condition of
the Asset" means the following matters:
(A) Physical Condition of the Property. The
quality, nature and adequacy of the physical condition of
the Property, including, without limitation, the quality
of the design, labor and materials used to construct the
improvements included in the Property; the condition of
structural elements, foundations, roofs, glass,
mechanical, plumbing, electrical, HVAC, sewage, and
utility components and systems; the capacity or
availability of sewer, water, or other utilities; the
geology, flora, fauna, soils, subsurface conditions,
groundwater, landscaping, and irrigation of or with
respect to the Property, the location of the Property in
or near any special taxing district, flood hazard zone,
wetlands area, protected habitat, geological fault or
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subsidence zone, hazardous waste disposal or clean-up
site, or other special area, the existence, location, or
condition of ingress, egress, access, and parking; the
condition of the personal property and any fixtures; and
the presence of any asbestos or other Hazardous
Materials, dangerous, or toxic substance, material or
waste in, on, under or about the Property and the
improvements located thereon. "Hazardous Materials"
means (A) those substances included within the
definitions of any one or more of the terms "hazardous
substances," "toxic pollutants", "hazardous materials",
"toxic substances", and "hazardous waste" in the
Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq. (as
amended), the Hazardous Materials Transportation Act, as
amended, 49 U.S.C. Sections 1801 et seq., the Resource
Conservation and Recovery Act of 1976 as amended, 42
U.S.C. Section 6901 et seq., Section 311 of the Clean
Water Act and any similar state laws or any regulations
issued under any such laws and (B) petroleum, radon gas,
lead based paint, asbestos or asbestos containing
material and polychlorinated biphenyls.
(B) Adequacy of the Asset. The economic feasibility,
cash flow and expenses of the Asset, and habitability,
merchantability, fitness, suitability and adequacy of the
Property for any particular use or purpose.
(C) Legal Compliance of the Asset. The compliance or
non-compliance of the Seller or the operation of the Property
or any part thereof in accordance with, and the contents of,
(i) all codes, laws, ordinances, regulations, agreements,
licenses, permits, approvals and applications of or with any
governmental authorities asserting jurisdiction over the
Property, including, without limitation, those relating to
zoning, building, public works, parking, fire and police
access, handicap access, life safety, subdivision and
subdivision sales, and Hazardous Materials, dangerous, and
toxic substances, materials, conditions or waste, including,
without limitation, the presence of Hazardous Materials in,
on, under or about the Property that would cause state or
federal agencies to order a clean up of the Property under any
applicable legal requirements and (ii) all agreements,
covenants, conditions, restrictions (public or private),
condominium plans, development agreements, site plans,
building permits, building rules, and other instruments and
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documents governing or affecting the use, management, and
operation of the Property.
(D) Matters Disclosed in the Scheduled Documents and
Asset File. Those matters referred to in this Agreement and
the documents listed on the Schedules attached hereto and the
matters disclosed in the Asset File.
(E) Insurance. The availability, cost, terms and
coverage of liability, hazard, comprehensive and any other
insurance of or with respect to the Property.
(F) Condition of Title. The condition of title to the
Property, including, without limitation, vesting, legal
description, matters affecting title, title defects, liens,
encumbrances, boundaries, encroachments, mineral rights,
options, easements, and access; violations of restrictive
covenants, zoning ordinances, setback lines, or development
agreements; the availability, cost, and coverage of title
insurance; leases, rental agreements, occupancy agreements,
rights of parties in possession of, using, or occupying the
Property; and standby fees, taxes, bonds and assessments.
(f) Good Faith Efforts. The Buyer shall use its good faith
efforts to consummate the Closing and fulfill each of its
obligations hereunder.
(g) Brokerage Commissions. Effective upon the Closing, the
Buyer assumes all obligations of the Seller to pay the brokerage
commissions listed on Schedule G, which obligation shall survive
the Closing and shall be confirmed in writing by the Buyer upon
request by the Seller.
Section 4.2 Survival of Representations and Warranties. The
representations and warranties of Buyer contained in Section 4.1 shall
survive the Closing of this Agreement, subject to the limitations set forth
in Article XI hereof.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
-------------------------------
Section 5.1 Conditions Precedent To Seller's Obligations. The
obligation of the Seller to consummate the transfer of the Asset to the Buyer
on the Closing Date is subject to the satisfaction (or waiver by the Seller)
as of the Closing of the following conditions:
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(a) Each of the representations and warranties made by the
Buyer in this Agreement shall be true and correct in all material
respects when made and on and as of the Closing Date as though such
representations and warranties were made on and as of the Closing
Date.
(b) The Buyer shall have performed or complied in all material
respects with each obligation and covenant required by this Agreement to
be performed or complied with by the Buyer on or before the Closing.
(c) No order or injunction of any court or administrative
agency of competent jurisdiction nor any statute, rule, regulation
or executive order promulgated by any governmental authority of
competent jurisdiction shall be in effect as of the Closing which
restrains or prohibits the transfer of the Asset or the
consummation of any other transaction contemplated hereby.
(d) No action, suit or other proceeding shall be pending which
shall have been brought by any person or entity (other than the
parties hereto and their affiliates) (i) to restrain, prohibit or
change in any material respect the purchase and sale of the Asset
or the consummation of any other transaction contemplated hereby or
(ii) seeking material damages with respect to such purchase and
sale or any other transaction contemplated hereby.
(e) The Seller shall have received all of the documents required
to be delivered by the Buyer under Article VI.
(f) The Seller shall have received the Purchase Price in
accordance with subsection 2.2(b) and all other amounts due to the
Seller hereunder.
(g) The Seller shall have received Limited Partner Approval.
Notwithstanding the foregoing, in the event that Seller is unable to
transfer the Asset to Buyer as a result of its failure to obtain Limited
Partner Consent for any reason other than the default of Buyer or the
wilful acts or a misrepresentation of Buyer and Buyer has performed all
of its obligations under this Agreement, then (i) this Agreement (except
for those provisions hereof which by their terms are to survive a
termination of this Agreement) shall be terminated as of the date that
Seller notifies Buyer in writing that it is unable to obtain the Limited
Partner Approval, (ii) the Earnest Money shall be returned to Buyer and
(iii) Seller shall pay to Buyer a break-up fee in an amount equal to
$100,000. Upon a termination of this Agreement as provided for in this
Section 5.1(g), neither party hereto shall have any further rights or
obligations hereunder except for those provisions which expressly
survive the termination hereof.
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Section 5.2 Conditions to the Buyer's Obligations. The obligation of
the Buyer to purchase and pay for the Asset is subject to the satisfaction
(or waiver by the Buyer) as of the Closing of the following conditions:
(a) Each of the representations and warranties made by the
Seller in this Agreement shall be true and correct in all material
respects when made and on and as of the Closing Date as though such
representations and warranties were made on and as of Closing Date.
(b) The Seller shall have performed or complied in all material
respects with each obligation and covenant required by this Agreement to
be performed or complied with by the Seller on or before the Closing.
(c) No order or injunction of any court or administrative
agency of competent jurisdiction nor any statute, rule, regulation
or executive order promulgated by any governmental authority of
competent jurisdiction shall be in effect as of the Closing which
restrains or prohibits the transfer of the Asset or the
consummation of any other transaction contemplated hereby.
(d) No action, suit or other proceeding shall be pending
which shall have been brought by any person or entity (other than
the parties hereto and their affiliates) (i) to restrain, prohibit
or change in any material respect the purchase and sale of the
Asset or the consummation of any other transaction contemplated
hereby or (ii) seeking material damages with respect to such
purchase and sale or any other transaction contemplated hereby.
(e) Title to the Property shall be delivered to the Buyer in the
manner required under Section 8.1.
(f) Seller shall, on or before the Closing Date, acquire from
tenants under Space Leases of over 1000 square feet, which tenants
occupy, in the aggregate, 80% of the square feet of the Property
occupied by all tenants under Space Leases of over 1000 square feet,
tenant estoppel certificates (a) substantially in the form of Exhibit G
attached hereto and made a part hereof or (b) to the extent that any
such tenant is not required to execute an Estoppel Certificate in the
Form of Exhibit G, then either (i) an estoppel certificate from Seller
in the form of Exhibit G or (ii) an estoppel certificate from such
tenant certifying only as to those matters which the tenant is required
to certify to under the terms of its Space Lease (collectively, the
"Tenant Estoppel Certificates"). In the event that any Tenant Estoppel
Certificates are executed by Seller (a "Seller Estoppel"), Seller agrees
to indemnify Buyer and hold Buyer harmless from any and all losses,
liabilities, claims, costs and expenses, including reasonable attorneys'
fees, incurred by Buyer after Closing as a direct result of, and only to
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the extent same directly results from, a false statement made by Seller
in said Seller Estoppel. Seller agrees to use good faith efforts to
acquire tenant Estoppel Certificates from Tenants occupying spaces of
less than 1,000 square feet pursuant to Temporary Space Leases.
ARTICLE VI
CLOSING DELIVERIES
------------------
(a) The Buyer shall deliver the following documents at
Closing:
(i) with respect to the Property:
(A) an assignment and assumption of landlord's interest in
leases (an "Assignment of Leases") duly executed by the Buyer in
substantially the form of Exhibit A hereto;
(B) an assignment and assumption of contracts (an
"Assignment of Contracts") duly executed by the Buyer in
substantially the form of Exhibit B hereto; and
(C) notice letters ("Tenant Notices") duly executed by the
Buyer, in the form of Exhibit C attached hereto. Such notice
letters shall be retained by the Seller and delivered by the Seller
to each tenant and other such entity promptly following Closing.
(ii) with respect to the transactions contemplated hereunder:
(A) such other assignments, instruments of transfer, and
other documents as the Seller may reasonably require in order to
complete the transactions contemplated hereunder or to evidence
compliance by the Buyer with the covenants, agreements,
representations and warranties made by it hereunder, in each case,
duly executed by the Buyer;
(B) a duly executed and sworn Secretary's Certificate
from the Buyer (or the general partners of the Buyer, where
appropriate) certifying that the Buyer has taken all necessary
action to authorize the execution of all documents being
delivered hereunder and the consummation of all of the
transactions contemplated hereby and that such authorization
has not been revoked, modified or amended;
(C) an executed and acknowledged Incumbency Certificate
from the Buyer (or the general partners of the Buyer, where
appropriate) certifying the authority of the officers of the
Buyer (or the general partner of the Buyer, where appropriate)
to execute this Agreement and the other documents delivered by
the Buyer to the Seller at the Closing; and
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(D) all consents, approvals or waivers listed on
Schedule I on terms satisfactory to the Seller.
(b) The Seller shall deliver the following documents at
Closing:
(i) with respect to the Property:
(A) a special warranty deed (a "Deed") in
substantially the form of Exhibit D (with any necessary
modifications in order to conform with the local laws for
recording in the land records in the jurisdiction in
which the Property is located), duly executed by the
Seller, without recourse, which deed, upon proper
recording by the Buyer, shall be sufficient to transfer
and convey to the Buyer whatever rights in the Property
the Seller has acquired subject only to the Permitted
Exceptions;
(B) the Assignment of Leases duly executed by the
Seller, together with copies, and if available, originals
of the Space Leases referred to in such assignment;
(C) a bill of sale (a "Bill of Sale") duly executed
by the Seller in substantially the form of Exhibit E
hereto, relating to all fixtures, chattels, equipment and
articles of personal property owned by the relevant
Seller which are currently located upon or attached to
the Property;
(D) the Assignment of Contracts duly executed by
the Seller;
(E) all keys to the Property which are in the Seller's
possession;
(F) an affidavit that the Seller is not a "foreign
person" within the meaning of the Foreign Investment in Real
Property Tax Act of 1980, as amended, in substantially the
form of Exhibit F hereto; and
(G) Tenant Estoppel Certificates and/or Seller Estoppels in
satisfaction of Section 5.2(f) hereof.
(ii) with respect to the transactions contemplated hereunder:
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(A) such other assignments, instruments of transfer, and
other documents as the Buyer may reasonably require in order
to complete the transactions contemplated hereunder or to
evidence compliance by the Seller with the covenants,
agreements, representations and warranties made by it
hereunder;
(B) a duly executed and sworn Secretary's Certificate
from the Seller (or the general partners of the Seller, where
appropriate) certifying that the Seller has taken all
necessary action to authorize the execution of all documents
being delivered hereunder and the consummation of all of the
transactions contemplated hereby and that such authorization
has not been revoked, modified or amended; and
(C) an executed and acknowledged Incumbency Certificate
from the Seller (or the general partners of the Seller, where
appropriate) certifying the authority of the officers of the
Seller (or the general partner of the Seller, where
appropriate) to execute this Agreement and the other documents
delivered by the Seller to the Buyer at the Closing.
(iii) In the event any Asset-Related Property is not assignable
(such as a letter of credit that is not transferable), the Seller
shall use commercially reasonable efforts to provide the Buyer, at
no cost to the Seller, with the economic benefits of such property
by enforcing such property (solely at the Buyer's direction) for
the benefit and at the expense of the Buyer.
ARTICLE VII
INSPECTIONS
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Section 7.1 Right of Inspection. Prior to the Closing, the Buyer
and its agents shall have the right to inspect the Property during business
hours on Business Days, including the right to interview the tenants under
Space Leases, provided that (a) the Buyer shall first give the Seller
reasonable advance notification of its intention to conduct any such
inspection or interview (at least 48 hours), (b) the Buyer shall permit a
representative of the Seller to accompany the Buyer and/or its agents during
any such inspection or interview if the Seller shall make such a
representative available and (c) such inspection or interview shall not
unreasonably impede the normal day-to-day business operation of the Property.
The Buyer's right of inspection of the Property shall be subject to the
rights of tenants. The Buyer hereby indemnifies and agrees to defend and
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hold the Seller harmless from all loss, cost (including, without limitation,
reasonable attorneys' fees), claim or damage arising in connection with or
from any such inspection by the Buyer or its agents. The provisions of this
Article shall survive the Closing.
Section 7.2 Due Diligence Period.
(a) The Buyer confirms to the Seller that the Buyer has conducted
a detailed inspection of the Asset File, has made multiple site visits and in
certain instances consulted with third party professionals in satisfying
itself that the Property is appropriate for the Buyer's acquisition.
Notwithstanding the foregoing, in order to confirm preliminary information
with third party professionals, review materials requested but not delivered,
clarify certain discrepancies, conduct more complete Phase I environmental
and engineering analyses and complete its investigation, the Buyer, for the
period ending the day that is thirty (30) days after the date of this
Agreement (the "Due Diligence Expiration Date"), shall have the right to
conduct or cause to be conducted, at the Buyer's sole cost, risk and expense,
such inspections, tests, examinations and studies of the Property as the
Buyer deems necessary or appropriate; to further examine all applicable
records relating to the income, operation and maintenance of the Property; to
determine compliance of the Property with applicable laws and regulations,
including, without limitation, zoning, building, land use and environmental
protection laws; and to further confirm certain title matters. The
provisions of Section 7.1 above shall apply to any on-site investigations or
inspections to be made by the Buyer.
(b) If the Buyer, in its judgment, does not notify Seller by
written notice on or before 5:00 p.m. (E.D.T.) on the Due Diligence
Expiration Date (TIME BEING OF THE ESSENCE with respect to such notice) that
it is waiving its right to terminate the Agreement, then this Agreement shall
be deemed terminated, the Earnest Money shall be returned to the Buyer and
neither party shall have any further rights or obligations to the other,
except for those expressly stated to survive the termination of this
Agreement.
ARTICLE VIII
TITLE AND PERMITTED EXCEPTIONS
------------------------------
Section 8.1 Permitted Exceptions. The Property shall be sold and
is to be conveyed, and the Buyer agrees to purchase the Property, subject to
the Permitted Exceptions.
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Section 8.2 Title Report. The Buyer has received and/or reviewed
a copy of the Existing Title Policy and the Existing Survey. Promptly after
the date of this Agreement the Seller shall order an updated survey and an
updated title commitment with respect to the Property and the Seller shall
(a) instruct First American Title Insurance Company, as the title agent, and
the surveyor delivering such updated items to furnish copies of all updated
commitments and surveys to Buyer's counsel at the address set forth in
Section 14.9 hereof and (b) (1) with respect to the Existing Title Policy and
Existing Survey, within ten (10) Business Days after receipt of Buyer's
counsel and (2) within five (5) Business Days after issuance of any updated
documents, give notice to the Seller specifying all title exceptions set
forth in such documents which the Buyer claims are not Permitted Exceptions.
In the event Buyer fails to notify Seller within the time periods specified
above that it believes matters disclosed therein are not Permitted
Exceptions, such matters shall be deemed Permitted Exceptions and Buyer shall
be deemed to have waived its right to object thereto.
Section 8.3 Use of Purchase Price to Discharge Title Exceptions.
With respect to the Property, if, at the Closing, there are any title
exceptions applicable to the Property which are not Permitted Exceptions and
which the Seller is obligated by this Agreement or elects to pay and
discharge, the Seller may use any portion of the Purchase Price to satisfy
the same, provided that the Seller shall have delivered to the Buyer at the
Closing instruments in recordable form sufficient to satisfy such title
exceptions of record, together with the cost of any applicable recording or
filing fees. The Buyer, if request is made within a reasonable time prior to
the Closing, agrees to provide at the Closing separate certified or cashier's
checks as requested, aggregating up to the amount of the balance of the
Purchase Price to be delivered at Closing, to facilitate the satisfaction of
any such title exceptions. The existence of any such liens or encumbrances
shall not be deemed objections to title if the Seller shall comply with the
foregoing requirements. Any unpaid liens for taxes, water charges and
assessments applicable to the period prior to the Closing Date shall not be
objections to title, but the amount thereof plus any interest and penalties
thereon shall be deducted from the Cash Balance of the Purchase Price,
subject to the provisions for apportionment of taxes, water charges and
assessments contained in Article X of this Agreement.
Section 8.4 Inability to Convey. Except as expressly set forth in
Section 8.6, nothing contained in this Agreement shall be deemed to require
the Seller to take or bring any action or proceeding or any other steps to
remove any title exception or to expend any moneys therefor, nor shall the
Buyer have any right of action against the Seller, at law or in equity, for
the Seller's inability to convey title subject only to the Permitted
Exceptions.
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Section 8.5 Rights in Respect of Inability to Convey. In the event
that the Seller shall be unable to convey title to the Property, subject only
to the Permitted Exceptions and the Buyer shall not, prior to the Closing
Date (as it may have been adjourned in accordance with this Agreement), give
notice to the Seller that the Buyer is willing to waive objection to each
title exception which is not a Permitted Exception and close this transaction
without abatement of the Purchase Price, credit or allowance of any kind or
any claim or right of action against the Seller for damages or otherwise, the
Seller shall have the right, at the Seller's sole election, to take such
action as the Seller shall deem advisable to discharge each such title
exception which is not a Permitted Exception. In the event the Seller shall
elect to take action to discharge each such title exception which is not a
Permitted Exception, the Seller shall be entitled to one or more adjournments
of the Closing Date for a period not to exceed sixty (60) days in the
aggregate (inclusive of any adjournments made by the Seller pursuant to
Section 8.6 below) and the Closing shall be adjourned to a date specified by
the Seller not beyond such sixty(60) day period. If, for any reason
whatsoever, the Seller shall not have succeeded in discharging each such
title exception at the expiration of such adjournment(s) and if the Buyer
shall not, prior to the expiration of the last of such adjournments, give
notice to the Seller that the Buyer is willing to waive objection to each
such title exception and to close this transaction without abatement of the
Purchase Price, credit or allowance of any kind or any claim or right of
action against the Seller for damages or otherwise, this Agreement shall be
deemed to be terminated as of the last date to which the Closing Date was
adjourned by the Seller pursuant to this Article VIII. Upon any termination
of this Agreement pursuant to this Section, (I) the Earnest Money shall be
refunded to the Buyer and (II) neither party shall have any further rights or
obligations hereunder other than those which expressly survive the
termination of this Agreement. No action taken by the Seller to discharge,
or attempt to discharge, any purported title exception shall be an admission
that any such purported title exception is not a Permitted Exception. The
provisions of this Section 8.5 shall be subject to Seller's and Purchaser's
rights and obligations with respect to Voluntary Title Exceptions set forth
in Section 8.6.
Section 8.6 Voluntary Title Exceptions. If, from time to time
prior to the Closing, the Buyer shall become aware of any Voluntary Title
Exceptions, then the Buyer shall promptly notify the Seller thereof, which
notice shall describe in reasonable detail the Voluntary Title Exceptions(s).
The Seller shall discharge all Voluntary Title Exceptions on or prior to
Closing. The Seller shall be entitled to one or more adjournments of the
Closing Date not to exceed sixty (60) days in the aggregate (inclusive of any
adjournments made by the Seller pursuant to Section 8.5 hereof) to discharge
Voluntary Title Exceptions.
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Section 8.7 The Buyer's Right to Accept Title. Notwithstanding the
foregoing provisions of this Article VIII, the Buyer may, by notice given to
the Seller at any time prior to the Closing Date (as it may have been
adjourned by the Seller pursuant to this Article VIII), elect to accept such
title as the Seller can convey, notwithstanding the existence of any title
exceptions which are not Permitted Exceptions. In such event, this Agreement
shall remain in effect and the parties shall proceed to Closing but, except
to the extent set forth in Section 8.6, the Buyer shall not be entitled to
any abatement of the Purchase Price, any credit or allowance of any kind or
any claim or right of action against the Seller for damages or otherwise by
reason of the existence of any title exceptions which are not Permitted
Exceptions.
Section 8.8 Cooperation. The Buyer and the Seller shall cooperate
with the title company in connection with obtaining title insurance insuring
title to the Property subject only to the Permitted Exceptions. In
furtherance and not in limitation of the foregoing, at or prior to the
Closing, the Buyer and the Seller shall deliver to the title company such
affidavits, certificates and other instruments as are reasonably requested by
such title company and customarily furnished in connection with the issuance
of owner's policies of title insurance, including, without limitation, (i)
evidence sufficient to establish (x) the legal existence of the Buyer and the
Seller and (y) the authority of the respective signatories of the Seller and
the Buyer to bind the Seller and the Buyer, as the case may be, and (ii) a
certificate of good standing of the Seller.
ARTICLE IX
TRANSACTION COSTS; RISK OF LOSS
-------------------------------
Section 9.1 Transaction Costs. In addition to their respective
apportionment obligations hereunder, (a) the Seller and the Buyer shall each
be responsible for the payment of the costs of their respective legal
counsel, advisors and other professionals employed thereby in connection with
the sale of the Asset; b) the Buyer shall be responsible for all costs and
expenses associated with (i) the Buyer's due diligence, (ii) the policy
premiums in respect of any owner's and mortgagee title insurance obtained by
the Buyer (if any) and the costs of any endorsements, coinsurance,
reinsurance or affirmative coverage requested by Buyer or Buyer's lender,
(iii) all costs and expenses of obtaining any financing the Buyer may elect
to obtain (including any fees, financing costs, transfer taxes, mortgage and
recordation taxes and intangible taxes in connection therewith), (iv) all
fees and costs, if any, due as a result of, or in connection with, the
portion of the Purchase Price that is in excess of $34,000,000 and (v) all
other costs which are the responsibility under applicable law for the Buyer
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to pay (including, without limitation, all sales and use taxes due as a
result of the sale of the Asset); and (c) the Seller shall be responsible for
(i) all costs associated with title reports or abstracts with respect to the
Property as well as all survey and search costs and updates related thereto
and (ii) the fee due to Andover Corporation, a California corporation,
licensed as a real estate broker in the state of California(which fee shall
not exceed $680,000). Except with respect to that portion of such charges
and taxes due as a result of the Purchase Price being in excess of
$34,000,000 (which portion of such charges and taxes shall be paid for by
Buyer), Seller and Buyer shall split equally all costs in connection with
delivery and recording of the instruments relating to the transfer of the
Asset and transfer and real estate conveyance taxes chargeable in connection
with this transaction. Each party to this Agreement shall indemnify the
other parties and their respective successors and assigns from and against
any and all loss, damage, cost, charge, liability or expense (including court
costs and reasonable attorneys' fees) which such other party may sustain or
incur as a result of the failure of either party to timely pay any of the
aforementioned taxes, fees or other charges for which it has assumed
responsibility under this Section.
Section 9.2 Risk of Loss. (a) If, on or before the Closing Date,
the Property or any portion thereof shall be (i) damaged or destroyed by fire
or other casualty or (ii) taken or threatened to be taken as a result of any
condemnation or eminent domain proceeding, the Seller shall promptly notify
the Buyer.
(b) As soon as practicable after the occurrence of such casualty
or an actual condemnation, as opposed to a threatened condemnation , Seller
shall notify Buyer of (i) the estimated cost of restoration of the Property
with respect to any casualty as determined by written estimate of an
independent construction contractor chosen by Seller with Buyer's approval
not to be unreasonably withheld or (ii) the estimated loss in value of the
Property as a result of such condemnation as determined by written estimate
of an independent appraisal firm chosen by Seller, with Buyer's approval not
to be unreasonably withheld. If the estimated cost of restoration arising out
of a casualty or estimated loss in value arising out of a condemnation, shall
be $3,500,000 or less, then notwithstanding any provision in this Agreement
to the contrary, the Seller will credit against the Purchase Price payable by
the Buyer (applied to the installment of the Purchase Price due at the
Closing at which the Property that is the subject of the casualty or
condemnation is transferred to Buyer) an amount equal to the net proceeds, if
any, received by the Seller from such casualty or condemnation less any
amounts spent by the Seller or Property Owner prior to Closing with respect
to a restoration of the subject Property. If as of the Closing Date, the
Seller or Property Owner has not received any such insurance or condemnation
proceeds then the parties shall nevertheless consummate on the Closing Date
the conveyance of the relevant Asset (without any deduction for such
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insurance or condemnation proceeds) and the Seller will at Closing assign to
the Buyer all rights of the Seller, if any, to the insurance or condemnation
proceeds and to all other rights or claims arising out of or in connection
with such casualty or condemnation. If the estimated cost of restoration
arising from a casualty or the loss in value of the Property arising from a
condemnation exceeds $3,500,000, then Buyer shall have the option to either
(i) terminate this Agreement and the Earnest Money being held by Escrow Agent
shall be immediately returned to Buyer, and thereupon this Agreement shall
terminate and be of no further force and effect or (ii) accept the Property
"as is" together with an assignment of the insurance or condemnation
proceeds. Notwithstanding the foregoing, in the event that a condemnation or
casualty occurs as more particularly described above, and either (a) the
casualty or condemnation is in excess of $3,500,000 and the Buyer decides to
proceed to Closing, or (b) if the casualty or condemnation is less than
$3,500,000, Seller shall, (i) in the event Seller has not paid the deductible
on the insurance policy, credit to Buyer an amount equal to such deductible
to be paid by Buyer or (ii) in the event Seller has paid the deductible,
Seller shall not deduct such amount from any credits taken by Seller in
connection with monies spent to restore or repair the Property.
ARTICLE X
ADJUSTMENTS
-----------
Unless otherwise provided below, the following are to be adjusted
and prorated between the Sellers and the Buyer as of 11:59 P.M. on the day
preceding the Closing Date, based upon a 365 day year, and the net amount
thereof shall be added to (if such net amount is in the Seller's favor) or
deducted from (if such net amount is in the Buyer's favor) the Purchase Price
payable at Closing:
Section 10.1 Fixed Rents.
(a) Fixed rents (collectively, "Fixed Rents") paid or payable by
tenants under the Space Leases in connection with their occupancy of the
Property shall be adjusted and prorated on an if, as and when collected
basis. Any Fixed Rents collected by the Buyer or the Seller after the
Closing from any tenant who owes Fixed Rents for periods prior to the
Closing, shall be applied (i) first, in payment of Fixed Rents owed by such
tenant for the month in which the Closing Date occurs, (ii) second, in
payment of Fixed Rents owed by such tenant for the period prior to the month
in which the Closing Date occurs but not with respect to any period more than
60 days prior to the Closing Date, (iii) third, after Fixed Rents for all
prior periods have been paid in full, in payment of Fixed Rents owed by such
tenant for the period (if any) after the month in which the Closing Date
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occurs and (iv) fourth, in payment of Fixed Rents owed by such tenant for
periods more than 60 days prior to the Closing Date. Each such amount, less
any costs of collection (including reasonable counsel fees) reasonably
allocable thereto, shall be adjusted and prorated as provided above, and the
party who receives such amount shall promptly pay over to the other party the
portion thereof to which it is so entitled.
(b) The Buyer shall bill tenants who owe Fixed Rents for periods
prior to the Closing on a monthly basis for a period of six consecutive
months following the Closing Date and shall use commercially reasonable
efforts to collect such past due Fixed Rents. Notwithstanding the foregoing,
if the Buyer shall be unable to collect such past due Fixed Rents, the Seller
shall have the right, with the prior approval of Buyer, not to be
unreasonably withheld, delayed or conditioned, to pursue tenants to collect
such delinquencies (including, without limitation, the prosecution of one or
more lawsuits), but the Seller shall not be entitled to evict (by summary
proceedings or otherwise) any such tenants. Any payment by a tenant in an
amount less than the full amount of Fixed Rents and Overage Rent (as defined
below) then due and payable by such tenant shall be applied first to Fixed
Rents (in the order of priority as to time periods as is set forth above) to
the extent of all such Fixed Rents then due and payable by such tenant, and
thereafter to Overage Rents (in the order of priority as to time periods as
is set forth in Section 10.2 below).
Section 10.2 Overage Rents.
(a) With respect to any Space Lease that provides for (i) the
payment of additional rent based upon a percentage of the tenant's business
during a specified annual or other period (sometimes referred to as
"percentage rent"), (ii) so-called common area maintenance or "CAM" charges
or (iii) so-called "escalation rent" or additional rent based upon increases
in real estate taxes or operating expenses or labor costs or cost of living
or porter's wages or otherwise (such percentage rent, CAM charges, escalation
rent and additional rent being collectively called "Overage Rent"), such
Overage Rent shall be adjusted and prorated on an if, as and when collected
basis.
(b) As to any Overage Rent in respect of an accounting period that
shall have expired prior to the Closing but which shall be paid after the
Closing, the Buyer agrees that it will pay the entire amount over to the
Seller upon receipt thereof, less any costs of collection (including
reasonable counsel fees) reasonably allocable thereto. The Buyer agrees that
it shall (i) promptly render bills for any Overage Rent in respect of an
accounting period that shall have expired prior to the Closing but which
shall be paid after the Closing, (ii) bill tenants such Overage Rent
attributable to an accounting period that shall have expired prior to the
Closing on a monthly basis for a period of six consecutive months thereafter
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and (iii) use commercially reasonable efforts to collect Overage Rent.
Notwithstanding the foregoing, if the Buyer shall be unable to collect such
Overage Rent, the Seller shall have the right, upon prior written notice to
the Buyer, to pursue tenants to collect such delinquencies (including,
without limitation, the prosecution of one or more lawsuits), but the Seller
shall not be entitled to evict (by summary proceedings or otherwise) any such
tenants. The Seller shall furnish to the Buyer all information relating to
the period prior to the Closing that is reasonably necessary for the billing
of such Overage Rent and the Buyer will deliver to the Seller, concurrently
with the delivery to tenants, copies of all statements relating to Overage
Rent for a period prior to the Closing. The Buyer shall bill tenants for
Overage Rents for accounting periods prior to the Closing in accordance with
and on the basis of such information furnished by the Seller.
(c) If, prior to the Closing, the Seller shall have received any
installments of Overage Rent attributable to Overage Rent for periods from
and after the Closing Date, such sum shall be apportioned at the Closing.
If, after the Closing, the Buyer shall receive any installments of Overage
Rent attributable to Overage Rent for periods prior to the Closing, such sum
(less any costs and expenses (including reasonable counsel fees) incurred by
the Buyer in the collection of such Overage Rent) shall be paid by the Buyer
to the Seller promptly after the Buyer receives payment thereof.
(d) Any payment by a tenant on account of Overage Rent (to the
extent not applied against Fixed Rents due and payable by such tenant in
accordance with subsection 10.1(b) above) shall be applied to Overage Rents
then due and payable in the following order of priority, (i) first, in
payment of Overage Rent for the accounting period in which the Closing Date
occurs, (ii) second, in payment of Overage Rent for the accounting period
preceding the accounting period in which the Closing Date occurs, in the
chronological order in which such payments are due for such accounting period
pursuant to the applicable Space Lease and (iii) third, in payment of Overage
Rent for accounting periods following the Closing Date.
(e) To the extent that any portion of Overage Rent is required to
be paid monthly by tenants on account of estimated amounts for any calendar
year (or, if applicable, any lease year or tax year or any other applicable
accounting period), and at the end of such calendar year (or lease year, tax
year or other applicable accounting period, as the case may be), such
estimated amounts are to be recalculated based upon the actual expenses,
taxes and other relevant factors for that calendar (lease or tax) year or
other applicable accounting period, with the appropriate adjustments being
made with such tenants, then such portion of the Overage Rent shall be
prorated between the Seller and the Buyer at the Closing based on such
estimated payments actually paid by tenants (i.e., with the Seller entitled
to retain all monthly or other periodic installments of such amounts paid by
tenants with respect to periods prior to the calendar month or other
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applicable installment period in which the Closing occurs, the Seller to pay
to the Buyer at the Closing all monthly or other periodic installments of
such amounts theretofore received by the Seller with respect to periods
following the calendar month or other applicable installment period in which
the Closing occurs and the Seller and the Buyer to apportion as of the
Closing Date all monthly or other periodic installments of such amounts paid
by tenants with respect to the calendar month or other applicable installment
period in which the Closing occurs). At the time(s) of final calculation and
collection from (or refund to) each tenant of the amounts in reconciliation
of actual Overage Rent for a period for which estimated amounts paid by such
tenant have been prorated, there shall be a re-proration between the Seller
and the Buyer. If, with respect to any tenant, the recalculated Overage Rent
exceeds the estimated amount paid by such tenant, upon collection from the
tenant, (i) the entire excess shall be paid by the Buyer to the Seller, if
the accounting period for which such recalculation was made expired prior to
the Closing and (ii) such excess shall be apportioned between the Seller and
the Buyer as of the Closing Date (on the basis described in the first
sentence of subsection 10.2 above), if the Closing occurred during the
accounting period for which such recalculation was made, with the Buyer
paying to the Seller the portion of such excess which the Seller is so
entitled to receive. If, with respect to any tenant, the recalculated
Overage Rent is less than the estimated amount paid by such tenant, (1) the
entire shortfall shall be paid by the Seller to the Buyer (or, at the
Seller's option, directly to the tenant in question), if the accounting
period for which such recalculation was made expired prior to the Closing and
(2) such shortfall shall be apportioned between the Seller and the Buyer as
of the Closing Date (on the basis described in the first sentence of
subsection 10.2(c) above), if the Closing occurred during the accounting
period for which such recalculation was made, with the Seller paying to the
Buyer (or, at the Seller's option, directly to the tenant in question) the
portion of such shortfall so allocable to the Seller.
(f) Until such time as all amounts required to be paid to the
Seller by the Buyer pursuant to Section 10.1 and this Section 10.2 shall have
been paid in full, the Buyer shall furnish to the Seller not less frequently
than monthly a reasonably detailed accounting of such amounts payable by the
Buyer, which accounting shall be delivered to the Seller on or prior to the
15th day following the last day of each calendar month from and after the
calendar month in which the Closing occurs. The Seller shall have the right
from time to time following the Closing, on prior notice to the Buyer, during
ordinary business hours on Business Days, to review the Buyer's rental
records with respect to the Property to ascertain the accuracy of such
accountings.
Section 10.3 Taxes and Assessments. Real estate taxes and
assessments payable in the year in which the Closing occurs shall be adjusted
and prorated based on (a) the periods of ownership by the Seller and the
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Buyer during such year and (b) the most current official real property tax
information available from the county assessor's office where the Property is
located or other assessing authorities. If real property tax and assessment
figures for the taxes or assessments to be apportioned between the Buyer and
the Seller pursuant to this Section are not available, real property taxes
shall be prorated based on the most recent assessment, subject to further and
final adjustment when the tax rate and/or assessed valuation for such taxes
and assessments for the Property is fixed. In the event that the Property or
any part thereof shall be or shall have been affected by an assessment or
assessments, whether or not the same become payable in annual installments,
the Seller shall, at the Closing, be responsible for any installments due
prior to the Closing and the Buyer shall be responsible for any installments
due on or after the Closing.
Section 10.4 Water and Sewer Charges. Water rates, water meter
charges, sewer rents and vault charges, if any (other than any such charges,
rates or rents which are payable by tenants of the Property pursuant to such
tenants' Space Leases), shall be adjusted and prorated on the basis of the
fiscal period for which assessed. If there be a water meter, or meters, on
the Property, the Seller agrees that they shall at the Closing furnish a
reading of same to a date not more than 30 days prior to the Closing and the
unfixed meter charges and the unfixed sewer rent thereon for the time
intervening from the date of the last reading shall be apportioned on the
basis of such last reading, and shall be appropriately readjusted after the
Closing on the basis of the next subsequent bills. Unmetered water charges
shall be apportioned on the basis of the charges therefor for the same period
of the preceding calendar year, but applying the current rate thereto. As to
any unpaid water charges or sewer rents payable directly by tenants, the
Buyer shall consummate the Closing subject to such unpaid charges and rents
and any lien resulting therefrom, without credit against the Purchase Price
or any claim or right of action against the Seller.
Section 10.5 Utility Charges. Gas, steam, electricity and other
public utility charges (other than any such charges which are payable by
tenants of the Property pursuant to such tenants' Space Leases) will be paid
by the Seller to the utility company to the Closing Date. The Seller shall
arrange for a final reading of all utility meters (covering gas, water, steam
and electricity) as of the Closing, except meters the charges of which are
payable by tenants of the Property pursuant to such tenants' Space Leases.
The Seller and the Buyer shall jointly execute a letter to each of such
utility companies advising such utility companies of the termination of the
Seller's responsibility for such charges for utilities furnished to the
Property as of the date of the Closing and commencement of the Buyer's
responsibilities therefor from and after such date. If a bill is obtained
from any such utility company as of the Closing, the Seller shall pay such
bill on or before the Closing. If such bill shall not have been obtained on
or before the Closing, the Seller shall, upon receipt of such bill, pay all
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such utility charges as evidenced by such bill or bills pertaining to the
period prior to the Closing, and the Buyer shall pay all such utility charges
pertaining to the period thereafter. Any bill which shall be rendered which
shall cover a period both before and after the date of Closing shall be
apportioned between the Buyer and the Seller as of the Closing.
Section 10.6 Material Contracts. Charges and payments under all
Material Contracts.
Section 10.7 Leasing Costs. (a) The Buyer will be responsible
for all capital costs, tenant improvement costs, relocation costs, temporary
leasing costs, free rent and rent abatements, leasing commissions, legal,
design and other professional fees, and other expenses ("TI Costs") that
became due and payable on or after the date hereof with respect to all Space
Leases and Temporary Leases executed before, on, or after the date of this
Agreement; provided, however, that Seller shall be responsible for all TI
Costs due and payable within 60 days of the Closing Date with respect to
Space Leases and Temporary Leases entered into before the date hereof.
(b) To the extent that the Seller has paid any of the items
referenced above as Buyer's responsibility prior to Closing, the Purchase
Price will be increased at Closing by the aggregate amount of such
expenditures upon presentation of an invoice therefor. The Buyer will pay
all other costs and expenses described in this Section 10.7 as and when the
same are due.
(c) In the event that Seller executes any new Space Lease or
Temporary Lease after the date of this Agreement in accordance with
subsection 3.3(d) (including, without limitation, Space Leases for The Gap
and Old Navy regardless of (i) whether same are approved by the Buyer either
before or after the date hereof and regardless of whether Seller has already
executed a Letter of Intent with respect thereto), and in either event such
Space Lease requires the construction of capital improvements to the
Property, tenant fixtures or improvements or the payment of leasing or
brokerage commission(s) at the expense of the landlord, the Buyer shall
assume the obligation to pay and/or at Closing to reimburse the Seller for
the paid portion of the cost of such improvements and leasing or brokerage
commission(s) and any other costs associated with such Space Lease.
Section 10.8 Miscellaneous Revenues. Revenues, if any, arising
out of telephone booths, vending machines, or other income-producing
agreements.
Section 10.9 Supplies. Maintenance supplies in unopened
containers based on the Seller's actual cost therefor, including sales and/or
use tax.
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Section 10.10 Security Deposits. The actual amounts of the
security deposits provided for under the Space Leases being held by the
Seller as set forth on Schedule J less the Seller's proportionate share of
administrative fees, if any, to the extent such administrative fees are
allowed by the applicable Space Lease or by law) shall be assigned to the
Buyer by, at the Seller's option, (i) payment of the amount thereof to the
Buyer, (ii) a credit to the Buyer against the balance of the Purchase Price
and/or (iii) assignment to the Buyer of the bank accounts (or other security)
in which same are held, which assignment shall be in form reasonably
acceptable to the depositary bank. Any such tenants' securities in form
other than cash shall be transferred to the Buyer by way of appropriate
instruments of transfer or assignment.
Section 10.11 Employee Costs. All salaries, wages, vacation pay
and other fringe benefits (including, without limitation, payments and
deposits, if any, with respect to social security, unemployment compensation,
employee health, life and disability insurance, sick pay and welfare and
pension fund contributions) of the employees with respect to the Property in
connection with the management, operation or maintenance of the Property
shall be adjusted and prorated between the Seller and the Buyer as of 11:59
P.M. on the day preceding the Closing Date. The Buyer acknowledges that such
employees may be union employees and agrees to be responsible for all
severance pay and other obligations arising as a result of any termination by
the Buyer of any such employees.
Section 10.12 Other. If applicable, the Purchase Price shall be
adjusted at Closing in accordance with Section 9.2 and to reflect the
adjustment of any other item which, under the terms of this Agreement, is to
be apportioned at Closing.
Section 10.13 Re-Adjustment. Except for re-adjustments of Overage
Rent to be made pursuant to subsection 10.2(e), if any such items are not
determinable at the Closing, the adjustment shall be made subsequent to the
Closing when the charge is determined. Any errors or omissions in computing
adjustments at the Closing shall be promptly corrected, provided that the
party seeking to correct such error or omission shall have notified the other
party of such error or omission on or prior to the date that is 60 days
following the Closing Date. The provisions of this Article X shall survive
the Closing.
ARTICLE XI
INDEMNIFICATION
---------------
Section 11.1 Indemnification by the Seller. With respect to the
Asset and Property, the Seller thereof shall indemnify and hold the Buyer,
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its affiliates, members and partners, and the partners, shareholders,
officers, directors, employees, representatives and agents of each of the
foregoing (collectively, "Buyer-Related Entities") harmless from and against
any and all costs, fees, expenses, damages, deficiencies, interest and
penalties (including, without limitation, reasonable attorneys' fees and
disbursements) suffered or incurred by any such indemnified party in
connection with any and all losses, liabilities, claims, damages and expenses
("Losses"), arising out of, or in any way relating to, (i) any breach of any
representation or warranty of the Seller contained in this Agreement or in
any Schedule, certificate, instrument or other document delivered pursuant
hereto, (ii) any breach of any covenant of the Seller contained in this
Agreement, and (iii) matters under any of the Space Leases which arise prior
to the Closing Date, such obligation to survive the Closing subject to
Section 11.3.
Section 11.2 Indemnification by the Buyer. The Buyer shall
indemnify and hold the Sellers, their affiliates, members and partners, and
the partners, shareholders, officers, directors, employees, representatives
and agents of each of the foregoing (collectively, "Seller-Related Entities")
harmless from any and all Losses arising out of, or in any way relating to,
(i) any breach of any representation or warranty by the Buyer contained in
this Agreement or in any Schedule, certificate, instrument or other document
delivered pursuant hereto or in connection herewith, (ii) any breach of any
covenant of the Buyer contained in this Agreement, (iii) matters under any of
the Space Leases which arise from and after the Closing Date and (iv)
Seller's delivery of a notice to prepay the Third Party Loan to the Third
Party lender and, without regard to any other provisions of this Agreement
(including, without limitation, the provisions of Article XIII), Buyer's
default under this Agreement, such obligation to survive the Closing or
termination of this Agreement subject to Section 11.3.
Section 11.3 Survival. The representations and warranties
contained in this Agreement and the indemnification by Seller with respect to
matters arising under any of the Space Leases prior to the Closing Date shall
survive for a period of 90 days after the Closing (the "Survival Period")
provided, any action, suit or proceeding with respect to the representations
and warranties is properly commenced within the Survival Period. The
covenants contained in this Agreement to the extent to be performed prior to
or at Closing shall not survive after the Closing. All other covenants,
indemnities and provisions of this Agreement shall survive the Closing unless
otherwise provided herein. Notwithstanding anything to the contrary
contained herein, Seller's obligation to indemnify Buyer shall terminate and
be null and void unless Buyer files an action, suit or proceeding against
Seller seeking recovery from Seller for its obligations under this Article 11
if properly commenced by Buyer within the appropriate survival period more
particularly set forth in this subsection 11.3.
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Section 11.4 Indemnification as Sole Remedy. If the Closing has
occurred, the sole and exclusive remedy available to a party in the event of
a breach by the other party to this Agreement of any representation,
warranty, covenant or other provision of this Agreement which survives the
Closing shall be the indemnifications provided for under this Article XI.
ARTICLE XII
TAX CERTIORARI PROCEEDINGS
--------------------------
Section 12.1 Prosecution and Settlement of Proceedings. If any
tax reduction proceedings in respect of the Property, relating to any fiscal
years ending prior to the fiscal year in which the Closing occurs, are
pending at the time of the Closing, the Seller reserves and shall have the
right to continue to prosecute and/or settle the same. If any tax reduction
proceedings in respect of the Property, relating to the fiscal year in which
the Closing occurs, are pending at the time of Closing, then the Seller
reserves and shall have the right to continue to prosecute and/or settle the
same; provided, however, that the Seller shall not settle any such proceeding
without the Buyer's prior written consent, which consent shall not be
unreasonably withheld or delayed. The Buyer shall reasonably cooperate with
the Seller in connection with the prosecution of any such tax reduction
proceedings.
Section 12.2 Application of Refunds or Savings. Any refunds or
savings in the payment of taxes resulting from such tax reduction proceedings
applicable to taxes payable during the period prior to the date of the
Closing shall belong to and be the property of the Seller, and any refunds or
savings in the payment of taxes applicable taxes payable from and after the
date of the Closing shall belong to and be the property of the Buyer;
provided, however, that if any such refund creates an obligation to reimburse
any tenants under Space Leases for any rents or additional rents paid or to
be paid, that portion of such refund equal to the amount of such required
reimbursement (after deduction of allocable expenses as may be provided in
the Space Lease to such tenant) shall, at the Seller's election, either (a)
be paid to the Buyer and the Buyer shall disburse the same to such tenants or
(b) be paid by the Seller directly to the tenants entitled thereto. All
attorneys' fees and other expenses incurred in obtaining such refunds or
savings shall be apportioned between the Seller and the Buyer in proportion
to the gross amount of such refunds or savings payable to the Seller and the
Buyer, respectively (without regard to any amounts reimbursable to tenants).
Section 12.3 Survival. The provisions of this Article XII shall
survive the Closing.
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ARTICLE XIII
DEFAULT
-------
Section 13.1 Default. (a) If the Buyer shall default in the
performance of its obligations under this Agreement to purchase the Asset by
the Closing Date, the Seller, as its sole and exclusive remedy hereunder
(except as set forth in the last sentence of this subsection (a)), shall be
entitled, after giving to Buyer seven days prior notice of its intention to
terminate this Agreement (and Buyer shall have failed within said seven days
to have cured the default)to terminate this Agreement, to direct the Escrow
Agent to deliver the Earnest Money to the Seller, and to retain the Earnest
Money as liquidated damages, at which time this Agreement shall be terminated
and of no further force and effect except for the provisions which explicitly
survive such termination. The Buyer agrees that the Seller shall have the
right to retain the Earnest Money as liquidated damages without the necessity
of proving actual damages due to the difficulty of proving actual damages
resulting from the Buyer's default hereunder. Nothing in this Section shall
be deemed to limit the Seller's remedies with respect to a breach by the
Buyer of any of its obligations which survive the Closing.
(b) If the Seller shall default in the performance of its
obligations under this Agreement to cause the sale of the Asset by the
Closing Date, the Buyer, as its sole and exclusive remedy, shall be entitled,
after giving to Seller seven days prior notice of its intention to either
terminate this Agreement or seek specific performance hereof (and Seller
shall have failed within said seven day period to have cured the default)at
its option, either (i) to terminate this Agreement, direct Escrow Agent to
deliver the Earnest Money to the Buyer and retain the Earnest Money, at which
time this Agreement shall be terminated and of no further force and effect
except for the provisions which explicitly survive such termination or (ii)
specifically enforce the terms and conditions of this Agreement. Nothing in
this Section shall be deemed to limit the Buyer's remedies with respect to a
breach by the Seller of any of the Seller's obligations which survive the
Closing.
ARTICLE XIV
MISCELLANEOUS
-------------
Section 14.1 Exculpation of Seller. Notwithstanding anything to
the contrary contained herein, the Seller's shareholders, members, partners,
the partners of such partners, the shareholders of such partners, and the
trustees, officers, directors, employees, agents and security holders of the
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Seller and the partners of the Seller assumes no personal liability for any
obligations entered into on behalf of the Seller and its individual assets
shall not be subject to any claims of any person relating to such
obligations. The foregoing shall govern any direct and indirect obligations
of the Seller under this Agreement.
Section 14.2 Brokers. (a) The Seller represents and warrants to
the Buyer that it has dealt with no broker, salesman, finder or consultant
with respect to this Agreement or the transactions contemplated hereby other
than Insignia whose fee Seller shall pay pursuant to the terms of a separate
agreement between Seller and Insignia. The Seller agrees to indemnify,
protect, defend and hold the Buyer harmless from and against all claims,
losses, damages, liabilities, costs, expenses (including reasonable
attorneys' fees and disbursements) and charges resulting from the Seller's
breach of the foregoing representation in this subsection (a). The
provisions of this subsection (a) shall survive the Closing and any
termination of this Agreement.
(b) The Buyer represents and warrants to the Seller that it has
dealt with no broker, salesman, finder or consultant with respect to this
Agreement or the transactions contemplated hereby other than Insignia. The
Buyer agrees to indemnify, protect, defend and hold the Seller harmless from
and against all claims, losses, damages, liabilities, costs, expenses
(including reasonable attorneys' fees and disbursements) and charges
resulting from the Buyer's breach of the foregoing representations in this
subsection (b). The provisions of this subsection (b) shall survive the
Closing and any termination of this Agreement.
Section 14.3 Confidentiality; Press Release; IRS Reporting
Requirements. (a) The Buyer and the Seller shall hold as confidential all
information disclosed in connection with the transaction contemplated hereby
and concerning each other, the Asset, this Agreement and the transactions
contemplated hereby and shall not release any such information to third
parties without the prior written consent of the other parties hereto, except
(i) any information which was previously or is hereafter publicly disclosed
(other than in violation of this Agreement or other confidentiality
agreements to which affiliates of the Buyer are parties), (ii) to their
partners, advisers, underwriters, analysts, employees, affiliates, officers,
directors, consultants, lenders, accountants, legal counsel or other advisors
of any of the foregoing, provided that they are advised as to the
confidential nature of such information and are instructed to maintain such
confidentiality and (iii) to comply with any law, rule or regulation. The
foregoing shall constitute a modification of any prior confidentiality
agreement that may have been entered into by the parties. The provisions of
this Section shall survive the Closing or the termination of this Agreement
for a period of 2 years.
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(b) The Seller or the Buyer may issue a press release with respect
to this Agreement and the transactions contemplated hereby, provided that the
content of any such press release shall be subject to the prior written
consent of the other party hereto and in no event shall any such press
release issued by the Buyer disclose the identity of the Seller's direct or
indirect beneficial owners by name or the consideration paid to the Seller
for the Asset.
(c) For the purpose of complying with any information reporting
requirements or other rules and regulations of the IRS that are or may become
applicable as a result of or in connection with the transaction contemplated
by this Agreement, including, but not limited to, any requirements set forth
in proposed Income Tax Regulation Section 1.6045-4 and any final or successor
version thereof (collectively, the "IRS Reporting Requirements"), the Seller
and the Buyer hereby designate and appoint the Escrow Agent to act as the
"Reporting Person" (as that term is defined in the IRS Reporting
Requirements) to be responsible for complying with any IRS Reporting
Requirements. The Escrow Agent hereby acknowledges and accepts such
designation and appointment and agrees to fully comply with any IRS Reporting
Requirements that are or may become applicable as a result of or in
connection with the transaction contemplated by this Agreement. Without
limiting the responsibility and obligations of the Escrow Agent as the
Reporting Person, the Seller and the Buyer hereby agree to comply with any
provisions of the IRS Reporting Requirements that are not identified therein
as the responsibility of the Reporting Person, including, but not limited to,
the requirement that the Seller and the Buyer each retain an original
counterpart of this Agreement for at least four (4) years following the
calendar year of the Closing.
Section 14.4 Escrow Provisions. (a) The Escrow Agent shall hold
the Earnest Money in escrow in an interest-bearing bank account at [ ]
(the "Escrow Account").
(b) The Escrow Agent shall hold the Earnest Money in escrow in the
Escrow Account until the Closing or sooner termination of this Agreement and
shall hold or apply such proceeds in accordance with the terms of this
paragraph (b). The Seller and the Buyer understand that no interest is
earned on the Earnest Money during the time it takes to transfer into and out
of the Escrow Account. At the Closing, the Earnest Money shall be paid by
the Escrow Agent to, or at the direction of, the Seller. If for any reason
either party makes a written demand upon the Escrow Agent for payment of the
Earnest Money, the Escrow Agent shall, within 24 hours give written notice to
the other party of such demand. If the Escrow Agent does not receive a
written objection within five business days after the giving of such notice,
the Escrow Agent is hereby authorized to make such payment. If the Escrow
Agent does receive such written objection within such five day period or if
for any other reason the Escrow Agent in good faith shall elect not to make
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such payment, the Escrow Agent shall continue to hold such amount until
otherwise directed by joint written instructions from the parties to this
Agreement or a final judgment of a court of competent jurisdiction. However,
the Escrow Agent shall have the right at any time to deposit the Earnest
Money with the clerk of the court of New York County. The Escrow Agent shall
give written notice of such deposit to the Seller and the Buyer. Upon such
deposit the Escrow Agent shall be relieved and discharged of all further
obligations and responsibilities hereunder.
(c) The parties acknowledge that the Escrow Agent is acting solely
as a stakeholder at their request and for their convenience, that the Escrow
Agent shall not be deemed to be the agent of either of the parties, and the
Escrow Agent shall not be liable to either of the parties for any act or
omission on its part, other than for its gross negligence or willful
misconduct. The Seller and the Buyer shall jointly and severally indemnify
and hold the Escrow Agent harmless from and against all costs, claims and
expenses, including attorneys' fees and disbursements, incurred in connection
with the performance of the Escrow Agent's duties hereunder.
(d) The Escrow Agent has acknowledged its agreement to these
provisions by signing this Agreement in the place indicated following the
signatures of the Seller and the Buyer.
Section 14.5 Successors and Assigns; No Third-Party
Beneficiaries. The stipulations, terms, covenants and agreements contained
in this Agreement shall inure to the benefit of, and shall be binding upon,
the parties hereto and their respective permitted successors and assigns
(including any successor entity after a public offering of stock, merger,
consolidation, purchase or other similar transaction involving a party
hereto) and nothing herein expressed or implied shall give or be construed to
give to any person or entity, other than the parties hereto and such assigns,
any legal or equitable rights hereunder.
Section 14.6 Assignment. This Agreement may not be assigned by
the Buyer without the consent of the prior written consent of the Seller.
The Buyer may designate an affiliate to which the Asset will be assigned at
the Closing, provided that the Buyer will continue to remain primarily liable
under this Agreement notwithstanding any such designation.
Section 14.7 Further Assurances. From time to time, as and when
requested by any party hereto, the other party shall execute and deliver, or
cause to be executed and delivered, all such documents and instruments and
shall take, or cause to be taken, all such further or other actions as such
other party may reasonably deem necessary or desirable to consummate the
transactions contemplated by this Agreement.
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Section 14.8 Notices.
(a) To the Seller:
c/o Lehman Brothers Inc.
Three World Financial Center
29th Floor
New York, New York 10285
Attention: Michael T. Marron
Facsimile: (201) 508-4562
Telephone: (212) 526-3085
with copies thereof to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: C. Tanner Rose, Esq.
Facsimile: (212) 455-2502
Telephone (212) 244-7490
(b) To the Buyer:
c/o Condor Acquisition Partners LLC
1030 Stratford Place
Bloomfield Hills, Michigan 48304
Attention: Mr. Marvin Sallen
Facsimile: (248) 642-4746
Telephone: (248) 642-4980
with copies thereof to:
c/o Barker Pacific Group
811 W. Seventh Street, Suite 1050
Los Angeles, California 90017
Attention: Mr. Michael Barker
Facsimile: (213) 624-1811
Telephone: (213) 624-1813
and
Lowell & Robbin
707 Broadway, 17th Floor
San Diego, California 92101
Attention: Robert P. Lowell, Esq.
Facsimile: (619) 233-0700
Telephone: (619) 236-1142
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All notices (i) shall be deemed to have been given on the date that the same
shall have been delivered in accordance with the provisions of this Section
and (ii) may be given either by a party or by such party's attorneys. Any
party may, from time to time, specify as its address for purposes of this
Agreement any other address upon the giving of 10 days' notice thereof to the
other parties.
Section 14.9 Entire Agreement. This Agreement, along with the
Exhibits and Schedules hereto contains all of the terms agreed upon between
the parties hereto with respect to the subject matter hereof, and all
understandings and agreements heretofore had or made among the parties hereto
are merged in this Agreement which alone fully and completely expresses the
agreement of the parties hereto.
Section 14.10 Amendments. This Agreement may not be amended,
modified, supplemented or terminated, nor may any of the obligations of the
Seller or the Buyer hereunder be waived, except by written agreement executed
by the party or parties to be charged.
Section 14.11 No Waiver. No waiver by either party of any failure
or refusal by the other party to comply with its obligations hereunder shall
be deemed a waiver of any other or subsequent failure or refusal to so
comply.
Section 14.12 Governing Law. This Agreement shall be governed by,
interpreted under, and construed and enforced in accordance with, the laws of
the State of New York.
Section 14.13 Submission to Jurisdiction. (a) Each of the Buyer
and the Seller irrevocably submits to the jurisdiction of (i) the Supreme
Court of the State of New York, New York County and (ii) the United States
District Court for the Southern District of New York for the purposes of any
suit, action or other proceeding arising out of this Agreement or any
transaction contemplated hereby. Each of the Buyer and the Seller further
agrees that service of any process, summons, notice or document by U.S.
registered mail to such party's respective address set forth above shall be
effective service of process for any action, suit or proceeding in New York
with respect to any matters to which it has submitted to jurisdiction as set
forth above in the immediately preceding sentence.
(b) Each of the Buyer and each seller irrevocably and
unconditionally waives trial by jury and agrees that any suit, action or
proceeding with respect to this Agreement or the transactions contemplated
hereby may be brought only in (i) the Supreme Court of the State of New York,
New York County and (ii) the United States District Court for the Southern
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District of New York, and hereby further irrevocably and unconditionally
waives any objection that it may have to the venue of such suit, action or
proceeding in any such court or that such suit or proceeding in such court
was brought in an inconvenient court and agrees not to plead or claim same.
(c) In the event that any decree for specific performance obtained
in the State of New York can be implemented and enforced by a legal action,
if required, in the State of Maryland.
Section 14.14 Severability. If any term or provision of this
Agreement or the application thereof to any person or circumstances shall, to
any extent, be invalid or unenforceable, the remainder of this Agreement or
the application of such term or provision to persons or circumstances other
than those as to which it is held invalid or unenforceable shall not be
affected thereby, and each term and provision of this Agreement shall be
valid and enforceable to the fullest extent permitted by law.
Section 14.15 Section Headings. The headings of the various
Sections of this Agreement have been inserted only for purposes of
convenience, are not part of this Agreement and shall not be deemed in any
manner to modify, explain, expand or restrict any of the provisions of this
Agreement.
Section 14.16 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, and it shall
not be necessary in making proof of this Agreement to produce or account for
more than one such counterpart.
Section 14.17 Acceptance of Deed. The acceptance of the Deed by
the Buyer shall be deemed full compliance by the Seller of all of the
Seller's obligations under this Agreement except for those obligations of the
Seller which are specifically stated to survive the delivery of the Deed
hereunder.
Section 14.18 Construction. The parties acknowledge that the
parties and their counsel have reviewed and revised this Agreement and that
the normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the
interpretation of this Agreement or any exhibits or amendments hereto.
Section 14.19 Recordation. Neither this Agreement nor any
memorandum or notice of this Agreement may be recorded by any party hereto
without the prior written consent of the other party hereto. The provisions
of this Section shall survive the Closing or any termination of this
Agreement.
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Section 14.20 Waiver of Jury Trial. The Seller and the Buyer
hereby waive trial by jury in any action, proceeding or counterclaim brought
by any party against another party on any matter arising out of or in any way
connected with this Agreement.
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IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the day and year first above written.
SELLER:
SHOPCO MALLS L.P.
By: Shopco Regional Malls, L.P.
By: Regional Malls, Inc.
By: ____________________
Name:
Title:
BUYER:
BARKER PACIFIC GROUP, INC.
By: ______________________________
Name:
Title:
ESCROW AGENT:
FIRST AMERICAN TITLE INSURANCE COMPANY
By: ______________________________
Name:
Title:
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Schedule A
Legal Description
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Schedule B
Existing Title Policy and Survey
First American Title Insurance Company Commitment for Title Insurance
Commitment Number DCC 98024, dated June 1, 1998
-1-
<PAGE>
Schedule C
----------
Third Party Loan
----------------
Loan from Metropolitan Life Insurance Company, as successor in interest
to The Mutual Life Insurance Company of New York in the original principal
amount of $31,025,000, evidenced by Promissory Note dated September 6, 1990,
as subsequently assigned, amended and modified.
-2-
<PAGE>
Schedule D
----------
Consents
--------
Limited Partner Approval.
-3-
<PAGE>
Schedule E
----------
Material Contracts
------------------
-4-
<PAGE>
Schedule F
----------
Space Lease
-----------
-5-
<PAGE>
Schedule F-1
------------
Temporary Leases
----------------
-6-
<PAGE>
Schedule G
----------
Brokerage Commissions
---------------------
THE GAP
OLD NAVY
-7-
<PAGE>
Schedule H
----------
Litigation
----------
None
-8-
<PAGE>
Schedule I
----------
Buyer Consents
--------------
NONE
-9-
<PAGE>
Schedule J
----------
Security Deposits Held By The Seller
------------------------------------
-10-
<PAGE>
Exhibit A
---------
ASSIGNMENT AND ASSUMPTION OF LANDLORD'S INTEREST IN LEASES
ASSIGNMENT AND ASSUMPTION OF LANDLORD'S INTEREST IN LEASES dated
_____ __, 199_, between SHOPCO MALLS L.P., a Delaware limited partnership,
having an address at c/o Lehman Brothers Inc., Three World Financial Center,
29th Floor, New York, NY 10285 ("Assignor") and BARKER PACIFIC GROUP, INC.,
a Delaware corporation, having an address at c/o Condor Acquisition Partners
LLC, 1030 Stratford Place, Bloomfield Hills, MI 48304 ("Assignee").
Background
----------
This Assignment and Assumption of Landlord's Interest in Leases is
being executed and delivered pursuant to that certain Purchase and Sale
Agreement dated as of August _, 1999 (the "Purchase Agreement") among
Assignor, as seller, and Assignee, as buyer. All capitalized terms used but
not defined herein shall have the meanings ascribed to them in the Purchase
Agreement.
Assignment and Assumption
-------------------------
In consideration of Ten ($10.00) Dollars in hand paid by Assignee,
the receipt and sufficiency of which is hereby acknowledged, Assignor does
hereby assign, transfer and set over unto Assignee, all of Assignor's right,
title and interest in and to:
All leases, occupancy agreements, license agreements, rental
agreements, concession agreements and other written agreements entered
into with any tenants relating to the Property and the buildings and
other improvements located thereon, or any portion thereof, including,
without limitation, the leases, occupancy agreements, license
agreements, rental agreements, concession agreements and other written
agreements set forth on Schedule A attached hereto (all of the foregoing
leases, collectively, the "Space Leases"), together with all guaranties,
if any, by any third parties in respect of the Space Leases.
TO HAVE AND TO HOLD, the same unto Assignee, its successors and
assigns, from and after the date hereof, subject to the terms, covenants,
conditions and provisions contained in the Space Leases.
Assignee hereby assumes the performance of all of the terms,
covenants and conditions of the Space Leases described on Schedule A attached
-1-
<PAGE>
hereto on the Assignor's part to be performed thereunder from and after the
date hereof and will well and truly perform all of the terms, covenants and
conditions of such Leases from and after the date hereof, all with the same
force and effect as though the Assignee had signed such Space Leases as a
party named therein.
Assignee does hereby agree for itself, its legal representatives,
successors and assigns to indemnify, defend and save the Assignor, its legal
representatives, successors and assigns, harmless from and against any and
all claims, losses, suits and expenses (including, but not limited to,
reasonable legal fees and litigation expenses) asserted or arising in
connection with the performance by Assignee under the Space Leases described
on Schedule A attached hereto from and after the date hereof.
IN WITNESS WHEREOF, the Assignor and Assignee have duly executed
this instrument as of the day first above written.
ASSIGNOR:
SHOPCO MALLS L.P.
By: Shopco Regional Malls, L.P.
By: Regional Malls, Inc.
By: ____________________
Name:
Title:
ASSIGNEE:
BARKER PACIFIC GROUP, INC.
By: ___________________________
Name:
Title:
-2-
<PAGE>
Exhibit B
---------
ASSIGNMENT AND ASSUMPTION OF CONTRACTS
ASSIGNMENT AND ASSUMPTION OF CONTRACTS dated _________, 199_,
between SHOPCO MALLS L.P., a Delaware limited partnership, having an address
at c/o Lehman Brothers Inc., Three World Financial Center, 29th Floor, New
York, New York 10285, ("Assignor") and BARKER PACIFIC GROUP, INC., a
Delaware corporation, having an address at c/o Condor Acquisition Partners
LLC, 1030 Stratford Place, Bloomfield Hills, Michigan 48304 ("Assignee").
Background
----------
This Assignment and Assumption of Contracts is being executed and
delivered pursuant to that certain Purchase and Sale Agreement dated as of
August __, 1999 (the "Purchase Agreement") among Assignor, as seller, and
Assignee, as buyer. All capitalized terms used but not defined herein shall
have the meanings ascribed to them in the Purchase Agreement.
Assignment and Assumption
-------------------------
In consideration of Ten ($10.00) Dollars in hand paid by Assignee,
the receipt and sufficiency of which is hereby acknowledged, Assignor does
hereby assign, transfer and set over unto Assignee, all of Assignor's right,
title and interest in and to:
(i) All agreements, contracts or understandings of Assignor
relating to ownership, operation, maintenance, and
management of the Property and the buildings and other
improvements located thereon, or any portion thereof,
including, without limitation, the contracts set forth on
Schedule A attached hereto (collectively, the
"Contracts");
(ii) All equipment leases and rental agreements relating to
the equipment, services, vehicles, furniture or other
type of personal property with regard to the Property and
the buildings and other improvements located thereon, or
any portion thereof, including, without limitation, the
leases set forth on Schedule B attached hereto
(collectively, the "Equipment Leases");
(iii) All of Assignor's right, title and interest in and to all
licenses, registrations, certificates, permits, approvals
-1-
<PAGE>
and other governmental authorizations relating to the
construction, operation, use or occupancy of the Property
and the buildings and other improvements located thereon,
or any portion thereof (collectively, the "Permits");
(iv) all of Assignor's right, title and interest in and to all
warranties and guarantees, if any, relating to the
personal property located on the Property or in the
buildings and other improvements located thereon,
including, without limitation those listed on Schedule C
hereto (collectively, the "Warranties"; the Contracts,
the Equipment Leases, the Permits and the Warranties are
collectively referred to herein as the "Agreements").
TO HAVE AND TO HOLD, the same unto Assignee, its successors and
assigns, from and after the date hereof, subject to the terms, covenants,
conditions and provisions contained in the Agreements.
Assignee hereby assumes the performance of all of the terms,
covenants and conditions of the Contracts described on Schedule A attached
hereto and the Equipment Leases described on Schedule B attached hereto on
the Assignor's part to be performed thereunder from and after the date hereof
and will perform all of the terms, covenants and conditions of such Contracts
and Equipment Leases arising or accruing from and after the date hereof, all
with the same force and effect as though the Assignee had signed such
Contracts and Equipment Leases as a party named therein.
Assignee does hereby agree for itself, its legal representatives,
and its successors and assigns to indemnify, defend and save the Assignor,
its legal representatives, successors and assigns, harmless from and against
any and all claims, losses, suits and expenses (including, but not limited
to, reasonable legal fees and litigation expenses) asserted or arising in
connection with the performance by Assignee under the Contracts described on
Schedule A attached hereto and the Equipment Leases described on Schedule B
attached hereto from and after the date hereof.
IN WITNESS WHEREOF, the Assignor and Assignee have duly executed
this instrument as of the day first above written.
ASSIGNOR:
SHOPCO MALLS L.P.
By: Shopco Regional Malls, L.P.
-2-
<PAGE>
By: Regional Malls, Inc.
By: ____________________
Name:
Title:
ASSIGNEE:
BARKER PACIFIC GROUP, INC.
By: ______________________________
Name:
Title:
Schedules:
- ---------
Schedule A Contracts
Schedule B Equipment Leases
Schedule C Warranties
-3-
<PAGE>
Exhibit C
---------
____________________
c/o Condor Acquisition Partners LLC
1030 Stratford Place
Bloomfield Hills, MI 48304
_____ ___, 199_
BY CERTIFIED MAIL
- -----------------
[Name and Address
of Tenant]
Premises: [ ]
Gentlemen and Ladies:
Please be advised that effective the date set forth above, the
Premises have been conveyed by Shopco Malls L.P. to __________________, a
__________________, whose mailing address is shown above. You are hereby
irrevocably and unconditionally directed that, effective immediately, all
future communications, rents and payments are to be directed as follows:
[TBD]
Very truly yours,
___________________________________
By: ______________________________
Name:
Title:
-1-
<PAGE>
Exhibit D
---------
SPECIAL WARRANTY DEED
-1-
<PAGE>
Exhibit E
---------
BILL OF SALE
SHOPCO MALLS L.P., a Delaware limited partnership, whose address is
c/o Lehman Brothers Inc., Three World Financial Center, 29th Floor, New York,
New York 10285 (hereinafter referred to as "Seller"), in consideration of Ten
($10.00) Dollars in hand paid by BARKER PACIFIC GROUP, INC., a Delaware
corporation, whose mailing address is c/o Condor Acquisition Partners LLC,
1030 Stratford Place, Bloomfield Hills, Michigan 48304 (hereinafter referred
to as "Buyer"), the receipt and sufficiency of which is hereby acknowledged,
does hereby sell, grant, assign, convey, transfer, set over, and quit-claim
unto Purchaser, its successors and assigns, all of Seller's right, title and
interest in and to any and all fixtures, chattels and articles of personal
property that are attached to or located in or upon the premises described on
Schedule A attached hereto and the buildings and other improvements located
thereon, or any portion thereof (all of the property and interests
hereinbefore described are hereinafter referred to as the "Property").
TO HAVE AND TO HOLD the Property unto Buyer, its successors and
assigns forever.
This Bill of Sale is made without warranty or representation,
express or implied, by or recourse against Seller of any kind or nature
whatsoever except as set forth in that certain Purchase and Sale Agreement
dated as of July __, 1999 between Seller as seller, and Buyer, as buyer.
This Bill of Sale has been duly executed by Seller as of the ____
day of _____, 199_.
SHOPCO MALLS L.P.
By: Shopco Regional Malls, L.P.
By: Regional Malls, Inc.
By: ____________________
Name:
Title:
Schedules:
- ---------
Schedule A Description of Premises
-1-
<PAGE>
Exhibit F
---------
ENTITY TRANSFEROR
FOREIGN INVESTORS REAL PROPERTY
TAX ACT CERTIFICATION AND AFFIDAVIT
Section 1445 of the Internal Revenue Code of 1986, as amended (the
"Code"), provides that a transferee of a U.S. real property interest must
withhold tax if the transferor is a foreign person. To inform BARKER PACIFIC
GROUP, INC., a Delaware corporation(the "Transferee") that withholding of tax
is not required upon disposition of a U.S. real property interest by SHOPCO
MALLS L.P., a Delaware limited partnership (the "Transferor"), the
undersigned hereby certifies the following on behalf of the Transferor:
(a) Transferor is not a foreign corporation, foreign partnership,
foreign trust or foreign estate (as those terms are defined in the Code and
Income Tax Regulations);
(b) The U.S. employer identification number of Transferor is
___________;
(c) Transferor has an address at c/o Lehman Brothers Inc., Three
World Financial Center, 29th Floor, New York, New York 10285.
(d) The address of the subject property is ______________________.
Transferor understands that this Certification may be disclosed to
the Internal Revenue Service by Transferee and that any false statement
contained herein could be punished by fine, imprisonment or both.
-1-
<PAGE>
Under penalties of perjury, I declare that I have examined this
Certification and to the best of my knowledge and belief it is true, correct
and complete, and I further declare that I have the authority to sign this
document on behalf of Transferor.
___________ ___, 1999
SHOPCO MALLS L.P.
By: Shopco Regional Malls, L.P.
By: Regional Malls, Inc.
By: ____________________
Name:
Title:
-2-
ANNEX V
FIRST AMENDMENT TO
AGREEMENT OF PURCHASE AND SALE
This FIRST AMENDMENT TO AGREEMENT OF PURCHASE AND SALE (the
"Amendment") is dated as of the __ day of October, 1999 by and among SHOPCO
MALLS L.P., a Delaware limited partnership ("Seller"), and BARKER PACIFIC
GROUP, INC., a Delaware corporation ("Buyer").
Background
----------
A. Seller and Buyer executed an Agreement of Purchase and Sale
dated as of September 11, 1999 (the "Agreement").
B. Seller and Buyer now desire to amend the Agreement in order to
modify certain terms and conditions thereof.
Agreement
---------
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Amendment, and for other good and valuable
consideration, the receipt and sufficiency is hereby acknowledged, the
parties hereby agree as follows:
1. Section I.1 of the Agreement is hereby amended by deleting the
definition of Limited Partner Approval and substituting in lieu thereof:
"'Limited Partner Approval' shall mean approval to the
transaction by limited partners of Shopco Regional Malls, L.P.
holding a majority of units in Shopco Regional Malls, L.P."
2. (a) Section II.3(a) of the Agreement is hereby deleted and
replaced by the following:
"The closing of the sale and purchase of the Asset (the 'Closing')
shall take place at Buyer's option on December 17, 1999 if Limited
Partner Approval has been received on or before November 24, 1999,
otherwise on January 24, 2000 if Limited Partnership Approval has
then been received (the 'Closing Date')."
(b) Section II.3(b) is hereby deleted and replaced by the
following:
"Seller shall have the right to extend the Closing Date to February
17, 2000 pending receipt of Limited Partner Approval, at which time
Seller may terminate this Agreement in the event that Limited
Partner Approval has not been obtained."
<PAGE>
3. Section III.3 is hereby amended by adding the following as
subsection (i) thereto:
"Seller shall use good faith efforts to keep Buyer apprized of that
status of the Limited Partner Approval and in that regard shall
deliver to Buyer, within three business days after a written
request by Buyer, an update with respect to the Limited Partner
Approval and shall promptly notify Buyer when and if it is received
and the Closing Date."
4. Section V.1(g) is hereby amended by (A) deleting the words "a
break-up fee in an amount equal to $100,000 and (B) adding the following
after 'Buyer'":
"a break-up fee equal to the sum of (i) a financing commitment fee
up to but not in excess of $175,000 and (ii) all out-of-pocket
third party costs and expenses (other than any loan commitment fee)
up to but not in excess of $125,000."
5. Section VII.2(a) of the Agreement is hereby amended by
deleting "the day that is thirty (30) days after the date of this Agreement
(the 'Due Diligence Expiration Date')" and substituting in lieu thereof "30
days after the date of the First Amendment to Agreement of Purchase and Sale
(the 'Due Diligence Expiration Date')."
5. Except as explicitly set forth in this Amendment, the parties
hereto ratify and confirm all of the terms and provisions of the Agreement.
6. This Amendment may be executed in counterparts, each of which
shall be deemed an original and all of which, together, shall be deemed one
agreement. This Amendment shall be governed and construed in accordance with
the laws of the State of New York.
SHOPCO MALLS L.P.
By: Shopco Regional Malls, L.P.
By: Regional Malls, Inc.
By:_______________________
Name:
Title:
-2-
<PAGE>
BUYER:
BARKER PACIFIC GROUP, INC.
By: ___________________________
Name:
Title:
-3-
ANNEX VI
ASSIGNMENT OF PURCHASE AND SALE AGREEMENT
THIS ASSIGNMENT OF PURCHASE AND SALE AGREEMENT (this
"Assignment") is made and entered into as of the ________ day of
November, 1999 by and between BARKER PACIFIC GROUP, INC., a Delaware
corporation ("Assignor") and CRANBERRY PROPERTIES MM CORP., a Delaware
corporation ("Assignee").
RECITALS
Shopco Malls L.P., a Delaware limited partnership, as seller
("Seller"), and Assignor, as buyer, entered into that certain Agreement
of Purchase and Sale dated September 11, 1999, as amended by the First
Amendment to the Agreement of Purchase and Sale dated as of October 28,
1999 (as so amended, the "Purchase Agreement") in respect of the purchase
and sale of that certain property known as Cranberry Mall (located in
Carroll County, Maryland). All capitalized terms not otherwise defined
in this Assignment shall have the meaning given them in the Purchase
Agreement.
Assignor desires to assign all of its right, title and
interest in the Purchase Agreement to Assignee.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
A. Assignment of the Assigned Interest. Assignor hereby assigns,
sells and transfers to Assignee, and Assignee hereby assumes, all of
Assignor's rights (including, without limitation, all of Assignor's
indemnification rights under Article XI of the Purchase Agreement,
(provided that Assignor reserves from this Assignment sufficient rights
to seek and obtain indemnification from Seller arising under the Purchase
Agreement if required) and obligations (other than Assignor's
indemnification obligations under Article XI of the Purchase Agreement
arising out of matters or events that occurred prior to the date of
hereof) under the Purchase Agreement (collectively, the "Assigned
Interest"). If Assignee closes the purchase of the Asset, Assignee
agrees to indemnify Assignor in regard to any claim made by Seller under
the Purchase Agreement as to the post-assignment period, except as the
same may arise on account of Assignor's conduct.
B. Assignment of the Asset File. Assignor hereby assigns and
transfers to Assignee all of Assignor's interest in and to any documents
or instruments that were delivered by the Seller to Assignor in
connection with the Purchase Agreement, including, without limitation,
the Asset File.
<PAGE>
C. Payment of Initial Earnest Money. With Seller's permission,
Assignor has not yet paid to Seller the Initial Earnest Money in the
amount of $200,000, as required by Section II.2(b)(i) of the Purchase
Agreement; however, concurrently with the execution and delivery of this
Assignment and the consent thereto by Seller, Assignee is delivering the
Initial Earnest Money to Escrow Agent. Assignor hereby acknowledges that
it has no right, title or interest in the Initial Earnest Money.
D. Representations and Warranties of Assignor. Assignor hereby
represents and warrants to Assignee as follows:
1. Assignor is a corporation, duly organized, validly existing
and in good standing under the laws of the State of Delaware
and has the full power and authority to execute and deliver
the Purchase Agreement and this Assignment. The person
executing and delivering this Assignment on behalf of Assignor
has full corporate power and authority to execute and deliver
this Assignment on behalf of Assignor. Except for Seller's
consent, which it attached hereto, Assignor has obtained all
necessary third party consents in connection with the
execution and delivery of the Purchase Agreement and this
Assignment.
2. Attached hereto as Exhibit A is a true, complete and correct
copy of the Purchase Agreement and there have been no further
amendments, revisions or modifications (oral or written) to
such documents.
3. The Purchase Agreement is in full force and effect and neither
party thereto is in default of its obligations thereunder.
Without limiting the generality of the foregoing, to the best
knowledge of Assignor, all of the representations and
warranties of Seller in the Purchase Agreement are true and
correct.
4. Assignor holds one hundred (100%) percent of the legal and
beneficial title to the Assigned Interest and has not pledged,
encumbered, transferred or hypothecated (or entered into any
agreement (oral or written) pursuant to which it has agreed to
pledge, transfer, encumber or hypothecate) the Assigned
Interest in any manner whatsoever.
5. Except as set forth in Schedule 1 attached hereto, Assignor
has not received any notice from Seller pursuant to Section
III.3 of the Purchase Agreement with respect to, among other
things, any (i) third party contracts after the execution date
of the Purchase Agreement; (ii) Space Leases and/or Temporary
Leases other than those disclosed in the Purchase Agreement;
or (iii) litigation, arbitration proceeding or administrative
hearing (including condemnation). Except as set forth in said
Schedule 1, Assignor knows of no other changes in any Space
Lease or Temporary Lease occurring since the Purchase
Agreement was signed.
-2-
<PAGE>
E. Indemnification. If Seller exercises its rights pursuant to
any indemnification provision in the Purchase Agreement (including,
without limitation, those set forth in Article VII (Inspections) and
Section XIV.2 (Brokers)), responsibility therefor is allocated as
follows:
1. Inspections: Each party, i.e., Assignor or Assignee, shall be
responsible for its conduct, and the conduct of its employees,
agents and contractors incurred in respect to the inspections.
2. Brokers. Each party, i.e., Assignor or Assignee, shall be
responsible to Seller for any broker involved in the
transaction to which Seller has not agreed to pay a
transaction fee or commission.
3. Other Indemnification. In respect to all other claims of
indemnification by Seller under the Agreement, Assignor and
Assignee shall each be liable for its own acts (and the acts
of its employees, agents and contractors).
Based upon the allocation of responsibility hereinabove described,
to the extent that either Assignor or Assignee is responsible
therefor, the responsible party agrees to indemnify the other party
and the other party's affiliates, members, partners, and the
partner, shareholders, officers, directors, employees,
representatives and agents of each of the foregoing from any losses
incurred by the indemnified party (i.e., Assignor or Assignee) for
which the indemnified party is not responsible based on the
allocation of responsibility described above. The foregoing
obligations shall survive the Closing or the termination of the
Assignment, as the case may be.
F. Counterparts. This Assignment may be executed in any number
of counterparts, each of which shall be deemed an original and all of
which taken together shall constitute one and the same instrument.
G. Binding Effect. This Assignment shall be binding upon and
insure to the benefit of the parties hereto and their respective personal
representatives, administrators, successors and assigns.
-3-
<PAGE>
IN WITNESS WHEREOF, Assignee and Assignor have executed this
Assignment as of the day and year first above written.
ASSIGNOR:
BARKER PACIFIC GROUP, INC.
By: ______________________________________
ASSIGNEE:
CRANBERRY PROPERTIES MM CORP.
By: ______________________________________
Escrow Agent is hereby executing this Assignment solely for
the purpose of acknowledging its receipt of the Initial Earnest Money.
ESCROW AGENT:
FIRST AMERICAN TITLE INSURANCE COMPANY
By: ______________________________________
Name:
Title:
-4-
<PAGE>
IN WITNESS WHEREOF, Assignee and Assignor have executed this
Assignment as of the day and year first above written.
ASSIGNOR:
BARKER PACIFIC GROUP, INC.
By: ______________________________________
ASSIGNEE:
CRANBERRY PROPERTIES MM CORP.
By: ______________________________________
Escrow Agent is hereby executing this Assignment solely for
the purpose of acknowledging its receipt of the Initial Earnest Money.
ESCROW AGENT:
FIRST AMERICAN TITLE INSURANCE COMPANY
By: ______________________________________
Name:
Title:
-5-
<PAGE>
SCHEDULE 1 TO ASSIGNMENT<F1>
-6-
<PAGE>
SELLER'S CONSENT
The undersigned is executing this Consent on this ____ day of November,
1999 in connection with that certain Assignment of Purchase and Sale
Agreement (the "Assignment") of even date herewith between Barker Pacific
Group, Inc. ("Assignor"), as assignor, and Cranberry Properties MM Corp.
("Assignee"), as assignee, in respect of that certain Agreement of
Purchase and Sale dated September 11, 1999 between the undersigned, as
seller, and Assignor, as buyer, as amended by the First Amendment to the
Agreement of Purchase and Sale dated as of October 28, 1999 (as so
amended, the "Purchase Agreement") in respect of the purchase and sale of
that certain property known as Cranberry Mall (located in Carroll County,
Maryland). All capitalized terms not otherwise defined in this Consent
shall have the meaning given them in the Purchase Agreement. Seller
hereby confirms the following:
1. Seller acknowledges that it has reviewed the memoranda
regarding the Existing Title Report and any updated title
reports, attached hereto as Exhibits 1 and 2, respectively,
and further acknowledges that said memoranda were timely
received. Seller agrees to work with Assignee to promptly
resolve the title matters discussed in said memoranda.
Notwithstanding the foregoing and notwithstanding anything to
the contrary in Article VIII.2 of the Purchase Agreement,
Seller hereby agrees that Assignee's rights to deliver notice
of any additional objections to title set forth in the
Existing Title Policy, Existing Survey, and any updated title
report and survey shall be extended until the Due Diligence
Expiration Date; and
2. Except as set forth in Schedule 1 attached hereto, Seller has
not sent any notice to Assignor pursuant to Section III.3 of
the Purchase Agreement with respect to, among other things,
any (i) third party contracts after the execution date of the
Purchase Agreement; (ii) Space Leases and/or Temporary Leases
other than those disclosed in the Purchase Agreement; or (iii)
litigation, arbitration proceeding or administrative hearing
(including condemnation). Seller further acknowledges and
agrees that Assignee shall not be deemed to have approved any
of the matters set forth on said Schedule 1 until five (5)
business days after the date of the Assignment.
3. Notwithstanding anything to the contrary in the Purchase
Agreement, Seller acknowledges and agrees that the Due
Diligence Expiration Date shall be November 29, 1999, 5:00
p.m. E.S.T. Notice with respect to the Due Diligence
Expiration Date and any other notices under the Purchase
Agreement may be sent by (i) personal delivery, (ii) prepaid,
national overnight courier or (iii) facsimile, with a hard
copy to follow by the manner of delivery set forth in the
preceding clauses and shall be deemed given and received as
set forth in the Purchase Agreement, except that any notice
sent by facsimile shall be deemed delivered on the date sent,
-7-
<PAGE>
provided that confirmation of same is received by the sender.
Seller further acknowledges that any notices sent to Buyer
under the Purchase Agreement from and after the date of this
Consent shall be sent to: (1) Cranberry Properties MM Corp.,
c/o Strategic Resources Corporation, 152 West 57th Street,
44th Floor, New York, New York 10019 (Facsimile Number: (212)
399-3128), Attention: Jonathan E. Klein and Jordan J. Metzger,
with a copy to Battle Fowler LLP, 75 East 55th Street, New
York, New York 10022 (Facsimile Number: (212) 856-7808),
Attention: Robert J. Wertheimer, Esq. and (2) Barker Pacific
Group, Inc., 100 First Street, Suite 2200, San Francisco,
California 94105 (Facsimile No.: (415) 495-7098), Attn:
Michael Barker, with a copy to Lowell & Robbin, 707 Broadway,
Seventeenth Floor, San Diego, California 92101-5311 (Facsimile
No.: (619) 233-0700), Attn: Robert P. Lowell.
SHOPCO MALLS L.P.
By: Shopco Regional Malls, L.P.
By: Regional Malls, Inc.
By: __________________________
Name:
Title:
-8-
<PAGE>
[FN]
<F1>Copies of all letters, memoranda and other correspondence regarding
the Space Leases, the Temporary Leases and any other matters that have
been received by Assignor from and after September 11, 1999 pursuant to
Article III.3 of the Purchase Agreement.
-9-
ANNEX VII
SECOND AMENDMENT TO AGREEMENT OF PURCHASE AND SALE
This SECOND AMENDMENT TO AGREEMENT OF PURCHASE AND SALE (this
"Amendment") is dated as of the 29th day of November, 1999 by and among
SHOPCO MALLS L.P., a Delaware limited partnership ("Seller") and BARKER
PACIFIC GROUP, INC., a Delaware corporation ("Buyer").
BACKGROUND
A. Seller and Buyer executed an Agreement of Purchase and Sale as
of September 11, 1999, as amended by a First Amendment to Agreement of
Purchase and Sale dated as of October 28, 1999 (such Agreement of Purchase
and Sale, as amended, the "Agreement").
B. Seller and Buyer now desire to further amend the Agreement in
order to modify certain terms and conditions thereof. All capitalized terms
not otherwise defined in this Amendment, shall have the meaning given such
terms in the Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Amendment, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties hereby agree as follows:
1. Section VII.2(a) is hereby amended by deleting "30 days after
the date of the First Amendment to Agreement of Purchase and Sale (the 'Due
Diligence Expiration Date') and substituting in lieu thereof "on December 13,
1999 (the 'Due Diligence Expiration Date')."
1. The reference to "(E.D.T.)" in Section VII.2(b) is hereby
changed to "(E.S.T.)".
1. Except as explicitly set forth in this Amendment, the parties
hereto ratify and confirm all of the terms and provisions of the Agreement.
<PAGE>
1. This Amendment may be executed in counterparts, each of which
shall be deemed an original and all of which together, shall be deemed one
Agreement.
SELLER:
SHOPCO MALLS L.P.
By: Shopco Regional Malls, L.P.
By: Regional Malls, Inc.
By: ________________________
Name:
Title:
BUYER:
BARKER PACIFIC GROUP, INC.
By: ____________________________________
Name:
Title:
-2-
ANNEX VIII
THIRD AMENDMENT TO AGREEMENT OF PURCHASE AND SALE
This THIRD AMENDMENT TO AGREEMENT OF PURCHASE AND SALE (this
"Amendment") is dated as of the 23rd day of December, 1999 by and among
SHOPCO MALLS L.P., a Delaware limited partnership ("Seller") and
CRANBERRY PROPERTIES MM CORP., a Delaware corporation ("Buyer").
BACKGROUND
A. Seller and Barker Pacific Group, Inc., a Delaware corporation
("Assignor") executed an Agreement of Purchase and Sale as of September
11, 1999 (the "Initial Agreement"), as amended by a First Amendment to
Agreement of Purchase and Sale dated as of October 28, 1999, a Second
Amendment to Agreement of Purchase and Sale dated as of November 29, 1999
and letters dated December 13, December 14, December 16, December 17,
December 20 and December 21, 1999 (such Initial Agreement, as the same
has been heretofore amended and is hereby amended by this Amendment, the
"Agreement").
B. Pursuant to an Assignment of Purchase and Sale Agreement
dated as of November 11, 1999, Assignor assigned all of its right, title
and interest in and to the Agreement to Buyer, as same has been consented
to by Seller pursuant to a Seller's Consent of even date herewith (the
"Assignment").
C. Seller and Buyer now desire to further amend the Agreement in
order to modify certain terms and conditions thereof. All capitalized
terms not otherwise defined in this Amendment, shall have the meaning
given such terms in the Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Amendment, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
1. Section I.1 is hereby amended by adding or modifying the
following definitions:
"Additional Earnest Money" shall mean an amount equal to
$150,000.
"Approved Met Life Commitment" shall mean a written commitment
(or other evidence satisfactory to Buyer in its sole
discretion) from Lender regarding Buyer's assumption of the
Third Party Loan, which sets forth the agreement of Lender to
amend and restructure the Third Party Loan in a manner
acceptable to Buyer, in Buyer's sole discretion.
<PAGE>
"Business Day" shall mean any day other than (a) Saturday or
Sunday or (b) a day on which commercial banks in New York, New
York are authorized or required by applicable law or executive
order to close.
"Funding Expiration Date" shall mean January 24, 2000, with a
right in favor of Buyer to extend such date for five (5)
business days if an Approved Met Life Commitment has not been
received.
"General Partner" shall mean Regional Malls, Inc., the general
partner of Shopco Regional Malls, L.P.
"Limited Partners" shall mean the limited partners of Shopco
Regional Malls, L.P.
"Limited Partner Approval" is hereby modified by substituting
"50%" in lieu of "66.66%".
"Permitted Exceptions" is modified by (i) adding "subject to
Seller's obligation to deliver customary title affidavits as
provided in Section VIII.8 hereof" at the end of clause (iii)
thereof and (ii) adding "subject to Buyer's right to terminate
this Agreement pursuant to Section VIII.5 hereof" at the end
of clause (B) thereof.
"Third Party Loan Documents" shall mean the documents
evidencing and/or securing the Third Party Loan.
"Voluntary Title Exceptions" is hereby modified by adding the
following to clause (e): "unless the same are the result of
Seller's failure to make any payment for which it is
responsible."
2. Section II.2(a) is hereby amended by deleting the first three
lines and substituting in lieu thereof:
"The consideration for the Asset shall be equal to Thirty-
Three Million Five Hundred Thousand Dollars ($33,500,000) (the
'Purchase Price')."
3. Sections II.2(b)(i) and (ii) are hereby deleted and replaced
by the following:
"(i) Seller acknowledges that Escrow Agent has received an
amount equal to $200,000 representing the Initial Earnest
Money required by the Initial Agreement. In
consideration of certain rights granted to Buyer in this
Amendment, Buyer agrees that $150,000 of the Initial
Earnest Money shall be deemed non-refundable, subject to
Buyer's right to receive a refund of the Earnest Money as
provided in the Agreement. The aforesaid non-refundable
$150,000, together with all interest earned thereon, and
any Additional Earnest Money, together with all interest
-2-
<PAGE>
earned thereon, shall be hereinafter referred to as the
Earnest Money.
In connection with the foregoing agreements, the amount
by which $200,000 exceeds $150,000 shall be wired to
Buyer simultaneously with the execution and delivery of
this Amendment pursuant to the information set forth
below:
Phoenix Four, Inc. Treasury Bill Account
(Account No. 398119120)
Republic National Bank of New York
415 Madison Avenue, New York, New York 10017
ABA No. 021004823
(ii) The Earnest Money shall be held in escrow in accordance
with the provisions of Section 14.4 of the Agreement and
shall be nonrefundable to Buyer except as provided in the
Agreement.
(iii) The parties acknowledge and agree that it is their
intent that the Additional Earnest Money shall be
paid, at Buyer's option, to be determined by Buyer
in its sole discretion, either upon Buyer's receipt
of (i) a No-Review SEC Notice (hereinafter defined),
as provided in Section II.3(b) or (ii) the Approved
Met Life Commitment, as provided in Section VII.2.
If Buyer receives a Yes-Review SEC Notice
(hereinafter defined) and does not terminate the
Agreement, Buyer shall have a third option, which is
to pay the Additional Earnest Money upon
notification from Seller that the SEC has completed
its review process and that Seller is prepared to
mail the Proxy Statement (hereinafter defined) to
the Limited Partners. Notwithstanding the
foregoing, it is understood and agreed that Buyer is
required to deposit the Additional Earnest Money
pursuant to Section VII.2 hereof."
4. Section II.3(a) is hereby deleted and replaced by the
following:
"The closing (the "Closing") of the sale and purchase of the
Asset (the "Transaction") shall take place on February 8, 2000
(the "Scheduled Closing Date"; the actual date of Closing, the
"Closing Date"). Buyer shall have the right from time to time
to extend the Scheduled Closing Date until March 7, 2000, if
required by Buyer in connection with Buyer's financing of the
Transaction, subject to one adjournment of the said Scheduled
Closing Date past March 7, 2000 but not later than March 15,
2000, TIME OF THE ESSENCE with respect to Buyer's obligation
to consummate the Transaction by such date."
-3-
<PAGE>
5. Section II.3(b) is hereby deleted and replaced by the
following:
(i) "Seller agrees to file a preliminary proxy statement
pursuant to Section 14(a) of the Securities Exchange Act
of 1934 (the "Proxy Statement") with the Securities
Exchange Commission ("SEC") for the purpose of soliciting
the Limited Partner Approval by the close of business on
December 31, 1999. Seller agrees to use reasonable
efforts to establish contact with the SEC to ascertain
the status of the filing on or before January 12, 2000.
Seller, promptly after any communications with the SEC
and in any event on or before January 12, 2000, shall
advise Buyer by written notice given by facsimile (the
"SEC Notice") of the status of the filing and whether the
SEC has indicated it will review and/or comment on the
Proxy Statement. Buyer shall have the right to terminate
this Agreement by notice given to Seller within two (2)
business days of its receipt of a SEC Notice stating that
the SEC intends to review and/or comment on the Proxy
Statement (a "Yes-Review SEC Notice"), in which event
this Agreement shall terminate and the Initial Earnest
Money shall be returned to Buyer, but Buyer shall have no
right to receive the Break-Up Fee.
(ii) If (i) the SEC Notice sets forth that the SEC has
indicated that it will not review and/or comment on the
Proxy Statement or (ii) Seller has determined that the
SEC has waived its right to do so (collectively, a "No-
Review SEC Notice"), Buyer shall have the right to
deposit the Additional Earnest Money with Seller, in
which event Seller shall mail the Proxy Statement to the
Limited Partners within two (2) business days of receipt
of the Additional Earnest Money, it being understood
that, if Buyer receives a No-Review SEC Notice on
January 12, 2000 and immediately thereafter wires the
Additional Earnest Money, the mailing shall take place on
January 14, 2000.
(iii) If Buyer receives a Yes-Review SEC Notice, but Buyer
does not elect to terminate this Agreement pursuant
to Section II.3(b)(i) or otherwise waives in writing
its right to terminate, Seller shall promptly
proceed to use reasonable efforts to complete the
SEC review process and, provided that Buyer has
deposited the Additional Earnest Money with Seller,
thereafter mail the Proxy Statement and use
reasonable efforts to solicit the Limited Partner
Approval.
(iv) Without limiting Seller's reasonable efforts obligations
in clauses (ii) and (iii) above, Seller shall (I) during
the SEC review process, prepare printing labels and cause
-4-
<PAGE>
the Proxy Statement to be "printer ready"; (II) cause the
Proxy Statement to provide for a proposed special meeting
of the Limited Partners by no later than February 7, 2000
(assuming a Proxy Statement mailing on January 14, 2000)
and for response by facsimile transmission; (III) retain
a proxy solicitation firm which shall at a minimum
provide the following services: (A) initial call to
every Limited Partner within three (3) business days
after the mailing is made; (B) follow up calls every four
(4) days thereafter; and (C) forwarding another Proxy
Statement by express mail or other national prepaid
overnight delivery service if the calls indicate that a
Proxy Statement has not been received by such Limited
Partner; and (IV) keep Buyer advised of the solicitation
process and, in connection therewith, advise Buyer
regarding the Limited Partner vote count on a daily basis
commencing February 1, 2000.
(v) Seller shall have the right from time to time to extend
the Scheduled Closing Date up to sixty (60) days after
the Scheduled Closing Date (prior to any extensions
thereof) (the "LP Outside Date") pending receipt of
Limited Partner Approval. In the event Limited Partner
Approval has not been obtained by the LP Outside Date
(TIME OF THE ESSENCE with respect thereto), either Seller
or Buyer may terminate this Agreement and in such event
Seller shall promptly (i) cause the Earnest Money to be
returned to Buyer and (ii) deliver the Break-Up Fee to
Buyer, which obligation shall be deemed an obligation
that survives the termination of the Agreement."
6. Section III.2 is hereby amended by adding the following:
"(g) Employees. Seller does not have any employees at the
Property.
(h) Notices from Anchor Tenants. Seller has not received
written notice from Sears, Roebuck and Co., Leggett of
Maryland Inc. or Montgomery Ward & Co., Incorporated
(collectively, the "Major Tenants"), that a Major Tenant has
exercised the right pursuant to such tenant's Space Lease to
vacate its demised premises, cease its present business
operations or terminate its Space Lease or given any written
indication of its desire to do so. Notwithstanding the
foregoing, it is understood and agreed that if this
representation is untrue as of, or at any time prior to the
Closing, Buyer shall have the rights afforded to Buyer set
forth in the Agreement for a breach of a representation, but
in no event shall Buyer have any right or claim to the Break-
Up Fee."
7. Section III.2(b) is hereby supplemented by adding the
following thereto:
-5-
<PAGE>
"Without limiting the generality of the foregoing, Seller
hereby represents and warrants that the sole management and
leasing contract (the "Management Contract") for the Property
is with Insignia, which Management Contract, together with all
obligations thereunder, will be terminated as of the Closing
Date and Buyer shall have no obligations in respect of said
Management Contract or the termination thereof, except for the
brokerage commissions in respect of the potential tenants
listed on Schedule 3 attached hereto, provided that such
leases are executed at any time prior to thirty (30) days
after the Closing Date."
8. Section III.3(d) is hereby supplemented to provide that Seller
agrees that it will continue to use Buyer as a consultant in respect of
the marketing and leasing of the Property and in connection therewith
shall institute a procedure for regular weekly meeting and frequent
telephone consultations with Buyer with respect to (i) the marketing
efforts to secure prospective tenants for the Property, (ii) all
renewals, extensions and space options of present tenants and (iii)
during the early negotiation period with any prospective tenants, the
(I) economic terms of the proposed transaction, such as the Fixed Rent,
any additional rent, TI Costs and term of lease, and (II) any design and
location issues.
Section III.3 is modified by adding the following at the end
thereof:
(i) "In consideration of Buyer's efforts to negotiate an
assumption of the Third Party Loan in connection with the
Transaction, and in order to more efficiently address the
thirty (30) day prepayment notice period (the "Prepayment
Notice Period") under the Third Party Loan Documents,
Seller shall use reasonable efforts to obtain a written
waiver from Lender of the Prepayment Notice Period (or a
written agreement reducing same)."
9. Section IV.1.(e)(ii) is hereby supplemented to provide that
attached hereto as Schedule 1 is to Seller's knowledge a list of all the
environmental reports in Seller's possession. True, correct and complete
copies have been delivered to Buyer.
10. Section V.1(g) is hereby further amended by deleting clause
(iii) thereto and substituting the following:
"(iii) Seller shall pay to Buyer a break-up fee (the
"Break-Up Fee") in an amount up to $300,000, calculated as
follows: (I) up to $200,000 for general due diligence costs
and (II) the balance for any costs incurred by Buyer in
obtaining financing for its purchase of the Asset, including,
without limitation, lender's fees, commitment fees, reasonable
attorneys' fees and the costs of any professional reports
required by its lender."
-6-
<PAGE>
11. Section V.2(f) of the Agreement is hereby supplemented by
adding the following:
"Seller hereby agrees that the information in the executed
Tenant Estoppel Certificates required to be delivered by
Seller pursuant to this Section V.2(f) must (i) be in the form
attached hereto as Schedule 2 which is substituted for Exhibit
G (other than as provided below with respect to Major
Tenants), (ii) substantially conform to the information set
forth in the Asset File, (iii) not modify the attached form of
tenant estoppel attached hereto in any material way (unless
such modification has been added to conform to information in
the Asset File) and (iv) be dated no earlier than thirty (30)
days prior to the Scheduled Closing Date ('Conforming Tenant
Estoppel Certificates'). If any Tenant Estoppel Certificate
is not a Conforming Tenant Estoppel Certificate, Buyer shall
so notify Seller and Seller may deliver a Seller Estoppel in
lieu thereof containing the information which would have
otherwise been included in the Conforming Tenant Estoppel
Certificate, provided, however, delivery of a tenant estoppel
certificate from all Major Tenants, in the form required by
such Major Tenant's lease and otherwise being a Conforming
Tenant Estoppel Certificate, shall be a pre-condition to
Buyer's obligation to close on the purchase of the Asset. If
the required number of Conforming Tenant Estoppel Certificates
(including estoppel certificates from Major Tenants as
required by the foregoing sentence) are not received by the
Scheduled Closing Date, Seller shall be entitled to extend the
Scheduled Closing Date for an additional fifteen (15) days in
order for Seller to satisfy its obligations with respect
thereto (TIME OF THE ESSENCE with respect to Seller's
obligation to close after such extension unless Limited
Partner Approval has not been obtained and subject to any
extensions permitted under Section VIII.5.)"
12. Section VII.2 is hereby deleted and replaced by the following:
"(a) The Buyer confirms to the Seller that Buyer has
conducted a detailed inspection of the Asset File, has made
multiple site visits and in certain instances consulted with
third party professionals in satisfying itself that the
Property is appropriate for Buyer's acquisition. In addition,
Buyer has satisfied itself with respect to matters relating to
environmental Phase I audits and engineering analysis and has
conducted such tests, examination and studies of the Property
as Buyer deems necessary or appropriate and has examined all
applicable records relating to the income, operation and
maintenance of the Property and has determined the compliance
of the Property with applicable laws and regulations,
including, without limitation, zoning, building, land use and
environmental protection laws.
-7-
<PAGE>
(b) Buyer shall have the absolute right to terminate its
obligations hereunder on or before the Funding Expiration Date
(5:00 p.m. E.S.T.) unless Buyer has received an Approved Met
Life Commitment by such date. If such notice is given on or
before 5:00 p.m. E.S.T. on the Funding Expiration Date, then
this Agreement shall terminate and neither Seller nor Buyer
shall have any further obligation hereunder, however, Seller
shall retain the Initial Earnest Money. If such notice is not
given and Buyer has not already deposited the Additional
Earnest Money, Buyer covenants and agrees to deposit the
Additional Earnest Money within two (2) business days of its
receipt of the Approved Met Life Commitment, but no later than
two (2) business days after the Funding Expiration Date. If
such deposit is not made within such two (2) business day
period, TIME OF THE ESSENCE with respect to such deposit, (i)
this Agreement shall be deemed terminated and (ii) Seller
shall be entitled to retain the Initial Earnest Money."
13. Section IX.1 is hereby amended by deleting clause (ii) of sub-
section (c) thereof and modifying said Section IX.1 to delete any
reference to Buyer's obligation to pay fees, costs and transfer taxes in
respect of any portion of the Purchase Price that is in excess of
$33,500,000.
14. Sections X.1 and X.2 are hereby modified to provide that,
inasmuch as Caldor and CVS Pharmacy are significantly in arrears with
respect to the payment of Fixed Rents and/or Overage Rent due and payable
in respect of the premises occupied by such tenants (the "Rent Arrearage
Amounts"), the parties agree that Buyer shall (i) be under no obligation
to deliver any Rent Arrearage Amounts in respect of such tenants and (ii)
not be accountable to Seller for any amounts due and payable from such
tenants for the period prior to the Closing Date and Seller waives any
right to further pursue collection of any Rent Arrearage Amounts in
respect of such tenants in connection therewith. Seller further
acknowledges that any Fixed Rents or Overage Rent collected by Buyer
after the Closing Date from tenants who have exercised their so-called
"co-tenancy rights" under their respective leases (or who have otherwise
negotiated the right to pay reduced rent) shall be similarly excluded
from the provisions of Sections X.1 and X.2.
15. Section X.7(c) is hereby modified to provide that the non-
binding letters of intent for the proposed leases with The Gap and Old
Navy have been approved by Buyer, but that the form of lease to be
executed and delivered in connection therewith has not yet been submitted
to Buyer. If the Space Leases for The Gap and Old Navy are approved by
Buyer, at Closing Buyer shall assume the obligation to pay and/or
reimburse Seller for the paid portion of the TI Costs in connection with
such Space Leases.
16. Section X.11 is hereby deleted.
-8-
<PAGE>
17. Section XI.2 is modified by deleting clause (iv), moving
the "and" from in front of clause (iv) to in front of clause (iii) and
adding the following:
"Notwithstanding anything to the contrary in this
Section, Buyer's liability for all matters occurring
prior to the Closing Date shall in no event exceed the
Initial Earnest Money (reduced to $150,000 as provided
herein) prior to the Funding Expiration Date and the
Earnest Money subsequent thereto."
18. The Survival Period defined in Section XI.3 shall be
extended to six (6) months after the Closing Date.
19. Section XIII.1(b) is hereby modified by adding the
following at the end thereof: "or the termination of this Agreement
prior to Closing pursuant to terms hereof."
20. Section XIV.6 is hereby modified by deleting the first
sentence thereof and amending the second sentence to provide that Buyer
may also assign the Agreement to unaffiliated third parties, provided
that Buyer will continue to remain primarily liable under the Agreement
notwithstanding any such assignment.
21. Seller acknowledges and agrees that (i) Buyer is
presently contemplating an assumption of the Third Party Loan as part of
its financing strategy for the purchase of the Asset, (ii) in connection
therewith, there may be a restructuring of the Third Party Loan
consistent with the current economic state of the Property and its
tenancies (which restructuring shall only be applicable to Buyer and
shall be effective from and after the date that Buyer assumes the Third
Party Loan), (iii) such discussions are an appropriate part of Buyer's
due diligence and (iv) Buyer is entitled to disclose to Lender Buyer's
present financial assessment of the Property, Buyer's business plans, any
engineering and environmental reports and any other reports, documents or
other information obtained or created by Buyer in respect of the Property
or the proposed financing. Seller agrees, at no expense to it, and
without liability, to cooperate with Buyer in connection with Buyer's
efforts to negotiate and restructure the Third Party Loan and, in respect
of the foregoing and at Buyer's request from time to time, Seller will
participate in meetings and other negotiations with the holder of the
Third Party Loan relating thereto, provided, however, in no event shall
Seller be in any way responsible or liable with respect to the outcome of
such efforts; provided, however, no such amendment or restructuring shall
be in effect until and unless Closing occurs. Buyer agrees to keep
Seller informed regarding the status of its negotiations with Lender.
22. Except as expressly set forth in this Amendment, the
parties hereto ratify and confirm all of the terms and provisions of the
Agreement.
-9-
<PAGE>
23. This Amendment may be executed in counterparts, each of
which shall be deemed an original and all of which together, shall be
deemed one Agreement.
24. This Amendment shall be governed and construed in
accordance with the laws of the State of New York.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Amendment as of the day and year first above written.
SELLER:
SHOPCO MALLS L.P.
By: Shopco Regional Malls, L.P.
By: Regional Malls, Inc.
By: ----------------------
Name:
Title:
BUYER:
CRANBERRY PROPERTIES MM CORP.
By: -------------------------------
Name:
Title:
ESCROW AGENT:
FIRST AMERICAN TITLE INSURANCE COMPANY
By: -------------------------------
Name:
Title:
-11-
<PAGE>
SCHEDULE 1
LIST OF ENVIRONMENTAL REPORTS IN SELLER'S POSSESSION
Environmental Site Assessment of Cranberry Mall by EMG
as reissued on 2/8/99.
-1-
<PAGE>
SCHEDULE 2
----------
TENANT ESTOPPEL CERTIFICATE
Metropolitan Life Insurance Company
-------------------------------
-------------------------------
-------------------------------
Re: Lease ("Lease") dated ----------------, 199--
of -------------- square feet of space known as Suite No.
-------, in --------------------------, located at
---------------------------------------, City of
----------------, ------------------- County, ---------
------------- ("Premises") between ---------------------
---------------------- ("Landlord") and --------------------
----------------------------- ("Tenant") as Tenant. INCLUDE
ANY MODIFICATIONS OR AMENDMENTS
Ladies and Gentlemen:
1. The term of the Lease commenced on ---------------------,
199--, and will expire on -------------------, 199--.
2. The Lease as described above constitutes the entire
agreement of Landlord and Tenant with respect to the Premises, is true,
correct and complete, has not been modified or amended except as
described above, and is in good standing and in full force and effect.
3. Tenant has commenced payment of monthly fixed rent under
the Lease in the amount of $-------------, and such rent has been paid
for the period ending on -----------------, 199--.
4. Tenant has paid a security deposit under the Lease in
the amount of $------------.
5. Under the Lease, Tenant is required to pay as additional
rent its share of increases in taxes, operating expenses and common area
maintenance charges, if applicable, commencing ------------------,
199--.
6. As far as is known to Tenant, there are no defaults of
Landlord under the Lease and there are no existing circumstances which
with the passage of time, or notice, or both, would give rise to a
default under the Lease.
-1-
<PAGE>
7. Construction of all tenant improvements required under
the Lease has been satisfactorily completed and Tenant has accepted and
is occupying the Premises.
8. Tenant has not generated, stored, handled or otherwise
dealt with any hazardous or toxic waste, substance or material, or
contaminants, oil, pesticides, radioactive or other materials on the
Premises, the removal of which is required or the maintenance of which is
prohibited, regulated or penalized by any local, state or federal agency,
authority or governmental unit, nor will it do so in the future.
9. Tenant has no charge, lien, claim of set-off or defense
against rents or other charges due or to become due under the Lease or
otherwise under any of the terms, conditions or covenants contained
therein.
10. Tenant has not received any concession (rental or
otherwise) in connection with renting the Premises as follows:
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
11. Tenant has received no notice from any insurance company
of any defects or inadequacies in the Premises, or any part thereof,
which would adversely affect the insurability of the Premises.
12. There are no pending suits, proceedings, judgments,
bankruptcies, liens or executions against Tenant or any affiliate of
Tenant.
13. Tenant does not have any rights or options to purchase
the building in which the Premises are located.
14. Tenant does not have any rights or options to renew the
Lease or to lease additional space in any building owned by the Landlord
except as follows:
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
15. Tenant has no knowledge of any assignment by Landlord of
its interest in the Lease other than to MetLife.
16. From and after the date hereof, Tenant will not pay any
rent under the Lease more than thirty (30) days in advance of its due
date.
-2-
<PAGE>
17. From and after the date hereof, so long as there shall
be any assignment, the Lease to MetLife, or any successor thereto, Tenant
will not surrender or consent to the modification of any of the terms of
the Lease, nor to the termination thereof by Landlord, nor seek to
terminate the Lease by reason of any act or omission of Landlord until
Tenant shall have given written notice of such act or omission to the
holder of the note or other obligation secured or to be secured by a
security instrument upon the property of which the Premises is a part (at
such holder's last address furnished Tenant) and until a reasonable
period of time shall have elapsed following the giving of such notice,
during which period such holder shall have the right, but not the
obligation, to remedy such act or omission.
18. Upon written notice of the default of Landlord under any
of the loan documents held by MetLife and assignment of the Lease by
Landlord to MetLife, Tenant will thereafter pay rent and other sums to
MetLife (or to the party designated by MetLife) in accordance with the
terms of the Lease and following any foreclosure, Tenant shall recognize
MetLife as the Landlord under the Lease.
19. The certifications contained herein are made in the
knowledge that MetLife, as a prospective Mortgagee of the Premises, will
place substantial reliance thereon.
Very truly yours,
-----------------------------------
[Name of Tenant]
By: ------------------------------
Title:
Date: ----------------------------
-3-
<PAGE>
SCHEDULE 3
----------
BROKERAGE COMMISSIONS DUE TO INSIGNIA
Tenant Square Footage Broker
------ -------------- ------
-1-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 of
- ----- the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
-----------------
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 number: 33-20614
--------
SHOPCO REGIONAL MALLS, L.P.
Exact name of Registrant as specified in its charter
Delaware 13-3217028
-------- ----------
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
Attn.: Andre Anderson
3 World Financial Center, 29th Floor, New York, NY 10285-2900
- -------------------------------------------------- ----------
Address of principal executive offices Zip code
Registrant's telephone number, including area code: (212) 526-3183
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS
-----------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
<PAGE>
the preceding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
-----
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: Not applicable.
Documents incorporated by reference: See Exhibit Index at Item 14.
<PAGE>
PART I
Item 1. Business
(a) General Development of Business
-------------------------------
Shopco Regional Malls, L.P., a Delaware limited partnership (the "Partnership")
was formed on March 11, 1988. The affairs of the Partnership are conducted by
its general partner, Regional Malls Inc. (the "General Partner," formerly
Shearson Regional Malls, Inc.), a Delaware corporation and an affiliate of
Lehman Brothers Inc. ("Lehman"). The Partnership is the general partner of
Shopco Malls L.P. (the "Owner Partnership," formerly Shearson Shopco Malls
L.P.), a Delaware limited partnership that originally owned two enclosed
regional malls, The Mall at Assembly Square ("Assembly Square") located in
Somerville, Massachusetts and Cranberry Mall ("Cranberry") located in
Westminster, Maryland (both Assembly Square and Cranberry are referred to herein
as the "Malls"). On December 20, 1996, the Owner Partnership transferred title
of Assembly Square to the holder of the mortgage secured by Assembly Square
pursuant to a foreclosure proceeding. See Note 3 of the Notes to the
Consolidated Financial Statements for a discussion regarding the foreclosure on
Assembly Square. As of December 31, 1998 the Owner Partnership owned only
Cranberry Mall. The sole limited partner of the Owner Partnership is Shopco
Limited Partnership ("Shopco L.P."), a Delaware limited partnership and an
affiliate of The Shopco Group. (The Partnership and Shopco L.P. are referred to
collectively as the "Owner Partners.")
On June 14, 1988 the Partnership commenced an offering of 110,000 depositary
units ("Units") at $1,000 per Unit to be sold by the underwriter, Lehman,
(formerly Shearson Lehman Brothers Inc.) on a "best efforts" basis (the
"Offering"), of which the Partnership accepted subscriptions of 70,250 Units,
the maximum closing amount authorized by the Amended and Restated Agreement of
Limited Partnership of Shopco Regional Malls, L.P. (the "Agreement of Limited
Partnership"). Concurrent with the consummation of the Offering, the Assignor
Limited Partner assigned its rights as a limited partner to the holders of Units
("Unitholders") who then became limited partners.
The Partnership was formed to acquire the fee interest and improvements in the
Malls. The Malls were purchased using the proceeds of the Offering, the issuance
of two Promissory Notes and a loan from Lehman Brothers Holdings Inc. ("Lehman
Holdings", formerly Shearson Lehman Brothers Holdings Inc.), an affiliate of the
General Partner, (the "Gap Loan") in October 1988. The aggregate purchase price
of the Malls was $96,205,500. Assembly Square was acquired from Somerville S.C.
Associates L.P., a Massachusetts limited partnership for a purchase price of
$42,358,000 on October 11, 1988. Cranberry was acquired from Cranberry L.P., a
Maryland limited partnership and an affiliate of The Shopco Group for a purchase
price of $53,847,500 on October 5, 1988.
Two mortgage loans were issued in October 1988. The first was from the Aetna
Life Insurance Company ("Aetna") in the initial principal amount of $28,000,000
<PAGE>
(the "Assembly Note"), and the second in the original principal amount of
$27,250,000 (the "Original Cranberry Note") from the Mutual Life Insurance
Company of New York ("MONY"). In December 1996, Aetna acquired Assembly Square
pursuant to a foreclosure proceeding, and the Owner Partnership was absolved of
its mortgage obligation under the Assembly Note. Aetna subsequently pursued
claims arising out of its mortgage and security agreement, and a settlement
agreement was reached between the Partnership and Aetna in September 1997. See
Item 3 for a discussion of the settlement. In September 1990, MONY issued an
additional mortgage loan in the original principal amount of $3,775,000 (the
"Additional Cranberry Note") and at such time, the Original Cranberry Note and
the Additional Cranberry Note were consolidated. The MONY loan was subsequently
purchased by Metropolitan Life Insurance Company. The Cranberry Note matured on
November 1, 1993, was extended to May 1994, and was modified and extended until
April 1, 1999. In March 1999, Metropolitan Life Insurance Company agreed to
allow the Partnership to defer the payment of the principal balance of the loan
to April 1, 2000, provided that the Partnership continues to pay interest at the
same rate and times set forth in the Cranberry Note. See Item 7 for a discussion
of the upcoming maturity of the Cranberry Note and Note 6 to the Consolidated
Financial Statements for a description of the terms of the Cranberry Note.
The Owner Partnership's business, as an owner of a mall property, is somewhat
seasonal since a portion of its revenue is derived from a percentage of the
retail sales of certain tenants. Generally, such sales are higher in November
and December during the holiday season.
(b) Financial Information about Industry Segments
---------------------------------------------
Substantially all of the Partnership's revenues, operating profit or loss and
assets relate to its interest as general partner of the Owner Partnership whose
operating profit or loss and assets relate to its ownership and operation of
Cranberry.
(c) Narrative Description of Business
---------------------------------
The Partnership's primary business is acting as general partner for the Owner
Partnership. As of December 31, 1998, the Owner Partnership's sole business is
the ownership and operation of Cranberry Mall (See Item 2 for a description of
Cranberry Mall and its operations).
During 1998, the Partnership engaged a broker to market Cranberry Mall for sale,
and in December, entered into an agreement to sell its ownership interest in the
Mall. However, the buyer subsequently withdrew its offer during its due
diligence review of the property and the agreement was canceled. As a result,
the General Partner has resumed efforts to actively market the property for
sale. While it is the General Partner's intention to sell the Mall and liquidate
the Partnership during 1999, there can be no assurance as to the timing of a
sale or that a particular price can be achieved.
<PAGE>
Competition
- -----------
See Item 2 for a discussion of competitive conditions at Cranberry Mall.
Employees
- ---------
The Partnership has no employees. The business of the Partnership is managed by
the General Partner. Cranberry Mall is managed on a day-to-day basis by Insignia
Retail Group, (the "Property Manager"). See Note 8 to the Consolidated Financial
Statements for the terms of the Management Agreement and amounts paid
thereunder.
Item 2. Properties
The Owner Partnership's remaining mall property, Cranberry Mall, is a single
level enclosed regional shopping center located in Westminster, Maryland,
approximately 30 miles northwest of Baltimore. Cranberry, which opened in March
1987, consists of approximately 530,000 square feet of gross leasable area
including space for approximately 90 retail tenants, a nine-theater cinema
complex and four anchor stores; Sears, Belk (formerly Leggett), Montgomery Ward
and a vacated Caldor store. Caldor rejected its lease and vacated its space in
1998 pursuant to its Chapter 11 bankruptcy filing. See Item 7 for a discussion
of Caldor's bankruptcy filing and its effect on the Partnership. Cranberry is
located on 55.61 acres and provides parking for 2,597 automobiles.
The total gross leasable building area of Cranberry Mall is allocated as shown
in the table below.
<TABLE>
<CAPTION>
Square Feet Percentage of
Leasable to Gross Leasable
Tenants Tenants Area
------------------------------------------------------------
<S> <C> <C>
Anchor Stores:
Vacant<F1> 81,200 15%
Belk 65,282 12%
Montgomery Ward 80,260 15%
Sears 70,000 13%
Enclosed Mall Tenants 224,377 43%
Outparcel Store<F2> 9,000 2%
------- ---
Total 530,119 100%
======= ===
<FN>
<F1> Caldor rejected its lease and vacated its space in 1998 pursuant to its
Chapter 11 bankruptcy filing. See Item 7 for a discussion of Caldor's
bankruptcy filing and its effect on the Partnership.
<F2> Outparcel Store is an auto service center leased to Montgomery Ward.
</TABLE>
<PAGE>
On May 1, 1997, Insignia Retail Group ("Insignia") was installed as the new
property manager for Cranberry Mall. Insignia replaced Shopco Management
Corporation, an affiliate of the Owner Partnership as property manager. Insignia
receives an annual fee equal to 4% of the gross rents collected from Cranberry
Mall. The management agreement with Insignia currently expires on April 30, 1999
and can be renewed annually at the Owner Partnership's option for one-year
terms.
Mall Tenants - As of December 31, 1998, Cranberry Mall had approximately 64 mall
tenants (excluding anchor tenants) occupying gross leasable area of
approximately 181,000 square feet. As of December 31, 1998, Cranberry Mall had
23 vacant mall stores containing approximately 43,000 gross leasable square
feet.
Anchor Tenants - Sears leases approximately 70,000 square feet of gross leasable
building area. The Sears store opened in October 1987 and the initial term of
the lease expires in 2002, with Sears having two successive five-year renewal
options. Sears pays an annual fixed rent of $195,800 and an annual percentage
rent equal to 2.25% of net sales in excess of $10,000,000 up to $15,000,000 and
2% of net sales in excess of $15,000,000. Beginning in 1993, Sears commenced
paying its pro rata share of increases in real estate taxes, but such tax
payments may be deducted from percentage rent due on an annual non-cumulative
basis. Also commencing in 1993, Sears became responsible for contributing to
exterior common area maintenance on a flat rate basis. Sears currently pays all
utilities directly and is not required to carry its own fire insurance. Sears is
required to use the premises as a Sears retail store until the year 2002 or
under such other trade name as the majority of Sears retail stores are then
operating. Thereafter, Sears may assign or sublet the premises with the
landlord's consent, not to be unreasonably withheld.
On November 1, 1996, Belk acquired 100% in the stock of Leggett of Virginia Inc.
and its affiliated Leggett stores, which includes the Leggett store at Cranberry
Mall. Belk currently leases 65,282 square feet of gross leasable building area.
The initial term of the lease expires in 2007 and the lease provides four
successive, five-year renewal options at the same rent. Belk is obligated to pay
an annual fixed rent of $228,487 and an annual percentage rent equal to 2% of
sales above $10,608,325. Belk is responsible for its pro rata share of increases
in real estate taxes after the third year of full assessment but it may deduct
one-half of these tax payments on a cumulative basis from percentage rent due.
Utility charges are paid directly to the public utility and Belk is not required
to carry its own fire insurance or to pay for common area maintenance. During
the first 15 years of the lease, ending March 4, 2002, the tenant is required to
use the premises as a Belk retail department store or under such other trade
name as Belk is then operating substantially all of its department stores. The
tenant cannot assign or sublet the premises during the first 15 years of the
lease term without the landlord's consent to anyone other than another Belk
mercantile company of comparable net worth as the tenant.
<PAGE>
Montgomery Ward leases approximately 80,000 square feet of gross leasable
building area and 9,000 square feet for an automotive center. The Montgomery
Ward store opened for business on November 4, 1990 and the initial term of the
lease expires in 2010 with four successive five-year renewal options. Montgomery
Ward pays an annual fixed rent of $348,114 and an annual percentage rent equal
to 2.5% of the net retail sales in excess of $13,924,560. Montgomery Ward is
required to reimburse the landlord for its pro rata share of insurance and
utility costs and real estate taxes based on its gross leasable area of the
building. Montgomery Ward will be required to reimburse the landlord for a
portion of the common area and maintenance charges as set forth under the lease
agreement. During the first 15 years of the lease term, the tenant is required
to use the premises as a retail store under the trade name Montgomery Ward or
under such other name as the tenant is doing business in the majority of its
retail department stores in the State of Maryland. Montgomery Ward has the right
to sublease the premises at any time during its lease term with the landlord's
written consent, however, they will not be relieved of their obligations under
the terms of the lease.
On July 7, 1997, Montgomery Ward filed for protection under Chapter 11 of the
U.S. Federal Bankruptcy Code. On October 10, 1997, as part of its bankruptcy
reorganization process, Montgomery Ward announced the closing of 48 stores.
Although the Cranberry Mall store is not among current locations scheduled to be
closed, the possibility still exists that at a future point in time Montgomery
Ward may choose to reject its lease and vacate the premises. Currently, the time
for Montgomery Ward to make such an election has been extended through August
31, 1999 and may be extended after that date as well. Montgomery Ward continues
to meet the original terms of its lease.
Historical Occupancy - The following table sets forth the historical occupancy
rates for Cranberry Mall at December 31 for the years indicated.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Including Anchor Stores 77% 92% 93% 93% 91%
Excluding Anchor Stores 79% 82% 84% 83% 80%
</TABLE>
Competition - The General Partner believes that the primary trade area for
Cranberry (i.e., the primary geographical area from which Cranberry derives its
repeat sales and regular customers) is the area within a radius of approximately
15 miles from Cranberry. The General Partner believes the secondary trade area
is within a radius of 15 to 20 miles from Cranberry.
There are no competitive shopping malls in the primary trade area of Cranberry,
although there is considerable retail activity in strip centers and on local
roads near Cranberry. Also, a 116,000 square foot free-standing WalMart opened
<PAGE>
in November of 1992 near Cranberry in the Englar Business Park and a Sam's Club
store is under construction. In addition, in 1996, a Target store opened
approximately one mile southeast of Cranberry. In the secondary trade area there
are three competitive shopping malls; Hunt Valley Mall, Carrolltowne Mall and
Owings Mill Mall. Hunt Valley Mall is a bi-level enclosed shopping mall located
approximately 25 miles east of Cranberry and is anchored by Macy's and Sears.
Carrolltowne Mall is located 25 miles from Cranberry and was expanded and
enclosed during 1989. Carrolltowne Mall is oriented to the discount shopper.
Owings Mill Mall is located approximately 25 miles from Cranberry and is
anchored by Macy's, Hechts and is adding a J.C. Penney store. Owings Mill Mall
caters to the upscale market. Cranberry also competes with the North Hanover
Mall in Hanover, Pennsylvania, located 26 miles north of Cranberry. North
Hanover Mall is a 450,000 square foot regional mall anchored by Bon Ton, J.C.
Penney, Kmart and Sears. Retail stores at malls also compete with local shops,
stores and power centers. Generally, competition among retailers for customers
is intense, with retailers competing on the basis of quality, price, service and
location.
Item 3. Legal Proceedings
On October 18, 1996, a purported first consolidated and amended class action
complaint was filed in the Court of Chancery of the State of Delaware and for
New Castle County (the "Court") on behalf of all persons who purchased units in
the Partnership, among other investments. The complaint names the General
Partner of the Partnership, Lehman Brothers Inc. and others (the "Defendants").
This case consolidates previous actions against the Defendants. The Partnership
was not named as a defendant. The complaint alleges, among other things, that
the Unitholders were induced to purchase Units based upon misrepresentation
and/or omitted statements in the sales materials used in connection with the
offering of Units in the Partnership. The complaint purports to assert a claim
for breach of fiduciary duty by the Defendants based on the foregoing. On March
16, 1999 the parties entered into a stipulation and order that dismissed this
action without prejudice. This stipulation is subject to approval by the Court.
Following the foreclosure on the mortgage of Assembly Square by Aetna in
December 1996, Aetna advised the Partnership it would pursue environmental
remediation claims for land contamination. On September 3, 1997, the Partnership
and Aetna entered into a Settlement Agreement whereby the Partnership paid
$400,000 to Aetna for a complete release from environmental claims. The release
excludes environmental claims already made by Aetna regarding existing
environmental conditions and environmental claims which could arise in the
future because of existing conditions. The Partnership separately funded
approximately $500,000 to pay for work performed to address environmental
conditions at Assembly Square. Accordingly, the Partnership accrued
environmental remediation and settlement costs of $900,000, as reflected in the
1997 consolidated statements of operations. At December 31, 1998, $879,423 of
this amount had been paid by the Partnership. It is uncertain whether the
Commonwealth of Massachusetts will test the remediation work performed at
Assembly Square, whether such tests would lead to additional remediation costs
or whether Aetna will pursue additional claims against the Partnership.
<PAGE>
The Partnership has demanded contribution from a prior owner of Assembly Square
for the amounts the Partnership expended in connection with the environmental
site remediation. During 1998, the Partnership reached an agreement with the
prior owner pursuant to which the prior owner paid the Partnership $300,000 for
complete settlement of the Partnership contribution claim, which payment was
received during the first quarter of 1999. The Partnership has also demanded
contribution from another prior owner of Assembly Square, however, it is
uncertain at this time whether the Partnership will recover any further
remediation costs from this prior owner.
In July 1998, Caldor rejected its lease with bankruptcy court approval and the
Partnership's claims for unpaid rent and rejection damages under Caldor's lease
in the amount of $833,921 was filed shortly thereafter. Caldor did not submit a
plan of reorganization and on January 22, 1999 was ordered to wind-down its
business operations and affairs under Chapter 11 of the Bankruptcy Code. It is
not known at this time the extent to which these claims for unpaid rent and
rejection damages will be paid. See Item 7 for a discussion of Caldor's
bankruptcy filing and its effect on the Partnership.
Item 4. Submissions of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Unitholders at a meeting or otherwise
during the year for which this report has been filed.
PART II
Item 5. Market for Registrant's Limited Partnership
Units and Related Security Holder Matters
(a) Market Price Information
------------------------
There is no established trading market for the Units nor is there anticipated to
be any in the future.
(b) Holders
-------
As of December 31, 1998, there were 4,781 Unitholders.
(c) Distribution of Net Cash Flow
-----------------------------
The Partnership's policy was to distribute to the Unitholders their allocable
portion of Net Cash Flow (as defined in the prospectus) with respect to each
fiscal year in quarterly installments. Distributions of Net Cash Flow, if any,
were paid on a quarterly basis to registered Unitholders on record dates
established by the Partnership, which generally were the last day of each
quarter.
<PAGE>
In consideration of a decline in operations at Assembly Square, the General
Partner suspended cash distributions beginning with the 1996 first quarter.
Distributions remained suspended since this time in consideration of the
foreclosure of Assembly Square, reduced Partnership cash flow and issues
concerning certain anchor tenants at Cranberry Mall. On October 19, 1998, the
Partnership paid a special cash distribution of $74.69 per Limited Partnership
Unit, representing approximately one half of the Partnership's cash reserves.
The distribution was paid in consideration of the General Partner's decision to
market the Cranberry Mall for sale, and to reduce the level of cash held in
reserve for leasing and capital expenditures. See Item 7.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
(dollars in thousands except per Unit data)
- ---------------------------------------------------------------------------------------------------
As of and for the years ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total income $ 7,516 $ 8,172 $13,022 $13,806 $ 13,985
Loss on write down of real estate (4,146) (7,573) (7,910) -- --
Gain on foreclosure of
property<F1> -- -- 9,337 -- --
Net income (loss) (2,584) (7,594) 1,008 (17,536) 693
Net income (loss) per Unit (36.41) (107.02) 9.88 (247.13) 9.77
Cash distributions per Unit 74.69 -- -- 15.00 --
Real estate, net of
accumulated depreciation<F2> 35,280(b) 39,275 48,197 73,162 92,807
Mortgages payable 31,025 31,025 31,025 55,323 55,887
Total assets 42,818 50,814 58,266 81,655 100,542
- ---------------------------------------------------------------------------------------------------
<FN>
<F1> On December 20, 1996, Aetna obtained title to Assembly Square at the
foreclosure sale. As a result, the Partnership recorded an extraordinary
gain on foreclosure of $9,336,544 due to the release of the Aetna mortgage
debt on the property.
<F2> During 1998, the Partnership engaged a broker to market Cranberry Mall for
sale. In view of the anticipated sale of the Mall, the Partnership's real
estate is recorded on the Partnership's December 31, 1998 consolidated
balance sheet as "Real estate assets held for disposition."
</TABLE>
The above selected financial data should be read in conjunction with Item 7 and
the Consolidated Financial Statements and notes thereto in Item 8.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
During 1998, the Partnership engaged a broker to market Cranberry Mall for sale
and on December 3, 1998 entered into an agreement to sell its ownership interest
in Cranberry Mall to an unaffiliated third party. However, the buyer
subsequently withdrew its offer during its due diligence review of the property
and the agreement was canceled. As a result, the General Partner has resumed
efforts to actively market the property for sale. Efforts to sell the Mall,
however, are likely to be impacted by the vacancy of Caldor's space and the
uncertain status of the Montgomery Ward's store. Any sale of the Partnership's
interest in the Mall is subject to the approval of a majority of interest of the
Limited Partners. While it is the General Partner's intention to sell the Mall
and liquidate the Partnership during 1999, there can be no assurance as to the
timing of a sale or that a particular price can be achieved.
On September 18, 1995, Caldor, an anchor tenant at Cranberry Mall, filed for
protection under the U.S. Bankruptcy Code. In February 1998, Caldor announced
that it would close its store at Cranberry, and did so on May 10, 1998. In July
1998, Caldor rejected its lease and vacated the property with bankruptcy court
approval, and the Partnership's claims for unpaid rent and rejection damages
under Caldor's lease was filed shortly thereafter. Caldor did not submit a plan
for reorganization and on January 22, 1999 was ordered to wind down its business
operations and affairs under Chapter 11 of the Bankruptcy Code. It is not known
at this time the extent to which these claims for unpaid rent and rejection
damages will be paid. Although the General Partner continues working to secure a
new anchor tenant for Caldor's space, attracting a replacement anchor is likely
to take time and require substantial capital outlays by the Partnership to fund
alterations necessary to accommodate another tenant. Given the fact that the
Mall is actively being marketed for sale, it is likely that a replacement for
Caldor will not be found prior to a sale of the Mall.
On July 7, 1997, Montgomery Ward, an anchor tenant at Cranberry Mall filed for
protection under Chapter 11 of the Bankruptcy Code. On October 10, 1997, as part
of its bankruptcy reorganization process, Montgomery Ward announced the closing
of 48 stores. Although the Cranberry Mall store is not among current locations
scheduled to be closed, the possibility still exists that at a future point in
time Montgomery Ward may choose to reject its lease and vacate the premises.
Currently, the time for Montgomery Ward to make such an election has been
extended through August 31, 1999 and may be extended after that date as well.
Montgomery Ward continues to meet the original terms of its lease.
The first and second mortgage notes secured by Cranberry Mall, which totaled
$31,025,000 at December 31, 1998, were scheduled to mature on April 1, 1999. The
General Partner and the mortgage lender, Metropolitan Life Insurance Company,
agreed to allow the Partnership to defer the payment of the principal balance of
the loan to April 1, 2000, provided that the Partnership continues to pay
interest at the same rate and times set forth in the Cranberry Note.
<PAGE>
At December 31, 1998, the Partnership had cash and cash equivalents totaling
$5,952,659, compared with $9,600,824 at December 31, 1997. The decrease is
primarily due to the payment of a special cash distribution on October 18, 1998
of $74.69 per Limited Partnership Unit. The distribution was paid in
consideration of the General Partner's decision to market the Cranberry Mall for
sale, and to reduce the level of cash held in reserve for leasing and capital
expenditures.
At December 31, 1998, the Partnership's accounts receivable, net of allowance
for doubtful accounts, increased to $390,768 from $345,148 at December 31, 1997,
primarily due to a reduction in the allowance for doubtful accounts,
representing rent due from tenants at the Mall.
Other receivable totaled $300,000 at December 31, 1998, representing amounts due
to the Partnership from a prior owner of Assembly Square, pursuant to an
agreement regarding settlement costs associated with environmental remediation
at Assembly Square. See Item 3 for a discussion of such settlement.
Deferred rent receivable decreased from $468,188 at December 31, 1997 to $-0- at
December 31, 1998, due to the reclassification of the Partnership's assets as
"Real estate assets held for disposition."
Deferred charges, net of accumulated amortization, decreased from $258,212 at
December 31, 1997 to $995 at December 31, 1998, primarily due to deferred
charges relating to leasing costs in the amount of $240,790 being reclassified
as "Real estate assets held for disposition."
Other liabilities decreased to $20,577 at December 31, 1998 from $111,042 at
December 31, 1997, primarily due to payment of a portion of outstanding
environmental remediation settlement costs associated with Assembly Square Mall.
See Item 3 for a discussion of such settlement.
Deferred income amounted to $525,051 at December 31, 1998, largely unchanged
from $507,574 at December 31, 1997.
Market Risk
- -----------
The Partnership's principal market risk exposure is interest rate risk. The
Partnership's only long-term debts are the mortgage notes secured by Cranberry
Mall which are subject to repricing if they are extended beyond their current
maturity date on April 1, 2000. As noted above, the General Partner is currently
marketing the Mall for sale, and it is anticipated that a sale of the property
will be completed during 1999, although there can be no assurance as to the
timing of such sale. Interest income from the Partnership's cash and cash
equivalents is also subject to interest rate risk since such funds consist of
short-term, highly liquid investments invested at short-term rates. Such risk is
not considered material to the Partnership's operations.
<PAGE>
Year 2000 Initiatives
- ---------------------
The Year 2000 compliance issue concerns the ability of computerized information
systems to accurately calculate, store or use a date after 1999. This could
result in computer system failures or miscalculations causing disruptions of
operations. The Year 2000 issue affects almost all companies and organizations.
The Partnership is currently marketing the Cranberry Mall and it is anticipated
that a sale will be completed and the Partnership dissolved prior to December
31, 1999, although there can be no assurance as to the timing of such sale. In
the event that the Partnership is not dissolved prior to December 31, 1999,
potential Year 2000 issues relate to the outside vendors which provide the
Partnership's administrative services, including accounting, tax preparation and
transfer agent services. Such services are reliant on computer systems, software
products and equipment which are expected to be Year 2000 compliant by December
31, 1999. The General Partner continues to discuss Year 2000 compliance with
these outside vendors. It is anticipated that the cost of vendor compliance with
Year 2000 issues will be borne primarily by these vendors. Although it is not
possible at the present time to estimate the cost of this remediation work based
on available information, the General Partner does not expect such costs to have
a material adverse impact on the Partnership's business, results or operations
or financial condition.
The Partnership may also have potential Year 2000 issues related to vendors
which provide accounting and property management services to the Cranberry Mall
as well as Year 2000 issues related to property management systems at the
property. Due to the General Partner's intent to sell the Cranberry Mall and to
liquidate the Partnership before December 31, 1999, no assessment has been made
by the General Partner as to the potential adverse impact of Year 2000 related
issues at the property level.
Due to the General Partner's intent to sell the Cranberry Mall and dissolve the
Partnership before December 31, 1999, the General Partner currently does not
have Year 2000 contingency plans. In the event it appears that the Cranberry
Mall will not be sold and the Partnership dissolved during 1999, the General
Partner intends to develop and implement contingency plans in 1999. However,
there is no certainty such plans would fully mitigate any Year 2000 problems.
Results of Operations
- ---------------------
1998 versus 1997
For the year ended December 31, 1998, the Partnership's operations resulted in a
net loss of $2,583,615, compared to a net loss of $7,594,087 in 1997. The
reduction in the net loss was primarily due to the write down of Cranberry Mall
to its estimated fair market value in the amount of $4,145,677 in 1998, compared
to $7,572,838 in 1997.
<PAGE>
For the year ended December 31, 1998, the Partnership's rental income totaled
$4,378,803 compared with $4,886,656 in 1997. The decrease in rental income is
primarily due to Caldor's rejection of its lease in July 1998, when the
Partnership ceased recognition of rental income from Caldor. Escalation income
represents the income received from Mall tenants for their proportionate share
of common area maintenance and real estate tax expenses. Escalation income
totaled $2,492,584 for the year ended December 31, 1998 compared with $2,639,481
for the year ended December 31, 1997. The decrease in escalation income from
1997 to 1998 is primarily due to lower property operating expenses in 1998
compared to 1997.
Interest income totaled $534,033 for the year ended December 31, 1998, compared
with $480,283 in 1997. The increase is due to the Partnership maintaining higher
average cash balances during 1998.
Property operating expenses totaled $2,156,802 for the year ended December 31,
1998, compared with $2,448,079 in 1997. The decrease is primarily due to lower
general operating expenses including payroll expenses and common area charges.
Depreciation and amortization expense totaled $687,466 for the year ended
December 31, 1998, compared with $1,559,102 for the year ended December 31,
1997. The Partnership suspended depreciation and amortization on July 1, 1998,
in accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," as a result of the General Partner's decision to sell
Cranberry.
Environmental remediation and settlement costs totaled $(300,000) and $900,000
for the years ended December 31, 1998 and 1997, respectively. The 1998 amount
reflects a settlement with the prior owner of Assembly Square Mall relating to
reimbursement of remediation costs associated with environmental remediation at
the property. See Item 3 for a discussion of such settlement. The 1997 amount
represents costs related to the Settlement Agreement with Aetna relating to
environmental costs at Assembly Square. See Item 3 for a discussion of the Aetna
settlement.
General and administrative expenses totaled $459,423 for the year ended December
31, 1998, compared with $372,181 for the year ended December 31, 1997. The
increase is primarily due to higher partnership service cost in 1998 and costs
associated with the marketing effort of the Cranberry Mall.
Mall tenant sales for the year ended December 31, 1998 were $34,082,000 compared
with sales of $35,732,000 for year ended December 31, 1997. Mature tenant sales
for the year ended December 31, 1998 were $29,703,000 compared with sales of
$29,040,000 for the year ended December 31, 1997. As of December 31, 1998 and
1997, Cranberry was 79% and 82% occupied, respectively (exclusive of anchor and
outparcel tenants). For the year ended December 31, 1998, Cranberry generated
net operating income of $4,099,000 on income of $6,982,000 and property
operating expenses and real estate taxes totaling $2,883,000.
<PAGE>
1997 versus 1996
For the year ended December 31, 1997, the Partnership operations resulted in a
net loss of $7,594,087, compared with net income of $1,007,864 in 1996. The
change from net income to a net loss is primarily attributable to the $9,336,544
gain recognized in 1996 on the foreclosure of Assembly Square. Excluding this
gain, operations resulted in a net loss of $8,328,680 in 1996. Losses before
extraordinary gain and minority interest in both 1996 and 1997 are primarily
attributable to losses on writedown of real estate, resulting from the write
down of Cranberry Mall to its estimated fair market value due to a reduction in
the holding period in 1997 and Assembly Square in 1996.
Primarily as a result of the foreclosure of Assembly Square on December 20,
1996, the following income and expense categories decreased from 1996 to 1997:
rental income, escalation income, miscellaneous income, interest expense,
property operating expense, depreciation and amortization, and real estate
taxes.
Interest income totaled $480,283 for the year ended December 31, 1997, compared
with $401,786 in 1996. The increase is primarily due to the Partnership's higher
average cash balance in 1997.
Environmental remediation and settlement costs totaled $900,000 for the year
ended December 31, 1997, compared with $0 in 1996. The 1997 amount represents
costs related to the Settlement Agreement with Aetna (see "Liquidity and Capital
Resources" above) relating to environmental costs at Assembly Square.
General and administrative expenses totaled $372,181 for the year ended December
31, 1997, compared with $284,653 for the year ended December 31, 1996. Effective
as of January 1, 1997, the Partnership began reimbursing certain expenses
incurred by the General Partner and its affiliates in servicing the Partnership
to the extent permitted by the partnership agreement. In prior years, affiliates
of the General Partner had voluntarily absorbed these expenses.
Mall tenant sales for the year ended December 31, 1997 were $35,732,000 compared
with sales of $34,077,000 for year ended December 31, 1996. Mature tenant sales
for the year ended December 31, 1997 were $29,040,000 compared with sales of
$28,371,000 for the year ended December 31, 1996. As of December 31, 1997 and
1996, Cranberry was 82% and 84% occupied, respectively (exclusive of anchor and
outparcel tenants). For the year ended December 31, 1997, Cranberry generated
net operating income of $4,512,000 on revenues of $7,692,000 and property
operating expenses and real estate taxes totaling $3,180,000.
Property Appraisal
- ------------------
The estimated fair market value of Cranberry at January 1, 1999 as determined by
the General Partner, with the assistance of the broker engaged to market the
property, was $36,000,000. This compares to $40,000,000 at January 1, 1998, as
determined by Cushman & Wakefield, Inc., an independent, third party appraisal
<PAGE>
firm. The estimated fair value does not reflect the actual costs which would be
incurred in selling the property. It should be noted that the property's fair
market value is an estimate of current value and actual values realizable upon
sale may be significantly different.
Item 8. Financial Statements and Supplementary Data
See Item 14(a) for a listing of the Consolidated Financial Statements and
Supplementary data filed in this report.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Certain officers or directors of Regional Malls Inc. are now serving (or in the
past have served) as officers and directors of entities which act as general
partners of a number of real estate limited partnerships which have sought
protection under the provisions of the Federal Bankruptcy Code. The partnerships
which have filed bankruptcy petitions own real estate which has been adversely
affected by the economic conditions in the markets in which that real estate is
located and, consequently, the partnerships sought the protection of the
bankruptcy laws to protect the partnerships' assets from loss through
foreclosure.
The following is a list of the officers and directors of Regional Malls Inc. at
December 31, 1998:
Name Office
---- ------
Rocco F. Andriola Director
Michael T. Marron President, Director & Chief Financial Officer
William T. McDermott Vice President
Rocco F. Andriola, 40, is a Managing Director of Lehman Brothers in its
Diversified Asset Group and has held such position since October 1996. Since
joining Lehman in 1986, Mr. Andriola has been involved in a wide range of
restructuring and asset management activities involving real estate and other
direct investment transactions. From June 1991 through September 1996, Mr.
Andriola held the position of Senior Vice President in Lehman's Diversified
Asset Group. From June 1989 through May 1991, Mr. Andriola held the position of
First Vice President in Lehman's Capital Preservation and Restructuring Group.
From 1986 to 1989, Mr. Andriola served as a Vice President in the Corporate
Transactions Group of Shearson Lehman Brothers' office of the general counsel.
Prior to joining Lehman, Mr. Andriola practiced corporate and securities law at
<PAGE>
Donovan Leisure Newton & Irvine in New York. Mr. Andriola received a B.A. from
Fordham University, a J.D. from New York University School of Law, and an LLM in
Corporate Law from New York University's Graduate School of Law.
Michael T. Marron, 35, is a Vice President of Lehman Brothers and has been a
member of the Diversified Asset Group since 1990 where he has actively managed
and restructured a diverse portfolio of syndicated limited partnerships. Prior
to joining Lehman Brothers, Mr. Marron was associated with Peat Marwick Mitchell
& Co. serving in both its audit and tax divisions from 1985 to 1989. Mr. Marron
received his B.S. degree from the State University of New York at Albany and an
M.B.A. from Columbia University.
William T. McDermott, 35, is a Vice President of Lehman Brothers and has been a
member of the Diversified Asset Group since 1998. Mr. McDermott joined Lehman
Brothers in 1993 and held various positions within the firm before joining the
Diversified Asset Group. Prior to joining Lehman Brothers, Mr. McDermott was a
financial analyst with Cantor Fitzgerald Inc. from 1991 - 1993 and was
associated with Arthur Andersen & Co. serving in both its audit and bankruptcy
consulting divisions from 1985 to 1991. Mr. McDermott received his B.B.A. degree
from the University of Notre Dame and is a Certified Public Accountant.
Item 11. Executive Compensation
The Officers and Directors of the General Partner do not receive any salaries or
other compensation from the Partnership. See Item 13 below with respect to a
description of certain transactions of the General Partner and its affiliates
with the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners
-----------------------------------------------
At December 31, 1998, to the Partnership's knowledge, no investor held more than
5% of the outstanding Units.
(b) Security ownership of management
--------------------------------
Various employees of Lehman Brothers that perform services on behalf of the
General Partner own no units of the Partnership as of December 31, 1998.
(c) Changes in control
------------------
None.
Item 13. Certain Relationships and Related Transactions
Affiliates of the General Partner have been responsible for certain
administrative functions of the Partnership. Commencing January 1, 1997, the
<PAGE>
Partnership began reimbursing certain expenses incurred by the General Partner
and its affiliates in servicing the Partnership to the extent permitted by the
partnership agreement. In prior years, affiliates of the General Partner had
voluntarily absorbed these expenses. Disclosure relating to amounts paid to the
General Partner or its affiliates during the past three years is incorporated
herein by reference to Note 7 of the Notes to the Consolidated Financial
Statements.
On July 31, 1993, Shearson Lehman Brothers Inc. ("Shearson") sold certain of its
domestic retail brokerage and asset management businesses to Smith Barney,
Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to this sale,
Shearson changed its name to Lehman Brothers Inc. The transaction did not affect
the ownership of the Partnership or the Partnership's General Partner. However,
the assets acquired by Smith Barney included the name "Shearson." Consequently,
the general partner changed its name to Regional Malls Inc., the Assignor
Limited Partner changed its name to Regional Malls Depositary Corp. and the
Owner Partnership changed its name to Shopco Malls L.P. to delete any references
to "Shearson."
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) and (2).
- ----------------
Index to Consolidated Financial Statements and Schedules
Page
Number
------
Consolidated Balance Sheets
At December 31, 1998 and 1997 ..................................... F-2
Consolidated Statements of Partners' Capital (Deficit)
For the years ended December 31, 1998, 1997 and 1996............... F-2
Consolidated Statements of Operations
For the years ended December 31, 1998, 1997 and 1996............... F-3
Consolidated Statements of Cash Flows
For the years ended December 31, 1998, 1997 and 1996............... F-4
Notes to the Consolidated Financial Statements .................... F-5
Independent Auditors' Report ......................................F-13
Schedule II - Valuation and Qualifying Accounts ...................F-14
Schedule III - Real Estate and Accumulated Depreciation ...........F-14
<PAGE>
(b) Exhibits
--------
Subject to Rule 12b-32 of the Securities Exchange Act of 1934 regarding
incorporation by reference, listed below are the exhibits which are
filed as part of this report.
3. Partnership's Amended and Restated Agreement of Limited Partnership,
dated October 6, 1988, is hereby incorporated by reference to Exhibit A
to the Prospectus contained in Registration Statement No. 33-20614,
which Registration Statement (the "Registration Statement") was declared
effective by the SEC on May 20, 1988.
4.1 The form of Unit Certificate is hereby incorporated by reference to
Exhibit 7 to the Form 8-A dated April 10, 1989.
10.1 The form of Subscription Agreement is hereby incorporated by reference
to Exhibit C to the Registration Statement.
10.2 Escrow Agreement between Partnership and United States Trust Company of
New York, is hereby incorporated by reference to Exhibit 10.2 to the
Registration Statement.
10.3 The form of Depository Agreement between Partnership and Shearson
Regional Malls Depository Corp., as Assignor Limited Partner is hereby
incorporated by reference to Exhibit 10.3 to the Registration Statement.
10.4 The form of Sale Contract concerning the acquisition of Assembly Square
is hereby incorporated by reference to Exhibit 10.4 to the Registration
Statement.
10.5 Letter of Intent to Purchase Cranberry is hereby incorporated by
reference to Exhibit 10.5 to the Registration Statement.
10.6 The form of Master Rental Income Guaranty is hereby incorporated by
reference to Exhibit 10.6 to the Registration Statement.
10.7 The form of Management and Leasing Agreement is hereby incorporated by
reference to Exhibit 10.7 to the Registration Statement.
10.8 Amendment of Mortgage Loan Modification between Shearson Shopco Malls,
L.P. and Aetna Life Insurance Company is hereby incorporated by
reference to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992.
10.9 Note Modification Agreement between Shopco Malls, L.P. and Metropolitan
Life Insurance Company for Cranberry Mall as of May 31, 1994, is hereby
incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994.
<PAGE>
10.10 Forbearance letter dated March 19, 1999 from Metropolitan Life Insurance
Company regarding the maturity date of the Cranberry Note.
27 Financial Data Schedule
(c) Reports on Form 8-K filed during the fourth quarter of 1998:
-----------------------------------------------------------
No reports on Form 8-K were filed during the three months ended
December 31, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SHOPCO REGIONAL MALLS, L.P.
BY: Regional Malls, Inc.
General Partner
Date: March 31, 1999 BY: /s/Michael T. Marron
--------------------
Name: Michael T. Marron
Title: President, Director and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
REGIONAL MALLS, INC.
General Partner
Date: March 31, 1999 BY: /s/Rocco F. Andriola
--------------------
Name: Rocco F. Andriola
Title: Director
<PAGE>
Date: March 31, 1999 BY: /s/Michael T. Marron
--------------------
Name: Michael T. Marron
Title: President, Director and
Chief Financial Officer
Date: March 31, 1999 BY: /s/William T. McDermott
-----------------------
Name: William T. McDermott
Title: Vice President
SHOPCO REGIONAL MALLS L.P.
AND CONSOLIDATED PARTNERSHIP
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
At December 31, At December 31,
1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Real estate (notes 3, 5 and 6):
Land $ -- $ 5,401,132
Building -- 33,101,956
Improvements -- 771,912
-----------------------------
-- 39,275,000
Real estate assets held for disposition 35,280,000 --
Cash and cash equivalents 5,952,659 9,600,824
Construction escrow (note 5) 473,246 455,246
Accounts receivable, net of allowance of
$131,910 in 1998 and $366,868 in 1997 390,768 345,148
Other receivable (note 3) 300,000 --
Deferred rent receivable -- 468,188
Deferred charges, net of accumulated amortization
of $3,975 in 1998 and $79,527 in 1997 995 258,212
Prepaid expenses 419,878 410,908
- -------------------------------------------------------------------------------------
Total Assets $42,817,546 $50,813,526
=====================================================================================
Liabilities, Minority Interest and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 202,161 $ 104,995
Other liabilities (note 3) 20,577 111,042
Mortgages payable (note 6) 31,025,000 31,025,000
Due to affiliates (note 7) 25,549 33,748
<PAGE>
Security deposits payable 10,271 4,771
Deferred income 525,051 507,574
-----------------------------
Total Liabilities 31,808,609 31,787,130
-----------------------------
Minority interest (118,121) 15,731
-----------------------------
Partners' Capital (note 4):
General Partner (70,188) 8,648
Limited Partners (70,250 limited partnership
units authorized issued and outstanding) 11,197,246 19,002,017
-----------------------------
Total Partners' Capital 11,127,058 19,010,665
- -------------------------------------------------------------------------------------
Total Liabilities, Minority Interest
and Partners' Capital $42,817,546 $50,813,526
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
For the years ended December 31, 1998, 1997 and 1996
General Limited
Partner Partners Total
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1995 $(218,681) $25,826,213 $25,607,532
Net income 313,914 693,950 1,007,864
Distributions (note 9) (10,644) -- (10,644)
- -------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 84,589 $26,520,163 $26,604,752
Net loss (75,941) (7,518,146) (7,594,087)
- -------------------------------------------------------------------------------------
Balance at December 31, 1997 $ 8,648 $19,002,017 $19,010,665
Net loss (25,836) (2,557,779) (2,583,615)
Distributions (note 9) (53,000) (5,246,992) (5,299,992)
- -------------------------------------------------------------------------------------
Balance at December 31, 1998 $(70,188) $11,197,124 $11,127,058
=====================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
SHOPCO REGIONAL MALLS L.P.
AND CONSOLIDATED PARTNERSHIP
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Rental income (note 3) $ 4,378,803 $ 4,886,656 $ 7,954,473
Escalation income (note 3) 2,492,584 2,639,481 4,421,035
Interest income 534,033 480,283 401,786
Miscellaneous income 110,183 165,569 244,659
-------------------------------------------
Total Income 7,515,603 8,171,989 13,021,953
- -------------------------------------------------------------------------------------
Expenses
Interest expense 2,249,312 2,249,312 4,225,832
Property operating expenses 2,156,802 2,448,079 4,738,799
Loss on write-down of real estate 4,145,677 7,572,838 7,910,126
Depreciation and amortization 687,466 1,559,102 2,194,527
Real estate taxes 726,227 732,018 1,504,074
General and administrative 459,423 372,181 284,653
Environmental remediation and
settlement costs (note 3) (300,000) 900,000 --
-------------------------------------------
Total Expenses 10,124,907 15,833,530 20,858,011
- -------------------------------------------------------------------------------------
Loss before extraordinary item and
minority interest (2,609,304) (7,661,541) (7,836,058)
- -------------------------------------------------------------------------------------
Extraordinary Item:
Gain on foreclosure of property -- -- 9,336,544
------------------------------------------
Income (loss) before minority interest (2,609,304) (7,661,541) 1,500,486
Minority interest 25,689 67,454 (492,622)
- -------------------------------------------------------------------------------------
Net Income (Loss) $(2,583,615) $(7,594,087) $ 1,007,864
=====================================================================================
Net Income (Loss) Allocated:
To the General Partner $ (25,836) $ (75,941) $ 313,914
To the Limited Partners (2,557,779) (7,518,146) 693,950
- -------------------------------------------------------------------------------------
$(2,583,615) $(7,594,087) $ 1,007,864
=====================================================================================
<PAGE>
Per limited partnership unit
(70,250 units outstanding):
Net income (loss) before
extraordinary item $ (36.41) $(107.02) $(109.33)
Extraordinary item -- -- 119.21
- -------------------------------------------------------------------------------------
Net Income (Loss) $ (36.41) $(107.02) $ 9.88
=====================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
SHOPCO REGIONAL MALLS L.P.
AND CONSOLIDATED PARTNERSHIP
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $(2,583,615) $(7,594,087) $ 1,007,864
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Minority interest (25,689) (67,454) 492,622
Extraordinary gain on foreclosure
of property -- -- (9,336,544)
Depreciation and amortization 687,466 1,559,102 2,194,527
Loss on write-down of real estate 4,145,677 7,572,838 7,910,126
Increase (decrease) in cash arising
from changes in operating assets and
liabilities:
Accounts receivable (45,620) (38,796) 308,490
Other receivable (300,000) -- --
Deferred rent receivable (76,644) (145,389) (129,412)
Deferred charges -- -- (5,292)
Prepaid expenses and other assets (8,970) (19,407) (25,529)
Accounts payable and accrued expenses 97,166 107,827 206,131
Other liabilities (90,465) -- --
Accrued interest payable -- -- 272,797
Due to affiliates (8,199) 33,217 (1,476)
Security deposits payable 5,500 -- --
Deferred income 17,477 68,408 25,089
-------------------------------------------
Net cash provided by operating activities 1,814,084 1,476,259 2,919,393
- -------------------------------------------------------------------------------------
<PAGE>
Cash Flows From Investing Activities:
Additions to real estate (36,094) (176,000) (55,212)
Construction escrows (18,000) (17,900) (20,778)
-------------------------------------------
Net cash used for investing activities (54,094) (193,900) (75,990)
- -------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Payment of mortgage principal -- -- (552,618)
Distributions paid - minority interest (108,163) -- (11,761)
Distributions paid - general partner (53,000) -- (10,644)
Distributions paid - limited partners (5,246,992) -- (265,603)
-------------------------------------------
Net cash used for financing activities (5,408,155) -- (840,626)
- -------------------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents (3,648,165) 1,282,359 2,002,777
Cash and cash equivalents,
beginning of period 9,600,824 8,318,465 6,315,688
-------------------------------------------
Cash and cash equivalents,
end of period $ 5,952,659 $ 9,600,824 $ 8,318,465
=====================================================================================
Supplemental Disclosure of
Cash Flow Information:
Cash paid during the period
for interest $ 2,249,312 $ 2,249,312 $ 3,953,035
- -------------------------------------------------------------------------------------
Supplemental Disclosure of Non-Cash Activities:
In connection with the General Partner's decision to market the Mall for sale,
real estate held for investment, deferred rent receivable and deferred leasing
costs in the amounts of $38,603,961, $544,832 and $240,790, respectively, were
reclassified to "Real estate assets held for disposition" in 1998.
In 1996, the Owner Partnership transferred $146,241 of net operating liabilities
of Assembly Square to Aetna pursuant to the foreclosure sale.
In connection with the foreclosure sale of Assembly Square in 1996, Aetna
released the Owner Partnership from the related $24,190,303 mortgage obligation.
- -------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
SHOPCO REGIONAL MALLS L.P.
AND CONSOLIDATED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
1. Organization
Shopco Regional Malls, L.P. (the "Partnership") was formed as a limited
partnership on March 11, 1988 under the laws of the State of Delaware. The
Partnership is the general partner of Shopco Malls L.P. (the "Owner
Partnership"), a Delaware limited partnership, which in October 1988 purchased
The Mall at Assembly Square ("Assembly Square") and Cranberry Mall
("Cranberry"). The Partnership sold Assembly Square at a foreclosure sale during
1996 and is currently marketing Cranberry for sale. Cranberry was held for
investment as of December 31, 1997 and was reclassified as "Real estate assets
held for disposition" during 1998.
The general partner of SRM is Regional Malls Inc. (the "General Partner")
formerly Shearson Regional Malls, Inc., an affiliate of Lehman Brothers Inc.,
formerly Shearson Lehman Brothers Inc. (see below).
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic
retail brokerage and asset management businesses to Smith Barney, Harris Upham &
Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson Lehman
Brothers Inc. changed its name to Lehman Brothers Inc. ("Lehman Brothers"). The
transaction did not affect the ownership of the general partner. However, the
assets acquired by Smith Barney included the name "Shearson." Consequently,
effective October 29, 1993, the General Partner changed its name to Regional
Malls Inc. to delete any reference to "Shearson."
The first investor closing occurred in October 1988 and the offering was
completed in April 1989 when 70,250 total authorized limited partnership units
("Unitholders") were accepted.
2. Summary of Significant Accounting Policies
Basis of Accounting The consolidated financial statements of the Partnership
have been prepared on the accrual basis of accounting and include the accounts
of the Partnership and the Owner Partnership. All significant intercompany
accounts and transactions have been eliminated.
Impairment of Long-Lived Assets Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of " ("FAS 121"), requires the Partnership to assess its
real estate investments for impairment whenever events or changes in
circumstances indicate that the carrying amount of the real estate may not be
recoverable. Recoverability of real estate to be held and used is measured by a
comparison of the carrying amount of the real estate to future net cash flows
(undiscounted and without interest) expected to be generated by the real estate.
If the real estate is considered to be impaired, the impairment to be recognized
<PAGE>
SHOPCO REGIONAL MALLS L.P.
AND CONSOLIDATED PARTNERSHIP
is measured by the amount by which the carrying amount of the real estate
exceeds the fair value of the real estate. If real estate is held for sale, the
real estate is reported at the lower of carrying amount or fair value less cost
to sell.
Real Estate Held for Sale During 1998, the Partnership engaged a broker to
market Cranberry for sale. In view of the anticipated sale of the Mall, the
Partnership's real estate assets, deferred rent receivable and deferred leasing
costs were reclassified as Real Estate Assets Held for Disposition. Pursuant to
FAS 121, during the third quarter of 1998, the Partnership suspended
depreciation of the Cranberry Mall.
The Partnership completed a review of the recoverability of the carrying value
of Cranberry based upon information obtained during the marketing of this
property for sale. Based upon the market information obtained during the sales
process, the Partnership revised the estimate of the carrying value of Cranberry
to an amount equal to Cranberry's estimated fair value less costs to sell at
December 31, 1998 in accordance with FAS 121.
Real Estate At December 31, 1997, real estate held for investment, which
consists of buildings, land and improvements at Cranberry, was recorded at cost
less accumulated depreciation and amortization and adjustment for impairment.
Cost includes the initial purchase price of each property plus closing costs,
acquisition and legal fees and capital improvements. Depreciation is computed
using the straight-line method based on an estimated useful life of 40 years.
Depreciation of improvements is computed using the straight-line method over
estimated useful lives of 7 to 12 years.
At December 31, 1997, the Partnership completed a review of recoverability of
the carrying amount of Cranberry and related accounts based upon estimates of
undiscounted future cash flows expected to result from Cranberry's use and
eventual disposition. Based upon the review completed at December 31, 1997, and
a change in the estimated holding period for Cranberry, the Partnership wrote
down the carrying value of Cranberry and related assets to $39,275,000 which
resulted in a loss on writedown of real estate in accordance with FAS 121 in
1997 (See Note 3).
At December 31, 1996, the Partnership completed a review of recoverability of
the carrying amount of Assembly Square and related accounts based upon estimates
of undiscounted future cash flows expected to result from Assembly Square's use
and eventual disposition at that time. Based upon the review completed at that
time, the Partnership wrote down the carrying value of Assembly Square and
related accounts by $7,910,126 in 1996.
Fair Value of Financial Instruments Statement of Financial Accounting Standards
No. 107 "Disclosures about Fair Value of Financial Instruments" ("FAS 107"),
requires the Partnership to disclose the estimated fair values of its financial
<PAGE>
SHOPCO REGIONAL MALLS L.P.
AND CONSOLIDATED PARTNERSHIP
instruments. Fair values generally represent estimates of amounts at which a
financial instrument could be exchanged between willing parties in a current
transaction other than in forced liquidation. The carrying amount of receivables
and payables approximates fair value.
Fair value estimates are subjective and are dependent on a number of significant
assumptions based on management's judgment regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, and other factors. In addition, FAS 107 allows a wide
range of valuation techniques, therefore, comparisons between entities, however
similar may be difficult.
Deferred Charges Mortgage commitment and placement fees, and extension fees
are being amortized over the life of the mortgages payable. Leasing commissions
are amortized using the straight-line method over 7 years, which approximates
the average life of the leases.
Offering Costs Offering costs are non-amortizable and are deducted from limited
partners' capital.
Transfer of Units and Distributions Net income or loss from operations is
allocated to registered Unitholders. Upon the transfer of a limited partnership
unit, net income (loss) from operations attributable to such unit generally is
allocated between the transferor and the transferee based on the number of days
during the year of transfer that each is deemed to have owned the unit. The
Unitholder of record on the first day of the calendar month is deemed to have
transferred their interest on the first day of such month.
Distributions of operating cash flow, as defined in the Partnership Agreement,
are paid on a quarterly basis to registered Unitholders on record dates
established by the Partnership. Distributions, when paid, are generally paid 45
days after quarter end.
Income Taxes No provision is made for income taxes in the consolidated
financial statements since such liability is the liability of the individual
partners.
Net Income (Loss) Per Limited Partnership Unit Net income (loss) per limited
partnership unit is calculated based upon the number of limited partnership
units outstanding during the period.
Rental Income and Deferred Rent The Partnership leases its property to tenants
under operating leases with various terms. Deferred rent receivable consists of
rental income which is recognized on the straight-line basis over the lease
terms, but will not be received until later periods as a result of scheduled
rent increases.
<PAGE>
SHOPCO REGIONAL MALLS L.P.
AND CONSOLIDATED PARTNERSHIP
Cash and Cash Equivalents Cash and cash equivalents consist of short-term,
highly liquid investments which have maturities of three months or less from the
date of issuance. The carrying amount approximates fair value because of the
short maturity of these investments.
Concentration of Credit Risk Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
and cash equivalents in excess of the financial institutions' insurance limits.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications Certain prior year amounts have been reclassified to conform
to the current year's presentation.
3. Real Estate
As of December 31, 1998, 1997 and 1996, SRM's real estate consisted of Cranberry
Mall, an enclosed regional mall located in Westminster, Maryland. Formerly, SRM
owned another regional mall, The Mall at Assembly Square in Somerville,
Massachusetts, which was sold through foreclosure on December 20, 1996.
Cranberry Mall
- --------------
Cranberry Mall in Westminster, Maryland, which includes approximately 55.61
acres of land, was purchased on October 5, 1988 for $53,847,500. Cranberry
contains approximately 530,000 square feet of gross leasable area including four
anchor spaces: Sears, Belk (formerly Leggett), Montgomery Ward and a vacated
Caldor store.
Sears leases approximately 70,000 square feet of gross leasable building area.
Sears is required to use the premises as a Sears retail store until the year
2002 or under such other trade name as the majority of Sears retail stores are
then operating.
Caldor leased approximately 81,200 square feet of gross leasable building area.
On September 18, 1995, Caldor filed for protection under the U.S. Bankruptcy
Code. In February 1998, Caldor announced that it would close its store at
Cranberry, and did so on May 10, 1998. In July 1998, Caldor rejected its lease
and vacated the property with bankruptcy court approval, and the Partnership's
claims for unpaid rent and rejection damages under Caldor's lease was filed
shortly thereafter. Caldor did not submit a plan for reorganization and on
January 22, 1999 was ordered to wind down its business operations and affairs
under Chapter 11 of the Bankruptcy Code. Caldor represented approximately 4.8%
and 10% of Cranberry's rental income for the years ended December 31, 1998 and
1997, respectively.
<PAGE>
SHOPCO REGIONAL MALLS L.P.
AND CONSOLIDATED PARTNERSHIP
Belk (formerly "Leggett") currently leases 65,282 square feet of gross leasable
building area. During the first 15 years of the lease, ending March 4, 2002, the
tenant is required to use the premises as a Belk retail department store or
under such other trade name as Belk is then operating substantially all of its
department stores.
Montgomery Ward leases approximately 80,000 square feet of gross leasable
building area and 9,000 square feet for an automotive center. During the first
15 years of the lease term, the tenant is required to use the premises as a
retail store under the trade name Montgomery Ward or under such other name as
the tenant is doing business in the majority of its retail department stores in
the State of Maryland.
On July 7, 1997, Montgomery Ward filed for protection under Chapter 11 of the
U.S. Federal Bankruptcy Code. On October 10, 1997, as part of its bankruptcy
reorganization process, Montgomery Ward announced the closing of 48 stores.
Although the Cranberry store is not among current locations scheduled to be
closed, the possibility still exists that Montgomery Ward may choose to reject
its lease and vacate the premises. Currently, the time for Montgomery Ward to
make such an election has been extended through August 31, 1999 and may be
extended after that date as well. Montgomery Ward continues to meet the original
terms of its lease.
The following is a schedule of the remaining minimum lease payments as called
for under the lease agreements:
<TABLE>
<CAPTION>
Year ending
December 31, Amount
------------------------------------------
<S> <C>
1999 $ 3,131,861
2000 2,642,824
2001 2,396,162
2002 2,164,200
2003 1,806,906
Thereafter 6,737,907
------------------------------------------
$18,879,860
===========
</TABLE>
In addition to the minimum lease amounts, the leases provide for percentage
rents and escalation charges to tenants for common area maintenance and real
estate taxes. For the years ended December 31, 1998, 1997 and 1996,
respectively, percentage rents amounted to $285,910, $240,961 and $293,718 for
<PAGE>
SHOPCO REGIONAL MALLS L.P.
AND CONSOLIDATED PARTNERSHIP
Cranberry. These amounts are included in rental income. For the years ended
December 31, 1998, 1997 and 1996, respectively, temporary tenant income amounted
to $268,694, $291,706 and $296,226 for Cranberry. These amounts are included in
rental income.
During 1998, the Partnership engaged a broker to market Cranberry for sale. In
view of the anticipated sale of the mall, the Partnership's real estate has been
recorded on the Partnership's December 31, 1998 consolidated balance sheet as
"Real estate assets held for disposition." On December 3, 1998, the Partnership
entered into an agreement to sell Cranberry to an unaffiliated third party.
However, the buyer subsequently withdrew its offer during its due diligence
review of the property and the agreement was canceled. As a result, the General
Partner has resumed efforts to actively market the property for sale. Efforts to
sell the mall, however, are likely to be impacted by the vacancy of Caldor's
space and the uncertain status of the Montgomery Ward's store. Any sale of the
Partnership's interest in the mall is subject to the approval of a majority of
interest of the Limited Partners. While it is anticipated that a sale of the
mall will be executed and the Partnership liquidated during 1999, there can be
no assurance as to the timing of such sale or that a particular price can be
achieved.
Assembly Square
- ---------------
The Mall at Assembly Square in Somerville, Massachusetts was purchased on
October 11, 1988 for $42,358,000. Assembly Square contained approximately
322,000 square feet of gross leasable area (including kiosk space) including two
anchor tenants: Macy's, formerly Jordan Marsh, and Kmart.
On October 15, 1996, the Owner Partnership received notice of default from its
lender, Aetna Life Insurance Company ("Aetna"), due to the Owner Partnership's
failure to escrow real estate taxes with Aetna as required under the Mortgage
and Security Agreement (the "Mortgage") secured by Assembly Square. On account
of such default, and pursuant to its rights and remedies under the Mortgage,
Aetna declared the entire outstanding mortgage loan balance immediately due and
payable. On November 26, 1996, Aetna commenced advertising for a public
nonjudicial foreclosure sale to be held on December 20, 1996. On December 20,
1996, Aetna acquired Assembly Square at the foreclosure sale and, as a result,
the Partnership recognized a gain from the foreclosure sale of $9,336,544. The
gain was allocated to the partners in accordance with the Partnership Agreement.
Subsequent to the date of foreclosure, Aetna advised the Partnership that it
would pursue environmental remediation claims for land contamination under the
terms of the Mortgage. On September 3, 1997, the Partnership and Aetna entered
into a Settlement Agreement whereby the Partnership paid $400,000 to Aetna for a
complete release from the Mortgage's loan covenants. The release excludes
environmental claims already made by Aetna regarding existing environmental
conditions and environmental claims which could arise in the future because of
<PAGE>
SHOPCO REGIONAL MALLS L.P.
AND CONSOLIDATED PARTNERSHIP
existing conditions. The Partnership separately funded approximately $500,000 to
pay for work performed to address environmental conditions at Assembly Square.
Accordingly, the Partnership recognized a provision of $900,000 for
environmental remediation and settlement costs in the accompanying consolidated
statements of operations for the year ended December 31, 1997. At December 31,
1998, $879,423 of this amount had been paid by the Partnership.
It is uncertain whether the Commonwealth of Massachusetts will test the
remediation performed at Assembly Square, whether such tests would lead to
additional remediation or Aetna will pursue additional claims against the
Partnership.
The Partnership has demanded contribution from a prior owner of Assembly Square
for the amounts the Partnership expended in connection with the environmental
site remediation. During 1998, the Partnership reached an agreement with the
prior owner pursuant to which the prior owner agreed to reimburse the
Partnership $300,000 for remediation cost, which payment was received during
1999 and has been accounted for as an offset to environmental remediation and
settlement costs on the consolidated statements of operations for the year ended
December 31, 1998. The Partnership has also demanded contribution from another
prior owner of Assembly Square, however, it is uncertain at this time whether
the Partnership will recover any further remediation costs from this prior
owner.
4. Partnership Agreement
The Partnership has a 98% interest in the operating income, profits and cash
distributions, and a 99% interest in the operating losses, of the Owner
Partnership. The Limited Partnership Agreement provides that all operating
income, operating losses and cash distributions are generally allocated 1% to
the General Partner and 99% to the Unitholders.
5. Construction Escrow
In 1990, the Partnership borrowed $3,775,000 to fund the expansion of Montgomery
Ward at Cranberry. During 1991, $3,425,000 of the funds were released. The
remaining proceeds of $473,246 and $455,246, inclusive of interest income,
remain in a construction escrow account as of December 31, 1998 and 1997,
respectively.
<PAGE>
SHOPCO REGIONAL MALLS L.P.
AND CONSOLIDATED PARTNERSHIP
6. Mortgages Payable
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C>
Secured by Cranberry. Interest only, at 7.25%,
payable monthly until maturity on April 1, 2000 $27,250,000 $27,250,000
Secured by Cranberry. Interest only, at 7.25%,
payable monthly until maturity on April 1, 2000 3,775,000 3,775,000
- -----------------------------------------------------------------------------------
$31,025,000 $31,025,000
==========================
</TABLE>
Cranberry Mall
- --------------
The original notes secured by Cranberry matured on November 1, 1993. The lender,
Metropolitan Life Insurance Company, agreed to extend the maturity date of the
notes to May 1, 1994. During the extension period, the General Partner and
Metropolitan Life Insurance Company continued discussions and reached an
agreement to modify and extend the notes on mutually acceptable terms. Under the
terms of the agreement, the amended Cranberry notes, effective April 1, 1994,
require payments of interest only on the unpaid principal balance of $31,025,000
at an interest rate of 7.25% per annum until their maturity on April 1, 1999. In
March 1999, Metropolitan Life Insurance Company agreed to allow the Partnership
to defer the payment of the principal balance of the loan to April 1, 2000,
provided that the Partnership continues to pay interest at the same rate and
times set forth in the note. Interest expense for the years ended December 31,
1998, 1997 and 1996 was $2,249,312, $2,249,312 and $2,762,279.
Based on the borrowing rates currently available to the Partnership for mortgage
loans with similar terms, the fair value of the Cranberry notes approximates its
carrying value as of the balance sheet date.
Assembly Square
- ---------------
The Owner Partnership had a $28,000,000 mortgage loan secured by Assembly Square
which was scheduled to mature on November 1, 1997, bore interest at a rate of
8.5% per annum, and required monthly payments of principal and interest based
upon a twenty-year amortization schedule. Interest expense for 1996 was
$1,976,520.
As discussed in Note 3, Aetna obtained title to Assembly Square at the
foreclosure sale, and as a result, the outstanding balance of the Aetna loan of
$24,190,303 was forgiven on December 20, 1996.
<PAGE>
SHOPCO REGIONAL MALLS L.P.
AND CONSOLIDATED PARTNERSHIP
7. Transactions With Related Parties
Under the terms of the Partnership Agreement, the Partnership reimburses the
General Partner and affiliates, at cost, for certain administrative expenses.
For the years ended December 31, 1998, 1997 and 1996, such costs incurred were
$3,702, $3,495 and $5,719, respectively. At December 31, 1997, $133 was due to
the General Partner and affiliates for these expenses.
Commencing January 1, 1997, the Partnership began reimbursing certain expenses
incurred by the General Partner and its affiliates in servicing the Partnership
to the extent permitted by the partnership agreement. For the years ended
December 31, 1998 and 1997, costs were $54,771 and $95,549 of which $25,549 and
$33,615 were unpaid at December 31, 1998 and 1997, respectively. In prior years,
affiliates of the General Partner had voluntarily absorbed these expenses.
Cash and Cash Equivalents Certain cash accounts were on deposit with an
affiliate of the General Partner during a portion of 1996. As of December 31,
1996 and throughout 1997 and 1998, no cash and cash equivalents were on deposit
with an affiliate of the General Partner or the Partnership.
8. Management Agreement
On May 1, 1997 the Partnership withdrew from its former management agreement
with Shopco Management Corporation, an affiliate of the Owner Partnership, and
entered into an agreement with Insignia Retail Group, Inc. ("Insignia").
Insignia receives an annual fee equal to 4% of the gross rents collected from
Cranberry Mall. The agreement expires on April 30, 1999 and can be renewed
annually for one-year terms. For the years ended December 31, 1997 and 1996,
respectively, management fees earned by Shopco Management Corporation were
$69,849 and $327,712. The management fee earned by Insignia during 1998 and 1997
was $160,364 and $119,901.
9. Distributions to Limited Partners
Distributions to the limited partners for 1998 were $5,246,992 ($74.69 per
limited partnership unit).
10. Reconciliation of Consolidated Financial Statement Basis Net Income (Loss)
and Partners' Capital To Federal Income Tax Basis Net Income (Loss) and
Partners' Capital
Reconciliations of consolidated financial statement basis net
income (loss) and partners' capital to federal income tax basis net income
(loss) and partners' capital follow:
<PAGE>
SHOPCO REGIONAL MALLS L.P.
AND CONSOLIDATED PARTNERSHIP
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consolidated financial statement basis net income (loss) $ (2,583,615) $ (7,594,087) $ 1,007,864
Tax basis depreciation over financial statement
depreciation (1,038,377) (211,566) (768,323)
Tax basis recognition of deferred income over (under)
financial statement recognition of deferred income 17,128 18,224 (33,640)
Tax basis recognition of real estate taxes under (over)
financial statement recognition of real estate taxes (6,542) (14,115) --
Tax basis recognition of rental income over (under)
financial statement recognition of rental income (75,111) (143,936) (128,118)
Tax basis recognition of loss on property sale over
financial statement recognition of gain on sale -- -- (23,612,844)
Financial statement loss on write-down of properties 4,145,677 7,497,111 7,910,126
Other (53,420) -- (26,177)
--------------------------------------------
Federal income tax basis net income (loss) $ 405,740 $ (448,369) $(15,651,112)
- ---------------------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
Financial statement basis partners' capital $ 11,127,058 $ 19,010,665 $ 26,604,752
Current year financial statement net income (loss)
over (under) federal income tax basis
net income (loss) 2,989,355 7,145,718 (16,658,976)
Cumulative federal income tax basis net loss over
(under) cumulative financial statement net loss 7,941,684 795,966 17,454,942
--------------------------------------------
Federal income tax basis partners' capital $ 22,058,097 $ 26,952,349 $ 27,400,718
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Because many types of transactions are susceptible to varying interpretations
under Federal and state income tax laws and regulations, the amounts reported
above may be subject to change at a later date upon final determination by the
respective taxing authorities.
11. Litigation
On October 18, 1996, a purported first consolidated and amended class action
complaint was filed in the Court of Chancery of the State of Delaware and for
New Castle County (the "Court") on behalf of all persons who purchased units in
the Partnership, among other investments. The complaint names the General
Partner of the Partnership, Lehman Brothers Inc. and others (the "Defendants").
This case consolidates previous actions against the Defendants. The Partnership
was not named as a defendant. The complaint alleges, among other things, that
the Unitholders were induced to purchase Units based upon misrepresentation
and/or omitted statements in the sales materials used in connection with the
<PAGE>
SHOPCO REGIONAL MALLS L.P.
AND CONSOLIDATED PARTNERSHIP
offering of Units in the Partnership. The complaint purports to assert a claim
for breach of fiduciary duty by the Defendants based on the foregoing. On March
16, 1999 the parties entered into a stipulation and order that dismissed this
action without prejudice. This stipulation is subject to approval by the Court.
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Partners
Shopco Regional Malls, L.P.:
We have audited the consolidated financial statements of Shopco Regional Malls,
L.P. (a Delaware limited partnership) and consolidated partnership as listed in
the accompanying index. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedules as
listed in the accompanying index. These consolidated financial statements and
financial statement schedules are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these consolidated
financial statements and the financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Shopco Regional
Malls, L.P. and consolidated partnership as of December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
<PAGE>
KPMG PEAT MARWICK LLP
Boston, Massachusetts
March 24, 1999
Schedule II Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deductions Period
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996: $ 797,783 $ 419,095 $1,056,485 $ 160,393
Year ended December 31, 1997: $ 160,393 $ 207,803 $ 1,328 $ 366,868
Year ended December 31, 1998: $ 366,868 $ 130,876 $ 365,834 $ 131,910
- ---------------------------------------------------------------------------------------
</TABLE>
Schedule III - Real Estate Assets Held for Disposition
December 31, 1998
<TABLE>
<CAPTION>
Cranberry Mall
Shopping Center
- ---------------------------------------------------------------------------------------
<S> <C>
Location Westminster, MD
Construction date 1980
Acquisition date 10-88
Life on which depreciation in latest income statements is computed <F3>
Encumbrances $ 31,025,000
------------
Initial cost to Partnership <F1>:
Land $ 6,610,235
Buildings and improvements 47,649,669
Costs capitalized subsequent to acquisition:
Land, buildings and improvements 5,662,175
Deferred rent 544,832
Net leasing costs 240,790
Write-off of accumulated depreciation (13,709,186)
Writedown of real estate (11,718,515)
------------
$ 35,280,000
============
<PAGE>
Gross amount at which carried at close of period <F2>:
Land $ 5,401,132
Buildings and improvements 29,878,868
------------
$ 35,280,000
============
- ---------------------------------------------------------------------------------------
<FN>
<F1> The initial cost to the Partnership represents the original purchase price
of the property.
<F2> For Federal income tax purposes, the costs basis of the land, building and
improvements at December 31, 1998 is $62,164,265.
<F3> Buildings - 40 years; personal property - 12 years; tenant improvements -
7 years.
</TABLE>
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real estate investments:
Beginning of year $ 39,275,000 $ 59,709,985 $ 83,291,450
Additions 36,094 176,000 55,212
Deferred rent 544,832 -- --
Net leasing commissions 240,790 -- --
Writedown of real estate (4,816,716) (20,610,985) (8,636,677)
Dispositions -- -- (15,000,000)
--------------------------------------------
End of year $ 35,280,000 $ 39,275,000 $ 59,709,985
--------------------------------------------
Accumulated depreciation:
Beginning of year $ -- $ 11,512,517 $ 10,129,658
Depreciation expense 671,039 1,525,630 2,109,410
Writedown of real estate (671,039) (13,038,147) (726,551)
Dispositions -- -- --
--------------------------------------------
End of year $ -- $ -- $ 11,512,517
- ---------------------------------------------------------------------------------------------------------
</TABLE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of
- ---------- the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1999
--------------
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 Number: 33-20614
--------
SHOPCO REGIONAL MALLS, L.P.
---------------------------
Exact Name of Registrant as Specified in its Charter
Delaware 13-3217028
-------- ----------
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.
3 World Financial Center, 29th Floor,
New York, NY Attn.: Andre Anderson 10285
- -------------------------------------- -----
Address of Principal Executive Offices Zip code
(212) 526-3183
--------------
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 such filing
requirements for the past 90 days.
Yes X No
--- ---
<PAGE>
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
At March 31, At December 31,
1999 1998
(unaudited) (audited)
- -------------------------------------------------------------------------------
<S> <C> <C>
Assets
Real estate assets held for disposition $35,280,000 $35,280,000
Cash and cash equivalents 6,943,944 5,952,659
Construction escrows 477,746 473,246
Accounts receivable, net of allowance of
$131,910 in 1999 and 1998 163,196 390,768
Other receivable -- 300,000
Deferred charges, net of accumulated
amortization of $3,975 in 1999 and 1998 995 995
Prepaid expenses 205,933 419,878
- -------------------------------------------------------------------------------
Total Assets $43,071,814 $42,817,546
===============================================================================
Liabilities, Minority Interest and
Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 211,199 $ 202,161
Other liabilities 10,327 20,577
Mortgage payable 31,025,000 31,025,000
Due to affiliates 16,700 25,549
Security deposits payable 5,271 10,271
Deferred income 451,198 525,051
-----------------------------
Total Liabilities 31,719,695 31,808,609
-----------------------------
Minority Interest (109,357) (118,121)
-----------------------------
Partners' Capital (Deficit):
General Partner (66,844) (70,188)
Limited Partners (70,250 limited partnership
units authorized, issued and outstanding) 11,528,320 11,197,246
-----------------------------
Total Partners' Capital 11,461,476 11,127,058
- -------------------------------------------------------------------------------
Total Liabilities, Minority Interest
and Partners' Capital $43,071,814 $42,817,546
===============================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
(UNAUDITED)
For the three months ended March 31, 1999
General Limited
Partner Partners Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1998 $(70,188) $11,197,246 $11,127,058
Net Income 3,344 331,074 334,418
- -------------------------------------------------------------------------------
Balance at March 31, 1999 $(66,844) $11,528,320 $11,461,476
===============================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended March 31,
1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Income
Rental income $ 924,899 $1,191,460
Escalation income 632,449 701,661
Interest income 83,373 135,317
Miscellaneous income 26,318 19,294
-------------------------
Total Income 1,667,039 2,047,732
- -------------------------------------------------------------------------------
Expenses
Interest expense 562,328 562,328
Property operating expenses 446,762 433,212
Depreciation and amortization -- 343,762
Real estate taxes 189,907 186,569
General and administrative 124,860 76,159
-------------------------
Total Expenses 1,323,857 1,602,030
- -------------------------------------------------------------------------------
<PAGE>
Income before minority interest 343,182 445,702
Minority interest (8,764) (8,370)
- -------------------------------------------------------------------------------
Net Income $ 334,418 $ 437,332
===============================================================================
Net Income Allocated:
To the General Partner $ 3,344 $ 4,373
To the Limited Partners 331,074 432,959
- -------------------------------------------------------------------------------
$ 334,418 $ 437,332
===============================================================================
Per limited partnership unit
(70,250 outstanding) $ 4.71 $ 6.16
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended March 31,
1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 334,418 $ 437,332
Adjustments to reconcile net income to
net cash provided by operating activities:
Minority interest 8,764 8,370
Depreciation and amortization -- 343,762
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Accounts receivable 227,572 11,443
Other receivable 300,000 --
Deferred rent receivable -- (30,690)
Prepaid expenses 213,945 209,231
Accounts payable and accrued expenses 9,038 (28,943)
Other liabilities (10,250) --
Due to affiliates (8,849) 252
Deferred income (73,853) (62,298)
Security deposit (5,000) --
--------------------------
Net cash provided by operating activities 995,785 888,459
- -------------------------------------------------------------------------------
<PAGE>
Cash Flows From Investing Activities:
Construction escrows (4,500) (4,500)
--------------------------
Net cash used for investing activities (4,500) (4,500)
- -------------------------------------------------------------------------------
Net increase in cash and cash equivalents 991,285 883,959
Cash and cash equivalents, beginning of period 5,952,659 9,600,824
- -------------------------------------------------------------------------------
Cash and cash equivalents, end of period $6,943,944 $10,484,783
===============================================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 562,328 $ 562,328
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements should be read in
conjunction with the Partnership's annual 1998 audited consolidated financial
statements within Form 10-K.
The unaudited interim consolidated financial statements include all normal and
recurring adjustments which are, in the opinion of management, necessary to
present a fair statement of financial position as of March 31, 1999 and the
results of operations for the three months ended March 31, 1999 and 1998, cash
flows for the three months ended March 31, 1999 and 1998 and the consolidated
statement of partners' capital (deficit) for the three months ended March 31,
1999. Results of operations for the period are not necessarily indicative of the
results to be expected for the full year.
No significant events have occurred subsequent to fiscal year 1998, and no
material contingencies exist which would require disclosure in this interim
report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
<PAGE>
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
Part 1, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
On September 18, 1995, Caldor, an anchor tenant at Cranberry Mall, filed for
protection under the U.S. Bankruptcy Code. In February 1998, Caldor announced
that it would close its store at Cranberry, and did so on May 10, 1998. In July
1998, Caldor rejected its lease with bankruptcy court approval and the
Partnership's claims for unpaid rent and rejection damages under Caldor's lease
in the amount of $833,920.83 were filed shortly thereafter. It is not known at
this time the extent to which these claims will be paid. Although the General
Partner continues working to secure a new anchor tenant for Caldor's space,
attracting a replacement anchor is likely to take time and require substantial
capital outlays by the Partnership to fund alterations necessary to accommodate
another tenant. Given the fact that the Mall is actively being marketed for
sale, it is likely that a replacement for Caldor will not be found prior to a
sale of the Mall.
On July 7, 1997, Montgomery Ward, an anchor tenant at Cranberry Mall filed for
protection under Chapter 11 of the Bankruptcy Code. On October 10, 1997, as part
of its bankruptcy reorganization process, Montgomery Ward announced the closing
of 48 stores. Although the Cranberry Mall store was not among those scheduled to
be closed, Montgomery Ward may in the future, with court approval, choose to
reject or accept the terms of its lease.
During 1998, the Partnership engaged a broker to market Cranberry Mall for sale.
In view of the anticipated sale of the Mall, the Partnership's real estate has
been recorded on the Partnership's balance sheet as "Real estate assets held for
disposition." Real estate assets held for disposition at March 31, 1999 totaled
$35,280,000. Efforts to sell the Mall, however, are likely to be impacted by the
uncertain status of Caldor's space and Montgomery Ward's store. While it is
expected that a contract for a sale of the Mall will be executed in 1999, there
can be no assurance that the Mall will be sold within this time frame or that
such a sale will result in a particular price.
The first and second mortgage notes secured by Cranberry Mall, which totaled
$31,025,000 at March 31, 1999 and December 31, 1998, were scheduled to mature on
April 1, 1999. The General Partner and the mortgage lender, Metropolitan Life
Insurance Company, agreed to allow the Partnership to defer the payment of the
principal balance of the loan to April 1, 2000, provided that the Partnership
continues to pay interest at the same rate and times set forth in the mortgage
notes.
<PAGE>
At March 31, 1999, the Partnership had cash and cash equivalents totaling
$6,943,944, compared with $5,952,659 at December 31, 1998. The increase is
primarily due to net cash provided by operating activities, including the
collection of the other receivable as discussed below.
At March 31, 1999, the Partnership's accounts receivable, net of allowance for
doubtful accounts, decreased to $163,196 from $390,768 at December 31, 1998,
primarily due to timing of rental payments.
Other receivable totaled $300,000 at December 31, 1998, representing amounts due
to the Partnership from a prior owner of Assembly Square, pursuant to an
agreement regarding settlement costs associated with environmental remediation
at Assembly Square. This receivable was collected in the first quarter of 1999.
Prepaid expenses decreased to $205,933 at March 31, 1999 from $419,878 at
December 31, 1998, primarily due to the timing of real estate tax payments.
Accounts payable and accrued expenses increased to $211,199 at March 31, 1999
from $202,161 at December 31, 1998, primarily due to an accrual for co-tenancy
provisions for rental income.
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
Deferred income decreased from $525,051 at December 31, 1998 to $451,198 at
March 31, 1999, primarily due to differences in the timing of billing tenants
for their share of real estate taxes.
Results of Operations
- ---------------------
For the three months ended March 31, 1999, the Partnership generated net income
of $334,418, compared to net income of $437,332, for the corresponding period in
1998. The decrease in net income is primarily due to lower rental income and
higher general and administrative expenses, offset by lower depreciation and
amortization which was suspended beginning in July 1998 in accordance with the
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(FASB No. 121).
For the three months ended March 31, 1999, the Partnership's rental income
totaled $924,899, compared to rental income of $1,191,460, for the corresponding
period in 1998. The decrease in rental income is primarily due to Caldor's
rejection of its lease in July 1998.
Escalation income represents the income received from Mall tenants for their
proportionate share of common area maintenance and real estate tax expenses.
<PAGE>
Escalation income totaled $632,449 for the three months ended March 31, 1999,
compared to $701,661 for the corresponding period in 1998. The decrease in
escalation income is primarily due to Caldor's rejection of its lease in July
1998.
Interest income totaled $83,373 for the three months ended March 31, 1999,
compared with $135,317 for the same period in 1998. The decrease is attributed
to a lower average cash balance due to a special cash distribution paid to
partners in the fourth quarter of 1998.
Property operating expenses totaled $446,762 for the three months ended March
31, 1999, compared with $433,212 for the corresponding period in 1998. The
increase is primarily due to higher snow removal costs.
Depreciation and amortization expense totaled $-0- for the three months ended
March 31, 1999, compared with $343,762 for the corresponding period in 1998. The
Partnership suspended depreciation and amortization on July 1, 1998, in
accordance with FASB No. 121.
General and administrative expenses for the three months ended March 31, 1999
were $124,860, compared with $76,159 for the same period in 1998. The increase
reflects higher legal and partnership administrative expenses.
Mall tenant sales at Cranberry for the two months ended February 28, 1999 were
$4,211,000, compared with sales of $4,673,000 for the two months ended February
28, 1998. Mature tenant sales for the two months ended February 28, 1999 were
$4,057,000, compared with sales of $4,234,000 for the two months ended February
28, 1998. As of March 31, 1999 and 1998, Cranberry was 78% and 81% occupied,
respectively (exclusive of anchor and outparcel tenants).
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended
March 31, 1999.
<PAGE>
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SHOPCO REGIONAL MALLS, L.P.
BY: REGIONAL MALLS INC.
General Partner
Date: May 17, 1999 BY: /s/Michael T. Marron
-------------------------------------
Name: Michael T. Marron
Title: President and Chief Financial Officer
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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
-------------
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 Number: 33-20614
--------
SHOPCO REGIONAL MALLS, L.P.
---------------------------
Exact Name of Registrant as Specified in its Charter
Delaware 13-3217028
-------- ----------
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.
3 World Financial Center, 29th Floor,
New York, NY Attn.: Andre Anderson 10285
- -------------------------------------- -----
Address of Principal Executive Offices Zip code
(212) 526-3183
--------------
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 such filing
requirements for the past 90 days.
Yes X No
--- ---
<PAGE>
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
At June 30, At December 31,
1999 1998
(unaudited) (audited)
- -------------------------------------------------------------------------------
<S> <C> <C>
Assets
Real estate assets held for disposition $33,500,000 $35,280,000
Cash and cash equivalents 7,164,849 5,952,659
Construction escrows 482,246 473,246
Accounts receivable, net of allowance of
$131,910 in 1999 and 1998 280,782 390,768
Other receivable 3,399 300,000
Deferred charges, net of accumulated
amortization of $3,975 in 1998 -- 995
Prepaid expenses 44,217 419,878
- -------------------------------------------------------------------------------
Total Assets $41,475,493 $42,817,546
===============================================================================
Liabilities, Minority Interest and Partners'
Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 215,868 $ 202,161
Other liabilities -- 20,577
Mortgage payable 31,025,000 31,025,000
Due to affiliates 33,400 25,549
Security deposits payable 7,021 10,271
Deferred income 456,028 525,051
-----------------------------
Total Liabilities 31,737,317 31,808,609
-----------------------------
Minority Interest (140,313) (118,121)
-----------------------------
Partners' Capital (Deficit):
General Partner (82,674) (70,188)
Limited Partners (70,250 limited partnership
units authorized, issued and outstanding) 9,961,163 11,197,246
-----------------------------
Total Partners' Capital 9,878,489 11,127,058
- -------------------------------------------------------------------------------
Total Liabilities, Minority Interest
and Partners' Capital $41,475,493 $42,817,546
===============================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
(UNAUDITED)
For the six months ended June 30, 1999
General Limited
Partner Partners Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1998 $(70,188) $11,197,246 $11,127,058
Net Income (Loss) (12,486) (1,236,083) (1,248,569)
- -------------------------------------------------------------------------------
Balance at June 30, 1999 $(82,674) $ 9,961,163 $ 9,878,489
===============================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the three months ended June 30, For the six months ended June 30,
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income
Rental income $ 1,049,177 $1,174,148 $ 1,974,076 $2,365,608
Escalation income 440,519 671,728 1,072,968 1,373,389
Interest income 89,915 153,361 173,288 288,678
Miscellaneous income 12,103 17,228 38,421 36,522
-------------------------------------------------------------
Total Income 1,591,714 2,016,465 3,258,753 4,064,197
- ------------------------------------------------------------------------------------------------
Expenses
Interest expense 562,328 562,328 1,124,656 1,124,656
Property operating expenses 521,839 470,245 968,601 903,457
Loss on write-down of real estate 1,830,000 -- 1,830,000 --
Depreciation and amortization -- 343,704 -- 687,466
Real estate taxes 189,907 186,569 379,814 373,138
General and administrative 101,583 103,680 226,443 179,839
-------------------------------------------------------------
Total Expenses 3,205,657 1,666,526 4,529,514 3,268,556
- ------------------------------------------------------------------------------------------------
<PAGE>
Income (loss) before
minority interest (1,613,943) 349,939 (1,270,761) 795,641
Minority interest 30,956 (6,959) 22,192 (15,329)
- ------------------------------------------------------------------------------------------------
Net Income (Loss) $(1,582,987) $ 342,980 $(1,248,569) $ 780,312
================================================================================================
Net Income Allocated:
To the General Partner $ (15,830) $ 3,430 $ (12,486) $ 7,803
To the Limited Partners (1,567,157) 339,550 (1,236,083) 772,509
- ------------------------------------------------------------------------------------------------
$(1,582,987) $ 342,980 $(1,248,569) $ 780,312
================================================================================================
Per limited partnership unit
(70,250 outstanding) $ (22.31) $ 4.83 $ (17.60) $ 11.00
- ------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the six months ended June 30,
1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $(1,248,569) $ 780,312
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Minority interest (22,192) 15,329
Depreciation and amortization -- 687,466
Loss on write-down of real estate 1,830,000 --
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Accounts receivable 109,986 (84,874)
Other receivable 296,601 --
Deferred rent receivable -- (76,644)
Prepaid expenses and deferred charges 376,656 322,768
Accounts payable and accrued expenses 13,707 23,864
Other liabilities (20,577) (30,143)
Due to affiliates 7,851 752
Deferred income (69,023) (179,742)
Security deposit (3,250) --
--------------------------
Net cash provided by operating activities 1,271,190 1,459,088
- ------------------------------------------------------------------------------------------
<PAGE>
Cash Flows From Investing Activities:
Additions to real estate assets held for disposition (50,000) --
Construction escrows (9,000) (9,000)
--------------------------
Net cash used for investing activities (59,000) (9,000)
- ------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,212,190 1,450,088
Cash and cash equivalents, beginning of period 5,952,659 9,600,824
- ------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $7,164,849 $11,050,912
==========================================================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $1,124,656 $ 1,124,656
- ------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements should be read in
conjunction with the Partnership's annual 1998 audited consolidated financial
statements within Form 10-K.
The unaudited interim consolidated financial statements include all normal and
recurring adjustments which are, in the opinion of management, necessary to
present a fair statement of financial position as of June 30, 1999 and the
results of operations for the six months ended June 30, 1999 and 1998, cash
flows for the six months ended June 30, 1999 and 1998 and the consolidated
statement of partners' capital (deficit) for the six months ended June 30, 1999.
Results of operations for the period are not necessarily indicative of the
results to be expected for the full year.
On July 1, 1999, the Partnership executed a letter of intent to sell the mall to
a third-party buyer and is currently negotiating a contract for sale. While it
is expected that the mall will be sold in 1999, there can be no assurance that
the mall will be sold within this time frame or that a sale will result in a
particular price.
No other significant events have occurred subsequent to fiscal year 1998, and no
material contingencies exist which would require disclosure in this interim
report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
<PAGE>
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
Part 1, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
On September 18, 1995, Caldor, an anchor tenant at Cranberry Mall, filed for
protection under the U.S. Bankruptcy Code. In February 1998, Caldor announced
that it would close its store at Cranberry, and did so on May 10, 1998. In July
1998, Caldor rejected its lease with bankruptcy court approval and the
Partnership's claims for unpaid rent and rejection damages under Caldor's lease
in the amount of $833,920.83 were filed shortly thereafter. It is not known at
this time the extent to which these claims will be paid. Although the General
Partner continues working to secure a new anchor tenant for Caldor's space,
attracting a replacement anchor is likely to take time and require substantial
capital outlays by the Partnership to fund alterations necessary to accommodate
another tenant. Given the fact that the mall is actively being marketed for
sale, it is likely that a replacement for Caldor will not be found prior to a
sale of the mall.
On July 7, 1997, Montgomery Ward, an anchor tenant at Cranberry Mall filed for
protection under Chapter 11 of the Bankruptcy Code. On October 10, 1997, as part
of its bankruptcy reorganization process, Montgomery Ward announced the closing
of 48 stores. Although the Cranberry Mall store was not among those scheduled to
be closed, Montgomery Ward may in the future, with court approval, choose to
reject or accept the terms of its lease.
During 1998, the Partnership engaged a broker to market Cranberry Mall for sale.
In view of the anticipated sale of the mall, the Partnership's real estate has
been recorded on the Partnership's balance sheet as "Real estate assets held for
disposition." Real estate assets held for disposition at June 30, 1999 totaled
$33,500,000. Efforts to sell the mall, however, are likely to be impacted by the
uncertain status of Caldor's space and Montgomery Ward's store. On July 1, 1999,
the Partnership executed a letter of intent to sell the mall to a third-party
buyer and is currently negotiating a contract for sale. While it is expected
that the mall will be sold in 1999, there can be no assurance that the mall will
be sold within this time frame or that a sale will result in a particular price.
The first and second mortgage notes secured by Cranberry Mall, which totaled
$31,025,000 at June 30, 1999 and December 31, 1998, were scheduled to mature on
April 1, 1999. The General Partner and the mortgage lender, Metropolitan Life
Insurance Company, agreed to allow the Partnership to defer the payment of the
principal balance of the loan to April 1, 2000, provided that the Partnership
continues to pay interest at the same rate and times set forth in the mortgage
notes.
<PAGE>
At June 30, 1999, the Partnership had cash and cash equivalents totaling
$7,164,849, compared with $5,952,659 at December 31, 1998. The increase is
primarily due to net cash provided by operating activities, including the
collection of the other receivable as discussed below.
At June 30, 1999, the Partnership's accounts receivable, net of allowance for
doubtful accounts, decreased to $280,782 from $390,768 at December 31, 1998,
primarily due to timing of rental payments.
Other receivable totaling $300,000 at December 31, 1998, represented amounts due
pursuant to a settlement agreement with a prior owner of Assembly Square
regarding costs associated with environmental remediation at Assembly Square.
This receivable was collected in the first quarter of 1999.
Prepaid expenses decreased to $44,217 at June 30, 1999 from $419,878 at December
31, 1998, primarily due to the timing of real estate tax payments.
Accounts payable and accrued expenses increased to $215,868 at June 30, 1999
from $202,161 at December 31, 1998, primarily due to an accrual for co-tenancy
provisions for rental income.
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
Deferred income decreased from $525,051 at December 31, 1998 to $456,028 at June
30, 1999, primarily due to differences in the timing of billing tenants for
their share of real estate taxes.
Results of Operations
- ---------------------
For the three and six months ended June 30, 1999, the Partnership's operations
resulted in a net loss of $1,582,987 and $1,248,569, respectively, compared to
net income of $342,980 and $780,312, respectively, for the corresponding periods
in 1998. The net loss for the periods ended June 30, 1999 was primarily due to
the $1,830,000 write-down of Cranberry Mall to its estimated fair market value
in 1999.
For the three and six months ended June 30, 1999, the Partnership's rental
income totaled $1,049,177 and $1,974,076, respectively, compared to rental
income of $1,174,148 and $2,365,608, respectively, for the corresponding periods
in 1998. The decrease in rental income is primarily due to Caldor's rejection of
its lease in July 1998.
Escalation income represents the income received from mall tenants for their
proportionate share of common area maintenance and real estate tax expenses.
Escalation income totaled $440,519 and $1,072,968, respectively, for the three
<PAGE>
and six months ended June 30, 1999, compared to $671,728 and $1,373,389,
respectively, for the corresponding periods in 1998. The decrease in escalation
income is primarily due to Caldor's rejection of its lease in July 1998.
Interest income totaled $89,915 and $173,288, respectively, for the three and
six months ended June 30, 1999, compared with $153,361 and $288,678,
respectively, for the same periods in 1998. The decrease is attributed to a
lower average cash balance due to a special cash distribution paid to partners
in the fourth quarter of 1998.
Property operating expenses totaled $521,839 and $968,601, respectively, for the
three and six months ended June 30, 1999, compared with $470,245 and $903,457,
respectively, for the corresponding periods in 1998. The increase is primarily
due to higher maintenance costs.
Depreciation and amortization expense totaled $-0- for the three and six months
ended June 30, 1999, compared with $343,704 and $687,466, respectively, for the
corresponding periods in 1998. The Partnership suspended depreciation and
amortization on July 1, 1998, in accordance with FASB No. 121.
General and administrative expenses for the three and six months ended June 30,
1999 were $101,583 and $226,443, respectively, compared with $103,680 and
$179,839, respectively, for the same periods in 1998. The increase for the six
months reflects higher legal and partnership administrative expenses.
Mall tenant sales at Cranberry for the five months ended May 31, 1999 were
$12,193,000, compared with sales of $12,658,000 for the five months ended May
31, 1998. Mature tenant sales for the five months ended May 31, 1999 were
$11,314,000, compared with sales of $11,258,000 for the five months ended May
31, 1998. As of June 30, 1999 and 1998, Cranberry was 76% and 81% occupied,
respectively (exclusive of anchor and outparcel tenants).
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
Part II Other Information
Item 1 On or about June 9, 1999, a purported class action, Rice, et al. v.
---------------
Regional Malls, Inc., et al., was commenced on behalf of all
----------------------------
Unitholders in the Court of Chancery for New Castle County, Delaware,
against the General Partner of the Partnership, the Partnership, and
Lehman Brothers Inc. (the "Defendants"). The complaint alleges, among
other things, that the General Partner failed to protect the
Partnership's assets and the interests of the Unitholders in
connection with the default on the mortgage encumbering Assembly
<PAGE>
Square Mall, the foreclosure sale of Assembly Square Mall and the
efforts to sell Cranberry Mall. The complaint purports to assert
claims for breach of fiduciary duty and breach of contract and seeks
an accounting. The Defendants intend to defend the action vigorously.
Items 2-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K -
No reports on Form 8-K were filed during the quarter ended
June 30, 1999.
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SHOPCO REGIONAL MALLS, L.P.
BY: REGIONAL MALLS INC.
General Partner
Date: August 16, 1999 BY: /s/Michael T. Marron
-------------------------------------
Name: Michael T. Marron
Title: President and Chief Financial Officer
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of
- ---------- the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1999
------------------
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 Number: 33-20614
--------
SHOPCO REGIONAL MALLS, L.P.
---------------------------
Exact Name of Registrant as Specified in its Charter
Delaware 13-3217028
-------- ----------
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.
3 World Financial Center, 29th Floor,
New York, NY Attn.: Andre Anderson 10285
- -------------------------------------- -----
Address of Principal Executive Offices Zip code
(212) 526-3183
--------------
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 such filing
requirements for the past 90 days.
Yes X No
--- ---
<PAGE>
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
At September 30, At December 31,
1999 1998
(unaudited) (audited)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Real estate assets held for disposition $33,150,000 $35,280,000
Cash and cash equivalents 7,081,982 5,952,659
Construction escrows 486,745 473,246
Accounts receivable, net of allowance of
$141,334 in 1999 and $131,910 in 1998 235,625 390,768
Other receivable 3,254 300,000
Deferred charges, net of accumulated amortization
of $3,975 in 1998 -- 995
Prepaid expenses 493,493 419,878
- --------------------------------------------------------------------------------------------------
Total Assets $41,451,099 $42,817,546
==================================================================================================
Liabilities, Minority Interest and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 189,291 $ 202,161
Other liabilities 168,960 20,577
Mortgage payable 31,025,000 31,025,000
Due to affiliates 86,561 25,549
Security deposits payable 8,021 10,271
Deferred income 481,294 525,051
-----------------------------
Total Liabilities 31,959,127 31,808,609
-----------------------------
Minority Interest (105,585) (118,121)
-----------------------------
Partners' Capital (Deficit):
General Partner (85,483) (70,188)
Limited Partners (70,250 limited partnership
units authorized, issued and outstanding) 9,683,040 11,197,246
-----------------------------
Total Partners' Capital 9,597,557 11,127,058
- --------------------------------------------------------------------------------------------------
Total Liabilities, Minority Interest and Partners' Capital $41,451,099 $42,817,546
==================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
(UNAUDITED)
For the nine months ended September 30, 1999
General Limited
Partner Partners Total
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1998 $(70,188) $11,197,246 $11,127,058
Net Loss (15,295) (1,514,206) (1,529,501)
- --------------------------------------------------------------------------------------------------
Balance at September 30, 1999 $(85,483) $ 9,683,040 $ 9,597,557
==================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the three months ended September 30, For the nine months ended September 30,
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income
Rental income $ 817,502 $ 938,040 $ 2,791,578 $3,303,648
Escalation income 560,439 620,141 1,633,407 1,993,530
Interest income 96,047 153,629 269,335 442,307
Miscellaneous income 14,986 6,588 53,407 43,110
------------------------------------------------------------------
Total Income 1,488,974 1,718,398 4,747,727 5,782,595
- --------------------------------------------------------------------------------------------------
Expenses
Interest expense 562,328 562,328 1,686,984 1,686,984
Property operating expenses 525,389 638,930 1,493,990 1,542,387
Loss on write-down of
real estate 350,000 -- 2,180,000 --
Depreciation and amortization -- -- -- 687,466
Real estate taxes 158,403 189,908 538,217 563,046
General and administrative 139,058 78,630 365,501 258,469
------------------------------------------------------------------
Total Expenses 1,735,178 1,469,796 (6,264,692) 4,738,352
- --------------------------------------------------------------------------------------------------
<PAGE>
Income (loss) before minority
interest (246,204) 248,602 (1,516,965) 1,044,243
Minority interest (34,728) (4,393) (12,536) (19,722)
- --------------------------------------------------------------------------------------------------
Net Income (Loss) $ (280,932) $ 244,209 $(1,529,501) $1,024,521
==================================================================================================
Net Income (Loss) Allocated:
To the General Partner $ (2,809) $ 2,442 $ (15,295) $ 10,245
To the Limited Partners (278,123) 241,767 (1,514,206) 1,014,276
- --------------------------------------------------------------------------------------------------
$ (280,932) $ 244,209 $(1,529,501) $1,024,521
==================================================================================================
Per limited partnership unit
(70,250 outstanding) $ (3.96) $ 3.44 $ (21.55) $ 14.44
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the nine months ended September 30,
1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $(1,529,501) $ 1,024,521
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Minority interest 12,536 19,722
Depreciation and amortization -- 687,466
Loss on write-down of real estate 2,180,000 --
Increase (decrease) in cash arising from changes in
operating assets and liabilities:
Accounts receivable 155,143 (195,278)
Other receivable 296,746 --
Deferred rent receivable -- (76,644)
Prepaid expenses and deferred charges (72,620) (222,915)
Accounts payable and accrued expenses (12,870) (8,661)
Other liabilities 148,383 (90,465)
Due to affiliates 61,012 1,752
Deferred income (43,757) (15,877)
Security deposit (2,250) 2,500
--------------------------
Net cash provided by operating activities 1,192,822 1,126,121
- --------------------------------------------------------------------------------------------------
<PAGE>
Cash Flows From Investing Activities:
Additions to real estate assets held for disposition (50,000) --
Construction escrows (13,499) (13,500)
Additions to real estate assets -- (29,948)
--------------------------
Net cash used for investing activities (63,499) (43,448)
- --------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,129,323 1,082,673
Cash and cash equivalents, beginning of period 5,952,659 9,600,824
- --------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 7,081,982 $10,683,497
==================================================================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 1,686,984 $ 1,686,984
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements should be read in
conjunction with the Partnership's annual 1998 audited consolidated financial
statements within Form 10-K.
The unaudited interim consolidated financial statements include all normal and
recurring adjustments which are, in the opinion of management, necessary to
present a fair statement of financial position as of September 30, 1999 and the
results of operations for the three and nine months ended September 30, 1999 and
1998, cash flows for the nine months ended September 30, 1999 and 1998 and the
consolidated statement of partners' capital (deficit) for the nine months ended
September 30, 1999. Results of operations for the period are not necessarily
indicative of the results to be expected for the full year.
On September 11, 1999, the Partnership entered into a contract to sell the mall
to a third-party buyer. Any sale of the Partnership's interest in the Mall is
subject to, among other things, the satisfactory completion of the buyer's due
diligence and the approval of a majority-in-interest of the Limited Partners.
Subject to the buyer's satisfactory completion of its due diligence process,
approval by the Limited Partners will subsequently be solicited by a proxy
solicitation that will be mailed to investors.
No other significant events have occurred subsequent to fiscal year 1998, and no
material contingencies exist which would require disclosure in this interim
report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
<PAGE>
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
Part 1, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
During 1998, the Partnership engaged a broker to market Cranberry Mall for sale.
In view of the anticipated sale of the mall, the Partnership's real estate has
been recorded on the Partnership's balance sheet as "Real estate assets held for
disposition." Real estate assets held for disposition at September 30, 1999
totaled $33,150,000.
On September 11, 1999, the Partnership entered into a contract to sell the mall
to a third-party buyer. Any sale of the Partnership's interest in the Mall is
subject to, among other things, the satisfactory completion of the buyer's due
diligence and the approval of a majority-in-interest of the Limited Partners.
Subject to the buyer's satisfactory completion of its due diligence process,
approval by the Limited Partners will subsequently be solicited by a proxy
solicitation that will be mailed to investors.
On September 18, 1995, Caldor, an anchor tenant at Cranberry Mall, filed for
protection under the U.S. Bankruptcy Code. In February 1998, Caldor announced
that it would close its store at Cranberry, and did so on May 10, 1998. In July
1998, Caldor rejected its lease with bankruptcy court approval and the
Partnership's claims for unpaid rent and rejection damages under Caldor's lease
in the amount of $833,921 were filed shortly thereafter. It is not known at this
time the extent to which these claims will be paid. During 1999, the General
Partner signed a letter of intent with two prospective tenants to replace Caldor
as the anchor tenant. The anticipated date of occupancy for these tenants is
Spring of 2000.
On July 7, 1997, Montgomery Ward, an anchor tenant at Cranberry Mall filed for
protection under Chapter 11 of the Bankruptcy Code. On October 10, 1997, as part
of its bankruptcy reorganization process, Montgomery Ward announced the closing
of 48 stores. Montgomery Ward confirmed its plan of reorganization in July 1999,
with an effective date of August 2, 1999, and successfully emerged from
bankruptcy. In conjunction with the confirmation of its Chapter 11 plan,
Montgomery Ward has assumed its store lease at Cranberry Mall and will remain in
possession of the store.
The first and second mortgage notes secured by Cranberry Mall, which totaled
$31,025,000 at September 30, 1999 and December 31, 1998, were scheduled to
mature on April 1, 1999. The General Partner and the mortgage lender,
Metropolitan Life Insurance Company, agreed to allow the Partnership to defer
the payment of the principal balance of the loan to April 1, 2000, provided that
the Partnership continues to pay interest at the same rate and times set forth
in the mortgage notes.
<PAGE>
At September 30, 1999, the Partnership had cash and cash equivalents totaling
$7,081,982, compared with $5,952,659 at December 31, 1998. The increase is
primarily due to net cash provided by operating activities, including the
collection of other receivables as discussed below.
At September 30, 1999, the Partnership's accounts receivable, net of allowance
for doubtful accounts, decreased to $235,625 from $390,768 at December 31, 1998,
primarily due to timing of rental payments.
Other receivable totaling $300,000 at December 31, 1998, represented amounts due
pursuant to a settlement agreement with a prior owner of Assembly Square
regarding costs associated with environmental remediation at Assembly Square.
This receivable was collected in the first quarter of 1999.
Prepaid expenses increased to $493,493 at September 30, 1999 from $419,878 at
December 31, 1998, primarily due to the timing of real estate tax payments.
Accounts payable and accrued expenses decreased to $189,291 at September 30,
1999 from $202,161 at December 31, 1998, primarily due to the timing of
payments.
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
Other liabilities increased from $20,577 at December 31, 1998 to $168,960 at
September 30, 1999 as a result of amounts due to tenants for their share of a
real estate tax refund for 1997 and 1998.
Deferred income decreased from $525,051 at December 31, 1998 to $481,294 at
September 30, 1999, primarily due to differences in the timing of billing
tenants for their share of real estate taxes.
Year 2000 Initiatives
- ---------------------
The Year 2000 compliance issue concerns the ability of computerized information
systems to accurately calculate, store or use a date after 1999. This could
result in computer system failures or miscalculations causing disruption of
operations.
Potential Year 2000 issues relate to the outside vendors which provide the
Partnership's administrative services (including accounting, tax preparation and
transfer agent services) and vendors which provide accounting and property
management services to Cranberry Mall. Another potential issue relates to the
property management systems at the mall. It is anticipated that the cost of
vendor compliance with Year 2000 problems will be borne primarily by the
vendors. Although it is not possible at present to give an estimate of the cost
of this work to the Partnership, the General Partner does not expect such costs
<PAGE>
to have a material adverse impact on the Partnership's business, operations or
financial condition.
The General Partner has been informed by its vendors and the mall's property
manager that the necessary steps have been taken to ensure Year 2000 compliance,
including the development and implementation of a contingency plan. However,
there is no certainty such plans would fully mitigate any Year 2000 problems.
Results of Operations
- ---------------------
For the three and nine months ended September 30, 1999, the Partnership's
operations resulted in net loss of $280,932 and $1,529,501, respectively,
compared to net income of $244,209 and $1,024,521, respectively, for the
corresponding periods in 1998. The net loss for the three and nine months ended
September 30, 1999 was primarily due to the $350,000 and $2,180,000,
respectively, write-down of Cranberry Mall to its estimated fair market value in
1999.
For the three and nine months ended September 30, 1999, the Partnership's rental
income totaled $817,502 and $2,791,578, respectively, compared to rental income
of $938,040 and $3,303,648, respectively, for the corresponding periods in 1998.
The decrease in rental income is primarily due to Caldor's rejection of its
lease in July 1998.
Escalation income represents the income received from mall tenants for their
proportionate share of common area maintenance and real estate tax expenses.
Escalation income totaled $560,439 and $1,633,407, respectively, for the three
and nine months ended September 30, 1999, compared to $620,141 and $1,993,530,
respectively, for the corresponding periods in 1998. The decrease is primarily
due to Caldor's rejection of its lease in July 1998.
Interest income totaled $96,047 and $269,335, respectively, for the three and
nine months ended September 30, 1999, compared with $153,629 and $442,307,
respectively, for the same periods in 1998. The decrease is attributed to a
lower average cash balance due to a special cash distribution paid to the
limited partners in the fourth quarter of 1998.
Property operating expenses totaled $525,389 and $1,493,990, respectively, for
the three and nine months ended September 30, 1999, compared with $638,930 and
$1,542,387, respectively, for the corresponding periods in 1998. The decrease is
primarily due to lower maintenance costs.
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
Depreciation and amortization expense totaled $-0- for the three and nine months
ended September 30, 1999, compared with $-0- and $687,466, respectively, for the
corresponding periods in 1998. The Partnership suspended depreciation and
amortization on July 1, 1998, in accordance with FASB No. 121.
<PAGE>
General and administrative expenses for the three and nine months ended
September 30, 1999 were $139,058 and $365,501, respectively, compared with
$78,630 and $258,469, respectively, for the same periods in 1998. The increase
for the 1999 periods reflects higher legal and partnership administrative
expenses.
Mall tenant sales at Cranberry for the eight months ended August 31, 1999 were
$19,179,000, compared with sales of $20,401,000 for the eight months ended
August 31, 1998. Mature tenant sales for the eight months ended August 31, 1999
were $17,695,000, compared with sales of $18,093,000 for the eight months ended
August 31, 1998. As of September 30, 1999 and 1998, Cranberry was 75% and 81%
occupied, respectively (exclusive of anchor and outparcel tenants).
Part II Other Information
Item 1 On or about June 9, 1999, a purported class action, Rice, et al.
v. Regional Malls, Inc., et al., was commenced on behalf of all
Unitholders in the Court of Chancery for New Castle County,
Delaware, against the General Partner of the Partnership, the
Partnership, and Lehman Brothers Inc. (the "Defendants"). The
complaint alleges, among other things, that the General Partner
failed to protect the Partnership's assets and the interests of
the Unitholders in connection with the default on the mortgage
encumbering Assembly Square Mall, the foreclosure sale of
Assembly Square Mall and the efforts to sell Cranberry Mall. The
complaint purports to assert claims for breach of fiduciary duty
and breach of contract and seeks an accounting. The Defendants
have filed a motion to dismiss the complaint and intend to defend
the action vigorously.
Items 2-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K -
No reports on Form 8-K were filed during the quarter ended
September 30, 1999.
<PAGE>
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SHOPCO REGIONAL MALLS, L.P.
BY: REGIONAL MALLS INC.
General Partner
Date: November 15, 1999 BY: /s/Michael T. Marron
-------------------------------------
Name: Michael T. Marron
Title: President and Chief Financial Officer
ANNEX I
AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF
SHOPCO REGIONAL MALLS, L.P.
Dated as of October 6, 1988
<PAGE>
TABLE OF CONTENTS
Page
SECTION I General Provisions . . . . . . . . . . . . . . . . . . I-5
1.01. Continuation of the Partnership . . . . . . . . . . . I-5
1.02. Name and Office of the Partnership . . . . . . . . . I-6
1.03. Purpose of the Partnership . . . . . . . . . . . . . I-6
1.04. Term of the Partnership . . . . . . . . . . . . . . . I-6
1.05. Partners . . . . . . . . . . . . . . . . . . . . . . I-6
SECTION II Capital. . . . . . . . . . . . . . . . . . . . . . . . I-7
2.01. General Partner and Assignor Limited Partner. . . . . I-7
2.02. Contributions of the Assignor Limited Partner. . . . I-7
2.03. Partnership Capital . . . . . . . . . . . . . . . . . I-8
2.04. Execution of the Depositary Agreement . . . . . . . . I-9
2.05. No Fractional Interests and Units . . . . . . . . . . I-9
2.06. Splits and Combinations . . . . . . . . . . . . . . . I-9
2.07. Additional Issuances of Interests or Units . . . . . I-11
SECTION III Capital Accounts . . . . . . . . . . . . . . . . . . . I-11
3.01. Capital Account Calculation . . . . . . . . . . . . . I-11
3.02. Special Provisions . . . . . . . . . . . . . . . . . I-12
3.03. Transfers . . . . . . . . . . . . . . . . . . . . . . I-13
3.04. Timing . . . . . . . . . . . . . . . . . . . . . . . I-13
3.05. Allocations and Distributions Among Unit Holders;
Status of Unit Holders . . . . . . . . . . . . . . . I-13
3.06. Admissions and Transfers; Allocations and
Distributions . . . . . . . . . . . . . . . . . . . I-13
SECTION IV Allocation of Income and Losses, Gains and Losses. . . I-15
4.01. Operations . . . . . . . . . . . . . . . . . . . . . I-15
4.02. Capital Transactions. . . . . . . . . . . . . . . . . I-15
4.03. Dissolution . . . . . . . . . . . . . . . . . . . . . I-16
4.04. Minimum Gain Limitation . . . . . . . . . . . . . . . I-18
4.05. Amendments to Allocations . . . . . . . . . . . . . . I-18
4.06. General Partner Deficit Restoration . . . . . . . . . I-19
4.07. Allocations on Account of Optional Loans . . . . . . I-19
4.08. Minimum Gain Chargeback . . . . . . . . . . . . . . . I-19
4.09. Qualified Income Offset . . . . . . . . . . . . . . . I-20
4.10. Termination . . . . . . . . . . . . . . . . . . . . . I-20
SECTION V Distributions . . . . . . . . . . . . . . . . . . . . I-20
5.01. Operations . . . . . . . . . . . . . . . . . . . . . . I-20
5.02. Capital Transactions . . . . . . . . . . . . . . . . I-21
5.03. Dissolution . . . . . . . . . . . . . . . . . . . . . I-21
5.04. Working Capital Reserve . . . . . . . . . . . . . . . I-21
5.05. Miscellaneous . . . . . . . . . . . . . . . . . . . . I-22
5.06. Rules Governing Distributions Generally . . . . . . . I-22
5.07. Special Distribution to Unit Holders . . . . . . . . I-22
SECTION VI Management . . . . . . . . . . . . . . . . . . . . . . I-23
6.01. Management of the Partnership . . . . . . . . . . . . I-23
I-1
<PAGE>
6.02. Loans by the General Partner to the Partnership. . . I-29
6.03. Services of the General Partner; Other Interests of
Partners and Unit Holders; Fiduciary Duty. . . . . I-30
6.04. Liability of the General Partner; Indemnification. . I-30
6.05. Limitations on and Voting Rights of Limited Partners
and Unit Holders . . . . . . . . . . . . . . . . . I-32
6.06. Liability of Limited Partners and Unit Holders. . . . I-32
6.07. Withdrawal or Removal of the General Partner. . . . . I-33
6.08. Certain Fees and Expenses . . . . . . . . . . . . . . I-36
6.09. Code Elections . . . . . . . . . . . . . . . . . . . I-37
6.10. Net Worth of the General Partner . . . . . . . . . . I-37
6.11. Sale or Lease of Malls . . . . . . . . . . . . . . . I-38
6.12. Meetings . . . . . . . . . . . . . . . . . . . . . . I-38
6.13. Notice . . . . . . . . . . . . . . . . . . . . . . . I-39
6.14. Record Date . . . . . . . . . . . . . . . . . . . . . I-39
6.15. Front-end Fees . . . . . . . . . . . . . . . . . . . I-40
SECTION VII Assignment of Assignor's Limited Partnership
Interests to Unit Holders and Rights
of Unit Holders . . . . . . . . . . . . . . . . . . I-40
7.01. Assignment of Interests: Timing, Procedures, Rights,
Liabilities, and Fiduciary Duty . . . . . . . . . . I-40
7.02. Rights and Obligations of Unit Holders to Become
Limited Partners . . . . . . . . . . . . . . . . . I-42
7.03. Transfer of Units . . . . . . . . . . . . . . . . . . I-43
7.04. Deferral of Registration of Transfers of Interests
or Units to Avoid Termination of the Partnership. . I-44
7.05. Transfer Fee. . . . . . . . . . . . . . . . . . . . . I-44
7.06. Replacement of the Assignor Limited Partner. . . . . I-44
SECTION VIII Books, Records and Bank Accounts . . . . . . . . . . . I-45
8.01. Fiscal Year . . . . . . . . . . . . . . . . . . . . . I-45
8.02. Records of Partnership Transactions . . . . . . . . . I-45
8.03. Access to Partnership Records . . . . . . . . . . . . I-45
8.04. Method of Accounting; Preparation of Tax Returns . . I-46
8.05. Reports on Partnership's Business . . . . . . . . . . I-46
8.06. Report on Form 10-Q . . . . . . . . . . . . . . . . . I-46
8.07. Annual Financial Reports . . . . . . . . . . . . . . I-46
8.08. Bank Accounts; Temporary Investments . . . . . . . . I-47
8.09. Tax Matters Partner . . . . . . . . . . . . . . . . . I-47
8.10. Reports to Administrators . . . . . . . . . . . . . . I-48
8.11. Modifications to Reporting Requirements . . . . . . . I-48
SECTION IX Transfers of Interests . . . . . . . . . . . . . . . . I-48
9.01. Restrictions on Transfer or Assignment of Interests . I-48
9.02. Substituted Limited Partners . . . . . . . . . . . . I-50
9.03. Recognition of Transfer . . . . . . . . . . . . . . . I-50
9.04. Treatment of a Substituted Limited Partner as a
Limited Partner . . . . . . . . . . . . . . . . . . I-51
9.05. Withdrawal, Bankruptcy or Incapacity of a Limited
Partner . . . . . . . . . . . . . . . . . . . . . . I-51
9.06. Assignment of Units . . . . . . . . . . . . . . . . I-52
9.07. Transfers in Violation of Section . . . . . . . . . . I-52
I-2
<PAGE>
SECTION X Dissolution and Termination . . . . . . . . . . . . . I-52
10.01. No Dissolution . . . . . . . . . . . . . . . . . . . I-52
10.02. Events of Dissolution . . . . . . . . . . . . . . . . I-52
10.03. Distributions Upon Dissolution and Liquidation . . . I-54
SECTION XI Certain Definitions. . . . . . . . . . . . . . . . . . I-54
SECTION XII Miscellaneous . . . . . . . . . . . . . . . . . . . . I-61
12.01. Notices . . . . . . . . . . . . . . . . . . . . . . . I-61
12.02. Successors and Assigns . . . . . . . . . . . . . . . I-61
12.03. Power of Attorney . . . . . . . . . . . . . . . . . . I-62
12.04. Amendments . . . . . . . . . . . . . . . . . . . . . I-63
12.05. No Waiver . . . . . . . . . . . . . . . . . . . . . . I-64
12.06. Entire Agreement . . . . . . . . . . . . . . . . . . I-64
12.07. Captions . . . . . . . . . . . . . . . . . . . . . . I-64
12.08. Counterparts . . . . . . . . . . . . . . . . . . . . I-65
12.09. Foreign Limited Partners or Unit Holders . . . . . . I-65
12.10. Applicable Law . . . . . . . . . . . . . . . . . . . I-65
12.11. Severability . . . . . . . . . . . . . . . . . . . . I-65
Schedule A - Names, Address and Capital Contributions
of the General Partner, the Assignor
Limited Partner and the Limited Partners
I-3
<PAGE>
AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF
SHOPCO REGIONAL MALLS, L.P.
This Amended And Restated Agreement Of Limited
Partnership, dated as of the 6th day of October, 1988 (the "Agreement"),
by and among Shearson Regional Malls, Inc., a Delaware corporation having
an address at c/o Shearson Lehman Hutton Inc., American Express Tower,
12th Floor, World Financial Center, New York, New York 10285, as the
general partner (the "General Partner") and Shearson Regional Malls
Depositary Corp., a Delaware corporation, having an address at c/o
Shearson Lehman Hutton Inc., American Express Tower, 12th Floor, World
Financial Center, New York, New York 10285, as the assignor limited
partner (the "Assignor Limited Partner") (the Assignor Limited Partner,
the General Partner and those Persons Admitted to the Partnership as
additional or substitute Limited Partners pursuant to Section 2.07, 7.02
or 9 are hereinafter sometimes collectively referred to as the
"Partners").
R E C I T A L S
Whereas, on March 11, 1988, the General Partner and the
Assignor Limited Partner entered into an Agreement of Limited Partnership
forming Shopco Regional Malls, L.P., a Delaware limited partnership (the
"Partnership" and such agreement, the "Partnership Agreement"), and on
such date the General Partner caused a Certificate of Limited Partnership
(the "Certificate") to be filed in the Office of the Secretary of the
State of Delaware, all in accordance with the provisions of the Delaware
Revised Uniform Limited Partnership Act (the "Delaware Act").
Whereas, the Partnership was formed for the purpose of
acting as general partner of Shearson Shopco Malls, L.P., a Delaware
limited partnership (the "Owner Partnership"), which intends to acquire,
own, lease and eventually sell two enclosed regional shopping malls, The
Mall at Assembly Square located in Somerville, Massachusetts ("Assembly
Square") and Cranberry Mall, located in Westminster, Maryland
("Cranberry") and, possibly, one or more as-yet unspecified enclosed
shopping malls (the "Additional Malls", combinations of Assembly Square,
Cranberry and the Additional Malls are referred to as the "Malls") and
any Additional Property (as hereinafter defined), all in accordance with
the terms of the Owner Partnership Agreement (as hereinafter defined);
and
Whereas, the General Partner desires to cause the offer
and sale of depositary units representing assignments of the economic,
voting and certain other rights attributable to the limited partnership
interests in the Partnership ("Units") and the parties hereto desire to
amend and restate their entire agreement in full;
Now, Therefore, in consideration of the covenants and
agreements made herein, the parties hereto, intending to be legally
I-4
<PAGE>
bound, hereby certify and agree as follows (certain capitalized terms
used herein to have the respective meanings set forth in SECTION XI--
CERTAIN DEFINITIONS):
SECTION I
General Provisions
1.01. Continuation of the Partnership.
(a) The parties hereby continue Shopco Regional
Malls, L.P. as a limited partnership pursuant to the provisions
of the Delaware Act. The General Partner shall, from time to
time, file and record any amendments to the Certificate,
fictitious name certificates and/or other instruments or
documents required or desirable to comply with the laws of the
State of Delaware and any other jurisdictions in which the
Partnership shall carry on its business, and shall do all other
acts and things requisite for the reconstitution, protection and
continuation of the Partnership as a limited partnership
pursuant to the laws of the State of Delaware and any other
jurisdiction in which the Partnership shall carry on its
business.
(b) A Partner's and Unit Holder's interest in the
Partnership shall be personal property for all purposes. All
property owned by the Partnership shall be deemed owned by the
Partnership as an entity, and no Partner or Unit Holder,
individually, shall have any ownership of such property.
(c) Notwithstanding anything to the contrary
contained herein, if the General Partner obtains an appropriate
opinion of tax counsel ("Counsel") to the Partnership, if
changes in the tax laws or other developments are likely to
alter the Partnership's providing of "flow through" tax
consequences to Unit Holders and Limited Partners then the
General Partner may, and is hereby authorized to, take any
action or adopt any procedure deemed necessary or appropriate by
Counsel to preserve the Partnership's providing of such "flow
through" tax consequences, including, without limitation,
converting and reconstituting the Partnership as a real estate
investment trust or any other type of legal entity (a "New
Entity") in the manner and on the terms so recommended, or
distributing notes representing current taxable income to the
Partners and Unit Holders in the event the Partnership shall be
unable to distribute cash or property representing such taxable
income. The General Partner will obtain approval of a Majority
in Interest if time permits. In the event of conversion into a
New Entity, the business of the Partnership shall be continued
by the New Entity and the Interests and Units shall be converted
into equity interests of the New Entity in the manner and on the
terms so recommended and approved. The term "flow through" tax
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consequences shall have the same meaning in the context of this
Agreement as such term has in the National Association of
Securities Dealers, Inc.'s definition of "direct participation
program."
1.02. Name and Office of the Partnership.
The Partnership shall be conducted under the name of Shopco
Regional Malls, L.P. and its principal office shall be located at c/o
Shearson Lehman Hutton Inc., American Express Tower, 12th Floor, World
Financial Center, New York, New York 10285, or at such other place or
places as the General Partner may from time to time designate.
Notification of any such change in the Partnership's place of business
and principal office shall be given to all Partners and Unit Holders.
The registered office of the Partnership in the State of Delaware is
located at Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware 19801. The Partnership's registered agent for service of
process at such address in the State of Delaware is The Corporation Trust
Company.
1.03. Purpose of the Partnership.
The sole purpose and business of the Partnership shall be to act
and serve as the general partner of the Owner Partnership in accordance
with the terms of the Owner Partnership Agreement and to do all things
necessary or incidental thereto or necessary or incidental to the
performance of the terms of this Agreement and, in connection therewith
and, as applicable, acting through the Owner Partnership, to accept,
collect, hold, sell, exchange, mortgage, pledge or otherwise dispose of
the Malls and/or evidences of indebtedness or other property received by
the Owner Partnership or this Partnership pursuant to the terms of the
Owner Partnership Agreement or this Agreement. In carrying out the
foregoing purposes, the Partnership or the Owner Partnership may act in
conjunction with others, through joint ventures, partnerships or
otherwise. The Partnership shall engage in such other activities and
enter into such agreements as may be necessary or appropriate in
connection with the promotion or conduct of the business of the
Partnership as described in this Section 1.03 and as necessary or
appropriate to carry out the other provisions of this Agreement. The
Partnership shall not engage in any other business or activity without
the consent of a Majority in Interest of the Limited Partners.
1.04. Term of the Partnership.
The Partnership shall continue in full force and effect until
December 31, 2038, unless sooner terminated as hereinafter provided.
1.05. Partners.
(a) The General Partner of the Partnership is
Shearson Regional Malls Inc., a Delaware corporation. Except as
expressly provided in this Agreement, no other Person shall be
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admitted as an additional or substitute general partner of the
Partnership.
(b) The Assignor Limited Partner of the Partnership
is Shearson Regional Malls Depositary Corp., a Delaware
corporation. Except as expressly provided in this Agreement, no
other Person shall be admitted as an additional or substitute
Limited Partner of the Partnership.
SECTION II
Capital
2.01. General Partner and Assignor Limited Partner. The
names, business addresses and Capital Contributions of the General
Partner and the Assignor Limited Partner, as the case may be, are set
forth in Schedule A hereto. The General Partner, as such, shall not make
any additional Capital Contributions to the Partnership other than as
provided in Section 4.06. The initial contribution of the Assignor
Limited Partner shall be refunded, simultaneously with the release of the
Capital Contribution to the Partnership by the Assignor Limited Partner
attributable to purchasers of Units on the first Closing Date.
2.02. Contributions of the Assignor Limited Partner.
(a) The Partnership has made or will make a public
offering of up to 110,000 Units, the proceeds of which are to be
contributed to the Partnership by the Assignor Limited Partner
on behalf of the purchasers of Units in accordance with the
provisions of Section VII hereof. The Partnership shall require
a minimum purchase of 2 Units by Keogh Plans, Individual
Retirement Accounts ("IRAs") and employee benefit plans, and 5
Units by other investors, at a purchase price of $1,000 per
Unit, with additional purchases in increments of one Unit.
There shall be discounts available for investors purchasing more
than 250 Units, as set forth in the Prospectus. The General
Partner shall have sole and complete discretion in determining
the terms and conditions of the public offering and sale of
Units (including the length of the offering period) and the
General Partner is authorized to do all things which it deems to
be necessary, convenient, appropriate or advisable in connection
therewith, including but not limited to the preparation and
filing on behalf of the Partnership of a registration statement
with the Securities and Exchange Commission and the securities
commissions (or similar agencies or officers) of such
jurisdictions as the General Partner shall determine, and the
execution or performance of agreements with underwriters and
others concerning the marketing of Units on such basis and upon
such terms as the General Partner shall determine. It is
expressly agreed that Shearson Lehman Hutton Inc. ("Shearson"),
an Affiliate of the General Partner, shall be selling agent and
that The Robinson-Humphrey Company Inc., Foster & Marshall Inc.
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and IDS Financial Services Inc., which are Affiliates of the
General Partner, and any other securities brokerage firms that
are or may become affiliated with the General Partner and its
Affiliates during the offering period, may participate in such
offering as dealers and that Shearson may select such
unaffiliated securities firms as it may choose to act as dealers
and that each of the foregoing may receive selling commissions.
(b) The public offering of Units shall be effected
in accordance with the provisions set forth in the Prospectus,
including, without limitation, the provisions set forth under
the caption "Terms of the Offering." Prior to the Termination
Date (as defined in the Prospectus), Certificates of Limited
Partnership Interest may be issued by the Partnership only to
the Assignor Limited Partner (on behalf of subscribers for
Units) and prior to that date no person other than the Assignor
Limited Partner shall be entitled to acquire Limited Partnership
Interests from the Partnership. After the Termination Date, no
additional Units or Limited Partnership Interests may be sold by
the Partnership (provided that following the Termination Date,
Units may be converted to Limited Partnership Interests as
provided in Section 7.02(b)).
(c) Units and Partnership Interests, when sold and
issued on the terms and in the manner set forth in this
Partnership Agreement and the Prospectus, shall be fully paid
and nonassessable.
2.03. Partnership Capital.
(a) No Partner shall be paid interest on any
Capital Contribution.
(b) The Partnership shall not redeem any
Partnership Interest and no Partner shall have the right to
withdraw, or receive any return of, his Capital Contribution,
except as specifically provided herein. No Limited Partner or
Unit Holder shall have priority over any other Limited Partner
or Unit Holder, either as to the return of his Capital
Contribution or as to profits, losses or distributions, except
as otherwise specifically provided herein.
(c) Under circumstances requiring a return of any
Capital Contribution, no Partner shall have the right to receive
property other than cash.
(d) The General Partner shall have no personal
liability for the repayment of the Capital Contribution of any
Limited Partner or Unit Holder nor any obligation to make
Capital Contributions (except as provided in Schedule A and
Section 4.06), loans or advances to the Partnership subject to
the provisions of Section 6.04.
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2.04. Execution of the Depositary Agreement.
On or before the first Closing Date, the Partnership, the
General Partner and the Assignor Limited Partner shall execute the
Depositary Agreement in favor of the Unit Holders.
2.05. No Fractional Interests and Units.
No fractional Interests or Units may be issued by the
Partnership or assigned by Partners or Unit Holders except as provided in
Section 2.06.
2.06. Splits and Combinations.
(a) The General Partner may (i) make a distribution
in Units (or any other instrument evidencing ownership or
assignment of Interests) to all Unit Holders or (ii) effect a
subdivision or combination of Units (or any other instrument
evidencing ownership or assignment of Interests) but in each
case only on a pro rata basis so that, after such distribution,
subdivision or combination, each Partner and Unit Holder shall
have the same Percentage Interest in the Partnership as before
such distribution, subdivision or combination. The Partnership
may, but shall not be required to, issue fractional Units (or
any other instrument evidencing ownership or assignment of
Interests) upon any such distribution, subdivision, or
combination of Units (or any other instrument evidencing
ownership or assignment of Interests). In the event any
distribution, subdivision or combination of Units (or any other
instrument evidencing ownership or assignment of Interests)
would result in the issuance of fractional Units (or other
instrument evidencing ownership or assignment of Interests) but
for the provisions of this Section 2.06(a), in the sole
discretion of the General Partner, the final fraction of a Unit
(or any other instrument evidencing ownership or assignment of
Interests) issuable to each Unit Holder may be rounded to the
nearest whole Unit (or any other instrument evidencing ownership
or assignment of Interests).
(b) Whenever such distribution, subdivision or
combination is declared, the General Partner shall select a
record date (the "Record Date") as of which the distribution or
combination shall be effective and shall send notice of the
distribution, subdivision or combination at least 20 days prior
to such Record Date to each Unit Holder of record ("Record
Holder") as of the date 10 days prior to the date of such
notice. The General Partner also may cause the Partnership's
accounting firm or another firm of independent public
accountants selected by it to calculate the number of Units (or
any other instrument evidencing ownership or assignment of
Interests) to be held by each Record Holder after giving effect
to such distribution, subdivision or combination. The General
Partner shall be entitled to rely on any certificate provided by
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such firm as conclusive evidence of the correctness of such a
calculation.
(c) Promptly following any such distribution,
subdivision or combination, the General Partner may cause
Depositary Receipts to be issued to the Record Holders of Units
(or any other instrument evidencing ownership or assignment of
Interests) as of the applicable Record Date representing the new
number of Units (or any other instrument evidencing ownership or
assignment of Interests) held by such Record Holder, or the
General Partner may adopt such other procedures or instruments
as it may deem appropriate to reflect such distribution,
subdivision or combination; provided, however, that in the event
any such distribution, subdivision or combination results in a
smaller total number of Units (or any other instrument
evidencing ownership or assignment of Partnership Interests)
outstanding the General Partner may require, as a condition to
the delivery to a Record Holder of such new Depositary Receipt,
the surrender of any Depositary Receipt owned by such Record
Holder immediately prior to such Record Date.
(d) Notwithstanding any provision in this Section
2.06 to the contrary, no distribution or subdivision or
combination of Units (or other instrument evidencing ownership
or assignment of Interests) shall be made unless:
(i) the Partnership shall have received an
opinion of legal counsel to the effect that such action
will not have any material adverse effect on the
taxation of the Limited Partners or Unit Holders as a
class or any group of Limited Partners or Unit Holders;
and
(ii) such action shall not result in any
change in the rights of any Limited Partner or Unit
Holder to cash distributions by the Partnership or the
allocable share of such Limited Partner or Unit Holder
in the income, gain or losses of the Partnership (except
any immaterial change resulting from any issuance or
elimination of fractional Units (or other instrument
evidencing ownership or assignment of Interests))
permitted hereunder.
(e) In connection with any distribution,
subdivision or combination of Units under this Section 2.06, the
General Partner shall make a corresponding distribution,
subdivision or combination of Interests the legal title to which
is held of record by the Assignor Limited Partner and as to
which corresponding Units have been assigned to Unit Holders
under the provisions of Section VII hereof, as well as in the
number of Interests held of record by Limited Partners who have
exchanged their Units for Interests in accordance with the
provisions of Section 7.02(a), and the foregoing provisions of
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this Section 2.06 shall be equally applicable to such Interests
(it being the intent that the Percentage Interest of all Unit
Holders and Limited Partners shall be affected on a pro rata
basis).
2.07. Additional Issuances of Interests or Units.
No Interests or Units (either of the same class or of a
different class as the Units sold pursuant to the terms of the
Prospectus) or any rights, warrants or options to acquire Interests or
Units, except those Interests and Units issued by the Partnership
pursuant to Section 2.02 or 2.06, shall be offered for sale or issued by
the Partnership unless: (i) such issuance is for the purpose of financing
capital improvements to the Malls or the acquisition or development of
Additional Property by the Owner Partnership, (ii) such issuance is
approved by the General Partner and a Majority in Interest of the Limited
Partners and (iii) the Partnership is furnished with an opinion of
counsel to the effect that such issuance will not have any material
adverse effect on the federal income tax consequences to the Limited
Partners or the Unit Holders from their investment in the Units.
SECTION III
Capital Accounts
3.01. Capital Account Calculation.
Each Partner shall have a capital account which will consist of
the initial cash contributed by such Partner to the capital of the
Partnership as described in Section II.
The Capital Account of the Assignor Limited Partner shall be
subdivided into "Unit Holder Capital Accounts." One Unit Holder Capital
Account shall be established for each Unit Holder for whom a Depositary
Receipt is issued by the Assignor Limited Partner and shall be treated as
the Capital Account of the Unit Holder (or his predecessor in interest)
on whose behalf the Assignor Limited Partner received the purchase price
for corresponding Interests held of record by the Assignor Limited
Partner. The capital account of each Partner shall be increased by:
(a) the amount of income from operations allocated
to it pursuant to Section 4.01, 4.07, 4.08 and 4.09; and
(b) the amount of gains allocated to it pursuant to
Sections 4.02, 4.03, 4.07, 4.08 and 4.09; and shall be decreased
by:
(c) the amount of losses allocated to it pursuant
to Sections 4.01, 4.02, 4.03, 4.07 and 4.09;
(d) all amounts distributed to it pursuant to
Section V hereof;
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(e) such Person's distributive share of
expenditures of the Partnership described in Code section
705(a)(2)(B) (relating to expenditures which are neither
deductible nor properly chargeable to capital) and expenditures
which pursuant to the Regulation promulgated under Code section
704(b) are characterized as Code section 705(a)(2)(B)
expenditures; and
(f) the amount of any commission paid with respect
to such Person's acquisition of Units.
3.02. Special Provisions.
For purposes of computing the amount of any item of income,
gain, deduction, or loss to be reflected in Capital Accounts, the
determination, recognition and classification of each such item shall be
the same as its determination, recognition and classification for federal
income tax purposes, provided that:
(a) Any deductions for depreciation, cost recovery,
amortization, or expense in lieu of depreciation, attributable
to property contributed (or deemed contributed) to the
Partnership (a "Partnership Asset") shall be determined as if
the adjusted basis for federal income tax purposes (the
"Adjusted Basis") of such Partnership Asset on the date it was
acquired by the Partnership was equal to the fair market value
of such Partnership asset as of such date (the "Carrying
Value");
(b) Any income, gain, deduction or loss
attributable to the taxable disposition of any Partnership asset
shall be determined by the Partnership as if the Adjusted Basis
of such Partnership Asset as of such date of disposition was
equal to the Carrying Value of such Partnership Asset as of such
date as adjusted by deductions for depreciation, cost recovery,
amortization or expense in lieu of depreciation;
(c) Immediately prior to the distribution of any
Partnership Asset any unrealized gain or unrealized loss
attributable to such Partnership Asset shall, for purposes
hereof, be deemed to be a gain or loss recognized by the
Partnership and shall be allocated among the Partners and the
Unit Holders in accordance with the provisions of Sections 4.02
or 4.03. In determining such unrealized gain or unrealized
loss, the fair market value of such Partnership Asset shall be
determined pursuant to an appraisal report; and
(d) The computations of all items of income, gain,
loss and deduction shall be made without regard to any election
which may be made by the Partnership under Code section 754.
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3.03. Transfers.
Any transferee of Units shall succeed to the Unit Holder Capital
Account of the transferor relating to the Units transferred.
3.04. Timing.
Except as otherwise provided in this Agreement, whenever it is
necessary to determine the Unit Holder Capital Account of any Unit Holder
for purposes of Section IV or V, the Unit Holder Capital Account of such
Unit Holder shall be determined after giving effect to all Capital
Contributions theretofore made to the Partnership and all allocations for
transactions effected prior to the time as of which such determination is
made, of income, gains, deductions and losses pursuant to Section IV, and
to all distributions theretofore made for such year pursuant to Section
V.
3.05. Allocations and Distributions Among Unit Holders; Status
of Unit Holders.
Except as otherwise provided in this Agreement, all amounts
allocated or distributed to the Unit Holders shall be further allocated
or distributed among the Unit Holders in accordance with their respective
Percentage Interests. For purposes of Section III, IV and V, the term
Unit Holders shall mean and include Unit Holders who, pursuant to Section
7.02(a) or 7.02(b), have been admitted to the Partnership as Limited
Partners, in which case each such Person shall be deemed to own a number
of Units equal to the number of Interests then owned by such Person.
3.06. Admissions and Transfers; Allocations and Distributions.
(a) After the first Closing Date and during the
Offering Period, income and losses from operations shall be
determined and allocated to the Unit Holders on a monthly basis,
using the interim-closing method. For purposes of allocating
income or loss from operations and for purposes of distributing
Net Cash Flow:
(i) If a Closing Date occurs within the
first fifteen days of a month, the Unit Holder shall be
treated as being a Record Holder on the first day of
such month;
(ii) If a Closing Date occurs after the
fifteenth day of the month, the Unit Holder shall be
treated as being a Record Holder on the first day of the
next month; and
(iii) Any transferee of a Unit shall be
treated as a Record Holder on the first day of the month
succeeding the month in which such transfer has been
effected on the books of the transfer agent pursuant to
Section 7.03. Income or loss from operations for a
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month shall be allocated to the Unit Holders who are
Record Holders on the first day of such month or who are
deemed to be of record pursuant to (a)(i) above.
(b) After the first Closing Date and during the
Offering Period, Net Cash Flow for each fiscal quarter (or part
thereof) shall be prorated over the fiscal quarter (or part
thereof). If there is one or more Closing Dates (other than the
Closing Date which represents the first closing of Units) in the
fiscal quarter (or part thereof), the following rules shall be
applied:
(i) Net Cash Flow prorated to the period
prior to the Closing Date (which for this purpose is
determined by applying the rules of (a)(i) and (ii)
above) shall be distributed to the Record Holders (or
are deemed Record Holders under (a)(i) above) as of the
first day of the month preceding such deemed Closing
Date. Net Cash Flow prorated for the period from the
Closing Date (as determined) to the end of the fiscal
quarter (or the last day of the month immediately before
the next Closing Date (as determined) if an additional
Closing Date in such fiscal quarter occurs), shall be
distributed to the Record Holders as of the first day of
the last month of the quarter (or the first day of the
month immediately before the next Closing Date (as
determined)).
(ii) If the final Closing does not occur on
the last day of a fiscal quarter, Net Cash Flow for that
fiscal quarter shall be allocated in accordance with the
principles of (b)(i) above.
(c) After the Offering Period, for purposes of
allocating income and loss from operations and distributions of
Net Cash Flow, any transferee of a Unit shall be treated as
being a Unit Holder on the first day of the month succeeding the
month in which such transfer has been effected on the books of
the transfer agent pursuant to Section 7.03. In addition,
income and loss from operations shall be divided on the
proration method, using the monthly convention as described
above. Net Cash Flow for a fiscal quarter (or part thereof)
shall be distributed to the Record Holders on the first day of
the last month in such quarter (or part thereof).
(d) Notwithstanding the above, but subject to
applicable Regulations, gain or loss realized in connection with
a Capital Transaction shall be allocated to those Unit Holders
who are Record Holders as of the last day of the month in which
the Capital Transaction occurs. Net Proceeds to be distributed
from a Capital Transaction shall be distributed to the Record
Holders on the last day of the month in which the Capital
Transaction occurs. The same rules shall be applied for gain
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and loss upon dissolution and Net Proceeds from dissolution and
for distributions pursuant to Section 5.07.
(e) The General Partner is authorized to apply tax
allocation rules other than those contained in this Section 3.06
to the extent that the General Partner determines that the
application of the tax allocation rules contained in this
Section 3.06 would result in a substantial mismatching of the
allocation of income or loss attributable to a period and the
distribution of cash attributable to the same period as between
the transferor and transferee of the Partnership Interest or
Unit transferred that could be minimized by the application of
an alternative tax allocation rule, or (ii) to the extent
necessary to conform the Partnership's tax allocations to the
requirements of any Regulations.
(f) Subject to the provisions of Section 6.04
hereof, the General Partner shall not incur any liability for
making allocations and distributions in accordance with the
provisions of this Section 3.06, whether or not the General
Partner has knowledge or notice of any transfer or purported
transfer of ownership of any Unit or Partnership Interest, other
than as shown on the records of the Partnership or the Transfer
Agent.
(g) Offering Period means the period from the first
Closing Date until the final Closing Date.
SECTION IV
Allocation of Income and Losses, Gains and Losses
4.01. Operations.
Subject to the provisions of Sections 4.04, 4.06, 4.07, 4.08 and
4.09, all income and losses of the Partnership from operations (as
distinguished from transactions described in Sections 4.02 and 4.03) of
the Partnership for each fiscal year shall be allocated 99% to the Unit
Holders and 1% to the General Partner.
4.02. Capital Transactions.
All gains and losses of the Partnership in connection with a
Capital Transaction shall be allocated, after adjustment of the capital
accounts of the Unit Holders and the General Partner to reflect the
distributions and amounts available for distribution pursuant to Section
5.02 in connection with such Capital Transaction, such gains, and losses,
shall be allocated in the following order of priority:
(a) in the event there are gains to be allocated;
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(i) first, if any one or more Unit Holders
or the General Partner has a negative balance in its
capital account, then an amount of gains up to the
aggregate of such negative balances shall be allocated
among such Unit Holders and General Partner in the
proportion that the negative balance of each such Unit
Holder's and General Partner's capital account bears to
the aggregate of such negative balances; and
(ii) then, after such allocation has been
made (or in the event that each Unit Holder and the
General Partner has a zero or positive balance in its
capital account), 99% to the Unit Holders and 1% to the
General Partner until the capital account of each Unit
Holder is equal to his unpaid Preferred Return and
Unrecovered Capital and the remainder of the gains shall
be allocated to the extent possible so that the positive
balances in the aggregate capital accounts of the Unit
Holders (in excess of their aggregate unpaid Preferred
Return and Unrecovered Capital) and the capital account
of the General Partner are in the proportions of 88.25%
and 11.75%, respectively; or
(b) in the event there are losses to be allocated;
(i) first, if any one or more Unit Holders
or the General Partner has a positive balance in its
capital account, an amount of losses up to the aggregate
of such positive balances shall be allocated among such
Unit Holders and the General Partner in the proportion
that the positive balance of each such Unit Holder's and
the General Partner's capital account bears to the
aggregate of such positive balances; and
(ii) then, after such allocation has been
made (or in the event that each Unit Holder and the
General Partner has a zero or negative balance in his
capital account), the remainder of the losses shall be
allocated to the extent possible so that the negative
balances in the aggregate capital accounts of the Unit
Holders and the capital account of the General Partner
are in the proportions of 88.25% and 11.75%,
respectively.
4.03. Dissolution.
All gains and losses of the Partnership in connection with a
sale of all or substantially all of the assets of the Partnership or any
other event causing a dissolution and termination of the Partnership,
shall be allocated in the following order of priority:
(a) in the event there are gains to be allocated,
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(i) first, if any one or more Unit Holders
or the General Partner has a negative balance in its
capital account, then an amount of gains up to the
aggregate of such negative balances shall be allocated
among such Unit Holders and the General Partner in the
proportion that the negative balance of each such Unit
Holder's and General Partner's capital account bears to
the aggregate of such negative balances;
(ii) then, after such allocation has been
made (or, in the event that each Unit Holder and the
General Partner has a zero or positive balance in its
capital account), there shall be determined the amount
by which the amount of proceeds distributed or available
for distribution to the General Partner and each Unit
Holder pursuant to Section 5.03(a) (without regard to
the proviso contained in such Section) exceeds the
capital account of such Person (such excess for each
person being referred to as its "Amount"), and an amount
of gains equal to the aggregate of the Amounts shall be
allocated among the General Partner and the Unit Holders
in the proportion that each such Person's Amount bears
to the aggregate of the Amounts;
(iii) then, after adjustment of the capital
accounts of the Unit Holders to reflect the allocations
of gains under subclauses (i) and (ii) above and
distributions and amounts available for distribution to
the General Partner and the Unit Holders pursuant to
Section 5.03(a), the remainder of the gains shall be
allocated to the extent possible so that the positive
balances in the aggregate capital accounts of the Unit
Holders and in the capital account of the General
Partner are in the proportions of 88.25% and 11.75%,
respectively; or
(b) in the event there are losses to be allocated,
(i) first, if any one or more Unit Holders
or the General Partner has a positive balance in its
capital account, an amount of losses equal to the
aggregate of such positive balances shall be allocated
among such Unit Holder and General Partner in the
proportion that the positive balance of each such Unit
Holder's and General Partner's capital account bears to
the aggregate of such positive balances; and
(ii) then, after such allocation has been
made (or in the event that each Unit Holder and the
General Partner has a zero or negative balance in his
capital account), the remainder of the losses shall be
allocated to the extent possible so that the negative
balances in the aggregate capital accounts of the Unit
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Holders and in the capital account of the General
Partner are in the proportions of 88.25% and 11.75%,
respectively.
4.04. Minimum Gain Limitation.
Anything contained in this Section IV to the contrary
notwithstanding, cumulative allocations of Partnership losses or
deductions to any Unit Holder pursuant to this Section IV shall not
exceed the sum of the following amounts, determined as of the end of each
taxable year of the Partnership: (i) such Unit Holder's Capital
Contribution theretofore made pursuant to Section II, (ii) any further
increases to such Unit Holder's capital account less any further
decreases to such Unit Holder's capital account (other than for
allocations of loss), and (iii) such Unit Holder's Pro Rata Share of
Minimum Gain (as hereinafter defined). To the extent that the foregoing
limitation results in a non-allocation of Partnership losses or
deductions to a Unit Holder, such Partnership losses or deductions shall
be allocated or reallocated to the General Partner. For the purposes of
this Section IV, (A) the term "Minimum Gain" shall mean that portion of
the excess, if any, of (x) the outstanding aggregate principal balance,
or any part thereof, of any non-recourse debt of the Partnership or the
Owner Partnership that is secured by an interest in the Partnership's or
the Owner Partnership's property or any part thereof, over (y) the
adjusted basis of such property to the Partnership for federal income tax
purposes, (B) the term "non-recourse debt" shall mean a liability (or
that portion of a liability) of the Partnership or the Owner Partnership
with respect to which no partner or Unit Holder (or Affiliate thereof) of
the Partnership or the Owner Partnership has any personal liability, as
determined under section 1.752-1(e) of the Regulations, or any successor
provision, and (C) a Unit Holder's "Pro Rata Share of Minimum Gain" shall
mean, with respect to each Unit Holder, 99% of its Percentage Interest.
4.05. Amendments to Allocations.
It is the intent of the Unit Holders and the General Partner
that each Unit Holder's and the General Partner's distributive share of
income, gain, loss or deduction (or items thereof) shall be determined
and allocated in each year of the Partnership in accordance with this
Section IV to the fullest extent permitted by Code section 704(b) and the
Regulations. In order to preserve and protect the determinations and
allocations provided for in this Section IV, the General Partner shall
be, and hereby is, authorized and directed to allocate income, gain, loss
or deduction (or items thereof) arising in any year differently than
otherwise provided for in this Section IV, or to otherwise amend the
provisions of this Section IV, if, and to the extent that, allocating
income, gain, loss or deduction (or items thereof) in the manner provided
for in this Section IV would cause the determination and allocation of
each Unit Holder's or the General Partner's distributive share of income,
gain, loss or deduction (or items thereof) not to be permitted by Code
section 704(b) or the Regulations. Any allocation, or amendment, as the
case may be, made pursuant to this Section 4.05 shall be deemed to be a
complete substitute for any allocation otherwise provided for in this
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Section IV and no other amendment of this Agreement or approval of any
Unit Holder shall be required.
In making any allocation or amendment (the "new allocation") as
set forth above, the General Partner is authorized to act only after
having been advised by Willkie Farr & Gallagher or other tax counsel to
the Partnership that in its opinion, after examining Code section 704(b)
and the Regulations, (i) the new allocation is necessary, and (ii) the
new allocation is the minimum modification of the allocations otherwise
provided for in this Section IV necessary in order to insure that, either
in the current year or in any preceding year, each Unit Holder's and the
General Partner's distributive share of income, gain, loss or deduction
(or items thereof) is determined and allocated in accordance with this
Section IV to the fullest extent permitted by Code section 704(b) and the
Regulations. New allocations made by the General Partner in reliance
upon the advice of Willkie Farr & Gallagher or such other tax counsel
shall be deemed to be made pursuant to the fiduciary obligation of the
General Partner to the Partnership and the Unit Holders, and no such new
allocation shall give rise to any claim or cause of action by any Unit
Holder.
4.06. General Partner Deficit Restoration. If upon the
dissolution and termination of the Partnership the capital account of the
General Partner is less than zero (after allocation of net income and net
gains and tax losses recognized upon the disposition of Partnership
assets in connection with the liquidation of the Partnership), the
General Partner shall contribute to the Partnership an amount equal to
the lesser of (a) the deficit balance in its capital account or (b) the
excess of 1.01% of the aggregate Capital Contributions of the Unit
Holders over the aggregate capital contributions previously made to the
Partnership by the General Partner.
4.07. Allocations on Account of Optional Loans. Anything
contained in Sections 4.01 and 4.03 to the contrary notwithstanding, in
each taxable year of the Partnership, (i) an amount of Partnership losses
equal to the principal amount of any Optional Loans made to the
Partnership by the General Partner or its Affiliates in such year (or in
any prior year to the extent losses have not heretofore been allocated on
account of such loans) shall be allocated to the General Partner, and
(ii) an amount of Partnership income shall be allocated to the General
Partner to the extent all or any portion of the principal amount of any
Optional Loan made to the Partnership by the General Partner or its
Affiliates has been repaid in such year of the Partnership, but in no
event greater than the amount of Partnership losses theretofore allocated
to the General Partner pursuant to clause (i) of this Section 4.07;
provided, however, that all other items of Partnership income, gain,
deductions and loss for each year of the Partnership shall be allocated
in accordance with the provisions of Sections 4.01, 4.02 and 4.03.
4.08. Minimum Gain Chargeback.
Anything contained in Section IV to the contrary
notwithstanding, if after the allocation of any income and gain under
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this Section IV the aggregate deficit capital account balances of the
Unit Holders and/or the General Partner with deficit capital account
balances exceeds the Minimum Gain, an amount of income or gain for such
year sufficient to eliminate such excess shall be reallocated among the
Unit Holders and the General Partner with deficit capital account
balances (in accordance with such deficits) so as to eliminate such
excess.
4.09. Qualified Income Offset.
For purposes of this Agreement, each Unit Holder's capital
account balance as of the end of any taxable year of the Partnership
shall be reduced by the amount (whether made or reasonably expected to be
made) of any adjustments, allocations and distributions described in
sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations. In the
event that during any fiscal year any Unit Holder unexpectedly receives
such an adjustment, allocation or distribution, such Unit Holder will be
allocated items of income and gain in an amount and manner sufficient to
eliminate as quickly as possible any deficit balance in its capital
account in excess of such Unit Holder's Pro Rata Share of Minimum Gain
resulting from such unexpected adjustment, allocation or distribution.
4.10. Termination.
In the event a "technical termination" of the Partnership occurs
under Code section 708, it is intended that the allocations provided in
Section 4.03 be applied to take into account the variation, if any,
between the Carrying Value of each Partnership Asset and its adjusted
basis for federal income tax purposes, as determined under Code section
732, in accordance with the provisions of Code section 704(c) and the
Regulations thereunder, following the deemed distribution and
recontribution of Partnership Assets which occurs as a result of such
termination.
SECTION V
Distributions
5.01. Operations.
Net Cash Flow for each fiscal year (or part thereof) of the
Partnership, after making provision for the liabilities and obligations
of the Partnership, shall be distributed 99% to the Unit Holders and 1%
to the General Partner; provided, however, that during each fiscal year
commencing on the first Closing Date and ending on December 31, 1992, the
General Partner's 1% interest shall be subordinated for each fiscal year
(or part thereof), such that if distributions to each Unit Holder equal
less than an 8.5% return (in such fiscal year or part thereof) on such
Unit Holder's Unrecovered Capital, the General Partner will contribute to
such Unit Holder any or all of its 1% distribution to reduce the
shortfall to each Unit Holder.
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5.02. Capital Transactions.
Net Proceeds from any Capital Transaction, after making
provision for the liabilities and obligations of the Partnership, shall
be distributed in the following order of priority:
(a) first, until each Unit Holder has received its
Preferred Return, all such proceeds shall be distributed 99% to
the Unit Holders and 1% to the General Partner;
(b) then, until each Unit Holder has received its
Unrecovered Capital, all such proceeds shall be distributed 99%
to the Unit Holders and 1% to the General Partner; and
(c) then, the balance of such proceeds shall be
distributed 88.25% to the Unit Holders and 11.75% to the General
Partner.
5.03. Dissolution.
Upon dissolution and termination of the Partnership, after
making payment of or provision for the liabilities and obligations of the
Partnership, Net Proceeds shall be distributed in the following order of
priority:
(a) first, until each Unit Holder has received its
Unrecovered Capital and Preferred Return, all such proceeds
shall be distributed 99% to the Unit Holders and 1% to the
General Partner; provided, however, that the amount so
distributed to each Unit Holder pursuant to this clause (a)
shall not exceed the amount of any positive balance in the
capital account of such Unit Holder, as adjusted to reflect the
allocations of gains or losses under Section 4.03;
(b) then, an amount of such proceeds up to the
aggregate positive balance of the General Partner's and each
Unit Holder's capital accounts (as adjusted to reflect the
allocations of gains or losses under Section 4.03 and
distributions and amounts available for distribution under
clause (a) above), shall be distributed to the General Partner
and each Unit Holder in the proportion that each such positive
balance bears to the aggregate of such positive balances; and
(c) then, the remaining proceeds shall be
distributed 88.25% to the Unit Holders and 11.75% to the General
Partner.
5.04. Working Capital Reserve.
The General Partner shall have the right to establish and
maintain a Working Capital Reserve for operating expenses, contingencies
and such additional funding requirements for the Partnership, the Owner
Partnership and the Malls as deemed necessary in the discretion of the
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General Partner. The initial Working Capital Reserve shall be an amount
equal to not less than 2.5% of the Limited Partners' Capital
Contributions. The General Partner may establish such reserve in the
Owner Partnership. The General Partner shall invest the Working Capital
Reserve in such investments as the General Partner shall deem prudent in
accordance with the provisions of Section 8.08. The General Partner may,
in its discretion, distribute from time to time as a component of Net
Cash Flow any portion of such reserve which the General Partner
determines to be in excess of the amounts required for the purposes
enumerated above. In addition, to the extent that offering and
organizational expenses exceed budgeted amounts as set forth in the
Prospectus, the General Partner may utilize a portion of the working
capital reserve (not to exceed $500,000) to pay such excess amounts.
5.05. Miscellaneous.
(a) No Unit Holder shall be entitled to demand and
receive property other than cash in return for its Capital
Contribution.
(b) Except as otherwise expressly provided in this
Agreement to the contrary, no salary or other compensation shall
be paid to any Partner or Unit Holder by the Partnership.
5.06. Rules Governing Distributions Generally.
(a) Whenever any distribution is to be made with
respect to Interests held by the Assignor Limited Partner, such
distribution shall be made directly to the Record Holders and
not to the Assignor Limited Partner.
(b) The General Partner may withhold taxes from
distributions to any Partner or Unit Holder to the extent
permitted by Section 12.09. For purposes of this Agreement, any
taxes so withheld by the Partnership with respect to any amount
distributed by the Partnership to any Partner or Unit Holder
shall be deemed to be a distribution or payment to such Partner
or Unit Holder and shall reduce the amount otherwise
distributable to such Partner or Unit Holder pursuant to this
Agreement.
5.07. Special Distribution to Unit Holders.
If the Partnership receives a distribution from the Owner
Partnership of the principal balances of the Assembly Square Holdback
Reserve Account or the Additional Mall Reserve Account (as defined in the
Owner Partnership Agreement) pursuant to Sections 6.13 or 6.14 of the
Owner Partnership Agreement, such proceeds shall be distributed to the
Unit Holders pro rata. Such distribution shall reduce a Unit Holder's
Unrecovered Capital and shall reduce aggregate Unrecovered Capital in an
amount equal to the aggregate distribution. In addition, the General
Partner may be obligated, as described in the Prospectus, to add to such
distribution amounts on account of selling commissions attributable
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thereto and certain Front-end Fees (but not including investigatory
expenses incurred for the purpose of locating suitable Malls for
investment). This additional amount also shall be treated as a return of
Unrecovered Capital to the Unit Holders.
SECTION VI
Management
6.01. Management of the Partnership.
(a) Except as specifically provided in this
Agreement to the contrary, the business and affairs of the
Partnership shall be carried on and managed by the General
Partner, who shall have full, exclusive and complete discretion
with respect thereto. The General Partner shall use its best
efforts to carry out the purposes and business of the
Partnership and shall devote such time as it shall, in its sole
discretion, determine to be required for the management and
administration of the business and affairs of the Partnership.
(b) The General Partner shall have all necessary
and appropriate powers to carry out the purposes of the
Partnership set forth in Section 1.03, and except as otherwise
provided by Delaware law or by this Agreement, shall possess and
enjoy all the rights and powers and shall be subject to all the
restrictions of a general partner of a partnership without
limited partners under the laws of the State of Delaware.
(c) Without limiting the generality of Sections
6.01(a) and 6.01(b), the General Partner shall conduct and
control the business and affairs of the Partnership and, except
as otherwise provided in Section 6.01(d), shall be empowered,
without the consent of the Limited Partners or the Unit Holders,
to make all decisions and take all actions with respect thereto,
including without limitation:
(i) to carry out the purposes of the Owner
Partnership and the Partnership and to execute all
agreements, contracts, instruments and related
documents, and perform all acts in the name, and at the
expense of the Partnership, necessary or appropriate for
the acquisition, financing, development operation,
management, maintenance and disposition of the Malls and
any Additional Property;
(ii) to borrow money from Persons affiliated
or not affiliated with the General Partner provided that
if a lender to the Partnership is an Affiliate the
interest charged by such lender shall not be in excess
of the amount which would be charged by unrelated
lending institutions for comparable loans for the same
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purpose, and, as security therefor, to mortgage, pledge
or otherwise encumber the assets of the Partnership or
the Owner Partnership or to enter into contracts of
guaranty or suretyship;
(iii) to cause to be paid on or before the
due date thereof all amounts due and payable by the
Partnership to any Person;
(iv) to employ such agents, employees,
managers, accountants, attorneys, consultants and other
Persons, necessary or appropriate to carry out the
business and affairs of the Partnership, and to pay such
fees, expenses, salaries, wages and other compensation
to such Persons as it shall in its sole discretion
determine;
(v) to pay, extend, renew, modify, adjust,
settle, submit to arbitration, prosecute, defend or
compromise, upon such terms as it may determine and upon
such evidence as it may deem sufficient, any obligation,
suit, liability, cause of action or claim, including
taxes, either in favor of or against the Partnership;
(vi) to pay any and all fees and to make any
and all expenditures which it, in its sole discretion,
deems necessary or appropriate in connection with the
organization of the Partnership, the offer and sale of
the Units, the management of the affairs of the
Partnership, and the carrying out of its obligations and
responsibilities under this Agreement;
(vii) to cause to be obtained and continued
in force all policies of insurance or self-insurance
arrangements required by any mortgage, security
agreement, lease or other similar instrument relating to
the property of the Partnership;
(viii) to cause to be paid any and all taxes,
charges and assessments that may be levied, assessed or
imposed upon any of the assets of the Partnership,
unless the same are contested by the General Partner;
(ix) to enter into, modify, cancel, enforce
and otherwise deal with the agreements relating to the
business and affairs of the Partnership, including the
Owner Partnership Agreement, and to engage in the
transactions, with Affiliates or otherwise, discussed in
this Agreement, the Owner Partnership Agreement and the
Prospectus pursuant to which the Units were offered;
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(x) to take any other action necessary or
advisable in connection with the business of the
Partnership;
(xi) to invest funds of the Partnership in
interest-bearing accounts and short-term investments
including without limitation obligations of the federal,
state and local governments and their agencies, mutual
funds (including money market funds), time deposits,
commercial paper and certificates of deposit of
commercial banks, savings banks or savings and loan
associations;
(xii) to list the Units for trading on any
securities exchange or cause the Units to be authorized
for quotation on an interdealer quotation system
established by a national securities association if such
listing would not, in the opinion of Counsel, result in
the loss (in whole or in part) of the Partnership's
ability to provide of "flow through" tax consequences to
Partners and Unit Holders, and to modify this Agreement
to comply with the requirements of any such exchange or
quotation system, or to remove the Units from listing or
from authorization or quotation;
(xiii) to take the actions described in
Section 1.01(c); and
(xiv) to cause the Partnership to cause the
Owner Partnership to sell any of the Malls or to sell
any or all of the Partnership's interest in the Owner
Partnership.
(d) Notwithstanding the generality of the
foregoing, the General Partner may not (except to the extent
necessary to accomplish matters permitted by Section
6.01(c)(xiii)):
(A) do any act in contravention of this
Agreement;
(B) do any act which would make it
impossible to carry on the ordinary business of the
Partnership (except in connection with a dissolution of
the Partnership in accordance with the provisions of
Section XII of this Agreement);
(C) confess a judgment against the
Partnership;
(D) admit a person as a General Partner,
except as provided in this Agreement;
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(E) execute or deliver any general
assignment for the benefit of the creditors of the
Partnership;
(F) subject to Sections 2.06, 2.07, 7.02
and 9, issue any Partnership Interests (x) after the
Termination date or (y) in exchange for Capital
Contributions in a form other than cash;
(G) cause or permit the Partnership to
purchase, lease or sublease any real property from, or
sell, lease or sublease any real property to the General
Partner, its Affiliates or affiliated programs
(provided, however, that the Owner Partnership may
purchase Assembly Square from an Affiliate of the
General Partner under the terms and conditions specified
in the Prospectus under "Terms of the Offering");
(H) cause the Partnership to make loans or
investments in real estate mortgages other than in
connection with the sale or disposition of the
Partnership's property;
(I) cause or permit the Partnership to make
loans to the General Partner or to its Affiliates;
(J) invest in or underwrite the securities
of other issuers (provided, however, that the General
Partners may temporarily invest Partnership funds in
money market funds other than funds organized as limited
partnerships, including funds sponsored by Shearson or
its Affiliates, but in no event may the amount invested
in any money market funds sponsored by Shearson or its
Affiliates exceed 5% of the net asset value of such
money market funds, and in any event the General Partner
shall reimburse the Partnership for commissions,
advisory fees or the other fees, if any, paid to such
affiliated funds in connection with the investment of
Partnership funds);
(K) invest in junior trust deeds unless
received in connection with a sale of any of the Malls;
(L) commingle funds of the Partnership with
funds of any other limited partnership (except that the
General Partner may establish a master fiduciary account
pursuant to which separate subtrust accounts are
established for limited partnerships of which the
General Partner or an Affiliate thereof is General
Partner so long as the Partnership's funds are protected
from claims of such other partnerships and/or
creditors);
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(M) receive any rebates or give-ups or
participate in reciprocal business arrangements
prohibited by any applicable state law or in violation
of the terms of this Agreement;
(N) operate in such a manner as to be
classified as an "investment company" for purposes of
the Investment Company Act of 1940, as amended;
(O) allow reinvestment of Net Cash Flow or
Net Proceeds in any property or investment except as a
temporary investment for working capital;
(P) admit a person as a Limited Partner,
except as provided in this Agreement;
(Q) employ, or permit the employment of,
the funds or assets of the Partnership in any manner
except for the exclusive benefit of the Partnership;
(R) engage in the purchase or sale of
investments other than (i) the short-term investment of
available funds as described in the Prospectus or (ii)
its direct or indirect interest in the Malls;
(S) repurchase or reacquire its own
securities;
(T) invest in limited partnership interests
of any other limited partnership other than the Owner
Partnership;
(U) give to itself or its Affiliates an
exclusive right to sell or exclusive employment to sell
any of the Malls;
(V) pay to itself or an Affiliate a real
estate brokerage commission upon disposition of the
Malls which (1) is greater than the lesser of 3% or that
which is competitive at that time and (2) when
aggregated with amounts payable to parties that are not
Affiliates of the General Partner exceeds the lesser of
6% or that which is competitive at that time and (3) is
not subordinated to a return of 100% of Capital
Contributions plus an amount equal to 12% of Capital
Contributions per annum cumulative to investors, and
only if substantial real estate brokerage services have
been provided by itself or its Affiliates;
(W) pay a commission to itself or an
Affiliate in connection with the distribution of Net
Cash Flow or in connection with the reinvestment or
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distribution of the proceeds of the resale, exchange or
refinancing of the Malls;
(X) enter into any financing for any Mall
which would cause the total amount of indebtedness on
all Malls to exceed the sum of 85% of the aggregate
purchase price of all Malls that have not been
refinanced and 85% of the aggregate fair market value of
all refinanced properties, as determined by the lender
as of the date of refinancing, where "indebtedness" is
defined to include the principal of any loan together
with any deferred interest which exceeds 5% per annum of
the principal balance of such indebtedness (excluding
contingent participations in income and/or appreciation
in the value of the property) and to exclude any
indebtedness incurred by the Partnership for necessary
working capital;
(Y) cause the Partnership to participate in
a joint venture with another program formed by the
General Partner or an Affiliate; however, the General
Partner may cause the Partnership to enter into such a
joint venture with an affiliated program only if the two
programs have substantially identical investment
objectives, there are no duplicate property management
or other fees, the sponsor compensation is substantially
identical in each program, the Partnership has a right
of first refusal to buy if the other program wishes to
sell property held in the joint venture and the
investment of the Partnership and the other program is
on substantially the same terms and conditions;
(Z) allow the Partnership or an Affiliate
thereof to construct or develop Additional Malls;
(AA) require the completion of property
acquired under construction to be guaranteed at the
contracted price without an adequate completion bond or
other satisfactory arrangements;
(BB) cause the Partnership to acquire any
Additional Mall without first obtaining an independent
appraisal of the value thereof;
(CC) pay or award direct or indirectly, any
commissions or other compensation to any person engaged
by a potential investor for investment advice as an
inducement to such advisor to advise the purchase of
Interests or Units other than normal sales commissions
payable to a registered broker-dealer or other person
properly licensed for selling Interests or Units; or
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(DD) cause the Partnership to accept
financing where "financing" is defined to include loans
as well as any disposition, renegotiation or other
subsequent transaction involving loans, from the General
Partner, Shopco or any Affiliate of either, except that
programs affiliated with the General Partner or Shopco
may provide financing if the Partnership and such
affiliated program each have an independent advisor who
issues a letter of opinion that the loan is fair and at
least as favorable to the Partnership as a loan to an
unaffiliated borrower in similar circumstances, which
advisor shall be a long-established, nationally
recognized investment banking firm, accounting firm,
mortgage banking firm, bank, real estate financial
consulting firm or advisory firm and which advisor to
the Partnership shall be compensated by the General
Partner or Shopco, with no reimbursement for such
compensation expense to be either sought from the
Partnership or paid by the Partnership to the General
Partner or Shopco.
(e) With respect to all of its obligations, powers
and responsibilities under this Agreement (including the power
to cause the Partnership to cause the Owner Partnership to
finance or refinance the Malls), the General Partner is
authorized to execute and deliver, for and on behalf of the
Partnership, such notes and other evidences of indebtedness,
contracts, agreements, assignments, deeds, leases, loan
agreements, mortgages and other security instruments and
agreements as it deems proper, all on such terms and conditions
as it deems proper.
6.02. Loans by the General Partner to the Partnership.
(a) In the event the Partnership's or the Owner
Partnership's funds are insufficient to meet their respective
current operating needs and additional funds cannot be borrowed
on commercially reasonable terms pursuant to the provisions of
Section 6.01(c)(ii) in connection therewith, the General Partner
or its Affiliates have the right, but not the obligation, to
make loans to the Partnership or to advance monies on its behalf
(collectively, "Optional Loans") (which, in turn, may be loaned
or contributed to the capital of the Owner Partnership).
Optional Loans shall bear interest at the rate which would be
charged by unrelated lending institutions as comparable loans
for the same purpose in the same locality of each of the Malls.
Optional Loans and interest thereon shall be repaid prior to any
distributions to the Partners pursuant to Section V. Payments
made in respect of Optional Loans shall be deemed first to be
repayment of interest accrued on such Optional Loans and then to
be repayment of the principal amount thereof. No prepayment or
other penalty charges in connection with Optional Loans shall be
permitted. The General Partner shall have no right to force a
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sale of Partnership (or Owner Partnership) assets so as to repay
Optional Loans. No Optional Loans shall consist of indebtedness
with a term in excess of 48 months.
6.03. Services of the General Partner; Other Interests of
Partners and Unit Holders; Fiduciary Duty.
(a) During the existence of the Partnership, the
General Partner shall devote such time and effort to the
Partnership and Owner Partnership business as may, in the good
faith business judgment of the General Partner, be necessary
adequately to promote the interests of the Partnership and its
Owner Partnership and the mutual interests of the Partners and
Unit Holders. It is specifically understood and agreed,
however, that the General Partner shall not be required to
devote its full time to Partnership or Owner Partnership
business. Any Partner or Unit Holder may at any time and from
time to time engage in and possess interests in other business
ventures of any and every type and description, including,
without limitation, the ownership, operation, financing and
management of real estate, independently or with others
(including such activities as may compete with the Partnership
or the Owner Partnership, so long as such activities do not
result in material adverse economic consequences to the
Partnership or the Owner Partnership), and neither the
Partnership, the Owner Partnership nor any Partner or Unit
Holder shall by virtue of this Agreement have any right, title
or interest in or to such independent ventures.
(b) The General Partner shall have the fiduciary
responsibility towards the Limited Partners and Unit Holders
alike for the safekeeping and use of all funds and assets of the
Partnership, whether or not in the possession or control of the
General Partner, and shall not employ, or permit another to
employ, such funds or assets in any manner except for the
exclusive benefit of the Partnership. Furthermore, the
Partnership shall not permit any Limited Partner or Unit Holder
to contract away the fiduciary duty owed to such Limited Partner
or Unit Holder by the General Partner under applicable law.
(c) The General Partner shall fulfill the same
fiduciary obligations to Unit Holders as that owed to Limited
Partners under this Partnership Agreement and applicable law of
the State of Delaware.
6.04. Liability of the General Partner; Indemnification.
Neither the General Partner nor any Affiliate of the General
Partner which performs services for the Partnership (individually, an
"Indemnitee") shall be liable, responsible or accountable in damages or
otherwise to the Partnership or any of the Limited Partners or Unit
Holders for any loss which arises out of any act or omission performed or
omitted by such Indemnitee, if such Indemnitee, in good faith, determined
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such course of conduct was in the best interests of the Partnership, and
such course of conduct did not constitute negligence, misconduct or fraud
of the Indemnitee. In no event, however, shall an Affiliate who is an
Indemnitee be indemnified under the provisions of this section unless the
damages or loss for which indemnification is provided either arose out of
a situation in which such Affiliate was acting within the scope of the
General Partner's fiduciary obligations.
The Partnership shall indemnify and hold harmless each
Indemnitee from and against any and all losses, liabilities, expenses and
judgments and amounts paid in settlement of any claims sustained by such
Indemnitee in connection with the Partnership provided that the same were
not the result of negligence or misconduct on the part of the Indemnitee
and the Indemnitee has determined in good faith that the course if
conduct was in the best interest of the Partnership. Notwithstanding the
foregoing, no such person, or any person acting as a broker-dealer, shall
be indemnified for any loss, liability or expense arising out of or from
an alleged violation of federal or state securities laws unless both
(a)(i) there has been a successful adjudication on the merits of the
particular Indemnitee and the court-approved indemnification of the
litigation cost, (ii) such claims have been dismissed with prejudice on
the merits by a court of competent jurisdiction as to the particular
Indemnitee, and the court-approved indemnification of the litigation
cost, or (iii) a court of competent jurisdiction approves a settlement of
the claims against a particular Indemnitee and (b) the court finds that
indemnification of the settlement and related costs should be made. In
any claim for indemnification for federal or state securities laws
violations, the party seeking indemnification shall place before the
court the positions of the Securities and Exchange Commission, the
Massachusetts Securities Division, the California Commissioner of
Corporations, the Missouri Commissioner of Securities, the Pennsylvania
Securities Commission and any other applicable regulatory authority with
respect to the issue of indemnification for securities laws violations.
The Partnership shall not indemnify the Assignor Limited Partner for any
losses, liabilities or expenses arising from any actions taken by the
Assignor Limited Partner on behalf of the Unit Holders.
Advances from Partnership funds to an Indemnitee for legal
expenses and other costs incurred as a result of any legal action
initiated against the Indemnitee are permitted only if (i) the legal
action relates to the performance of duties or services by the General
Partner or its Affiliates on behalf of the Partnership, (ii) the legal
action is initiated by a third party who is not a Limited Partner or a
Unit Holder, and (iii) the General Partner or its Affiliates undertake to
repay the advanced funds to the Partnership in cases which they would not
be entitled to indemnification. The satisfaction of any indemnification
and holding harmless shall be from and limited to Partnership assets, and
no Limited Partner or Unit Holder shall have any personal liability on
account thereof. The Partnership shall not incur the cost of that
portion of any insurance which insures any party against any liability
the indemnification of which is herein prohibited.
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6.05. Limitations on and Voting Rights of Limited Partners and
Unit Holders.
(a) No Limited Partner or Unit Holder shall take
part in the management or control of the business or affairs of
the Partnership, have any voice in the management or operation
of any Partnership property or business, or have the authority
or power in its capacity as a Limited Partner or Unit Holder to
act as agent for or on behalf of the Partnership, any other
Partner or any other Unit Holder, to do any act which would be
binding on the Partnership, any other Partner or any other Unit
Holder, or to incur any expenses on behalf of or with respect to
the Partnership.
(b) The Limited Partners may by vote of a Majority
in Interests of the Limited Partners propose or approve or
disapprove the amendment of this Agreement, provided, however,
that any amendment that (i) converts a Limited Partner into a
General Partner; (ii) modifies the limited liability of a
Limited Partner in any way; (iii) changes the allocation of
income and loss or the cash distributions of the General Partner
or Limited Partners, or the powers, rights and duties of the
General Partner; or (iv) adversely affects the ability of the
Partnership to provide "flow through" tax consequences, shall
require the consent of the General Partner and the Limited
Partners so affected. A Majority in Interests of the Limited
Partners may vote to dissolve the Partnership. Limited Partners
may otherwise vote only as provided in, and in accordance with,
the other provisions of this Agreement. Unit Holders shall not
vote but the Assignor Limited Partner shall vote in accordance
with the written instructions provided to it by the Unit
Holders.
6.06. Liability of Limited Partners and Unit Holders.
(a) No Limited Partner or Unit Holder, in such
capacity, shall have any personal liability whatever, whether to
the Partnership, to any of the Partners or to the creditors of
the Partnership, for the debts of the Partnership or any of its
losses beyond (i) the amount of his Capital Contribution, (ii)
his share of any undistributed assets of the Partnership and
(iii) to the extent and for the period required by applicable
law, the amount of his capital in the Partnership returned to
him or the amount of any distribution which is made in violation
of this Agreement or the Delaware Act. Each Unit and Limited
Partnership Interest on issuance shall be fully paid and not
subject to assessment for additional Capital Contributions. No
Limited Partner or Unit Holder shall be required to lend any
funds to the Partnership or, after his Capital Contribution has
been paid, to make any further contribution to the capital of
Partnership. Under the Delaware Act, a limited partner of a
partnership may, under certain circumstances, be required to
return to the partnership, for the benefit of the partnership or
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partnership creditors, amounts previously distributed to such
limited partner as a return of his contribution and amounts
previously distributed to him if, at the time of, and after
giving effect to, such distribution, the liabilities of the
partnership, other than liabilities to partners on account of
their partnership interests, exceed the fair value of its
assets. It is the intention and agreement of the Partners and
Unit Holders that if any Unit Holder or Limited Partner (other
than the Assignor Limited Partner) has received a distribution
from the Partnership that is required to be returned to, or for
the account of, the Partnership or Partnership creditors, such
obligations shall be the obligation of the Unit Holder of
Limited Partner who receives such distribution, and not the
obligation of any General Partner or the Assignor Limited
Partner; provided, however, that nothing contained in this
Agreement shall be deemed to impose upon the transferee of a
Unit any obligation to return to the Partnership or any
Partnership creditor any distribution made to a prior holder of
such Unit.
(b) Except as otherwise provided in Section 4.06
with respect to the General Partner, no Partner or Unit Holder
with a negative balance in his capital account shall have any
obligation to the Partnership, the other Partners or the Unit
Holders to restore said negative balance.
6.07. Withdrawal or Removal of the General Partner.
(a) Except with the consent of a Majority in
Interest, and except as provided otherwise in this Section 6.07,
the General Partner shall not retire or voluntarily dissolve or
withdraw voluntarily from the Partnership or sell, transfer or
assign all or any portion of its Partnership Interest, provided,
however, that the General Partner may sell, transfer or assign
all or any portion of its right to receive income or any other
compensation provided for hereunder without any consent of
Limited Partners being required, and no assignee or transferee
of all or any portion of the Partnership Interest of the General
Partner shall have any right to become a general partner. Upon
a voluntary retirement or withdrawal of the General Partner, the
method of payment shall be fair and reasonable and shall consist
of a non-interest bearing unsecured promissory note with
principal payable, if at all, from distributions which the
General Partner otherwise would have received.
(b) With the consent of any other General Partner,
if any, and a Majority in Interest, the General Partner may at
any time designate one or more Persons to be successors to such
General Partner or to be an additional General Partner, in each
case with such participation in the General Partner's Interest,
as such General Partner and such successor or additional General
Partners may agree upon, and the General Partner may withdraw
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after the admission of any such successor as a General Partner
hereunder.
(c) Without the consent of any other Partner, the
General Partner may substitute an Affiliate as general partner
upon satisfying the conditions of Section 6.10 provided that
such Affiliate accepts an assignment of all rights and assumes
all liabilities and responsibilities of the General Partner as
General Partner of the Partnership, including, without
limitation, all duties and obligations of the General Partner
under this Partnership Agreement and the Delaware Act.
(d) Each of the Limited Partners by execution of
this Partnership Agreement and each of the Unit Holders by
execution of his Subscription Agreement or acquisition of a Unit
or by acceptance of a transfer of a Depositary Receipt, consents
to the admission of any Person as a successor or additional
General Partner in accordance with the terms of this Agreement
which has received the consent in writing of a Majority in
Interest of the Limited Partners or which is admitted pursuant
to Section 6.07(c). If the admission is so consented to (or if
a successor General Partner is admitted pursuant to Section
6.07(c)), such admission shall, without any further consent or
approval of the Limited Partners, be deemed an act of all the
Limited Partners and Unit Holders. The Partnership may issue to
the General Partner a certificate or certificates representing
all or any portion of its Interest, or the economic rights and
benefits attributable thereto, which certificate(s) may be
transferred as permitted under Sections 6.07(b), (c) or (d).
(e) The General Partner may not be removed as
general partner of the Partnership except as set forth below:
(i) The General Partner may be removed as
general partner by the affirmative vote of a Majority in
Interest of the Limited Partners (including the Assignor
Limited Partner acting on behalf of the Unit Holders).
(ii) Any action by the Limited Partners to
remove the General Partner also must provide for the
election of a successor general partner and the election
to continue the business of the Partnership pursuant to
Section 10.02(b). The General Partner removed as a
general partner pursuant to this Section 6.07(e) shall
not have any right to participate in the management or
control of the business of the Partnership upon the
effective date of such removal.
(iii) Notwithstanding the provisions of
Section 6.07(e), the rights of the Limited Partners
thereunder shall be void ab initio if prior to or within
15 days of such vote the Partnership receives an opinion
of counsel that the action in question (i) is not in
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accordance with the terms of this Agreement and
applicable law, (ii) may cause the loss of limited
liability of the Limited Partners or Unit Holders under
this Agreement or (iii) may cause the Partnership to
lose its ability (in whole or in part) to provide "flow
through" tax consequences.
If the General Partner is removed pursuant to Section 6.07(e)
and a successor general partner is elected pursuant to Section 10.02(b),
the former General Partner shall have no right to participate in the
management or control of the affairs of the Partnership nor shall it have
any right to vote in any vote requiring the consent of the Limited
Partners or Unit Holders. A General Partner that has been removed shall
not be entitled to any allocation of income, gain or loss of the
Partnership or any distributions, allocable or payable in either case to
the Unit Holders, but shall instead retain the share of the profits,
gains, losses, and distributions which it held in its capacity as General
Partner hereunder, until such time, if at all, as the General Partner's
interest is acquired as hereinafter described. The Partnership or any
successor General Partner elected by the Limited Partners shall have the
option, but not the obligation, to acquire the interest in the
Partnership of any General Partner so removed upon payment to the former
General Partner of the fair market value of such interest, such value to
be determined by agreement between the General Partner so removed and the
Partnership, or, in the absence of such agreement, by arbitration in
accordance with the rules of the American Arbitration Association. The
expense of arbitration shall be borne equally by the General Partner so
removed and the Partnership. Fair market value of the interest of the
General Partner so removed shall be the amount the General Partner would
receive upon dissolution and termination of the Partnership assuming that
such dissolution or termination occurred on the date the General Partner
was removed and the assets of the Partnership were sold for their then
fair market value without any requirement on the part of the Partnership
to sell such assets. The method of payment to the General Partner shall
be fair and reasonable and shall consist of an interest bearing
promissory note coming due in no less than 5 years with equal
installments payable each year.
(f) In connection with any transfer by a General
Partner of all or any part of its interest pursuant to this
Section 6.07 and the admission of a successor or additional
General Partner, any such successor or additional General
Partner, shall, together with any then remaining General
Partners, continue the business of the Partnership without
dissolution. In the event of the removal of a General Partner
under Section 6.07(e) or a transfer by the General Partner of
its entire Partnership Interest as a General Partner, the
successor General Partner designated by the withdrawing General
Partner (or the successor elected by the Limited Partners in the
case of a removal), shall be admitted to the Partnership as a
General Partner immediately prior to the effective date of
withdrawal of the withdrawing General Partner and shall continue
the business of Partnership without dissolution.
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6.08. Certain Fees and Expenses.
(a) The General Partner or its Affiliates shall
receive Acquisition Fees, Acquisition Expenses and other Front-
end Fees described in the Prospectus for services rendered in
connection with (i) the acquisition and financing of the Malls,
(ii) the organization of the Partnership and the Owner
Partnership and (iii) the negotiation of the terms of the
management and leasing agreement for the Malls.
(b) For services rendered in connection with the
offering of Units, Shearson will receive (i) selling commissions
of 8% of Limited Partners' Capital Contributions and (ii)
reimbursement of certain Organization and Offering Expenses not
to exceed in the aggregate, including the amount of selling
commissions, 15% of Limited Partners' Capital Contributions.
(c) All expenses of the Partnership will be billed
directly to and paid by the Partnership. The General Partner
may be reimbursed for the actual cost of goods and materials
used for or by the Partnership and obtained from unaffiliated
entities. The General Partner may be reimbursed for the
administrative services necessary to the prudent operation of
the Partnership provided that the reimbursement shall be at the
lower of actual cost to the General Partner or the amount the
Partnership would be required to pay to independent parties for
comparable administrative services in the same geographic
location. However, no reimbursement may be had for services for
which the General Partner is entitled to compensation by way of
a separate fee. The following items shall be excluded from
allowable reimbursement (except to the extent permissible as
front-end fees): rent or depreciation; utilities; capital
equipment; other administrative items: salaries, fringe
benefits, travel expenses, and other administrative items
incurred by or allocated to any controlling persons of the
General Partner, Shopco or affiliates. "Controlling person,"
for purposes hereof, includes but is not limited to, any person,
whatever their title, who performs functions for the General
Partner or Shopco similar to those of chairman or member of the
board of directors; executive management, such as the president,
vice president or senior vice president, corporate secretary,
treasurer, senior management, such as the vice president of an
operating division who reports directly to executive management;
or those holding 5% or more equity interest in the General
Partner or Shopco or a person having the power to direct or
cause the direction of the General Partner or Shopco, whether
through the ownership of voting securities, by contract, or
otherwise. Except as specifically set forth in the Partnership
Agreement or Prospectus, no other services may be performed by
the General Partner, Shopco or an Affiliate thereof except in
extraordinary circumstances and provided the following criteria
are met:
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(i) the compensation, price or fee therefor
must be comparable and competitive with the
compensation, price or fee of any other person rendering
comparable services or selling or leasing comparable
goods which could reasonably be made available to the
Partnership and shall be on competitive terms;
(ii) the fees and other terms of the
contract shall be fully disclosed;
(iii) the General Partner, Shopco or its
Affiliate, as the case may be, must have previously been
engaged in the business of rendering such services or
selling or leasing such goods, independently of the
Partnership and as an ordinary and ongoing business; and
(iv) all goods or services for which the
General Partner, Shopco or an Affiliate is to receive
compensation shall be embodied in a written contract
which precisely describes the services to be rendered
and all compensation to be paid, which contract may only
be modified by a vote of the majority of the limited
partners, and which contract shall contain a clause
allowing termination without penalty on 60 days' notice.
6.09. Code Elections.
Except as otherwise specifically provided herein, the General
Partner shall, in its sole discretion, determine whether to make any
available election including, without limitation, the elections provided
for in Code sections 168 and 754 on behalf of the Partnership. The
General Partner shall have the right to seek to revoke any such election
upon the General Partner's determination that such revocation is in the
interests of the Limited Partners and Unit Holders; provided that the
General Partner shall not seek to revoke any such election unless the
General Partner has received an opinion of counsel to the effect that
such revocation would not cause the Partnership to be treated as an
association taxable as a corporation for federal income tax purposes.
6.10. Net Worth of the General Partner.
Each Partner and Unit Holder hereby acknowledges and agrees that
the General Partner's net worth will be funded by a demand promissory
note executed and delivered by Shearson Lehman Hutton Group Inc., the
sole shareholder of the General Partner, to the General Partner. Such
demand promissory note will be for $2,900,000 if a Closing occurs in
respect to the sale of the Minimum and shall be raised to $3,400,000 if a
Closing occurs such that 70,250 Units in the aggregate will have been
sold and $4,100,000 if Closings occur such that an aggregate of more than
70,250 Units will have been sold.
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6.11. Sale or Lease of Malls.
The following activities with regard to the sale or lease of the
Malls shall be prohibited: the sale or lease of property to the General
Partner, Shopco or an Affiliate thereof (except the Master Rental Income
Guaranty); the purchase or lease of Additional Malls from a program in
which the General Partner, Shopco or an Affiliate thereof has an
interest; and the purchase or lease of Additional Malls in which the
General Partner, Shopco or an Affiliate thereof has an interest except if
purchased temporarily for the purpose of facilitating (i) the acquisition
thereof or (ii) the borrowing of money or (iii) the obtaining of
financing or (iv) the completion of construction or (v) any other purpose
related to the business of the Partnership, provided (x) the price for
which such property is purchased by the Owner Partnership may not be
greater than the cost to the General Partner, Shopco or an Affiliate
thereof except to the extent a profit is permissible as a Front-end Fee,
and provided (y) there is no increase in interest rates of the loans
secured by the property from the time acquired by the General Partner,
Shopco or an Affiliate thereof to the time acquired by the Owner
Partnership (except as disclosed in the Prospectus in respect to the
possible acquisition of Assembly Square by an Affiliate of the General
Partner prior to its transfer to the Partnership).
Additionally, a Majority in Interest of Limited Partners may
vote to approve or disapprove the sale of substantially all of the assets
of the Partnership.
6.12. Meetings.
Meetings of the Limited Partners for any purpose as to which
Limited Partners may act as provided in this Agreement may be called by
the General Partner at any time and shall be called by the General
Partner at a time and place convenient to Unit Holders and Limited
Partners within 10 days following receipt of a written request for such a
meeting signed by 10% or more of the holders of outstanding Limited
Partnership Interests. The General Partner shall provide all Limited
Partners and Unit Holders written notice, either in person or by
certified mail, of a meeting and the purpose of such meeting, the same to
be held on a date not less than 15 days nor more than 60 days after
receipt of said request. Any request by Unit Holders for a meeting shall
be directed to the Assignor Limited Partner who, for this purpose, shall
act to the extent, and only to the extent, of written directions received
from Unit Holders. Any such request shall state the purpose of the
proposed meeting and the matters proposed to be acted upon at such
meeting. Meetings shall be held at the principal office of the
Partnership or at such other place as may be designated by the General
Partner. At any meeting of Limited Partners, the Assignor Limited
Partner shall vote (whether by proxy, ballot, consent or otherwise) so
many of the assigned Limited Partnership Interests held by it in favor of
or in opposition to any matter upon which the instructions received by it
from Unit Holders as of the applicable record date. Other than their
rights as herein provided to give written instructions to the Assignor
Limited Partner, the Unit Holder shall have no other voting or consent
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rights. Notwithstanding the foregoing, Unit Holders of record as of the
applicable record date shall be entitled to all notices of, and to be
present and be heard at, all meetings of Limited Partners.
6.13. Notice.
Notice of any meeting to be held pursuant to Section 6.12 shall
be delivered to each Limited Partner and Unit Holder at his record
address, or at such other address which he may have furnished in writing
to the General Partner. Such notice shall be in writing and shall state
the place, date and hour of the meeting, the purpose or purposes of the
meeting, and shall indicate that it is being issued at or by the
direction of the General Partner or Limited Partners calling the meeting.
Such notice shall contain a verbatim statement of any resolution proposed
by the Limited Partners and of any proposed amendment to this Agreement.
If a meeting is adjourned to another time or place, and if any
announcement of the adjournment of time or place is made at the meeting,
it shall not be necessary to give notice of the adjourned meeting. The
presence in person or by proxy of Limited Partners holding more than 50%
of the outstanding Partnership Interests (including those held by the
Assignor Limited Partner for the Unit Holders) shall constitute a quorum
at all meetings of the Limited Partners; provided, however, that if no
such quorum is present, holders of more than 50% of such Partnership
Interest so present or so represented may adjourn the meeting form time
to time without further notice, until a quorum shall have been obtained.
No notice of the time, place or purpose of any meeting of Limited
Partners or Unit Holders need be given to any Limited Partner or Unit
Holder who attends in person or is represented by proxy (except when a
Limited Partner or Unit Holder attends a meeting for the express purpose
of objecting at the beginning of the meeting to the transaction of any
business on the ground that the meeting is not lawfully called or
convened), or to any Limited Part or Unit Holder entitled to such notice
who waives such notice in a writing executed and filed with the records
of the meeting, either before or after the time thereof.
6.14. Record Date.
For the purpose of determining the Limited Partners entitled to
vote and the Unit Holders entitled to direct the voting of the Assignor
Limited Partner at any meeting of the Limited Partners, or any
adjournment thereof, the General Partner or the Limited Partners and Unit
Holders requesting such meeting or vote may designate, in advance, a date
as the record date of any such determination of Limited Partners. Such
date shall not be more than 60 days nor less than 15 days before any such
meeting. A list of the names and addresses of all Limited Partners and
Unit Holders shall be maintained as a part of the books and records of
the Partnership and shall be made available upon reasonable request of
any Limited Partner or Unit Holder of his representative at his cost. At
each meeting of Limited Partners and Unit Holders, the Limited Partners
and the Assignor Limited Partner on behalf of the Unit Holders either
present or represented by proxy shall elect such officers and adopt such
rules for the conduct of such meeting as they shall deem appropriate.
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6.15. Front-end Fees.
An amount not less than the greater of (a) 85% of the Limited
Partners' Capital Contributions, reduced by .1625% for each 1% of
financing of the Malls, or (b) 77% of the Limited Partners' Capital
Contributions, will be committed to Investment in Properties. Front-end
Fees shall be limited to 15% of the Limited Partners' Capital
Contributions, increased by .1625% for each 1% of financing of the Malls.
SECTION VII
Assignment of Assignor's Limited Partnership
Interests to Unit Holders and Rights of Unit Holders
7.01. Assignment of Interests: Timing, Procedures, Rights,
Liabilities, and Fiduciary Duty.
(a) At each Closing, the Assignor Limited Partner
shall contribute to the Partnership on behalf of the purchaser
of Units the proceeds of the sale of Units received and accepted
by the General Partner. The Assignor Limited Partner shall hold
such Interests (and shall keep and simultaneously supply the
Partnership with a list containing the name, address and number
of Units purchased by each Unit Holder, which list shall be
available for inspection by any Unit Holder on written request)
and the purchaser of such Units shall be entered on the books
and records of the Partnership. The Partnership shall, on or
about each Closing Date, issue to the order of the respective
Unit Holders Depositary Receipts registered in the names of such
Unit Holders (or their nominees) in respect of the Units held.
By subscribing for the purchase of Units or tendering payment
for Units, as well as by requesting or holding a Depositary
Receipt of a confirmation of purchase of Units, or by requesting
that a Unit be registered in his name, each Unit Holder will be
deemed to have consented to and to be bound by all of the terms,
conditions, rights and obligations set forth in this Agreement
and, without limitation, to have granted the power of attorney
set forth in Section 12.03.
(b) The Assignor Limited Partner, by the execution
of this Agreement, irrevocably transfers and assigns to the Unit
Holders as of the applicable Closing Date all of the Assignor
Limited Partner's rights and interest in and to the Interests,
except as otherwise provided herein, as of the time of release
by the Escrow Agent to the Assignor Limited Partner or to the
Partnership on behalf of the Assignor Limited Partner of any
payment for Units. The rights and interest so transferred and
assigned shall include the following:
(i) all rights to receive distributions
pursuant to Section V;
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(ii) all rights to receive allocations of
items of taxable income and losses and net gains and
losses pursuant to Section IV;
(iii) all rights to inspect books and records
and to receive reports pursuant to Section VIII;
(iv) all rights which Limited Partners have
under the Delaware Act, including the right to sue to
enforce obligations of the Partnership, except as
otherwise provided herein;
(v) the right to instruct the Assignor
Limited Partner with respect to the voting of the
Interests related to the Units (the Assignor Limited
Partner having no right to vote with respect to any Unit
or Interest without instructions from the record owners
of the applicable Units) and rights to call meetings;
and
(vi) the right to bring derivative actions
pursuant to Sections 17-1001 et seq. of the Delaware (or
any successor provision thereof), and all rights to
maintain actions under Sections 17-205, 17-802 and 17-
803 of the Delaware Act (or any successor provision
thereof) (and, in the event any such action must be
brought in the name of the Assignor Limited Partner, the
Assignor Limited Partner agrees to cooperate, at the
expense of the concerned Unit Holders, in all respects
with the maintenance of any such action).
(c) The General Partner, by the execution of this
Agreement, irrevocably consents to and acknowledges that (i) the
foregoing transfer and assignment by the Assignor Limited
Partner to the Unit Holders are intended to be assignees of all
the foregoing rights and privileges of the Assignor Limited
Partner with respect to the Interests. The General Partner
covenants and agrees that in accordance with the foregoing
transfer and assignment, the Assignor Limited Partner's rights
and privileges with respect to Interests may be exercised by the
Unit Holders including, without limitation, clauses (i)-(vi) in
paragraph (b) above.
(d) The Assignor Limited Partner shall not be
liable to any Unit Holder for any action or nonaction by it in
reliance upon advice, written notice, request or direction from
a Unit Holder believed by the Assignor Limited Partner to be
genuine and to have been signed or presented by the proper
Person(s), however, the Assignor Limited Partner shall have
fiduciary responsibility for the safekeeping and use of all
funds and assets of the Unit Holders or assignees, whether or
not in the Assignor Limited Partner's possession and control,
and the Assignor Limited Partner is prohibited from employing or
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permitting another to employ such funds or assets in any manner
except for the exclusive benefit of the Unit Holders or the
assignees. Furthermore, the Unit Holders or assignees shall not
be permitted to contract away the fiduciary duty owed to them by
the Assignor Limited Partner under the common law of agency.
(e) Each Unit Holder shall be liable for and to
the extent of any liability imposed upon the Assignor Limited
Partner in its capacity as a Limited Partner of the Partnership
with respect to such Unit Holder's Units for returns of
Partnership distributions and Capital Contributions.
(f) Notwithstanding the assignment of Interests
referred to in this Section 7.01, the Assignor Limited Partner,
subject to the right of a Unit Holder to become a substituted
Limited Partner as provided in Section 7.02(a) shall retain
legal title to such Interests and shall be and remain a Limited
Partner of the Partnership.
(g) The Partnership shall make all distributions to
Unit Holders pursuant to Section V and shall distribute all
reports and other communications directly to Record Holders
entitled to receive such distributions, reports and
communications and not to the Assignor Limited Partner.
Delivery of a distribution, report or other communication to the
Assignor Limited Partner shall not relieve the Partnership or
the General Partner from responsibility and liability for
delivery of such distribution, report or other communication to
the Record Holder entitled to receive such distribution, report
or communication.
7.02. Rights and Obligations of Unit Holders to Become Limited
Partners.
(a) Any Unit Holder may exchange any or all of its
Units for corresponding Interests by (i) delivering the General
Partner and the Assignor Limited Partner such documents as may
be reasonably required by the General Partner and the Assignor
Limited Partner and (ii) paying such reasonable fees and
expenses for actual legal and administrative costs not to exceed
$150 per Transfer, provided, however, that the holder of any
such Interest received in exchange for a Unit shall not be
admitted to the Partnership as Limited Partner unless and until
the General Partner shall have consented to such admission,
which consent shall not be unreasonably withheld or delayed. If
such holder of an Interest is admitted to the Partnership,
sales, assignments, transfers, encumbrances or other
dispositions ("Transfers") of such Interests shall be governed
by the provisions of Section IX. A Person making a Transfer
shall hereinafter be referred to as a "Transferor" and a Person
receiving such Transfer a "Transferee." If the General Partner
does not so consent, the Person requesting such exchange shall
remain a Unit Holder. If the General Partner does so consent to
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the admission of a Unit Holder as a Limited Partner, no consent
of any other Limited Partner or Unit Holder shall be required to
effect such admission. Holders of Interests, other than the
Assignor Limited Partner, may not convert such Interests into
Units. Conversions of Units into Interests shall be
accomplished at such times as the General Partner shall
determine, but not less frequently than quarterly. The number
of Interests held by the Assignor Limited Partner shall be
reduced by the number of Interests issued to Unit Holders
pursuant to this Section 7.02(a).
(b) The General Partner may at any time require the
Unit Holders to become Limited Partners, and may take such other
action with respect to the manner in which Units or Interests
are being or may be transferred or traded, as it may deem
necessary or appropriate in order to preserve the ability of the
Partnership to provide "flow through" tax consequences, to
prevent termination of the Partnership for federal income tax
purposes or to insure that Unit Holders will be treated as
limited partners for federal income tax purposes, consistent
with the procedures set forth in Sections 7.04 and 7.03(e).
7.03. Transfer of Units.
(a) A Unit Holder may Transfer its Units, or any
part thereof, by a Transfer of the Depositary Receipt
representing the Units in accordance with the terms of, and
subject to the conditions specified in, the Depositary
Agreement.
(b) Each distribution in respect of a Unit shall be
paid by the Partnership, directly or through the transfer agent
or through any other person or agent, only to the Record Holder
of such Unit as of the Record Dates set for such distribution.
Such payment shall constitute full payment and satisfaction of
the Partnership's liability in respect of such payment,
regardless of any claim of any Person who may have an interest
in or with respect to such payment by reason of any assignment
or otherwise. The expense of any action taken pursuant to this
Section 7.03(b) will be a Partnership expense.
(c) Notwithstanding anything to the contrary
herein, the Partnership shall not recognize for any purpose any
purported transfer by a Unit Holder of all or any part of a Unit
held by such Unit Holder until such transfer has been effected
on the books of the Transfer Agent.
(d) By payment of its subscriptions and acceptance
of the confirmation of its purchase of a Unit to Units, any
holder of a Unit conclusively shall be deemed to have agreed to
comply with and be bound by all terms and conditions of this
Agreement and the Depositary receipt evidencing such Unit.
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(e) In order to prevent the Partnership from being
treated as a "publicly traded partnership" for federal tax
purposes, when the General Partner determines, in its sole
discretion, that there is a risk that a proposed Transfer of
Units may occur on a secondary market (or a substantial
equivalent thereof) and the General Partner receives an opinion
of Counsel that the exercise of the following powers would not
cause the assets of the Partnership to become plan assets for
purposes of ERISA, then the Partnership and the General Partner
have the right (i) to refuse to recognize any such attempted
Transfer which would constitute a Transfer in a secondary market
(or a substantial equivalent thereof) as defined under Code
section 7704 and any Regulations promulgated thereunder, (ii) to
require the Unit Holders not to Transfer their Units on a
secondary market (or a substantial equivalent thereof), (iii) to
require the Unit Holders to provide all the information
respecting transfers which the General Partner deems necessary
in order to determine whether the Transfer may occur on a
secondary market (or a substantial equivalent thereof), and (iv)
to take any actions they deem necessary or appropriate in their
reasonable discretion so that such Transfer is not in fact
recognized.
7.04. Deferral of Registration of Transfers of Interests or
Units to Avoid Termination of the Partnership.
The registration of any Transfer (other than a Transfer by will
or intestacy upon death of the Transferor) of an Interest or Unit may be
deferred in the discretion of the General Partner if such Transfer, when
added to the total of all other Interests and Units for which Transfers
are made within the period of 12 consecutive months prior to the proposed
date of Transfer, would, in the opinion of Counsel, result in a
termination of the Partnership under Code section 708. The General
Partner will give written notice to all Limited Partners and Unit Holders
in the event that registrations of transfer should be suspended for such
reason. Any deferred registrations of transfers will be made (in
chronological order to the extent practicable) as of the first day of a
fiscal semi-annual period after the end of any such 12-month period.
7.05. Transfer Fee. The Partnership will charge a transfer
fee of its actual costs not to exceed $200.00 on the first Closing Date
(such $200.00 to be adjusted annually to adjust for increases or
decreases in the Consumer Price Index), in connection with the purchase
or sale of Units and Partnership Interests to cover reasonable expenses
of Transfer in an amount to be determined by the General Partner from
time to time. Such fee may be waived in the discretion of the General
Partner. Each Transfer must comply with applicable state "Blue Sky" laws
and requirements of the National Association of Securities Dealers, Inc.
The Partnership may require evidence that any such applicable laws and
standards have been met before agreeing to any Transfer of Units.
7.06. Replacement of the Assignor Limited Partner.
Notwithstanding any other provision hereof, if for any reason the
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Assignor Limited Partner should dissolve or become subject to any
voluntary or involuntary bankruptcy or insolvency proceedings, or in the
event of the failure of the Assignor Limited Partner to perform any
obligation under this Agreement in accordance with the terms hereof with
respect to Limited Partnership Interests for which the Assignor Limited
Partner is the assignor limited partner, the General Partner may remove
the Assignor Limited Partner as the assignor limited partner and
substitute in its place such Person as the General Partner determines in
its sole discretion. Thereafter (of after any withdrawal and replacement
of the Assignor Limited Partner as described below), the Assignor Limited
Partner shall have no right of any nature whatsoever in or with respect
to the Limited Partnership Interests (other than any owned in its
individual capacity). If the Assignor Limited Partner withdraws as a
Limited Partner (whether or not such withdrawal constitutes a breach of
any provision of this Agreement), the General Partner may substitute such
Person as the assignor limited partner as the General Partner deems
appropriate in its sole discretion. Upon such removal and/or replacement
of the Assignor Limited Partner as the assignor limited partner, the
successor selected by the General Partner shall succeed automatically and
without the requirement of further action, to the legal title to the
Limited Partnership Interests previously held of record by the Assignor
Limited Partner (other than any owned in its individual capacity), and
thereafter such successor shall be a Limited Partner of the Partnership
and shall have all of the rights and obligations of the Assignor Limited
Partner hereunder. This Section 7.06 shall be equally applicable to any
successor in interest to the Assignor Limited Partner.
SECTION VIII
Books, Records and Bank Accounts
8.01. Fiscal Year. The fiscal year of the Partnership shall
end on December 31 of each year.
8.02. Records of Partnership Transactions. The General
Partner shall keep, or cause to be kept, full and accurate records of all
transactions of the Partnership. The General Partner shall also be
responsible to maintain throughout the existence of this Partnership all
the documentation relating to the suitability of investors in the
Partnership. In addition, the Partnership shall keep copies of the
appraisals of the Malls by Cushman & Wakefield of Pennsylvania, Inc. or
by any other independent appraiser for 5 years from the date hereof and
shall make such appraisals available to a Unit Holder upon request.
Appraisals will be obtained for any Additional Malls purchased.
8.03. Access to Partnership Records. Upon reasonable demand
for any purpose related to the Limited Partners' and Unit Holders'
interests as a Limited Partner or Unit Holder (including but not limited
to litigation to protect such Limited Partners' and Unit Holders'
interests as Limited Partners or Unit Holders), and subject to payment of
a reasonable fee for the copying of such records only, Limited Partners
and Unit Holders and their designated representatives shall be permitted
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access to all records of the Partnership and the Owner Partnership at the
principal office of the Partnership and the Owner Partnership during
reasonable business hours and shall have the right to make copies
thereof, including a copy of this Agreement or any amendments thereto or
restatements hereof containing the most recent listing of Partners' and
Unit Holders' names, addresses and capital contributions and, upon
request, a list of the names and addresses of all the Limited Partners
and Unit Holders will be mailed to any Limited Partner.
8.04. Method of Accounting; Preparation of Tax Returns. The
Partnership will prepare its tax filings based on the accrual method of
accounting. Within 75 days after the end of each fiscal year of the
Partnership, the General Partner shall prepare, or cause to be prepared,
all federal, state and local partnership returns of income for the
Partnership; and, in connection therewith, shall, in its sole discretion,
make any available or necessary tax elections. Within such 75 day
period, the Partnership will furnish to each person who was a Limited
Partner or Unit Holder on the first day of a month or other record date
during the preceding fiscal year all information required to be set forth
in such Partner's or Unit Holder's individual federal income tax return.
8.05. Reports on Partnership's Business. Within 60 days after
the close of each calendar quarter other than the last calendar quarter
of the fiscal year, commencing with the first full calendar quarter after
the Closing Date, the General Partner shall furnish to each person who
was a Limited Partner or Unit Holder of record at any time during the
calendar quarter then ended a report setting forth details with respect
to the progress of the Partnership's business and unaudited financial
statements and other relevant information regarding the Partnership and
its activities during the preceding calendar quarter, including a
statement of any transactions between the Partnership and the General
Partner or its Affiliates and of any fees, commissions, compensation,
reimbursements and other benefits paid or accrued to the General Partner
or its Affiliates during such calendar quarter, showing the amount paid
or accrued to each recipient and the services performed, and including a
statement setting forth in detail the source of any distributions paid to
the Limited Partners and Unit Holders for or during the quarter including
the amount of distributions made from reserves, from funds generated
through operations of the Property or the sale or other disposition of
Partnership assets.
8.06. Report on Form 10-Q. The Partnership shall also furnish
to the Limited Partners and Unit Holders, within 60 days after the close
of each calendar quarter, the quarterly report on Form 10-Q filed by the
Partnership with the Securities and Exchange Commission (or a quarterly
report containing at least as much information as the Form 10-Q).
8.07. Annual Financial Reports. Within 120 days after the end
of each fiscal year, the General Partner will furnish to Limited Partners
and Unit Holders (i) an annual report containing an audited financial
statement of the Partnership, including a balance sheet and statements of
income, partner's equity and changes in financial position and a cash
flow statement, for the year then ended, all of which, except the cash
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flow statement, shall be prepared in accordance with generally accepted
accounting principles, together with the report of the independent
certified public accountants thereon, (ii) a report of the activities of
the Partnership during the fiscal year, (iii) a statement of any
transactions with the General Partner or its Affiliates and of fees,
commissions, compensation, reimbursements and other benefits paid or
accrued to the General partner or its Affiliates for the last quarter and
for such year, showing the amount paid or accrued to each recipient and
the services performed and (iv) a statement setting forth in detail the
source of any distributions paid to the Limited Partners and Unit Holders
for or during the last quarter and such fiscal year, including the amount
of distributions made from reserves, from funds generated through
operations or from funds derived from the sale, refinancing or other
disposition of Partnership assets. Such report shall also include a
report of the activities of the Partnership during such fiscal year. The
audited financial statements referenced in (ii) shall include
verification by such accountants of the allocation of costs reimbursed to
the General Partner and its Affiliates. The method of verification shall
be in accordance with generally accepted auditing standards, and the
method of verification shall at minimum provide: (i) A review of the
time records of individual employees, the costs of whose services were
reimbursed; (ii) A review of the specific nature of the work performed by
each such employee.
8.08. Bank Accounts; Temporary Investments. All receipts,
funds and income of the Partnership shall be deposited in the name of the
Partnership in such bank account or accounts of a savings and loan
association, commercial bank or other financial institution as the
General Partner from time to time shall determine. Withdrawals from said
banks shall be made on the signature of the General Partner or other
person designated by the General Partner. Notwithstanding the foregoing,
the General Partner on behalf of the Partnership shall be authorized to
invest Partnership funds temporarily not needed or Partnership purposes
in United States Treasury obligations, money market funds, certificates
of deposit, bankers' acceptances or any other similar money market
instruments or funds.
8.09. Tax Matters Partner.
(a) The General Partner shall be designated on the
Partnership's annual federal income tax return, and have full
powers and responsibilities, as the Tax Matters Partner of the
Partnership for purposes of Code Section 6231(a)(7)(A) (or any
successor provision thereof). Each Person (the "Pass-Through
Partner") that holds or controls an interest as a Limited
Partner or Unit Holder on behalf of, or for the benefit of,
another Person or Persons, or which Pass-Through Partner is
beneficially owned (directly or indirectly) by another Person or
Persons shall, within 30 days following receipt from the General
Partner of any notice, demand, request for information or
similar document, convey such notice, demand or request in
writing to such holders of beneficial interests in the
Partnership holding such interests through such Pass-Through
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Partner as shall be necessary to obtain information so as to
fully respond to such notice, demand or request from the General
Partner.
(b) In the event the Partnership shall be the
subject of an income tax audit by any federal, state or local
authority to the extent the Partnership is treated as an entity
for purposes of such audit, including administrative settlement
and judicial review, the General Partner shall be authorized to
act for, and its decision shall be final and binding upon, the
Partnership and each Partner and Unit Holder thereof. All
expenses incurred in connection with any such audit,
investigation, settlement or review shall be borne by the
Partnership.
8.10. Reports to Administrators. The General Partner shall
furnish to each state securities or "Blue Sky" commissioner any report or
statement required to be distributed to the Limited Partners and Unit
Holders and requested by such state commissioner.
8.11. Modifications to Reporting Requirements.
In the event that the Securities and Exchange Commission
promulgates rules which allow a reduction in the Partnership's reporting
requirements, the Partnership may cease to prepare and file certain
reports mentioned in this Section VIII if the General Partner determines
such action to be not adverse to the interest of the Partnership.
SECTION IX
Transfers of Interests
9.01. Restrictions on Transfer or Assignment of Interests.
(a) No Limited Partner (other than the Assignor
Limited Partner) may Transfer, all or any portion of its
Interests without giving written notice of such Transfer to the
General Partner. No Transfer shall be effective against the
Partnership or the General Partner until the first day of the
month next succeeding the month in which the General Partner
receives (i) the written notice described below and (ii) a duly
executed written instrument of Transfer. If a Transfer, occurs
by reason of the death of a Limited Partner or a Transferee
thereof, such written notice may be given by the duly authorized
representative of the estate of the Limited Partner or such
Transferee and shall be supported by such proof of legal
authority and valid assignment as may reasonably be requested by
the General Partner.
(b) The written notice required by this Section
9.01 shall specify the name and residence address of the
Transferee and the date of Transfer, shall include a statement
by the Transferee that it agrees to give the above-described
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written notice to the General Partner upon any subsequent
assignment and shall be signed by both the Transferor and
Transferee. The General Partner may, in it sole discretion,
waive receipt of the above-described notice or waive any defect
therein. The Partnership shall recognize the Transferee as the
holder of the Interests assigned (but not as a Substituted
Limited Partner except pursuant to the provisions of Section
9.02), only in the event that such assignment is made in
accordance with the provisions of this Article IX.
(c) No Transfer of Interests may be made:
(1) if the General Partner or counsel to
the Partnership shall be of the opinion that such
Transfer
(i) would be in violation of any
applicable state securities or "Blue Sky" laws
or any investor suitability standards
established by the Partnership;
(ii) would result in the
Partnership losing its ability to provide
"flow-through" tax consequences;
(iii) would result in the
termination of the Partnership pursuant to the
provisions of Code Section 7.08; and
(2) unless each of the following conditions
are satisfied:
(i) the Transferor and Transferee
shall execute and acknowledge such other
instruments as the General Partner reasonably
deems necessary or desirable to effect such
assignment including, but not limited to,
evidence of the assignee's compliance with
suitability standards imposed by the
Partnership and applicable "Blue Sky" laws and
(ii) the Partnership shall have
received from the assignor or assignee a
transfer fee as set forth in Section 7.05 to
cover all reasonable expenses of the Transfer,
including without limitation, all legal
expenses, but such transfer fee may be waived
by the General Partner in its sole discretion.
(d) The General Partner may impose further
restrictions on Transfer described in Sections 7.03(e), but
subject to the conditions of that section.
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9.02. Substituted Limited Partners.
In addition to the restrictions on Transfers as set forth in
Section 9.01, no Transferee shall be admitted to the Partnership as a
Substituted Limited Partner unless all of the following conditions are
satisfied:
(a) A duly executed written instrument of Transfer
setting forth the intention of a Transferor seeking to Transfer
all or a portion of its Interests, that the Transferee shall
become a Substituted Limited Partner in its place, which is in
form and substance satisfactory to the General Partner, shall
have been filed with the General Partner.
(b) The Transferor and Transferee shall execute and
acknowledge such other instruments as the General Partner
reasonably deems necessary or desirable to effect such
assignment and admission, including, but not limited to, the
written acceptance and adoption by the recipient of the
provisions of the Agreement and its execution, acknowledgment
and delivery to the General Partner of a power of attorney, the
form and consent of which are more fully described in Section
12.03.
(c) The Partnership shall have received from the
Transferor or Transferee a transfer fee in such amount as the
General Partner may from time to time determine to cover all
reasonable expenses of the Transfer, including, without
limitation, all legal expenses and all expenses related to the
amendment of this Agreement and/or the Certificate, if such
amendment is required by law, but such transfer fee may be
waived by the General Partner, in its sole discretion; and
(d) The General Partner has consented in writing to
the Transferee becoming a Substituted Limited Partner, which
consent the General Partner may grant or withhold in its sole
discretion.
9.03. Recognition of Transfer.
(a) Any Transfer of an Interest in contravention of
any of the provisions of this Section IX shall be void and
ineffective and shall not be binding upon or recognized by the
Partnership.
(b) A Transferee of a beneficial interest in the
Interest who is not admitted as a Substituted Limited Partner,
shall have no right to require any information or account of the
Partnership's transactions or to inspect the Partnership's books
or to vote on any matter, and it shall only be entitled to
receive distributions from the Partnership and allocations of
income, gain, loss and deduction attributable to the beneficial
interest in the Interests acquired by reason of such Transfer
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from the first day of the month following the month in which the
written instrument of Transfer, executed by the assignor and in
form and substance as set forth in Section 9.01, and other
documents requested by the General Partner pursuant to the
provisions of Section 9.01 shall have been received by the
Partnership.
(c) Anything contained herein to the contrary
notwithstanding, both the Partnership and the General Partner
shall be entitled to treat the Transferor of such Units as the
absolute owner thereof in all respects, and shall incur no
liability for allocations of income, gain, loss or deduction or
for distributions to the assignor until the first day of the
calendar month following the month in which the Partnership
shall have received all of the documents provided for in Section
9.01.
9.04. Treatment of a Substituted Limited Partner as a Limited
Partner.
Within a reasonable period of time after the date when the
General Partner shall have consented to the substitution of a Transferee
as a Substituted Limited Partner, and the Transferor and Transferee shall
have satisfied all of the conditions of Section 9.02, the General Partner
shall amend the records of the Partnership and, if such amendment is
required by law, the Certificate of the Partnership shall be amended at
least quarterly to admit the recipient as a Substituted Limited Partner.
The admission of any person as a Substituted Limited Partner shall become
effective as of the first day of the calendar month following the
satisfaction of all of the conditions set forth in Section 9.02. Any
person admitted to the Partnership as a Substituted Limited Partner shall
be subject to all of the provisions of this Agreement as if an original
party hereto.
9.05. Withdrawal, Bankruptcy or Incapacity of a Limited
Partner.
(a) No Limited Partner at any time shall withdraw
from the Partnership. However, such restriction shall not
prevent the substitution of a Limited Partner in the place and
stead of another Limited Partner if the applicable terms and
conditions of Section 9.02 are complied with.
(b) In the event of bankruptcy or incapacity of a
Limited Partner (the "Withdrawing Limited Partner") the legal
representative of the Withdrawing Limited Partner shall have
such power as the Withdrawing Limited Partner possessed to
constitute a successor as an assignee of its Interests in the
Partnership and to join with such assignee in making application
to substitute such assignee as a Limited Partner. Such legal
representative shall succeed to the rights of the Withdrawing
Limited Partner to receive distributions from the Partnership
and to join with such assignee in making application to
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substitute such assignee as a Limited Partner. Such legal
representative shall succeed to the rights of the Withdrawing
Limited Partner to receive distributions from the Partnership
and allocations of income, gain, loss and deduction; provided,
however, that such legal representative shall not have the right
to become a Substituted Limited Partner in the place of the
Withdrawing Limited Partner unless the conditions of Section
9.02 (other than the requirement that the assignor execute and
acknowledge instruments) are first satisfied.
9.06. Assignment of Units.
The provisions of this Section IX shall not apply to the
transfer and assignment of Units by the Assignor Limited Partner in
accordance with the provisions of Section VII.
9.07. Transfers in Violation of Section. Any Transfer in
contravention of any of the provisions of this Section IX shall be void
and ineffectual, and shall not bind or be recognized by the Partnership.
SECTION X
Dissolution and Termination
10.01. No Dissolution.
The Partnership shall not be dissolved by the admission of
additional Limited Partners or Substituted Limited Partners nor by the
admission of Substituted General Partners in accordance with the terms of
this Agreement.
10.02. Events of Dissolution.
(a) The Partnership shall be dissolved on the
earliest to occur of the following events:
(i) on a date designated by the General
Partner and a Majority in Interest of the Limited
Partners (including the Assignor Limited Partner acting
on behalf of Unit Holders);
(ii) the Bankruptcy or withdrawal of the
General Partner;
(iii) upon the sale of all or substantially
all of the Partnership's equity interest in the Owner
Partnership or of the Malls by the Owner Partnership
(unless the General Partner elects to continue the
existence of the Partnership pending collection of the
deferred balance of any purchase money obligation held
by the Partnership or the Owner Partnership);
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(iv) on December 31, 2038;
(v) a conversion or reconstitution pursuant
to Section 1.01(c);
(vi) the entry of a decree of judicial
dissolution of the Partnership by a court of competent
jurisdiction; or
(vii) the occurrence of any other event that
would cause the dissolution of the Partnership or make
it unlawful for the business of the Partnership to be
continued under the Delaware Act.
(b) Upon the occurrence of an event specified in
Section 10.02(a)(ii), the Partnership shall not be terminated
and its affairs wound up if a Majority in Interest of the
Limited Partners (including the Assignor Limited Partner acting
on behalf of the Unit Holders) (or such greater number as may be
required by law) elect within ninety days after such occurrence
to continue the Partnership and the Partnership business and
shall designate one or more Persons to be a successor General
Partner(s), effective as of the date of such event. In the
event that a Majority in Interest of the Limited Partners
(including the Assignor Limited Partner acting on behalf of the
Unit Holders) so elect to continue the Partnership with a
successor General Partner(s), the business of the Partnership
shall be continued, in a reconstituted form as a successor
limited partnership if necessary, in accordance with the terms
of this Agreement, and the successor General Partner(s) shall
succeed to all of the powers and privileges of the General
Partner hereunder. The Partnership will pay to the terminated
General Partner all amounts then accrued and owing thereto and
may acquire the General Partner's interest by paying an amount
equal to the present fair market value thereof determined by
agreement or, if no agreement is reached, by arbitration in
accordance with the then current rules of the American
Arbitration Association with the expense of arbitration to be
borne equally by the terminated General Partner and the
Partnership. The method of payment will be: (i) for a
voluntary payment, a non-interest bearing unsecured promissory
note with principal payable, if at all, from distributions which
the terminated General Partner would otherwise have received
under the Partnership Agreement had the General Partner not been
terminated, and (ii) for an involuntary termination, an interest
bearing promissory note coming due in no less than 5 years with
equal installments payable each year.
(c) Dissolution of the Partnership shall be
effective on the day on which the event occurs giving rise to
the dissolution, but the assets of the Partnership and the
affairs of the Partners and Unit Holders, as such, shall
continue to be governed by this Agreement. Upon dissolution,
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the General Partner or, if there be none, a liquidator appointed
by a Majority in Interest of the Limited Partners (including the
Assignor Limited Partner acting on behalf of the Unit Holders),
shall liquidate the assets of the Partnership, apply and
distribute the proceeds thereof as contemplated by this
Agreement and cause the execution and filing of a Certificate of
Cancellation of the Partnership, as well as any and all other
documents required by law to effectuate the dissolution and
termination of the Partnership.
10.03. Distributions Upon Dissolution and Liquidation.
(a) After payment of all obligations, debts and
liabilities of the Partnership owing to creditors (including
Partners who are creditors to the extent otherwise permitted by
law but excluding liabilities for distributions to Partners
under Section 17-601 or 17-604 of the Delaware Act), and the
expenses of dissolution or liquidation of the Partnership, the
General Partner or liquidator shall set up such reserves as it
deems reasonably necessary for any contingent or unforeseen
liabilities or obligations of the Partnership. Said reserves
may be paid over by the General Partner or liquidator to a bank,
to be held in escrow for the purpose of paying any such
contingent or unforeseen liabilities or obligations and, at the
expiration of such period as the General Partner or liquidator
may deem advisable, such reserves shall be distributed to the
Limited Partners, Unit Holders and the General Partner (or their
respective assigns) in the manner set forth in subsection (b)
below.
(b) After paying such obligations, debts and
liabilities, the expenses of dissolution or liquidation and
providing for such reserves, the General Partner or liquidator
shall cause the remaining net assets of the Partnership to be
distributed to and among the Partners in the manner set forth in
Section 5.03. In the event that any part of such net assets
consist of notes or accounts receivable or other non-cash
assets, the General Partner or liquidator shall take whatever
steps it deems appropriate to convert such assets into cash or
into any other form which would facilitate the distribution
thereof.
SECTION XI
Certain Definitions
For purposes of this Agreement, the following terms shall have
the following meanings:
"Acquisition Expenses" shall include but not be limited to legal
fees and expenses, travel and communications expenses, costs of
appraisals, non-refundable option payments on property not acquired,
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accounting fees and expenses, title insurance, and miscellaneous expenses
related to selection and acquisition of properties, whether or not
acquired.
"Acquisition Fees" means the total of all fees and commissions
paid by any party in connection with the purchase or development of
property by the Partnership, including any real estate commission,
selection fee, development fee, nonrecurring management fee, or any fee
of similar nature, however designated.
"Additional Malls" means any all of the additional, as-yet
unspecified enclosed regional shopping malls that the Owner Partnership
may acquire.
"Additional Property" means any improved real property in the
immediate vicinity of any of the Malls which may be acquired by the Owner
Partnership to be operated in connection with any of the Malls.
"Affiliate" means, with reference to a Person, (i) any Person
directly or indirectly controlling, controlled by or under common control
with such Person, (ii) any Person owing or controlling ten percent or
more of the outstanding voting securities or beneficial interests of such
Person, (iii) any officer, director, partner, general trustee or anyone
acting in a substantially similar capacity as to such Person; and (iv) if
such other Person is an officer, director or partner, any company for
which such Person acts in any such capacity.
"Agreement" means this Amended and Restated Agreement of Limited
Partnership, as amended, modified or supplemented from time to time.
"Assembly Loan" means that first mortgage loan secured by
Assembly Square in the principal amount of $28,000,000.
"Assembly Square" means The Mall at Assembly Square, a regional
shopping center located in Somerville, Massachusetts.
"Assignor Limited Partner" means Shearson Regional Malls
Depositary Corp., a Delaware corporation, in its capacity as the Assignor
Limited Partner of the Partnership under the terms of this Agreement.
"Bankruptcy" means (i) the entry of a decree or order for relief
by a court of competent jurisdiction in any involuntary case under any
bankruptcy, insolvency, or other similar law now or hereafter in effect;
(ii) the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator or other similar agent for a Person or for any
substantial part of a Person's assets or property; (iii) the ordering of
the agent for a Person or for any substantial part of a Person's assets
or property; (iv) the ordering of the winding up or liquidation of a
Person's affairs; (v) the filing with respect to a Person of a petition
in any such involuntary bankruptcy case, which petition remains
undismissed for a period of 90 days or which is dismissed or suspended
pursuant to section 305 of the Federal Bankruptcy Code (or any
corresponding provision of any future United States bankruptcy law); (vi)
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the commencement by a Person of a voluntary case under any bankruptcy,
insolvency or other similar law now or hereafter in effect; (vii) the
consent by a Person to the entry of an order for relief in an involuntary
case under any such law or to the appointment of or taking possession by
a receiver, liquidator, assignee, trustee, custodian, sequestrator or
other similar agent for a Person or for any substantial part of a
Person's assets or property; or (viii) the making by a Person of any
general assignment for the benefit of creditors.
"Capital Contribution" means (i) as to any Partner, the capital
contribution paid by such Partner to the Partnership in accordance with
the terms of this Agreement and (ii) as to any Unit Holder, the capital
contribution deemed to have been paid to the Partnership on behalf of
such Unit Holder (or his predecessor in interest) by the Assignor Limited
Partner in the amount of $1,000 per Unit.
"Capital Transaction" means a financing, refinancing (other than
the refinancing of any pre-existing mortgage with the proceeds of the
First Mortgage Loans), insurance award (other than for substantially
complete destruction of a Mall without restoration thereof),
condemnation, easement sale, sale or partial sale of a Mall or similar
transaction which, in accordance with generally accepted accounting
principles, is attributable to capital, but which does not result in the
dissolution and termination of the Owner Partnership or the Partnership.
"Closing" means any closing as described in the Prospectus, as
the Prospectus may be amended or supplemented from time to time.
"Closing Date" means the date of any Closing.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Cranberry" means the Cranberry Mall, a regional shopping center
located in Westminster, Maryland.
"Cranberry Loan" means the first mortgage loan secured by
Cranberry in the principal amount of $27,250,000.
"Delaware Act" means the Delaware Revised Uniform Limited
Partnership Act as amended to date and as it may be amended from time to
time hereafter, and any successor of such Act.
"Depositary Receipt" means a certificate issued by the
Partnership evidencing ownership of one or more Units, such certificate
to be in such form or forms as may be adopted by the General Partner.
"First Mortgage Loans" means the Assembly Loan and the Cranberry
Loan in the aggregate amount of $55,250,000.
"Front-end Fees" shall mean fees and expenses paid by any party
for any services rendered during the Partnership's and the Owner
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Partnership's organizational or acquisition phase including Organization
and Offering Expenses, Acquisition Fees, loan placement fees, Acquisition
Expenses, and any other similar fees, however designated.
"General Partner" means Shearson Regional Malls Inc., a Delaware
corporation, or any other Person who becomes an additional or successor
general partner to the Partnership in accordance with this Agreement.
"Guidelines" means the guidelines for real estate and mortgage
loan programs as adopted by the North American Securities Administrators
Association as they exist on the date the Partnership's Registration
Statement is declared effective by the SEC.
"Interest" or "Limited Partnership Interest" means the
Partnership Interest of a Limited Partner in the Partnership, each such
Interest or Limited Partnership Interest corresponding to an original
Capital Contribution to the Partnership in the amount of $1,000.
"Investment in Properties" shall mean the amount of the Limited
Partners' Capital Contributions, including the amount of Gap Loans,
actually paid or allocated to the purchase, development, construction or
improvement of properties acquired by the Partnership and the Owner
Partnership (including the purchase of properties, working capital
reserves allocable thereto (except that working capital reserves in
excess of 5% shall not be included), and other cash payments such as
interest and taxes but excluding Front-end Fees).
"Limited Partners" means the Assignor Limited Partner (with the
respect to all Interests legal title to which is held by the Assignor
Limited Partner for the benefit of Unit Holders) and all other Persons
who are admitted as limited partners pursuant to the provisions of this
Agreement and who are so identified in the books and records of the
Partnership.
"Majority in Interest" or "Majority in Interest of the Limited
Partners" means, as to any matter upon which the Limited Partners may act
hereunder, the affirmative vote or written consent of Limited Partners
who are the record holders of more than 50% of the issued and outstanding
Limited Partnership Interests (subject, however, to Section 1.05(c)) (the
Assignor Limited Partner voting assigned Limited Partnership Interests
only if and to the extent that written directions on the voting thereof
are received from record holders of the associated Units).
"Malls" means any of Assembly Square, Cranberry or the
Additional Malls.
"Management and Leasing Fee" means the fee paid for day-to-day
professional property management services in connection with the Malls.
"Maximum Closing" means a closing after which at least an
aggregate of 70,250 Units are subscribed for.
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<PAGE>
"Maximum Closing Date" means the date on which a Maximum Closing
occurs.
"Minimum Closing" means the closing in which the minimum number
of Units (20,000 Units) are subscribed for.
"Minimum Closing Date" means the date on which the Minimum
Closing occurs.
"National Securities Exchange" means an exchange registered with
the Commission under Section 6(a) of the Securities Exchange Act of 1934,
as amended.
"Net Cash Flow" means, for any given period, the excess of (a)
amounts distributed to the Partnership from the operations of the Owner
Partnership (including distributions pursuant to section 5.06 of the
Owner Partnership Agreement) plus income from any other sources, over
(2) all expenses of the Partnership (other than cash expenditures that
are paid out of the proceeds of a Capital Transaction and other than
expenses attributable to depreciation accelerated cost recovery system
deductions, or other deductions that do not require cash expenditures),
and (3) reserves established from time to time in such amounts and for
such purposes as the General Partner shall determine.
"Net Proceeds" means the net proceeds of a Capital Transaction
or the sale or other disposition of the Malls and other assets of the
Partnership or the Owner Partnership upon a dissolution and termination
of the Partnership remaining after payment of (i) the debts and
liabilities of the Partnership or the Owner Partnership to the extent
required to be paid or satisfied in connection with such transaction
including, without limitation, property management fees, outstanding
loans and any accrued interest thereon, (ii) if appropriate, the
application of such proceeds to their intended use (i.e., capital or
leasehold improvements, restoration of the Malls, payment of an
outstanding loan), (iii) the payment of any and all costs and expenses
incurred in connection with the transaction including, if appropriate,
the costs and expenses incurred in connection with the dissolution and
liquidation of the Partnership or the Owner Partnership, and
(iv) reserves established from time to time in such amounts and for such
purposes as the General Partner shall reasonably determine.
"Organization and Offering Expenses" means those expenses
incurred in connection with and in preparation of the depositary units of
limited partnership interest for registration and subsequently offering
and distributing them to the public, including sales commissions paid to
broker-dealers in connection with the distribution of the depositary
units and all advertising expenses.
"Optional Loans" means the loans described in Section 6.02(a) of
this Agreement.
"Owner Partnership" means Shearson Shopco Malls, L.P., a
Delaware limited partnership, as it may from time to time be constituted.
I-58
<PAGE>
"Owner Partnership Agreement" means the limited partnership
agreement between the Partnership, as general partner, and Shopco Limited
Partnership, as limited partner.
"Partner" or "Partners" means any or all General or Limited
Partners of the Partnership.
"Partnership" means Shopco Regional Malls, L.P., a Delaware
limited partnership, as it may from time to time be constituted.
"Partnership Interest" means, as to any Partner, all of the
interest of that Partner in the Partnership under this Agreement and the
Delaware Act, including, but not limited to, such Partner's right to a
distributive share of income and losses of the Partnership and the right,
if a General Partner, to participate in the management of the affairs of
the Partnership.
"Percentage Interest(s)" means, with respect to each Limited
Partner (other than the Assignor Limited Partner) and Unit Holder, a
percentage equal to a fraction the numerator of which shall be the number
of Interests or Units owned by such Person, and the denominator of which
shall be the aggregate number of Interests and Units owned by all the
Limited Partners and Unit Holders.
"Person" means a corporation, an association, a partnership, a
joint venture, an estate, a trust, any other legal entity, or an
individual.
"Preferred Return" means, at any given time, with respect to
each Unit Holder, the excess of (a) an amount equal to 12% per annum of
the average daily Unrecovered Capital of the Unit Holder for the period
commencing on the Closing Date for such Unit Holder and ending on the
date of determination, over (b) the sum of all amounts theretofore
distributed to such Unit Holder (or its predecessor in interest) pursuant
to Sections 5.01, 5.02(a) (but only on account of the Preferred Return)
and 5.03(a) (but only on account of the Preferred Return).
Notwithstanding the foregoing, for purposes of computing the Preferred
Return with respect to a Unit Holder, the Unrecovered Capital of the Unit
Holder shall be reduced and/or increased consistent with the adjustments
to Unrecovered Capital of the Partnership in the Owner Partnership
Agreement, as particularly described in the definition of Preferred
Return in the Owner Partnership Agreement but in making such adjustment,
the increase described in (ii)(B) and (ii)(C) of the definition of
Preferred Return in the Owner Partnership Agreement shall only be made if
the General Partner is not obligated to fund such costs under Section
5.07 hereof.
"Prospectus" means the prospectus filed with the Commission as
part of the Registration Statement relating to the offering of the Units,
dated the date the Registration Statement is declared effective by the
Commission.
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<PAGE>
"Purchase Price" means the price paid upon the purchase of a
particular property, including the amount of Acquisition Fees and all
liens and mortgages on the property, but excluding points and prepaid
interest.
"Record Date" means the date established by the General Partner,
in its sole discretion, for determining (i) the identity of Limited
Partners entitled to notice of or to vote at any meeting of Limited
Partners or entitled to exercise rights in respect of any other lawful
action of Limited Partners, (ii) the identity of the Unit Holders
entitled to notice of any meeting of Limited Partners, to give written
instructions with respect to the voting of their Units in accordance with
Section 6.15 or to exercise rights in respect of any other lawful action
of the Unit Holders or (iii) the identity of Partners and Unit Holders
entitled to receive any report pursuant to Section VIII, distributions
pursuant to Section V, or allocations pursuant to Section IV.
"Record Holder" means, as applied to a Limited Partner, the
Person shown as a Limited Partner on the records of the Partnership or
the transfer agent as of the close of business on a particular day; as
applied to a Unit Holder, the Person shown as the owner of such Unit on
the records of the Partnership or transfer agent as of the close of
business on a particular day.
"Registration Statement" means the Registration Statement on
Form S-11 (Registration No. 33-20614) filed by the Partnership with the
SEC under the Securities Act of 1933 as it may be amended from time to
time.
"Regulations" means regulations, proposed regulations, and
temporary regulations promulgated under the Code from time to time.
"Securities Act" means the Securities Act of 1933, as amended,
and the regulations of the Commission promulgated thereunder.
"Service" means the Internal Revenue Service.
"Shearson Shopco Interests" means the partnership interests in
Shearson Shopco Malls, L.P. acquired by the Partnership.
"Shopco" means Shopco Limited Partnership, the limited partner
of the Owner Partnership.
"Underwriter" means Shearson Lehman Hutton Inc. in its capacity
as the underwriter of the offering of the Units.
"Unit" means each of the 110,000 depositary units of limited
partnership interest in the Partnership being offered pursuant to the
Prospectus at a price of $1,000 per Unit.
"Unit Holder" means, as of any moment in time, the Persons
holding Units according to the books and records of the Partnership.
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<PAGE>
"Unrecovered Capital" means as at any moment in time, with
respect to the Unit Holders as a group, an amount equal to gross offering
proceeds less all amounts theretofore distributed to the Unit Holders
pursuant to Sections 5.02(b), 5.03(a) (but only on account of Unrecovered
Capital), and 5.07 and, with respect to each Unit Holder, an amount equal
to $1,000 for each Unit owned by it, less all amounts theretofore
distributed to such Unit Holder (or its predecessor in interest) pursuant
to Sections 5.02(b), 5.03(a) (but only on account of Unrecovered Capital)
and 5.07.
"Working Capital Reserve" means the working capital reserve to
be established and maintained by the General Partner or the Owner
Partnership out of the Capital Contributions of the Unit Holders for
operating expenses, capital improvements, contingencies, such additional
funding requirements for the Malls as deemed necessary in the discretion
of the General Partner, and other unanticipated costs relating to
Partnership and Owner Partnership affairs and operations.
SECTION XII
Miscellaneous
12.01. Notices.
Any and all notices, elections or demands permitted or required
to be made under this Agreement shall be in writing, signed by the Person
giving such notice, election or demand and shall be delivered personally,
or sent by registered or certified mail, return receipt requested, to the
person required to receive such notice. Notices directed to a Limited
Partner or Unit Holder shall be delivered to its address set forth on the
books and records of the Partnership and the Assignor Limited Partner, or
at such other address as may be supplied by written notice given in
conformity with the terms of this Section 12.01 to the General Partner at
c/o Shearson Lehman Hutton Inc., American Express Tower, 12th Floor,
World Financial Center, New York, New York 10285, Attention: President,
and a copy of such notice shall be delivered in conformity with the terms
of this Section 12.01 to Willkie Farr & Gallagher, One Citicorp Center,
153 East 53rd Street, New York, New York 10022, Attention: Richard K.
DeSherer, Esq. The date of personal delivery or the date of mailing, as
the case may be, shall be the date of such notice.
12.02. Successors and Assigns.
Subject to the restrictions on transfer set forth herein, this
Agreement shall be binding upon and shall inure to the benefit of the
Partners, Unit Holders, their respective successors, successors-in-title,
heirs and assigns, and each and every successor-in-interest to any
Partner or Unit Holder, whether such successor acquires such interest by
way of gift, purchase, foreclosure, or by any other method, shall hold
such interest subject to all of the terms and provisions of this
Agreement. Unit Holders by their purchase of Units and their acceptance
of confirmation of purchase, if any, shall be deemed to have consented to
all the terms and conditions of this Agreement.
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<PAGE>
12.03. Power of Attorney.
(a) Each of the Limited Partners (including the
Assignor Limited Partner) and Unit Holders irrevocably makes,
constitutes and appoints, individually and jointly the General
Partner and each officer thereof, with full power of
substitution, its true and lawful attorney(s) in fact, for it
and in its name, place and stead and for its use and benefit, to
make, execute, sign, acknowledge, swear to, deliver, record and
file:
(i) this Agreement of and all amendments
hereto and restatements hereof as may be required by
applicable law or pursuant to the terms of this
Agreement or which the General Partner, in its sole
discretion, deems advisable;
(ii) all papers which may be deemed
necessary or desirable to effect the dissolution and
termination of the Partnership (including but not
limited to a Certificate of Cancellation of the
Certificate);
(iii) any and all amendments to the
Certificate, including those necessary to admit
additional or substitute General Partners or Limited
Partners or to reflect adjustments in Interests,
provided such substitutions, additions or adjustments
are in accordance with the terms of this Agreement;
(iv) any business certificate, fictitious
name certificate, amendment thereto, or other instrument
or document of any kind necessary to accomplish the
business, purposes and objectives of the Partnership
and/or the Owner Partnership, or required by applicable
federal, state or local law; and
(v) any other document or instrument which
the General Partner deems necessary or desirable to
carry out the purposes of the Partnership and/or the
Owner Partnership.
(b) The foregoing grant of authority:
(i) is a Special Power of Attorney coupled
with an interest, is irrevocable and shall survive the
death or legal incapacity of the grantor;
(ii) may be exercised by the General Partner
or any officer or director of the General Partner for
each Limited Partner and Unit Holder or by listing all
the Limited Partners or Unit Holders executing any
instrument with a single signature of the General
I-62
<PAGE>
Partner or any officer or director thereof acting as
attorney(s)-in-fact for all of the Limited Partners or
Unit Holders, as the case may be; and
(iii) shall survive the delivery of any
assignment by the Limited Partner or Unit Holder of the
whole or any portion of the Limited Partner's or Unit
Holder's interest in the Partnership, except that where
the assignee thereof has been admitted to the
Partnership as a substituted Limited Partner, this Power
of Attorney shall survive the delivery of such
assignment for the sole purpose of enabling the General
Partner or any officer or director of the General
Partner to execute, acknowledge and file any instrument
necessary to effect such substitution.
12.04. Amendments.
In addition to any amendments otherwise authorized herein,
amendments may be made to this Agreement from time to time in either of
the following manners:
(a) By the General Partner, without the consent or
approval of any Limited Partner or Unit Holder, (i) to add to
the duties or obligations of the General Partner or surrender
any right or power granted to the General Partner herein;
(ii) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with law or with any
other provision herein or to make any other provisions with
respect to matters or questions arising under this Agreement
which will not be inconsistent with law or with the provisions
of this Agreement; (iii) to delete or add any provision of this
Agreement required to be so deleted or added by any federal
agency or such similar agency, which addition or deletion is
deemed by such agency to be for the benefit or protection of the
Limited Partners or Unit Holders; and (iv) to make any amendment
to this Agreement contemplated by Section 6.01(c)(xii);
provided, however, that no amendment shall be adopted pursuant
to this Section 12.04 unless the adoption thereof (1) is not
materially adverse to the interests of the Limited Partners or
Unit Holders; (2) is consistent with Sections 6.01 and 6.05 of
this Agreement; (3) subject to the provisions of Section 4.05,
does not affect the method of allocation of income and losses,
and gains and losses provided in Section IV of this Agreement
among the Unit Holders or between the Unit Holders and the
General Partner; and (4) does not affect the limited liability
of the Limited Partners or Unit Holders contemplated by Section
6.06 of this Agreement or the status of the Partnership as a
partnership for federal income tax purposes. The power of
attorney granted pursuant to Section 12.03 of this Agreement may
be used by the General Partner to execute on behalf of a Limited
Partner or Unit Holder any document evidencing or effecting an
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<PAGE>
amendment adopted in accordance with the terms of this Section
12.04.
(b) Any other amendment to this Agreement shall be
proposed in writing by the General Partner or by Limited
Partners (including the Assignor Limited Partner on behalf of
the Unit Holders) holding not less than 10% of the Interests
then outstanding. Following any such proposal, the General
Partner shall call a meeting in accordance with the provisions
of Sections 6.13 through 6.15, which notice shall include a
statement of the proposed amendment and a statement of the
General Partner's recommendation as to whether the proposed
amendment should be adopted. A proposed amendment under this
Section 12.04(b) shall become effective when it has received due
approval of a Majority in Interest of the Limited Partners
(including the Assignor Limited Partner acting on behalf of the
Unit Holders); provided, however, that any amendment pursuant to
this Section 12.04(b) affecting Sections 2.02, III, IV, V (other
than Section 5.04), VI (other than Sections 6.12, 6.13, 6.14 and
6.15, 10.03, 12.04(b) or 12.09 in any manner shall also require
the approval of the General Partner; provided further, that any
provision hereof which sets forth a requirement for voting which
is greater than a majority shall require the same voting
percentage as is set forth in such provision in order to approve
any amendment thereof. No amendment to this Agreement which
requires an amendment to the Certificate shall become effective
until such amendment to the Certificate is duly filed in
accordance with the Act.
12.05. No Waiver.
The failure of any Partner or Unit Holder to insist upon strict
performance of a covenant hereunder or of any obligation hereunder,
irrespective of the length of time for which such failure continues,
shall not be a waiver of such Partner's or Unit Holder's right to demand
strict compliance in the future. No consent or waiver, express or
implied, to or of any breach or default in the performance of any
obligation hereunder, shall constitute a consent or waiver to or of any
other breach or default in the performance of the same or any other
obligation hereunder.
12.06. Entire Agreement.
This Agreement constitutes the full and complete agreement of
the parties hereto with respect to the subject matter hereof.
12.07. Captions.
Titles or captions of Sections contained in this Agreement are
inserted only as a matter of convenience and for reference, and in no way
define, limit, extend or describe the scope of this Agreement or the
intent of any provision hereof.
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<PAGE>
12.08. Counterparts.
This Agreement may be executed in several counterparts, all of
which together shall for all purposes constitute one Agreement, binding
on all the Partners and Unit Holders notwithstanding that all the
Partners or Unit Holders have not signed the same counterpart.
12.09. Foreign Limited Partners or Unit Holders.
Notwithstanding any other provision of this Agreement to the
contrary, the General Partner is authorized to take any action necessary
to comply with any withholding requirements established under the Code,
or any successor provision thereto, with regard to (a) the sale of
United States real property interests, or (b) the distributions of cash
or property to any Partner or Unit Holder which is a foreign person as
defined in the Code and Regulations. Furthermore, the General Partner
may elect (i) to withhold a portion of the distributions made to Unit
Holders who are foreign persons and (ii) to apply the withholding
provisions with respect to any Person who fails to certify in accordance
with the applicable requirement. The General Partner is also authorized
to take any action necessary to comply with any other withholding
requirement with respect to any Unit Holder or Limited Partner as may be
in effect.
12.10. Applicable Law.
This Agreement and the rights and obligations of the parties
hereunder shall be governed by and interpreted, construed and enforced in
accordance with the laws of the State of Delaware.
12.11. Severability.
If any provisions of this Agreement or the application thereof
to any party or circumstances shall be determined by any court of
competent jurisdiction to be invalid or unenforceable to any extent, the
remainder of this Agreement or the application of such provision to such
Person or circumstance, other than those as to which it is so determined
to be invalid, shall be enforced to the fullest extent permitted by law.
In Witness Whereof, the parties hereto hereby execute this
Amended and Restated Agreement of Limited Partnership as of the day and
year first above written.
General Partner:
Shearson Regional Malls, Inc.
By: _________________________________
Its: _________________________________
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<PAGE>
Assignor Limited Partner:
Shearson Regional Malls Depositary Corp.
By: _________________________________
Its: _________________________________
I-66
<PAGE>
SCHEDULE A
General Partner
Name: Shearson Regional Malls, L.P.
Address: c/o Shearson Lehman Hutton Inc.
American Express Tower, 12th Floor
World Financial Center
New York, NY 10285
Attention: President
Capital Contribution: $1,000.00
Assignor Limited Partner
Name: Shearson Regional Malls Depository Corp.
Address: c/o Shearson Lehman Hutton Inc.
American Express Tower, 12th Floor
World Financial Center
New York, NY 10285
Attention: President
Capital Contribution: $1,000.00
Limited Partners
The attached computer generated list represents the
names and addresses of all limited partners of Shopco Regional Malls,
L.P.
ANNEX II
SELECTED HISTORICAL FINANCIAL DATA OF THE PARTNERSHIP
<TABLE>
<CAPTION>
Nine Months Ended
September 30, As of and for the Years Ended December 31,
----------------- ------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(In thousands except per unit data)
<S> <C> <C> <C> <C> <C> <C> <C>
Total Revenues . . . $ 4,747 $5,783 $ 7,516 $ 8,172 $ 13,022 $ 13,806 $ 13,985
Net Income (Loss) . . (1,530) 1,025 (2,584) (7,594) 1,008 (17,536) 693
Net Income (Loss) per Unit (21.55) 14.44 (36.41) (107.02) 9.88 (247.13) 9.77
Total Assets . . . . . 41,451 51,747 42,818 50,814 58,266 81,655 100,542
Long-Term Obligatory . 31,025 31,025 31,025 31,025 31,025 55,323 55,887
Total Cash Distributions
Declared per Unit . . 0.00 0.00 74.69 0.00 0.00 15.00 0.00
</TABLE>
ANNEX III
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Balance Sheet as of
September 30, 1999 and the Unaudited Pro Forma Statement of Changes in Net
Assets Available for Liquidation as of the same date are presented as if the
Partnership's sale of Cranberry Mall and the Partnership is liquidated on
September 30, 1999. This unaudited pro forma condensed financial data should
be read in conjunction with the audited financial statements for the fiscal
year ended December 31, 1998 included in the Annual Report on Form 10-K
attached to this Statement and the unaudited September 30, 1999 condensed
financial statement included in the September 30, 1999 Form 10-Q attached to
this Statement.
Shopco Regional Malls, L.P.
Unaudited Pro Forma Condensed Balance Sheet
September 30, 1999
<TABLE>
<CAPTION>
Pro Forma
Historical<F1> Pro Forma Pro Forma Balance Sheet at
Balance Sheet at Adjustments Liquidation September 30,
September 30, 1999 to effect the sale Adjustments 1999
------------------ ------------------ ------------ -----------------
<S> <C> <C> <C> <C>
Assets
Real estate held for disposition $33,150,000 $(33,150,000)<F2> $ -- $ --
Cash 7,081,982 1,415,000 <F2> 136,641 <F3> 8,918,613
284,990 <F3>
Other 1,219,117 -- (1,219,117)<F3> --
----------- ------------ ----------- ----------
Total Assets $41,451,099 $(31,735,000) $ (797,486) $8,918,613
=========== ============ =========== ==========
Liabilities, minority interest,
and partners' capital (deficit)
Mortgage note payable $31,025,000 $(31,025,000)<F2> $ -- $ --
Other 934,127 -- (934,127)<F3> --
348,000 <F4> 348,000
----------- ------------ ----------- ----------
Total Liabilities 31,959,127 (31,025,000)<F2> (586,127) 348,000
Minority Interest (105,585) -- 105,585 <F3> --
Partners' Capital (Deficit):
General Partner (85,483) (7,100)<F2> 136,641 <F3> --
(44,058)<F4>
Limited Partners 9,683,040 (702,900)<F2> (409,527)<F3,4> 8,570,613
----------- ------------ ----------- ----------
Total Partners' Capital 9,597,557 (710,000) (316,944) 8,570,613
----------- ------------ ----------- ----------
Total Liabilities, Minority
Interest, and Partners'
Capital $41,451,099 $(31,735,000) $ (797,486) $8,918,613
=========== ============ =========== ==========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed
Financial Information.
Unaudited Pro Forma Condensed Statement of Changes in Net Assets
Available for Liquidation
September 30, 1999
<TABLE>
<CAPTION>
<S> <C>
Gross sales price $ 33,500,000 <F2>
Less estimated sales costs 1,060,000 <F2>
------------
Estimated net sales proceeds 32,440,000 <F2>
------------
Repayment of the mortgage note payable (31,025,000)
------------
Estimated net proceeds after mortgage payment 1,415,000
Cash available at September 30, 1999 7,081,982 <F1>
Reserves for unanticipated costs related to liquidation (348,000)<F4>
General Partner deficit restoration 136,641 <F3>
Liquidation of balance sheet accounts 284,990 <F3>
------------
Total Cash Available for Distributions $ 8,570,613
============
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
Notes to Unaudited Pro Forma Condensed Financial Information
<FN>
<F1> The pro forma balance sheet was prepared by taking the historical
September 30, 1999 balance sheet reflected in the Partnership's
September 30, 1999 Form 10-Q and making adjustments for the Sale and
estimated partnership liquidation costs as if these transactions were
as of September 30, 1999.
<F2> To record the sale of the Cranberry Mall reflecting the repayment of the
mortgage note payable, the receipt of net proceeds and the allocation of
the loss to the General Partner and Limited Partners as follows:
<PAGE>
<S> <C>
Gross sales price $33,500,000
Estimated selling costs 1,060,000
-----------
Estimated net sales proceeds 32,440,000
Investment in real estate 33,150,000
-----------
Loss on Sale $ (710,000)
===========
Allocated as follows:
General Partner (7,100)
Limited Partner unit holders (702,900)
-----------
Loss on Sale $ (710,000)
===========
<F3> The net adjustment represents the liquidation of the September 30, 1999
assets, liabilities, minority interest and receipt of the General
Partner's deficit restoration payment.
<F4> The amount represents reserves for expenses related to the dissolution
and liquidation of the Partnership that the General Partner reasonably
deems necessary. These costs include legal, transfer agent fees, other
professional fees, reimbursed costs and miscellaneous expenses.
</TABLE>
