SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended December 31, 1999
Commission file number: 1-12216
CROWN AMERICAN REALTY TRUST
(Exact name of registrant as specified in its charter)
Maryland 25-1713733
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Pasquerilla Plaza
Johnstown, Pennsylvania 15901 (814) 536-4441
(Address of principal executive offices) (Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Common Shares of Beneficial Interest, par value $.01 per share
11.00% Senior Preferred Shares, par value $.01 per share ($50.00 Liquidation
Preference)
(Title of Class)
New York Stock Exchange
(Name of Exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
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 and (2) has been subject to such
filing requirements for at least the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
As of February 18, 2000, 26,207,919 Common Shares of Beneficial
Interest and 2,500,000 11.00% Senior Preferred Shares of the registrant
were issued and outstanding. The registrant estimates that as of
February 18, 2000 the aggregate market value of the voting common shares held
by non-affiliates of the registrant was approximately $128.6 million based on
the closing price on the New York Stock Exchange for such stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the registrant's Annual Meeting
of Shareholders to be held on April 26, 2000, are incorporated by reference into
Part III of this Form 10-K.
Exhibit Index on pages 52 to 53
TABLE OF CONTENTS
Item No. Page No.
PART I
1. Business 1
2. Properties 7
3. Legal Proceedings 12
4. Submission of Matters to a Vote of Security Holders 14
Executive Officers of the Company 14
PART II
5. Market for Registrant's Common Shares of Beneficial
Interest and Related Shareholder Matters 15
6. Selected Financial Data 15
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
7(a).Quantitative and Qualitative Disclosures
about Market Risk 28
8. Financial Statements and Supplementary Data 29
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 51
PART III
10. Directors and Executive Officers of the Registrant 51
11. Executive Compensation 51
12. Security Ownership of Certain Beneficial Owners and
Management 51
13. Certain Relationships and Related Transactions 51
PART IV
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 51
Signatures 54
PART I
Item 1. Business.
(a) General Development of Business
Crown American Realty Trust (the "Company") was formed on May 14, 1993
as a Maryland real estate investment trust (a "REIT") to acquire and operate
substantially all of the enclosed shopping mall properties and two office
buildings (the "Properties") owned by Crown American Associates ("CAA" or "Crown
Associates"), formerly Crown American Corporation. Crown Associates is a wholly-
owned subsidiary of Crown Holding Company, which is controlled by Mark E.
Pasquerilla, Chairman of the Board of Trustees and Chief Executive Officer of
the Company.
On August 17, 1993, the Company consummated simultaneously the
acquisition of the Properties and an initial public offering (the "IPO") of
24,540,000 of its common shares of beneficial interest (the "Shares"). Eleven
Properties were acquired by Crown American Properties, L.P., a Delaware limited
partnership (the "Operating Partnership") which is controlled by the Company as
the sole general partner. Fifteen Properties were acquired by Crown American
Financing Partnership, a Delaware general partnership (the "Financing
Partnership") in which the Operating Partnership owns a 99.5% general
partnership interest and in which the Company, through Crown American Financing
Corporation, a wholly-owned corporate subsidiary of the Company, owns a 0.5%
general partnership interest. The net proceeds of the IPO were contributed by
the Company to the Operating Partnership in exchange for the general partnership
interest in the Operating Partnership. The Operating Partnership contributed a
portion of the net proceeds from the IPO to the Financing Partnership in
exchange for the 99.5% general partnership interest in the Financing
Partnership. On September 15, 1993, the Company sold an additional 978,500
Shares as a result of the underwriters of the IPO exercising the over-allotment
option granted to them in connection with the IPO.
The consideration paid by the Company and the Partnerships for the
Properties consisted of: (i) the issuance to CAA of 1,450,000 Shares (having a
value of approximately $25.0 million, based on the initial public offering
price), and a 22% limited partnership interest in the Operating Partnership,
held by Crown Investments Trust ("CIT" or "Crown Investments"), an affiliate of
CAA and the Initial Limited Partner of the Operating Partnership, (having a
value of approximately $132 million based on the initial public offering price
and the fact that each partnership unit is initially equivalent to one Share)
and (ii) the issuance to Pasquerilla Partnership (a partnership then comprised
of Frank J. Pasquerilla, and members of his immediate family) of 150,000 Shares
(having a value of approximately $2.6 million based on the initial public
offering price). In addition, with the proceeds of the IPO, the Company paid
off certain of the debt on the Properties, of which approximately $37 million
was cross-collateralized debt that encumbered certain of the Properties as well
as certain of the assets retained by CAA, and of which another approximately $67
million was construction debt that was recourse to CAA. Also, by virtue of
acquiring certain of the Properties, which were subject to recourse construction
loans, the Operating Partnership assumed sole responsibility for $98 million of
recourse debt. In addition to the transactions described above, all of the
executive, property and asset management, leasing, construction, financial,
legal services, development and administrative personnel of CAA relating to its
regional mall and shopping center business became employees of the Operating
Partnership.
At the time of the IPO, the Company held an initial 78.00% partnership
interest in the Operating Partnership and Crown Investments held the remaining
22.00% interest. Subsequently, the ownership interests have changed due to (i)
Company shares issued for cash, issued under the Company's option plans, and
issued under the dividend reinvestment plan (proceeds then reinvested by the
Company in the Operating Partnership in exchange for an equivalent number of
additional common Partnership Units), (ii) additional Partnership Units issued
as partial consideration for the purchase of Wyoming Valley and Middletown Malls
and Greater Lewistown Plaza in 1998, (iii) issuance of preferred Partnership
Units in exchange for cash contributed by the Company to the Operating
Partnership in connection with the Company's 1997 offering of senior preferred
shares, and (iv) redemption of common Partnership Units in connection with the
Company's repurchase in the open market of its common shares. While the
Company, as general partner, has broad rights and authority to conduct the
business, the Operating Partnership agreement provides that the consent of Crown
Investments is required for certain actions, including among others, merger,
consolidation, dissolution, liquidation, or sale of all or substantially all of
the assets of the Operating Partnership.
The number of common and preferred Partnership Units outstanding at
December 31, 1999 were as follows:
Held by Common Units Preferred Units
Number % Number %
Crown American Realty Trust 26,207,919 72.47% 2,500,000 100.00%
Crown Investments Trust and
its subsidiary, Crown
American Investment Company 9,956,398 27.53% - -
Totals 36,164,317 100.00% 2,500,000 100.00%
(b) Financial Information About Industry Segments
.
The Company is primarily engaged in the business of owning, operating,
managing, leasing, acquiring, developing, redeveloping, expanding, renovating
and financing enclosed shopping malls and, therefore, only operates in one
segment. See the Consolidated Financial Statements and Notes thereto referred
to in Item 8 of this Annual Report on Form 10-K for certain financial
information required by Item 1.
(c) Narrative Description of Business
General
The Company conducts all of its business activities through the
Operating Partnership, the Financing Partnership and other subsidiary
partnerships or limited liability corporations (collectively the
"Partnerships"). Through its ownership interests in the Partnerships, as of
December 31, 1999 the Company owns: (i) 26 wholly-owned enclosed shopping
malls, a 50% partnership interest in Palmer Park Mall (an enclosed shopping
mall), and one wholly-owned non-enclosed strip shopping center (Greater
Lewistown Plaza) (collectively, the "Malls"), (ii) an office building in
Johnstown, Pennsylvania with approximately 102,500 gross leasable square feet,
which serves as the headquarters of the Company and also is leased to CAA's
hotel division, to an affiliated company and to unrelated third parties
("Pasquerilla Plaza"), (iii) a ground leasehold interest in a parcel of land
with an approximate 107,000 square foot building sub-leased to an anchor
department store at Westgate Mall, a mall owned by an unaffiliated third party
(the "Anchor Pad"), and (iv) approximately 72 acres of outparcels and
undeveloped land, the majority of which adjoins or is in the vicinity of certain
of the Malls (hereinafter all such real estate assets to be referred to as the
"Properties"). The Operating Partnership manages the 26 wholly-owned Malls, the
non-enclosed strip shopping center, and Pasquerilla Plaza (the "Managed
Properties"); the Anchor Pad and Palmer Park Mall are managed by non-affiliated
third party property managers.
The Company is self-administered and self-managed. The Company,
together with the Partnerships, is a fully-integrated real estate company
engaged in the ownership, operation, management, leasing, acquisition,
development, redevelopment, expansion, renovation and financing of enclosed and
non-enclosed shopping malls.
The Company's executive offices are located at Pasquerilla Plaza,
Johnstown, Pennsylvania 15901. Its telephone number is (814) 536-4441, and its
Internet web-site is www.crownam.com.
Operating Strategies and Practices
General. The Company's management believes that the shopping center
business has evolved from primarily a development activity to an operating
business. The Company's management believes that a shopping center company must
be a fully integrated real estate company with asset management, property
management, leasing, expansion and renovation, acquisition, development and
redevelopment, and financing expertise.
Mall Management. The Operating Partnership performs all day-to-day
property management functions for the Managed Properties. These functions
include leasing, construction, management, accounting, finance, data processing,
maintenance, marketing, promotion and security. The Company typically provides
each Managed Property with a general manager, who oversees the on-site staff,
and a marketing director. In addition, each Managed Property is further
supported by regional group managers and multi-property operations, marketing
and support personnel.
Marketing Support. The Company has a Vice President of Marketing and
a corporate marketing director who, in conjunction with Managed Property
marketing directors, develop customized marketing plans for each Managed
Property, including special events, direct mail and television, radio and
newspaper advertising.
Cost Controls. Management has developed a centralized program for
purchasing selected supply items, which permits all Managed Properties to share
in bulk purchase discounts. Management believes that effective control of
operating expenses will reduce common area charges which may enable the Company
to increase base rent levels.
To preserve and increase the value of the Managed Properties over the
long term, the Company has a program of preventive maintenance, renovations and
expansion plans. The maintenance plans encompass paving, roofing, HVAC and
general improvements to the Managed Property common areas.
Business Objectives and Policies
The Company's business objective is to achieve long-term capital
appreciation through increases in cash flow and the value of the Company. The
Company seeks to accomplish this objective through its direct and indirect
ownership of the Properties, selective acquisitions of additional malls or other
real estate properties in the United States, improved operations of the
Properties, lease-up of unleased space and any acquired shopping centers and,
where deemed appropriate, renovations and expansions of these properties. The
Company intends to pursue development activities as opportunities arise. A
criterion for new investments will be that they offer the opportunity for growth
in Funds from Operations. As used herein, "Funds from Operations" means net
income before minority interest, extraordinary items and non-recurring items,
real estate depreciation and amortization, and additionally includes gain on
sale of outparcel land sales and cash flow support earned from Crown Investments
(See Note 8 to the Consolidated Financial Statements). The Company anticipates
that new real estate investments will be located primarily in the Eastern United
States, but it may also consider purchasing properties in other regions of the
United States. All of the Company's activities will be conducted through the
Partnerships, although the Company may hold temporary cash investments from time
to time pending investment or distribution to shareholders.
The Company may purchase or lease properties for long-term investment,
expand and improve the Properties presently owned, or sell such Properties, in
whole or in part, when circumstances warrant. The Company may also participate
with other entities in property ownership, through joint ventures or other types
of co-ownership. The Company expects that any single investment in a property
would not exceed 10% of the Company's assets. The Company's policy is to
acquire assets primarily for income and long-term appreciation in value through
the implementation of the Company's asset management and operating strategies.
Disposition Objectives and Policies
The Company will dispose of any of the Properties, if, based upon
management's periodic review of the Company's portfolio, the Board of Trustees
determines that such action would be in the best interests of the Company.
While none of the Properties are under a definitive sale agreement at this time,
the Company is currently exploring dispositions of a few properties in order to
recycle capital for future investment opportunities or to enhance cash flows and
liquidity. No properties are classified as held for sale at December 31, 1999.
It is possible that the net sales proceeds for some properties, if sold in the
future, could be lower than their current net book value, which would result in
a loss upon possible future sale.
Financing
The Company maintains working capital and lines of credit that,
together with potential access to borrowings and other sources of funds, it
believes is adequate for the current conduct of its business and investments in
the ordinary course. The principal financing activities of the Company during
1999 included: (i) additional borrowings of $29.2 million under its modified
line of credit facility, much of which was used to fund construction and tenant
allowance costs for the Valley Mall expansion project, (ii) $12.7 million in
borrowings under its construction loan for Washington Crown Center, (iii) $5.2
million in debt amortization and debt issuance costs, (iv) $43.2 million paid in
common and preferred dividends, and (v) $3.0 million received in Cash Flow
Support (see Note 8 to the Consolidated Financial Statements). As further
described in Note 5 to the Consolidated Financial Statements, in September 1999
the Company completed an extension to November 2001 and certain modifications to
its existing secured line of credit facility with General Electric Capital
Corporation. Prior to the modifications, the line of credit consisted of a $50
million general line, of which $49.2 million was outstanding, and a $100 million
acquisition line of which $27.1 million was outstanding related to the 1998
acquisition of Jacksonville Mall. The modified credit facility combines the
prior two lines into a single line of credit with a $150 million maximum
commitment level, and an initial $109 million availability, of which $20 million
is reserved for the Valley Mall expansion project. The availability under the
line can be increased up the maximum amount upon achieving certain financial and
debt service ratio tests that depend on the future operating performance of the
five malls that secure the line and future interest rates. Interest under the
modified line is based on LIBOR plus 2.95%.
If the Board of Trustees determines that additional funding is
required, the Company or the Partnerships may raise such funds through a variety
of options including additional infusions of equity (public or private and at
the Company or the Partnership level), debt financing or retention of additional
cash flow by reducing the dividend amount per share (subject to considerations
regarding the taxability of undistributed real estate investment trust income),
or a combination of these methods. Given the Company's current level of
indebtedness, and given the uncertainties concerning future equity and debt
capital markets and interest rates, there is no assurance that the Company will
be able to secure such future infusions of equity and/or debt financing when
needed, or at rates or terms that will permit the Company to use the proceeds
raised to increase earnings or Funds from Operations. In August 1995 the
Company reduced its quarterly dividend from $.35 per share to $.20 per share in
order to reinvest more internally-generated funds in various property
expansions, improvements, and related investments. It is anticipated that any
additional borrowings will be made through the Partnerships either directly or
indirectly; however, the Company may also incur indebtedness, the proceeds from
which may be re-loaned to the Partnerships. Indebtedness incurred by the
Company may be in the form of bank borrowings, secured and unsecured, and
publicly and privately placed debt. Indebtedness incurred by the Partnerships
may be in the form of purchase money obligations to the sellers of properties,
publicly or privately placed debt, financing from banks, institutional investors
or other lenders, any of which indebtedness may be unsecured or may be secured
by mortgages or other interests in the property owned by the Partnerships. Such
indebtedness may be recourse to all or any part of the Properties to be owned by
the Partnerships, may be limited to the particular property to which the
indebtedness relates, and may be guaranteed by the Company.
Strategy for Growth
The Company was formed to provide a public vehicle for the further
growth of CAA's enclosed shopping mall business. It is the objective of the
Company's management to achieve growth in Funds from Operations by maximizing
cash flow from existing Properties through increased occupancy and increased
rent, expanding and/or renovating existing Properties, acquiring and, to a
lesser extent, developing new enclosed and non-enclosed shopping malls, and by
selling properties that are not consistent with or essential to the Company's
long-term growth strategies.
The Company follows a program of renovation and expansion in
circumstances where management believes that higher rental rates and occupancy
levels can be achieved. The Company intends to continue to monitor
opportunities for expansion and reconfiguration and to capitalize on such
opportunities in part through utilizing its relationships with existing tenants
and its extensive contacts with the retailing community. The Company intends to
undertake development activities as opportunities arise. The Company's primary
acquisition strategy is to purchase under-performing shopping centers in
desirable areas and to improve their performance through a comprehensive program
of renovation, expansion, reconfiguration, and re-merchandising. The Company
may acquire shopping centers in different regional markets to facilitate
geographic diversification of its real estate holdings. The acquisition of
larger properties, or a group of properties, may be undertaken with an
institutional or joint venture partner.
Because the Company's revenues are subject to a variety of factors,
many of which (such as local and national economic conditions, interest rates
and the financial performance of the Company's tenants) are beyond the Company's
control, there can be no assurance that the Company's management, leasing and
acquisition strategies will achieve the Company's growth objectives.
Competitive Position
The Malls are generally located in middle markets where there are
relatively few other enclosed malls, making most of them the dominant enclosed
mall in their respective trade areas; 23 Malls are the largest enclosed malls in
their trade areas, of which 13 are the only enclosed mall in their trade areas.
Seventeen Malls are located in the state of Pennsylvania and one is
located in New Jersey near the Pennsylvania border. Two of the Malls are
located in Virginia, two in Maryland, two in West Virginia, two in eastern
Tennessee, one in eastern North Carolina, and one in northwestern Georgia.
CAA had continually expanded and renovated its Malls to maintain their
competitive position. 23 of the Malls have had at least one expansion or
renovation since they were completed, and 18 of the Malls have been expanded
more than once. Approximately 1.9 million square feet of remaining expansion
capacity is available and can be used to maintain and enhance the quality of the
Malls and their competitive position in their trade areas.
Although management believes the Malls can compete effectively within
their trade areas, the Company must also compete with other owners, managers and
developers of retail shopping centers and malls. Many of its competitors may be
at an advantage to the extent they can utilize working capital and retained
earnings to finance projects while the Company is required to satisfy the REIT
qualification requirements under the Internal Revenue Code of 1986 (the "Code"),
which include a requirement to distribute specified amounts of its annual
taxable income, as defined in the Code (See Income Taxes section following for
additional information). In addition, retailers at the Malls face increasing
competition from discount shopping centers, outlet malls, shopping clubs, direct
mail, telemarketing, internet shopping, and home shopping television networks.
Employees
At the time of the initial public offering, all of the executive,
property and asset management, leasing, construction, financial, legal services,
development and administrative personnel of CAA relating to its regional mall
and shopping center business became employees of the Operating Partnership. As
of December 31, 1999, the Operating Partnership has approximately 499 full-time
employees in the following operational areas:
Number of
Employees
Asset and property management (including on-site) 398
Leasing and lease administration 22
Development and construction services 12
Financial, accounting, MIS and legal services 46
Executive management and corporate administration 21
Total 499
None of the Operating Partnership's employees are currently
represented by any union. The Company, the Financing Partnership and other
partnerships do not have any paid employees, but officers of the Operating
Partnership are also officers of the Company and the other partnerships. The
Company's management considers its relations with the employees of the Operating
Partnership to be satisfactory.
Business Issues
As the owner of real estate, the Company is subject to risks arising
in connection with the underlying real estate, including defaults under or
non-renewal of tenant leases, bankruptcy of tenants, competition, inability to
rent unleased space, failure to generate sufficient income to meet operating
expenses, as well as debt service, capital expenditures and tenant improvements,
environmental matters, financing availability and changes in real estate and
zoning laws. The success of the Company also depends upon certain key
personnel, the Company's ability to maintain its qualification as a REIT,
compliance with the terms and conditions of the Mortgage Loans and other
indebtedness, and trends in the national and local economy, including interest
rates, income tax laws, governmental regulations and legislation and population
trends.
Income Taxes
The Company elected to be taxed as a Real Estate Investment Trust
(REIT) under Sections 856 through 860 of the Code, commencing with its first
taxable year ended December 31, 1993, and intends to conduct its operations so
as to continue to qualify as a REIT under the Code. As a REIT, the Company
generally will not be subject to Federal and state income taxes on its net
taxable income that it currently distributes to shareholders. Qualification
and taxation as a REIT depends on the Company's ability to meet certain dividend
distribution tests, share ownership requirements and various qualification tests
prescribed in the Code.
If the Company fails to qualify as a REIT in any taxable year, the
Company will be subject to Federal and state income taxes (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Even if the Company qualifies for taxation as a REIT, the Company may be
subject to certain state and local taxes on its income and property and to
Federal income and excise taxes on its undistributed income.
Environmental Matters
The Company believes that the Properties are in compliance in all
material respects with all federal, state and local ordinances and regulations
regarding hazardous or toxic substances. The Company is not aware of any
environmental condition which the Company believes would have a material adverse
effect on the Company's business, assets or results of operations (before
consideration of any potential insurance coverage). Nevertheless, it is possible
that there are material environmental liabilities of which the Company is
unaware. Moreover, no assurances can be given that (i) future laws, ordinances
or regulations will not impose any material environmental liability or (ii) the
current environmental condition of the Properties have not been or will not be
affected by tenants and occupants of the Properties, by the condition of
properties in the vicinity of the Properties or by third parties unrelated to
the Company.
Many of the Malls contain, or at one time contained, underground
and/or above ground storage tanks used to store waste oils or other petroleum
products primarily related to the operation of auto service center
establishments at such Malls, and one Mall was constructed on a site a portion
of which had been previously used as a municipal landfill. In some cases,
underground storage tanks have been abandoned in place, filled in with inert
materials or removed and replaced with above ground tanks. Historical records
indicate that soil and groundwater contamination from underground tanks and, in
one case, a hydraulic lift, requiring remediation has occurred at five of the
Properties, and subsurface investigations (Phase II assessments) and remediation
work are either ongoing or scheduled to be conducted by the Company at such
Properties. The costs of remediation with respect to such matters have not been
and are not expected to be material.
There are also minor amounts of asbestos-containing materials ("ACM")
in most of the Properties, primarily in the form of floor tiles, mastics and
roofing materials, which are generally in good condition. Fireproofing and
insulation containing asbestos is also present in certain Properties in
non-public areas, such as mechanical rooms. The Company believes that the
presence of these ACM does not violate current law. In addition, the Company
has an ongoing program of reviewing spaces that have been vacated by tenants and
occupants of the Properties for the presence of ACM, and removing any ACM
discovered in such spaces before reletting the same to new tenants or occupants.
Two Malls also contain waste water treatment facilities which treat
waste water at the Malls before discharge into local streams. Operation of such
facilities is subject to federal and state regulation. All necessary permits
have been obtained and the Company's management believes such facilities are in
compliance with current law.
Item 2. Properties.
(a) The Malls
Through its ownership interests in the Partnerships, the Company owns
the Malls, which consist of 26 wholly-owned enclosed shopping malls, a 50%
partnership interest in Palmer Park Mall (an enclosed shopping mall), and one
wholly-owned non-enclosed strip shopping center. All of the Malls have
department stores, theaters, and other large space users as anchor tenants (the
"Anchors"), as described in the table on the following pages. All of the Malls
have numerous diversified retail stores, and in some instances a few office or
non-retail tenants (the "Mall Stores"), which are located along enclosed malls
connecting the Anchors. Additional freestanding retail stores and ground lease
properties (the "Freestanding Stores") are located along the perimeter of the
parking areas at 18 of the Malls. Unless otherwise indicated, the information
provided in this Item 2 is stated as of December 31, 1999.
The Company, through the Partnerships, owns all of the properties in
fee, except Palmer Park Mall, Shenango Valley Mall, Uniontown Mall, Crossroads
Mall (owned partially in fee and partially under ground lease) and Greater
Lewistown Plaza. Palmer Park Mall Venture, in which the Company has a 50%
general partnership interest, holds title in fee to Palmer Park Mall. Shenango
Valley Mall, Uniontown Mall, Crossroads Mall and Greater Lewistown Plaza are
subject to third-party ground leases.
The total gross leasable area ("GLA") of the Malls is approximately
16.4 million square feet, including Anchors, Mall Stores and Freestanding
Stores. As used herein, GLA of a Mall includes the GLA attributable to all
Anchors, including eleven anchor locations owned by their occupants or other
entities. Anchors, Mall Stores and Freestanding Stores account for
approximately 60%, 35% and 5%, respectively, of the total GLA of the Malls.
Excluding Freestanding Stores, the enclosed Malls range in size from
approximately 300,000 to 840,000 square feet of GLA with an average size of
approximately 572,000 square feet of GLA. Each Mall has ample surface parking
with 21 of the Malls having parking ratios above 5.0 per 1,000 square feet of
GLA.
At December 31, 1999, 99% of the Company-owned anchor GLA was leased
and occupied, and all eleven non-owned anchor stores were occupied. Two multi-
screen theaters are under construction and are scheduled to open in May 2000.
These two theaters are the Hollywood Theater at Washington Crown Center and R/C
Theaters at Valley Mall. Vacant non-revenue generating anchor premises at
December 31, 1999 consist of a former Proffitt's store at Oak Ridge Mall which
closed in 1999 and a former J.C. Penney store at Carlisle Mall which closed in
1998. Vacant but rent-paying anchor premises include Upton's at Patrick Henry
Mall and the Weis Market at South Mall. (See Notes 5 and 13 following the table
on page 11.)
The Company is in discussions with department store chains and other
tenants as replacements for the vacant anchor store locations. Mall Store GLA
was 84% leased at December 31, 1999, and freestanding space was 75% occupied at
December 31, 1999. All references herein to occupancy rates and to leased space
for mall shop tenants include signed leases with tenants that have not yet taken
occupancy.
There are several types of retail shopping centers, varying primarily
by size and marketing strategy. Retail shopping centers of 100,000 square feet
to 400,000 square feet of GLA are considered "community" shopping centers, and
those in excess of 400,000 square feet of GLA are considered "regional" shopping
centers, and those having in excess of 800,000 square feet of GLA are considered
"super-regional" shopping centers. Twenty-six of the Malls are considered
regional shopping centers and two are community shopping centers.
The Malls generally are located in middle markets where there are
relatively few other enclosed shopping malls. The Company's management believes
that the Malls have strong competitive positions because 23 are the largest, of
which 13 are the only, enclosed regional shopping malls in their respective
trade areas. No one Mall accounted for more than 5.6% of the total GLA of the
Malls or 7.0% of total revenues for the year ended December 31, 1999.
A substantial portion of the income from the Malls consists of rent
received under long-term leases. Generally, the leases provide for tenants to
pay rent comprised of two elements. The first element is fixed base rent, which
typically increases according to a schedule agreed upon at the time of lease
inception. The second element is percentage rent, which is based on a
percentage of gross sales in excess of a specified minimum annual amount. In
some cases tenants only pay fixed base rent or only pay percentage rent.
Virtually all of the leases for Mall Stores contain provisions
allowing the Company to recover certain costs for common area maintenance,
property taxes and other expenditures related to the day-to-day operations of
the Malls. In addition, most of the Mall Store leases include provisions that
allow the Company to recover costs associated with roof and parking lot repairs
and other capital expenditures. Most Anchors also contribute to certain of
these costs.
Unless otherwise noted, the following table sets forth certain
information regarding the Malls as of December 31, 1999:
% of GLA
Leased Lease
as of or
December 31, Easement
Property/Location (1) Square Feet of GLA(1) 1999 (2) Anchors Expiration
Pennsylvania
Capital City Mall Mall 237,161 96.2% Sears 2000
Harrisburg, PA Anchor 324,462 100.0% Hecht's (3) 2093
Freestanding 46,158 100.0% J.C. Penney 2010
Total GLA 607,781 98.5%
Carlisle Plaza Mall Mall 143,735 61.6% Vacant (4) -
Carlisle, PA Anchor 154,335 74.8% Bon-Ton 2005
Freestanding 44,660 87.9% Albion
Total GLA 342,730 71.0% Antiques (4) -
Chambersburg Mall Mall 211,134 91.3% Sears 2010
Chambersburg, PA Anchor 240,948 100.0% J.C. Penney 2012
Total GLA 452,082 96.8% Value City 2007
Bon-Ton 2005
Greater Lewistown Anchor 94,284 100.0% Weis Market 2011
Lewistown, PA Freestanding 77,423 100.0% J.C. Penney 2004
Total GLA 171,707 100.0%
Logan Valley Mall Mall 329,611 91.6% Kaufmann's 2005
Altoona, PA Anchor 453,643 100.0% Sears 2016
Total GLA 783,254 96.5% J.C. Penney 2017
Lycoming Mall Mall 314,825 85.7% Sears 2008
Williamsport, PA Anchor 453,936 100.0% J.C. Penney 2005
Freestanding 25,857 100.0% Bon-Ton 2006
Total GLA 794,618 94.3% Kaufmann's (3)2093
Value City 2008
Nittany Mall Mall 214,245 85.9% Sears 2005
State College, PA Anchor 317,316 100.0% J.C. Penney 2005
Freestanding 3,568 100.0% Kaufmann's (3)2097
Total GLA 535,129 94.4% Bon-Ton 2003
North Hanover Mall Mall 131,503 92.5% Sears 2004
Hanover, PA Anchor 286,596 100.0% J.C. Penney 2001
Freestanding 28,914 23.7% Bon-Ton 2001
Total GLA 447,013 92.9% Black Rose
Antiques (7) -
Palmer Park Mall Mall 144,307 77.2% Bon-Ton 2014
Easton, PA Anchor 312,110 100.0% Boscov's 2018
Freestanding 684 100.0%
Total GLA 457,101 92.8%
Schuylkill Mall Mall 275,905 71.2% Sears 2005
Frackville, PA Anchor 375,583 100.0% Kmart 2005
Freestanding 78,096 53.0% Bon-Ton (10) 2032
Total GLA 729,584 84.1% Phar-Mor 2006
U.S. Factory
Outlets 2009
Shenango Valley Mall Mall 106,117 71.3% Sears 2000
Sharon, PA Anchor 385,276 100.0% J.C. Penney 2004
Freestanding 21,416 0.0% Kaufmann's 2001
Total GLA 512,809 89.9%
South Mall Mall 151,482 97.6% Bon-Ton 2005
Allentown, PA Anchor 229,985 100.0% Stein Mart 2006
Freestanding 24,920 100.0% Phar-Mor 2006
Total GLA 406,387 99.1% Weis Market
(13) 1999
Uniontown Mall Mall 239,734 88.5% Sears 2003
Uniontown, PA Anchor 411,381 100.0% J.C. Penney 2005
Freestanding 45,978 100.0% Bon-Ton 2006
Total GLA 697,093 96.0% Value City 2002
Teletech 2005
Freight
Liquidators 2005
Viewmont Mall Mall 207,749 99.9% Sears 2005
Scranton, PA Anchor 532,058 100.0% J.C. Penney 2000
Freestanding 31,029 99.1% Kaufmann's (3)2093
Total GLA 770,836 99.9%
Washington Crown
Center (6) Mall 225,371 60.1% Sears 2009
Washington, PA Anchor 441,286 100.0% Ames 2006
Freestanding 3,132 100.0% Bon-Ton 2010
Total GLA 669,789 86.6% Kaufmann's (3)2097
Hollywood
Theaters (6)2019
West Manchester Mall Mall 295,976 79.5% Value City 2011
York, PA Anchor 407,366 100.0% Bon-Ton 2001
Total GLA 703,342 91.4% Wal-Mart 2014
Hecht's (3) 2094
Wyoming Valley Mall Mall 238,907 94.6% Sears 2001
Wilkes-Barre, PA Anchor 585,676 100.0% J.C. Penney 2002
Freestanding 93,647 92.4% Bon-Ton 2002
Total GLA 918,230 97.8% Kaufmann's (8)2002
Kaufmann's (8)2002
Maryland
Francis Scott Key Mall Mall 268,684 94.2% Sears 2003
Frederick, MD Anchor 435,347 100.0% J.C. Penney 2001
Freestanding 2,417 100.0% Value City 2010
Total GLA 706,448 97.8% Hecht's (10) 2044
Valley Mall (11) Mall 254,430 90.3% J.C. Penney 2004
Hagerstown, MD Anchor 585,902 100.0% Bon-Ton 2014
Freestanding 48,762 100.0% Montgomery
Total GLA 889,094 97.2% Ward (10) 2044
Hecht's (3) 2099
R/C Theaters
(11) 2020
New Jersey
Phillipsburg Mall Mall 216,650 78.1% Bon-Ton 2010
Phillipsburg, NJ Anchor 306,541 100.0% J.C. Penney 2010
Freestanding 15,065 78.8% Kmart 2015
Total GLA 538,256 90.5% Sears 2004
North Carolina
Jacksonville Mall Mall 171,258 96.4% Belk-Rhodes 2011
Jacksonville, NC Anchor 243,659 100.0% J.C. Penney 2004
Total GLA 414,917 98.5% Sears 2011
Virginia
New River Valley Mall Mall 182,880 85.8% Sears 2008
Christiansburg, VA Anchor 240,753 100.0% J.C. Penney 2008
Total GLA 423,633 93.9% Belk-Rhodes 2008
Peebles 2009
Patrick Henry Mall Mall 236,276 94.3% Upton's (5) 2007
Newport News, VA Anchor 407,644 100.0% Dillards (9) 2008
Total GLA 643,920 97.9% Hecht's (3) 2099
Dillards (9) 2013
Georgia
Mount Berry Square Mall 208,789 74.0% Sears 2011
Rome, GA Anchor 269,868 100.0% J.C. Penney 2006
Total GLA 478,657 88.7% Proffitt's 2012
Belk-Rhodes 2011
Tennessee
Bradley Square Mall 144,505 67.9% Sears 2005
Cleveland, TN Anchor 258,684 100.0% J.C. Penney 2006
Total GLA 403,189 88.5% Proffitt's 2006
Kmart 2012
Oak Ridge Mall Mall 269,261 38.4% Sears 2005
Oak Ridge, TN Anchor 368,272 86.4% J.C. Penney 2007
Freestanding 236,671 52.5% Wal-Mart 2008
Total GLA 874,204 62.5% Proffitt's 2013
Vacant (14) -
West Virginia
Crossroads Mall Mall 193,500 81.6% Belk-Rhodes 2008
Beckley, WV Anchor 256,248 100.0% J.C. Penney 2001
Total GLA 449,748 92.1% Sears 2001
Martinsburg Mall Mall 165,139 78.3% Sears 2011
Martinsburg, WV Anchor 391,270 100.0% Wal-Mart 2011
Total GLA 556,409 93.6% J.C. Penney 2011
Bon-Ton 2012
Totals for all Mall Stores 5,779,134 84.2%
Malls Anchor 9,770,429
(12) 99.1%
Freestanding 828,397 74.7%
Total GLA 16,377,960 92.6%
(1) Location is the major city or town nearest to the property, and is not
necessarily the local jurisdiction in which the property is located. GLA
includes the total square footage of the Anchors, Mall Stores and
Freestanding Stores.
(2) Occupancy includes both tenants in occupancy and tenants that have signed
leases but have not yet taken occupancy as of December 31, 1999.
(3) Tenant currently holds a long-term ground lease with nominal purchase
option. These locations are deemed owned by their anchor occupants as they
only pay a nominal rent.
(4) Albion Antiques is the name given to the former Kmart anchor space now
substantially leased on a month-to-month basis to approximately 120 antique
dealers. Albion Antiques is currently generating approximately $120,000 in
annual net income from these tenants and accordingly this space is
considered to be occupied in the accompanying occupancy statistics. The
38,000 square foot former J.C. Penney store remains vacant.
(5) Upton's closed this store in November 1999 as part of a corporate-wide
restructuring; however, Upton's is obligated to continue to pay full rents
through December 2000. The Company is negotiating with J.C. Penney to
lease the Upton's store location.
(6) Washington Crown Center was redeveloped and expanded in 1999. The grand
reopening took place in October 1999 and included the opening of a new
140,000 square foot Kaufmann's department store. A 56,000 square foot 14
screen stadium-style movie theater is currently under construction and is
expected to open in May 2000.
(7) Black Rose Antiques is the name given to the former Kmart anchor space now
substantially leased on a month-to-month basis to approximately 160 antique
dealers. Black Rose Antiques is currently generating approximately
$250,000 in annual net income from these tenants, and accordingly this
space is considered to be occupied in the accompanying occupancy
statistics.
(8) Kaufmann's (a division of May Department Stores) operates two stores at
Wyoming Valley Mall; one for women's and children's apparel and home
furnishings and one for men's apparel.
(9) Dillards operates two stores one for women's apparel and one for men's and
children's apparel.
(10) Tenant owns its store and the land under the store and operates under a
reciprocal easement agreement. The lease expiration date reflects the
expiration of the agreement.
(11) The grand opening of the Valley Mall expansion occurred in October 1999.
The expansion included a new 120,000 square foot Hecht's department store,
24,800 net additional mall shop GLA, and a 30,000 square foot expansion of
the Bon-Ton department store. A 54,000 square foot 16 screen stadium-style
movie theater is currently under construction and is expected to open in
May 2000.
(12) Includes 1,318,000 square feet of space related to 11 stores that are owned
or deemed owned under long-term lease purchase agreements by their anchor
occupants.
(13) Weis Market vacated this 40,000 square foot store in November 1999, but
paid rent until December 31, 1999.
(14) In August 1999 Proffitt's lease on their 50,000 square foot store expired,
and they vacated the store. This store remained vacant at December 31,
1999. Proffitt's continues to operate its other store in this mall.
(b) Other Properties
The Company also has ownership interests in Pasquerilla Plaza and the
Anchor Pad, as described below, and also owns approximately 72 acres of
undeveloped land adjacent to most of the Malls which is available for
development, lease or sale to tenants or others.
Pasquerilla Plaza is a five-story building located in Johnstown,
Pennsylvania, built in 1989, and contains 102,500 square feet of gross leasable
area. The Company, as owner of Pasquerilla Plaza, uses approximately 75,000
square feet as its headquarters space. Approximately 14,500 square feet is
leased to CAA and affiliates for annual base rent of approximately $272,000.
Approximately 13,000 square feet is currently leased to third parties. Net
rental revenue from Pasquerilla Plaza from tenants other than CAA and affiliates
was $214,000 for the year ended December 31, 1999.
The Anchor Pad. The Anchor Pad is located at Westgate Mall in
Bethlehem, Pennsylvania. Westgate Mall is owned by a third party unaffiliated
with the Company and the Anchor Pad is ground leased by such third party to the
Company. The site encompasses 10 acres with an approximately 107,000 gross
square foot anchor store and a detached freestanding building of 5,000 square
feet. Bon-Ton subleases the anchor store and the freestanding building from the
Company. The ground lease and the sublease expire on November 22, 2000;
however, the Company has already exercised an option to purchase the land fee
interest for $500,000; the purchase is expected to occur in late 2000. Rental
revenue from the Anchor sublease was $397,000 in 1999.
(c) Property Insurance
The Company's management believes that all Properties described under
Items 2(a) and 2(b) which are owned by the Company, in whole or in part, are
adequately covered by insurance.
Item 3. Legal Proceedings
The Company from time to time is involved in litigation incidental to
its business. Except as described below, neither the Company nor any of the
Partnerships are currently involved in any material litigation and, to the best
of the Company's knowledge, there is no material litigation currently threatened
against the Company or the Partnerships, other than routine litigation arising
in the ordinary course of business, most of which is expected to be covered by
liability insurance or established reserves.
Shareholder litigation
On August 10, 1995, August 17, 1995, and September 8, 1995 complaints
were filed by various individuals on behalf of themselves and also purportedly
on behalf of other similarly situated persons against the Company and certain of
its executive officers in United States District Court for the Western District
of Pennsylvania to recover unspecified damages under the federal securities laws
resulting from a decline in the market price for the Company's common shares of
beneficial interest which are listed and traded on the New York Stock Exchange.
The decline in the Company's share price followed the announcement on August 8,
1995 of various operational and capital resource initiatives by the Company,
including the reduction of the Company's quarterly dividend to increase its
levels of retained internal cash flow and the planned sale of certain assets
that at the time did not fit the Company's growth strategy. The complaints in
these three cases were consolidated by the Court and a consolidated amended
complaint was filed on July 30, 1996. The consolidated amended complaint
asserts a class period extending from March 1, 1995 to August 8, 1995,
inclusive.
A fourth Complaint was filed the week of December 15, 1995 by an
individual on behalf of himself and also purportedly on behalf of other
similarly situated persons against the Company and certain of its current and
former executive officers in the United States District Court for the Eastern
District of Pennsylvania (the Warden action). This action was subsequently
transferred to the Western District of Pennsylvania. While this Complaint is
substantially similar to the previous Complaints, it alleged a class period
extending from August 17, 1993 (the IPO date) to August 8, 1995.
The Company filed a motion seeking to dismiss the consolidated action
and negotiated a stay of the Warden action pending resolution of the motion to
dismiss the consolidated actions. On September 15, 1997 the Court issued an
opinion dismissing the consolidated amended complaint. In its ruling, the Court
dismissed certain allegations with prejudice and others with an opportunity to
amend. On October 10, 1997 the Plaintiffs filed a second amended complaint in
the consolidated action. On December 2, 1997 the court entered an order
consolidating the cases for pretrial purposes. On December 16, 1997 the
Plaintiff in the Warden action filed a second amended complaint, which changed
the end of the putative class period to February 28, 1995. On January 16, 1998
the Company filed motions seeking dismissal of both the consolidated action and
the Warden action. On October 15, 1998 the Court in the Warden action granted
the Company's motion to dismiss and permitted the plaintiffs to file a third
amended complaint.
On November 2, 1998, the Court granted in part and denied in part the
Company's motion to dismiss the second amended complaint in the consolidated
action. In its ruling, the Court dismissed the Company as a defendant and
dismissed all of the plaintiff's claims with prejudice, except for a narrow set
of allegations relating to projections of the 1995 dividend at a March 1995 REIT
conference and in the 1994 annual report. On November 30, 1998, the plaintiffs
in the Warden action and the consolidated action each filed third amended
complaints. In the consolidated action, plaintiffs sought to renew certain
claims against the Company notwithstanding the Court's prior rulings. On
December 21, 1998, the Company filed a motion seeking dismissal of the third
amended complaint in the Warden action. On February 5, 1999, the Company filed
a motion to dismiss the third amended complaint in the consolidated action.
On July 6, 1999, the Court granted the Company's motion to dismiss the
third amended complaint in the Warden action in its entirety with prejudice.
On August 5, 1999, the plaintiffs filed an appeal to the U.S. Court of Appeals
for the Third Circuit. On July 20, 1999, the Court granted in part and denied
in part the Company's motion to dismiss the third amended complaint in the
consolidated action. In its ruling, the Court dismissed the Company as a
defendant and otherwise ruled consistent with its November 2, 1998, decision,
dismissing all of the claims, except for the narrow set of allegations
referenced above.
The consolidated legal action and the Warden action are both in a
preliminary stage. However, the Company believes, based on the advice of legal
counsel, that it and the named officers have substantial defenses to the
plaintiffs' claims, and the Company intends to vigorously defend the action.
The Company's current and former officers that are named in this litigation are
covered under a liability insurance policy paid for by the Company. The
Company's officers also have indemnification agreements with the Company. While
the final resolution of this litigation cannot be presently determined,
management does not believe that it will have a material adverse effect on the
Company's results of operations or financial condition.
Tenant litigation
In July 1997, the Bon-Ton Department Stores, Inc. filed suit in a
Pennsylvania state court against Crown American Financing Partnership and the
May Department Stores Company seeking to enjoin the development of a Kaufmann's
department store at the Nittany Mall. Bon-Ton claims that the proposed
Kaufmann's store would violate a restrictive covenant in Bon-Ton's lease with
the Company. The Company and May disputed Bon-Ton's position and filed a
counterclaim seeking a declaratory judgment that the proposed transaction did
not violate the restrictive covenant. The parties stipulated to a trial of all
issues (except the availability of damages to Bon-Ton should it establish
liability but not the entitlement to injunctive relief). After this trial, the
Court ruled in favor of the Company and May, denying Bon-Ton's request for
injunctive relief and granting the Company's and May's motion for a declaratory
judgment. Bon-Ton appealed to the Pennsylvania Superior Court which entered an
Order in favor of the Company and May on April 7, 1999. Bon-Ton filed an
Application Requesting Reargument which the Pennsylvania Superior Court denied
by Order dated June 15, 1999. On July 15, 1999, Bon-Ton filed a Petition for
Allowance of Appeal to the Pennsylvania Supreme Court, which said Court denied
by Order dated October 18, 1999. Bon-Ton has filed no further appeal.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders of the Company
during the fiscal quarter ended December 31, 1999.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
executive officers of the Company as of February 15, 2000.
Name Age Office with the Company
Mark E. Pasquerilla 40 Chairman of the Board of Trustees,
Chief Executive Officer, and President
Nicholas O. Antonazzo 62 Executive Vice President, Development
Thomas Stephenson 58 Executive Vice President, Asset Management
Terry L. Stevens 51 Trustee, Executive Vice President, Chief
Financial Officer
Donato B. Zucco 59 Trustee, Senior Vice President, Chief
Administrative Officer
Mark E. Pasquerilla, Chairman, Chief Executive Officer and President,
directs all operational activities, establishes corporate policy and provides
overall strategic direction for the Company. Mr. Pasquerilla was named
President in 1990, Vice Chairman in 1998 and Chairman, CEO and President in
1999. Mr. Pasquerilla was a member of the Governor of Pennsylvania's Economic
Development Partnership Council from 1987 to 1995, and is a former Fulbright-
Hays Scholar. In addition, Mr. Pasquerilla is a member of the Board of
Directors and the Executive and Discount Committees of USBANCORP, INC. Mark E.
Pasquerilla is the son of Frank J. Pasquerilla, former Chairman and CEO of the
Company, who died in April 1999.
Nicholas O. Antonazzo became Executive Vice President, Development, of
the Company upon its formation. Mr. Antonazzo directs the expansion and
redevelopment of regional malls and anchor department store relations. He has
also served as Executive Vice President of Development of CAA from 1987 to
August 16, 1993. Mr. Antonazzo is a former state director for the International
Council of Shopping Centers and is admitted to practice law before the
Pennsylvania Supreme and Superior Courts.
Thomas Stephenson became Executive Vice President, Asset Management,
upon joining the Company in April 1994. Mr. Stephenson is responsible for
directing the operations of the Company's regional shopping mall portfolio. He
served as Senior Vice President of Operations for The Hahn Company (a shopping
center developer and manager) from 1987 to 1994 and as Vice President of
Operations from 1983 to 1987. Previously, he was with Trizec Corporation, Ltd.
(a shopping center developer and manager) from 1971 to 1983 as Vice President of
Operations. Mr. Stephenson is a CPA.
Terry L. Stevens is Trustee, Executive Vice President and Chief
Financial Officer of the Company. He is responsible for all finance and
treasury functions including debt and equity financing, all accounting,
reporting, and MIS functions, and is also actively involved in investor
relations. Mr. Stevens joined the Company in May 1994 as Vice President and
Chief Accounting Officer, and he was promoted to Senior Vice President in
February 1995, to CFO in September 1998, and was named Trustee and Executive
Vice President in May 1999. Prior to joining the Company Mr. Stevens was
Director of Financial Systems at AlliedSignal, Inc., a large multi-national
manufacturer, from 1990 to 1994. He also spent 18 years with Price Waterhouse,
an international accounting firm, including seven years as an audit partner.
Mr. Stevens is a CPA.
Donato B. Zucco, Ph.D., is Trustee, Senior Vice President and Chief
Administrative Officer of the Company. He is responsible for a wide variety of
administrative activities that support the Company's business units, which
include Human Resources, Corporate Communications, Legal and Risk Management.
Dr. Zucco joined the Company in January 1991 as Senior Vice President and Chief
Administrative Officer and was named Trustee in October 1999. Dr. Zucco
presides as the Mayor of the City of Johnstown.
The executive officers are elected annually by the Board of Trustees
at an organization meeting which is held immediately after each Annual Meeting
of Shareholders. The executive officers of the Company serve in the identical
offices in each of the Partnerships.
PART II
Item 5. Market for Registrant's Common Shares of Beneficial Interest and
Related Shareholder Matters
The shares are listed on the New York Stock Exchange (symbol: CWN).
As of February 18, 2000, there were 26,207,919 common shares issued and
outstanding, held by 1,081 holders of record. The high and low sales price of
the common shares and dividends paid per common share during each quarter in the
period January 1, 1998 through December 31, 1999 were as follows:
1998 1999
High Low Dividend High Low Dividend
Quarter ended March 31 $9 9/16 $8 1/2 $0.200 $8 $6 1/8 $0.200
Quarter ended June 30 $10 13/16 $9 1/8 $0.200 $7 13/16 $6 1/4 $0.205
Quarter ended Sept. 30 $10 1/8 $7 1/2 $0.200 $7 3/8 $6 5/16 $0.205
Quarter ended Dec. 31 $8 3/4 $7 1/2 $0.200 $6 3/4 $5 1/4 $0.205
Item 6. Selected Financial Data
The following table sets forth selected consolidated financial data
for the Company, its wholly-owned subsidiaries, and its majority-owned
subsidiary, the Operating Partnership. The Company is sole general partner in
the Operating Partnership, and as of December 31, 1999 holds 100% of the
preferred partnership interests (see Note 6 to the Consolidated Financial
Statements) and 72.47% of the common partnership interests. The Operating
Partnership directly owns seven malls, the 50% joint venture interest in Palmer
Park Mall, the Corporate headquarters building, and the Westgate anchor pad.
All remaining properties are owned by seven partnerships and limited liability
companies that are 99.5% or 100.0% owned by the Operating Partnership. The
remaining 0.5% interests in these second-tier entities are owned by the Company
through its wholly-owned subsidiaries. The financial data should be read in
conjunction with the Consolidated Financial Statements and Notes in Item 8, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7. (See Item 1 in this Annual Report on Form 10-K for a
discussion of the business combination completed on August 17, 1993).
Industry analysts generally consider Funds from Operations ("FFO") an
appropriate measure of performance for an equity REIT. Funds from Operations
means net income (computed in accordance with generally accepted accounting
principles) before minority interest, real estate depreciation and amortization,
and extraordinary and unusual non-recurring items, and additionally includes
earned cash flow support. Management believes that Funds from Operations is an
appropriate measure of the Company's operating performance because reductions
for real estate depreciation and amortization charges are not meaningful in
evaluating the operating results of the Properties, which have historically been
appreciating assets. Gains on sales of outparcel land are included in this
measure of performance. Gains or losses on sales of operating properties and
anchor store locations are excluded from FFO because such transactions are
uncommon and not a part of ongoing operations.
In 1999 the National Association of Real Estate Investment Trusts
(NAREIT) adopted changes to the definition of Funds from Operations that become
effective in 2000, at which time prior years' reported FFO be restated to
conform to the new changes. The primary impact on the Company will be that
"unusual non-recurring" items previously excluded from FFO will now be included.
As a result, the restructuring costs of $2,251,000 in 1999 will be deducted from
FFO upon restatement.
EBITDA is defined as revenues and gain on sales of outparcel land,
less mall operating costs and corporate general and administrative expenses, but
before interest, and all depreciation and amortization. Management believes
this measure provides the clearest indicator of operating performance for the
following reasons: (i) it is industry practice to evaluate the performance of
real estate properties based on net operating income (or NOI), which is
generally equivalent to EBITDA except that EBITDA is reduced for corporate
general and administrative expenses; and (ii) both NOI and EBITDA are unaffected
by the capital structure of the property owner.
Funds from Operations and EBITDA (i) do not represent cash flow from
operations as defined by generally accepted accounting principles, (ii) are not
necessarily indicative of cash available to fund all cash flow needs and (iii)
should not be considered as an alternative to net income for purposes of
evaluating the Company's operating performance.
Other data that management believes is important in understanding
trends in its business and properties are also included in the following table.
<TABLE>
<CAPTION>
Item 6. Selected Financial Data (continued)
Year Ended December 31,
1999 1998 1997 1996 1995
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operating Data:
Total revenues $159,074 $146,748 $130,994 $133,972 $132,248
Operating costs:
Property operating costs 50,911 48,550 43,779 46,457 45,408
Depreciation and amortization 44,306 41,712 38,311 35,315 34,634
General and administrative
expenses 4,751 5,066 4,698 4,135 4,420
Restructuring costs 2,251
Operating income before interest 56,855 51,420 44,206 48,065 47,786
Interest 51,075 45,417 42,663 45,337 42,923
Adjustment to carrying value of
assets (35,000)
Gain on sale of property 1,761 1,210 1,051 5,776 3,492
Income (loss) before minority
interest and extraordinary items 7,541 7,213 2,594 8,504 (26,645)
Minority interest in Operating
Partnership 1,734 8,363 1,644 (1,979) 4,205
Cumulative effect of change in
accounting method (1,703)
Extraordinary gain on fire
insurance claim 11,244
Extraordinary loss on early
extinguishment of debt (22,512) (2,331) (718) (765)
Net income (loss) 9,275 (8,639) 1,907 5,807 (11,961)
Dividends on preferred shares (13,750) (13,750) (6,646)
Net income (loss) applicable to $ $ $ $ $
common shares (4,475) (22,389) (4,739) 5,807 (11,961)
Per share data (after minority
interest): (1)
Basic EPS:
Income (loss) before extraordinary
extraordinary items $ (0.17) $ (0.18) $ (0.11) $ 0.23 $ (0.72)
Extraordinary items (0.62) (0.06) (0.02) 0.29
Cumulative effect of change in
accounting method (0.05)
Net income (loss) $ (0.17) $ (0.85) $ (0.17) $ 0.21 $ (0.43)
Diluted EPS:
Income (loss) before extraordinary
items $ (0.17) $ (0.18) $ (0.11) $ 0.23 $ (0.72)
Extraordinary items (0.62) (0.06) (0.02) 0.29
Cumulative effect of change in
accounting method (0.05)
Net income (loss) $ (0.17) $ (0.85) $ (0.17) $ 0.21 $ (0.43)
Other Data:
EBITDA (2 & 4) $ 108,288 $ 98,499 $ 88,028 $ 91,514 $ 91,269
Funds from Operations (FFO):
(3, 4, & 5)
Net income (loss) $ 9,275 $(8,639) $ 1,907 $ 5,807 $(11,961)
Adjustments:
Minority interest in Operating
Partnership (1,734) (8,363) (1,644) 1,979 (4,205)
Adjustment to carrying value of
assets 35,000
Less gain on asset sales other
than outparcels (1,290) (2,351)
Depreciation and amortization -
real 45,925 42,992 39,682 36,678 36,417
estate
Operating covenant amortization 2,630 2,630 2,630 2,630 2,685
Cash flow support earned 2,973 3,784 3,733 2,889 2,591
Cumulative effect of change in
accounting method 1,703
Extraordinary gain on fire
insurance claim (11,244)
Restructuring costs 2,251
Extraordinary loss on early
extinguishment of debt 22,512 2,331 718 765
Funds from Operations before
allocations to minority interest
and preferred shares 60,030 56,619 48,639 48,350 50,048
Less:
Amounts allocable to preferred
shares 13,750 13,750 6,646
Amounts allocable to minority
interest 12,741 11,653 10,810 12,287 12,653
Funds from Operations applicable
to common shares $ 33,539 $ 31,216 $ 31,183 $ 36,063 $ 37,395
Weighted average common shares
outstanding (000) 26,208 26,393 27,228 27,515 27,372
Weighted average common shares and
Operating Partnership units
outstanding (000) 36,164 36,317 36,667 36,956 36,668
Cash Flows:
Net cash provided by operating
activities $ 56,939 $ 54,834 $ 38,747 $ 44,848 $ 57,174
Net cash (used in) investing
activities (49,683) (102,795) (70,983) (41,730)(100,238)
Net cash provided by (used in)
financing activities (3,597) 52,001 34,962 (2,408) 46,964
(1), (2), (3), (4), (5) - See page 17 for explanation.
</TABLE>
<TABLE>
<CAPTION>
Item 6. Selected Financial Data (continued)
December 31,
Balance Sheet Data
($000): 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Income-producing
properties (before
accumulated
depreciation and
amortization) $ 1,184,696 $ 1,134,349 $1,024,641 $960,692 $ 933,220
Total assets 875,208 869,288 785,949 740,638 737,518
Total debt and
liabilities 746,630 708,047 570,845 600,986 580,234
Minority interest 2,727 11,724 25,334 35,576 39,873
Shareholders' equity 125,851 149,517 189,770 104,076 117,411
Portfolio Property
Data (6):
Number of retail
properties at end
of year 28 28 26 25 25
Total GLA at end of
year (000 sq. ft.)
(7) 16,378 15,948 14,999 14,321 14,063
Mall shop GLA at
end of year
(000 sq. ft.) 5,779 5,734 5,539 5,355 5,221
Comparable store
mall shop tenant
sales per square
foot (8) $ 258 $ 242 $ 228 $ 217 $ 206
Mall shop
occupancy
percentage at
year end (9) 84% 82% 79% 76% 82%
(1) All per share data are based on the weighted average common shares
outstanding shown for the respective periods.
(2) EBITDA represents earnings before interest, all depreciation and
amortization, and unusual items. The derivation of EBITDA is shown
in Item 7 (c) herein. As a REIT, the Company is generally not subject to
federal or state income taxes.
(3) Funds from Operations represents net income before minority interest, real
estate depreciation and amortization, plus earned cash flow support and
adjusted for certain unusual and non-recurring items.
(4) EBITDA and Funds from Operations (i) do not represent cash flow from
operations as defined by generally accepted accounting principles, (ii)
are not necessarily indicative of cash available to fund all cash flow
needs and (iii) should not be considered as an alternative to net income
for purposes of evaluating the Company's operating performance.
(5) Beginning in 1996, the Company adopted a revised definition of FFO as
promulgated by NAREIT. FFO for 1995 and prior periods has been restated.
As discussed previously in this Item 6, in 2000 the Company will adopt
further changes in the definition of FFO.
(6) The data for 1997 includes the impact of the Valley Mall acquisition com-
pleted in November 1997. The data for 1998 includes the additions of
Crossroads and Jacksonville Malls and Greater Lewistown Plaza, all of
which were acquired in May 1998, and the sale of Middletown Mall in
July 1998. See Notes 14 and 15 to the Consolidated Financial Statements.
(7) Total GLA includes anchor stores (company-owned and tenant-owned), mall
shops, and freestanding space.
(8) Total sales for all mall shop tenants, excluding freestanding space, movie
theaters, and supermarkets, amounted to $1,010 million, $909 million,
$721 million, $719 million, and $715 million for 1999, 1998, 1997, 1996,
and 1995, respectively. Sales reported in 1999, 1998, 1997, 1996, and
1995 for all owned anchor stores were $1,286 million, $1,249 million,
$1,132 million, $1,112 million, and $962 million, respectively. The
Company owns 97 of 108 anchor store premises as of December 31, 1999.
(9) Includes both tenants in occupancy and tenants that have signed leases but
have not yet taken occupancy as of the dates indicated.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the
Selected Financial Data in Item 6 and the Consolidated Financial Statements and
Notes thereto in Item 8 in this Annual Report on Form 10-K. The Note references
in this item can be found on pages 34 to 50. Historical results set forth in
the Selected Financial Data and the Consolidated Financial Statements of Crown
American Realty Trust (the "Company") are not necessarily indicative of future
financial position and results of operations of the Company.
(a) General Background and Performance Measurement
Organization
Crown American Realty Trust (the "Company") was formed in 1993 to
acquire interests in 23 enclosed shopping malls and certain other real estate
(collectively the "Properties") then owned by Crown American Corporation, a
wholly-owned subsidiary of Crown Holding Company ("Crown Holding"). The Company
is a real estate investment trust under the Internal Revenue Code of 1986, as
amended. On August 17, 1993 the Company completed its initial public offering
and raised net proceeds of approximately $405 million in equity from issuing
approximately 25.5 million shares, including the subsequent exercise of the
underwriters' over-allotment option. The Company used the proceeds to purchase
an initial 78% general partnership interest in Crown American Properties, L.P.
(the "Operating Partnership"), a partnership which was formed just prior to
consummation of the offering referred to above. The current 27.53% minority
limited common partnership interests are held by Crown Investments Trust and by
Crown American Investment Company, a wholly-owned subsidiary of Crown
Investments Trust, both of which are affiliates of Crown American Associates
("Crown Associates") which was also formed in 1993 as a wholly-owned subsidiary
of Crown Holding and as "Successor to Crown American Corporation". The funds
raised in the initial public offering were used by the Operating Partnership to
retire debt related to the Properties. As described in Note 6 to the
Consolidated Financial Statements, the Company also holds 100% of the preferred
partnership interests in the Operating Partnership that arose in connection with
the Company's issuance of preferred shares in July 1997.
Simultaneous with the offering, Crown Associates and an affiliate
transferred the Properties and the management operations into either the
Company, the Operating Partnership, or Crown American Financing Partnership (the
"Financing Partnership"), a partnership owned 99.5% by the Operating Partnership
and 0.5% by the Company. As a result of these transactions, the Company is
engaged primarily in the ownership, operation, management, leasing, acquisition,
expansion, development and financing of shopping malls. In addition,
simultaneous with the above transaction, the Financing Partnership borrowed $300
million of mortgage debt initially secured by 15 properties. The $300 million
was used to retire existing debt related to the Properties. As described in
Note 5 to the Consolidated Financial Statements, in August 1998 the remaining
balance of the $300 million of mortgage debt was refinanced in its entirety.
The properties held by the Company at December 31, 1999 consist of:
(i) 26 wholly-owned enclosed shopping malls (together with adjoining outparcels
and approximately 72 acres of undeveloped land) and one wholly-owned non-
enclosed strip shopping center (Greater Lewistown Plaza) located in
Pennsylvania, New Jersey, Maryland, Tennessee, North Carolina, West Virginia,
Virginia and Georgia, (ii) a 50% general partnership interest in Palmer Park
Mall Venture, which owns Palmer Park Mall located in Easton, Pennsylvania, (iii)
Pasquerilla Plaza, an office building in Johnstown, Pennsylvania, which serves
as the headquarters of the Company and is partially leased to other parties, and
(iv) a parcel of land (under ground lease with purchase option) improved with a
building leased to a department store chain.
(b) Funds from Operations
Year ended December 31, 1999 versus year ended December 31, 1998
Total 1999 FFO (before allocations to minority interest and to
preferred shareholders) was $60.0 million compared to $56.6 million in 1998, a
6.0% increase. FFO applicable to common shareholders for the year ended
December 31, 1999 was $33.5 million compared to $31.2 million in 1998, a 7.4%
increase. Average common shares outstanding during 1999 and 1998 were
26,208,000 and 26,393,000, respectively.
FFO contributed from existing mall operations (before general and
administrative costs, land sales, and cash flow support) was up $7.1 million
before interest costs (a 7.0% increase) and $3.3 million, net of interest,
compared to 1998. FFO contributed from the 1998 acquisition properties was up
$2.9 million before interest and $1.1 million after interest. One property sold
in 1998 produced a negative FFO impact of $0.5 million.
The $7.1 million increase from existing properties referred to in the
preceding paragraph resulted from: (i) an increase in mall shop minimum and
percentage rent of $5.7 million, primarily the result of improved occupancy
levels and higher average base rental rates, (ii) an increase in anchor minimum
rents of $1.0 million, partially offset by a decrease in anchor percentage rents
of $0.7 million, (iii) an increase in straight-line rental income and
miscellaneous revenues of $0.3 million, (iv) an increase in temporary and
seasonal leasing income of $0.7 million, and (v) an increase in recovery income
(net of property operating costs) of $0.1 million.
Year ended December 31, 1998 versus year ended December 31, 1997
Total 1998 FFO (before allocations to minority interest and to
preferred shareholders) was $56.6 million compared to $48.6 million in 1997, a
16% increase. FFO applicable to common shareholders for the year ended December
31, 1998 was $31.2 million or even with the amount reported for the year ended
December 31, 1997. Average common shares outstanding during 1998 and 1997 were
26,393,000 and 27,228,000, respectively.
FFO contributed from existing mall operations (before interest,
general and administrative costs, and cash flow support) was up $3.2 million.
FFO contributed by the recently acquired properties, net of financing costs, was
$2.2 million. These increases were partially offset by: $4.2 million full year
impact of the preferred shares dividends (net of amount allocated to acquired
properties); and $0.6 million higher general and administrative expenses, due
mostly to higher costs in the leasing and acquisition departments. After
allocations to acquired properties, interest expense was down by $0.2 million.
The $3.2 million increase from existing properties resulted from: (i)
an increase in mall shop minimum and percentage rent of $5.0 million, (ii) an
increase in anchor minimum and percentage rent of $0.4 million, and (iii) an
increase in straight-line rental income and miscellaneous revenues of $0.3
million, offset by (iv) an increase in property operating costs (net of
recoveries) in the amount of $2.1 million, primarily due to one-time expense
reductions in 1997 as a result of real estate tax and franchise tax credits due
to settlements, and (v) lower temporary and promotional income in 1998 in the
amount of $0.4 million due to less space available due to the increase in
permanent leasing.
(c) EBITDA - Earnings before Interest, Taxes, Depreciation and
Amortization
The computation of EBITDA is shown below for the years ended December
31, 1999, 1998, and 1997 ($000):
Year Ended December 31,
1999 1998 1997
Total revenues $ 159,074 $ 146,748 $ 130,994
Add back operating covenant amortization
deducted in minimum rent 2,630 2,630 2,630
Net 161,704 149,378 133,624
Less recoverable costs and expenses (46,545) (43,755) (39,467)
Less non-recoverable costs and expenses (1,991) (2,262) (1,963)
Less property general & administrative costs (2,375) (2,533) (2,349)
Less corporate general & administrative costs (4,751) (5,066) (4,698)
Add back depreciation/amortization in above
expense lines and joint venture depreciation
(Company's share) 1,775 1,527 1,830
Gain on outparcel land sales 471 1,210 1,051
EBITDA, as reported $ 108,288 $ 98,499 $ 88,028
Year ended December 31, 1999 versus year ended December 31, 1998
Total EBITDA for the year ended December 31, 1999 was $108.3 million,
an increase of $9.8 million, or 10% over 1998's amount of $98.5 million. Of
this total increase, $7.4 million was attributable to the existing properties,
$2.9 million was due to the 1998 acquisition properties, and the sale of
Middletown Mall in July 1998 produced a decrease of $0.5 million.
Year ended December 31, 1998 versus year ended December 31, 1997
Total EBITDA for the year ended December 31, 1998 was $98.5 million,
an increase of $10.5 million from 1997. Of this total increase, $8.2 million
was attributable to the recently acquired properties and $2.7 million came
from existing properties; the sale of Middletown Mall in July 1998
produced a decrease of $0.4 million.
(d) Property Operating Results and Trends
Aggregate Tenant Sales Volume
Over the long term, the level of anchor and mall shop tenant sales is
the single most important determinant of revenues of the Company as anchor and
mall shop tenants provide over 90% of total revenues and because tenant
sales determine the amount of rent, percentage rent and recoverable
expenses (together, total occupancy costs) that tenants can afford to pay.
However, levels of tenant sales are considerably more volatile in the short
run than total occupancy costs.
Total reported sales for all tenants that reported sales for the
applicable years are shown below ($ in millions):
1999 1998 1997
Anchors (owned locations) $ 1,286 $ 1,249 $ 1,132
Mall shop tenants, excluding
freestanding, theater, and
supermarkets 1,010 909 721
The above data excludes sales from all seasonal and temporary tenants
who generally do not report their sales to the Company. The Company owned 97
of 108 anchor store locations at December 31, 1999.
In a period of increasing sales, rents on new leases will tend to rise
as tenants' expectations of future growth become more optimistic. In periods of
declining sales, rents on new leases tend to grow more slowly. However,
revenues generally increase as older leases roll over or are terminated early
and replaced with new leases negotiated at current rental rates that are usually
higher than the average rates for existing leases.
Average base rents per square foot for mall shop tenants at quarter
end for the last three years are shown in the following table. The increase
in average base rent during these three years results primarily from
renewing existing leases at higher base rents, from leasing vacant space at
higher base rents, and from elimination of lower paying tenants that closed
during these periods.
1999 1998 1997
March 31 $ 17.95 $ 16.94 $ 15.96
June 30 18.07 16.95 16.13
September 30 18.34 17.30 16.69
December 31 18.63 17.54 16.82
Comparable Mall Store Sales and Occupancy Cost
Management believes that over long periods of time the ability of
tenants to pay occupancy costs and earn profits increases as sales per square
foot increase, whether through inflation or real growth in customer spending.
Occupancy costs are comprised of base fixed rents, percentage rents, and expense
recoveries - pro rata share of real estate taxes and common area maintenance and
other costs pertaining to the property. Because most mall shop tenants have
certain fixed expenses, the occupancy costs that they can afford to pay and
still be profitable is a higher percentage of sales at higher sales per square
foot. While such increased occupancy costs as a percentage of sales cannot grow
indefinitely for any one tenant, management believes that it is possible to
increase the percentage paid by all tenants as a group by aggressively working
to replace under-performing tenants with better performing ones.
Comparable mall store sales per square foot in each reporting period
is based on sales reported by mall store tenants (excludes anchors and certain
other large space users) that occupied space in both the current and immediately
preceding reporting period. Comparable mall store sales per square foot for the
last three years are set out below. Also shown below is the percentage of mall
shop tenants' occupancy costs as a percentage of their annual sales.
1999 1998 1997
Comparable mall store sales per square foot $ 258 $ 242 $ 228
Occupancy cost percentage at period end 10.1% 10.3% 10.4%
Seasonality and Occupancy
The enclosed shopping mall industry is seasonal in nature, with anchor
and mall shop tenant sales highest in the fourth quarter due to the Christmas
season, and with lesser, though still significant, sales fluctuations associated
with the Easter holiday and back-to-school events. While minimum rents and
expense recoveries are generally not subject to seasonal factors, many leases
are scheduled to expire in the first calendar quarter, and the majority of new
stores open in the second half of the year in anticipation of the Christmas
selling season. Accordingly, revenues and occupancy levels are generally lowest
in the first quarter and highest in the fourth quarter.
The aggregate mall shop occupancy percentage, defined as the ratio of
total mall shop space that is leased (including both tenants occupying space and
tenants that have signed leases but have not yet taken occupancy) to the total
mall shop space gross leasable area ("GLA") at quarter-end for the last three
years is set out below.
Mall Shop Occupancy
1999 1998 1997
March 31 82% 79% 75%
June 30 82% 81% 77%
September 30 83% 81% 77%
December 31 84% 82% 79%
At December 31, 1999, anchor occupancy was 99% and total
portfolio occupancy (anchors, mall stores and freestanding) was 93%.
(e) Results of Operations
Year ended December 31, 1999 versus year ended December 31, 1998
Revenues
Components of minimum rents and percentage rents for the years ended
December 31, 1999, 1998 and 1997 are as follows ($000):
Year Ended December 31,
1999 1998 1997
Components of Minimum Rents:
Anchors - base rents $ 24,307 $ 23,527 $ 22,213
Mall shops & freestanding - base rents 74,660 67,195 57,251
Mall shops & freestanding - percentage
rent in lieu of fixed base rent 2,489 2,908 2,397
Straight line rental income 745 564 89
Ground leases - base rents 2,057 1,949 1,542
Lease buyout income 350 8 182
Operating covenant amortization (2,630) (2,630) (2,630)
Total Minimum Rents $ 101,978 $ 93,521 $ 81,044
Components of Percentage (Overage)
Rents:
Anchors $ 3,352 $ 3,899 $ 3,454
Mall shops, freestanding, and ground
leases 3,725 3,292 3,090
Total Percentage (Overage) Rents $ 7,077 $ 7,191 $ 6,544
Total revenues were $159.1 million in 1999, an increase of $12.3
million, or 8%, over 1998's revenues of $146.7 million. Of the $12.3 million
increase, $4.8 million was the result of the four recently-acquired
properties, $8.6 million came from previously-owned centers, offset by a $1.1
million decrease from one sold property.
The composition of the $12.3 million increase, by revenue category,
is as follows (dollars in thousands):
Same Acquired Sold
Centers Properties Property Total
Minimum rents $ 6,352 $ 3,093 $ (988) $ 8,457
Percentage rents (368) 258 (4) (114)
Cost recovery income 1,996 1,036 (89) 2,943
Temporary & promotional leasing 625 424 (56) 993
Net utility income 166 - - 166
Miscellaneous income (106) (11) (2) (119)
Increase in total revenues $ 8,665 $ 4,800 $ (1,139) $ 12,326
Property Operating Costs
Property operating and administrative costs, excluding depreciation
and amortization, increased $2.4 million in 1999, a 5% increase over 1998.
This $2.4 million increase included $1.5 million from the recently-acquired
properties and $1.5 million from previously-owned centers, offset by
$0.6 million from one sold property.
The composition of the $2.4 million increase in property operating
costs, by major expense category, is as follows (dollars in thousands):
Same Acquired Sold
Centers Properties Property Total
Recoverable operating costs $ 1,947 $ 1,302 $ (459) $ 2,790
Property administrative costs (231) 77 (4) (158)
Other operating costs (197) 119 (193) (271)
Increase in total property
operating costs $ 1,519 $ 1,498 $ (656 ) $ 2,361
Depreciation and Amortization
Depreciation and amortization expense increased by $2.6 million in
1999. The four recently-acquired properties accounted for $1.4 million of this
increase, existing centers increased by $1.4 million, and the sold property
accounted for a $0.2 million decrease.
General and Administrative
General and administrative expenses decreased by $0.3 million in 1999
over a year ago primarily as a result of reductions in employee census that
occurred in connection with restructurings in 1999.
During the first and third quarters of 1999, the Company
recorded restructuring charges of $1.0 million and $1.2 million, respectively,
related to severance and related costs for employees affected by two
reductions in the number of corporate office staff together with reductions
in other corporate office-related expenses. The restructurings involved
approximately thirty-five home office employees who were terminated and who
represented a cross-section of management, clerical, and secretarial employees.
The restructuring costs are shown as a separate line item in the
Consolidated Statements of Operations. The amount remaining to be paid at
December 31, 1999 was approximately $0.7 million, and is included in "Accounts
payable and other liabilities" in the Consolidated Balance Sheet. It is
expected that most of the remaining liability that exists at December 31, 1999
will be paid out in 2000.
Interest Expense
Interest expense (net of capitalized amounts) for 1999 was $51.1
million, a $5.7 million increase over 1998. The increase was comprised
primarily of $1.8 million associated with debt incurred to purchase the
recently-acquired properties, and $4.0 million coming from increased borrowings
related to existing centers.
Gain on Sale of Outparcel Land
Gain on sale of outparcel land was $0.5 million in 1999, $0.7 million
lower than 1998.
Year ended December 31, 1998 versus year ended December 31, 1997
Total 1998 revenues were $146.7 million compared to $131.0 million in
1997, an increase of $15.7 million or 12%. Of this $15.7 million increase,
$11.7 million came from the four properties acquired in 1997 and 1998, $4.9
million came from previously-owned centers, offset by a $0.9 million decrease
from one sold property. All revenue categories increased over 1997,
particularly minimum rents ($12.5 million) and cost recovery income
($2.1 million).
Property operating and administrative costs, excluding depreciation
and amortization, increased by $4.8 million in 1998 compared to 1997.
The composition of this $4.8 million increase was $3.4 million from the
recently- acquired properties and $1.9 million from previously-owned centers,
offset by $0.5 million from one sold property. Depreciation and
amortization expense increased by $3.4 million in 1998 due primarily to the
four properties acquired in 1997 and 1998.
General and administrative expenses were approximately $0.4 million
higher in 1998 compared to 1997. This increase was primarily attributable to
higher compensation and travel costs associated with income generating
activities, principally leasing and acquisitions. Interest expense increased by
$2.7 million in 1998 compared to 1997, of which $2.2 million was associated with
the purchase of the four new properties.
Gain on the sale of outparcel land was $1.2 million in 1998, an
increase of $0.2 million compared to 1997.
The Company recorded $22.5 million of losses on early extinguishment
of debt in 1998 and $2.3 million in 1997. The 1998 loss of $22.5 million
consisted of primarily (i) $16.6 million of prepayment penalties associated
with the payoff of the Kidder Mortgage Loans in August 1998, and (ii) $5.9
million of unamortized deferred financing costs related to the Kidder Mortgage
Loans and the $110.0 million interim loan with General Electric Capital
Corporation.
Change in Accounting Method for Percentage Rent
On May 21, 1998 the Emerging Issues Task Force ("EITF") discussed
Issue 98-9 "Accounting for Contingent Rent" and reached a consensus that lessors
should defer the accounting recognition of contingent rent, such as percentage
rent, until the specific tenant sales breakpoint target is achieved. On
November 19, 1998, the EITF rescinded its consensus reached on May 21, 1998. On
December 3, 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("Revenue Recognition") which essentially affirmed the
accounting method for contingent rents that the EITF had initially adopted on
May 21, 1998.
During the third quarter of 1998 and prior to the EITF's rescission on
November 19, 1998, the Company implemented the May 21, 1998 EITF consensus as a
change in accounting method and accordingly recorded as of January 1, 1998 a
$1.7 million cumulative effect adjustment representing the change in prior
years' percentage rent income based on the new method of accounting. The impact
on percentage rent income of the new method for the year ended December 31, 1998
was a reduction of percentage rents of about $12,000 from what would have been
reported under the Company's previous method of accounting. The Company's
previous accounting method, which was fully acceptable under generally accepted
accounting principles ("GAAP"), recognized percentage rent on a pro-rata basis
when a tenant's achievement of its sales breakpoint was considered probable.
The impact on the fourth quarter of 1998 was an increase in percentage rent of
approximately $66,000 over what would have been reported. The impact on the
previously reported first, second, and third quarters of 1998 was immaterial.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133"). The Statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The FASB has approved Statement No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the effective date of FASB
Statement No. 133, which amends Statement 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. Had the Company
applied this standard currently, the effect on the Company's financial position
and results of operations for the year ended December 31, 1999 would be
immaterial.
In December 1999, the Securities and Exchange Commission released
Staff Accounting Bulletin No. 101, "Revenue Recognition ("SAB No. 101"), to
provide guidance on the recognition, presentation and disclosure of revenue in
financial statements. Specifically, SAB No. 101 provides guidance on lessors'
accounting for contingent rent. SAB No. 101 explains the SEC staff's general
framework for revenue recognition. SAB No. 101 does not change existing
literature on revenue recognition, but rather clarifies the SEC's position on
preexisting literature. SAB No. 101 did not require the Company to change
existing revenue recognition policies and therefore had no impact on the
Company's financial position or results of operations at December 31, 1999.
Accounting for Minority Interest
Minority interest represents the common partnership units in the
Operating Partnership that are owned by Crown Investments and its subsidiary.
At December 31, 1999 Crown Investments and its subsidiary owned 9,956,398 common
partnership units, or 27.53% of the total common partnership units out-
standing. Crown American Realty Trust owns the remaining 72.47%. The minority
interest balance is adjusted each year for Crown Investments' and its sub-
sidiary's proportionate share of net income (loss) of the Operating
Partnership (after deducting preferred unit distributions), common
partnership distributions, and additional capital contributions. Primarily
because the common partnership distributions have been larger than the
Operating Partnership's income (loss) after preferred unit distributions,
the minority interest account on the consolidated balance sheet has been
declining each year. Based on current trends, the balance will be reduced
to zero in 2000. Under generally accepted accounting principles, when and
if the minority partner's share of the Operating Partnership's net
income (loss) and the minority partner's cash distributions and capital
contributions, would cause the minority interest balance to be less than zero,
such balance must be reported at zero unless there is a legal obligation of the
minority partner to reimburse the Operating Partnership for such excess amounts.
The partnership agreement does not provide for any such obligation by the
minority partner. Accordingly, when the minority interest account is reduced to
zero, the minority partner's share of income and loss and cash distributions,
net of its capital contributions, must be charged for financial reporting
purposes against the Company's share of earnings, as the general partner.
Subsequently, any future positive amounts representing the minority partner's
share of the Operating Partnership's income and loss and cash distributions net
of capital contributions would be credited in full to the Company's share of
earnings to the extent such amounts were previously charged against the
Company's earnings. This accounting method will not impact the cash flows of
the Company or the cash distributions made to shareholders or to the minority
partner.
This accounting method is expected to reduce reported net income and
net income per share in periods after the minority interest account is reduced
to zero. However, Funds from Operations as an operating performance metric is
not expected to be affected.
(f) Cash Flows, Liquidity and Capital Resources
For the years ended December 31, 1999, 1998, and 1997, the Company
generated $56.9 million, $54.8 million, and $38.7 million, respectively, in cash
from operating activities, as shown in the accompanying Consolidated Statements
of Cash Flows in Item 8 hereto.
1999 Cash Flows
During 1999, the Company generated $56.9 million in cash flows from
operating activities, which is net of an aggregate $1.4 million negative impact
from changes in receivables, restricted cash and escrow deposits, deferred
charges and other assets, and accounts payable and other liabilities. The
Company invested $53.7 million in its existing properties in 1999 which included
$16.2 million in the Valley Mall redevelopment project, $12.3 million in the
expansion/renovation of Washington Crown Center, and $13.9 million in mall shop
tenant allowances. The Company received $3.4 million in cash from a note
receivable in connection with the sale of Middletown Mall in 1998. The Company
used a net $3.6 million in its financing activities, which included (i)
additional borrowings of $29.2 million under its modified line of credit
facility much of which was used for the Valley Mall expansion project (see Note
5 to the Consolidated Financial Statements), (ii) $12.7 million in borrowings
under its construction loan for Washington Crown Center, (iii) $5.2 million in
debt amortization and debt issuance costs, (iv) $43.2 million paid in common and
preferred dividends, and (v) $3.0 million received in Cash Flow Support (see
Note 8 to the Consolidated Financial Statements).
1998 Cash Flows
During 1998, the Company generated $54.8 million in cash flows from
operating activities, which is net of $0.4 million net negative impact from
changes in receivables, restricted cash and escrow deposits, deferred charges
and other assets, and accounts payable and other liabilities. The Company
invested $64.2 million in its existing properties in 1998 which included $11.7
million in the expansion/renovation of Washington Crown Center, $9.5 million in
the expansion/renovation of Patrick Henry Mall, $4.1 million in the Valley Mall
redevelopment project, and $16.5 million in mall shop tenant allowances. The
Company also spent $46.7 million to acquire three properties not including $14.7
million of debt assumed in connection with the Crossroads Mall and Greater
Lewistown Plaza acquisitions and $4.5 million in additional partnership units
issued in 1998 related to Middletown Mall and Greater Lewistown Plaza (see Notes
14 and 15 to the Consolidated Financial Statements). The Company also received
$8.1 million in cash from the sale of Middletown Mall. The Company generated
net $52.0 million from its financing activities, which included (i) $465.0
million from the 10-year mortgage loan with General Electric Capital Corporation
offset by the related refinancing of $421.0 million of debt (see Note 5 to the
Consolidated Financial Statements), (ii) $46.7 million in borrowings under the
GECC lines of credit that was used for property acquisitions, (iii) $22.0
million in new borrowings under the GECC general line of credit for general
working capital purposes, (iv) $10.5 million in construction loan draws and
other borrowings, (v) $9.9 million in loan paydowns and principal amortization,
(vi) $16.6 million cash portion of extraordinary losses on early extinguishment
of debt, (vii) $42.8 million paid in common and preferred dividends, and (viii)
$3.8 million in Cash Flow Support. These financing cash flows exclude $14.7
million of debt that was assumed as part of property acquisitions and $4.5
million in issuance of partnership units as disclosed above.
1997 Cash Flows
During 1997, the Company generated $38.7 million in cash from
operating activities, which is net of $9.2 million negative impact from changes
in receivables, deferred charges and other assets, and payables and other
liabilities. The Company invested $39.2 million in its existing properties and
related escrows; this included $15.3 million to complete Logan Valley mall
reconstruction and related tenant allowances, $5.3 in mall shop and anchor
tenant allowances other than Logan Valley, and $2.4 million in capitalized lease
acquisition costs. The Company also purchased Valley Mall in Hagerstown,
Maryland for $32.0 million as described in Note 14 to the Consolidated Financial
Statements. The Company generated $35.0 million from financing activities,
which included (i) $118.7 million net proceeds from the issuance of senior
preferred shares in July 1997 (see Note 6 to the Consolidated Financial
Statements), (ii) $33.3 million net reduction in debt, plus $4.8 in debt
issuance costs (iii) $35.2 million of cash dividends and distributions paid, and
(iv) $12.2 million to repurchase common shares held in treasury. The $33.3
million net reduction in debt during 1997 consisted of: $171.0 million new
borrowings, less $6.2 million in related loan deposits and reserves, from
refinancing $161.8 million in existing loans on four malls; $17.1 million drawn
under construction loans, primarily for Logan Valley Mall; $49.8 million in
borrowings under lines of credit and $42.3 million repayments under lines of
credit; use of the preferred share proceeds to pay-off $42.2 million of
mortgages on three properties, $13.1 million in line of credit borrowings and
$3.0 million partial reduction of another mortgage loan; and $2.6 million of
scheduled principal amortization.
Liquidity and Capital Resources
The Company has significant ongoing capital requirements. The Company
believes that its cash generated from property operations and funds obtained
from property financings and general corporate borrowings will provide the
necessary funds on a short-term and long-term basis for its operating expenses,
debt service on outstanding indebtedness and recurring capital expenditures and
tenant allowances, and all dividends to the shareholders necessary to satisfy
the REIT dividend distribution requirements under the Internal Revenue Code (see
Note 2 to the Consolidated Financial Statements). The Company intends to pay
regular quarterly dividends to its shareholders. However, the Company's ability
to pay dividends is affected by several factors, including cash flow from
operations, capital expenditures, and its ability to refinance its maturing debt
as described below. Dividends by the Company will be at the discretion of the
Board of Trustees and will depend on the cash available to the Company, its
financial condition, capital and other requirements, and such other factors as
the Trustees may consider.
Sources of capital for non-recurring capital expenditures, such as
major building renovations and expansions, acquisitions, and for balloon
payments on maturing outstanding indebtedness, are expected to be obtained
from additional Company or property financings and refinancings, sale of non-
strategic assets, additional equity raised in the public or private markets,
and from retained internally generated cash flows, or from combinations
thereof. Given the Company's current level of indebtedness, and given the
uncertainties concerning future equity and debt capital markets and interest
rates, there is no assurance that the Company will be able to secure such
future infusions of equity and/or debt financing and refinancings when
needed, or at rates or terms that will permit the Company to use the proc-
eeds raised to increase earnings or Funds from Operations. The Company
has commenced construction of an expansion and redevelopment of
Washington Crown Center and an expansion at Valley Mall. The total cost of
the two projects, including capitalized construction overhead, interest,
and tenant allowances, are estimated at $33 million and $33 million,
respectively, of which $21 million and $20 million, respectively, had been
incurred as of December 31, 1999. In addition to amounts incurred at December
31, 1999, the Company is committed for future payments under various
construction purchase orders and certain leases. The Company has obtained a
$26.8 million construction and three-year permanent bank loan for the Washington
Crown Center expansion and redevelopment; the loan bears interest at LIBOR plus
1.90%, and $15.6 million was borrowed and outstanding as of December 31, 1999.
The Valley Mall expansion is being financed under the line of credit with
General Electric Capital Corporation as described in Note 5 to the Consolidated
Financial Statements.
Also, as more fully described in Note 5 to the Consolidated Financial
Statements, on August 28, 1998 the Company closed a $465 million 10-year
mortgage with General Electric Capital Corporation ("GECC"). The gross proceeds
from the new loan (the "GECC Mortgage Loan") were used to refinance the $280.6
million Kidder Mortgage Loans, the $110.0 million interim mortgage loan (see
below), and the $30.0 million secured term loan. The remaining proceeds were
used largely to establish escrows to fund the remaining expansion and
redevelopment costs of Patrick Henry Mall and Nittany Mall, and to fund closing
costs, initial loan reserves and prepayment penalties with respect to $200.0
million of the Kidder Mortgage Loans and the $30.0 million secured term loan
that were pre-paid prior to their maturity dates. The prepayment penalties for
the Kidder Mortgage Loans and the $30 million term loan were approximately $16.6
million. In addition, approximately $5.9 million of unamortized deferred
financing costs related to the Kidder Mortgage Loans and the $110 million
interim mortgage loan were written off. Both of these items were accounted for
as an extraordinary loss on early extinguishment of debt. The GECC Mortgage
Loan has a fixed stated interest rate of 7.43% and is secured by cross-
collateralized mortgages on 15 of the malls. The loan provides for payment of
interest only during the first two years and interest and principal
amortization, based on 25 year amortization, during the last eight years. In
connection with the GECC Mortgage Loan, in November 1997, the Company made a
$6.0 million interest-bearing good-faith deposit with GECC, and in July and
August 1998, the Company made $12.2 million in non-interest bearing rate lock
deposits with GECC. These deposits were refunded at closing.
As of December 31, 1999, the scheduled principal payments on all
outstanding debt are $5.5 million, $107.7 million, $40.7 million, $27.8 million,
and $77.4 million for the years ended December 31, 2000 through 2004,
respectively, and $450.0 million thereafter. The Company expects to refinance
or extend the majority of the maturities over the next five years through
additional Company financings and from refinancing the maturing loans. The
Company's ability to refinance or extend these loans on or before their due
dates depends on the level of income generated by the properties, prevailing
interest rates, credit market trends, and other factors that may be in effect at
the time of such refinancings or extensions and there is no assurance that such
refinancings or extensions will be executed. The ratios of the Company's EBITDA
to interest paid on total indebtedness (exclusive of capitalized interest and
interest income) for the years ended December 31, 1999, 1998, and 1997 were 2.06
to 1, 2.14 to 1, and 2.04 to 1, respectively.
As further described in Note 8 to the Consolidated Financial
Statements, Crown Investments and its subsidiary have been granted rights,
subject to certain restrictions, whereby they may redeem part or all of their
common partnership units for common shares, on a one-to-one basis, or cash at a
price equal to the value of the Company's common shares. Crown Investments has
pledged substantially all of its limited partnership units as collateral for a
loan it has received from an unrelated third party.
(g) Economic Trends
Because inflation has remained relatively low during the last three
years it has had little impact on the operations of the Company during this
period. Tenant leases also provide, in part, a mechanism to help protect the
Company during highly inflationary periods. As operating costs increase, most
leases permit a pass-through of the common area maintenance and other operating
costs, including real estate taxes and insurance, to the tenants and therefore,
the tenants will absorb part of this increased operating cost. Most of the
leases provide for percentage rent after a certain minimum sales level is
achieved. Thus, during highly inflationary periods, when retail sales at the
Malls increase, the Company should receive additional rental income through
percentage rent increases, partially offsetting the effect of inflation.
The use of the Internet for retail sales is growing rapidly, but at
present is a very minor component of total retail sales distribution in the
United States, and particularly of the types of products typically sold in
enclosed regional malls. Management of the Company does not foresee that
Internet retailing will have a significant effect on tenant sales or occupancy
levels in the foreseeable future.
Year 2000
In 1998 and 1999 management actively assessed the Company's exposure
to the so-called Year 2000 problem which relates to the ability of electronic
equipment, computer hardware and software to properly recognize, use and process
date-sensitive information on and after January 1, 2000. The Company replaced
certain equipment that was not Year 2000 compliant, modified and tested various
computer programs, and developed extensive contingency plans should Year 2000
problems occur. The total cost, excluding internal salary-related costs, of the
Company's Year 2000 initiatives was approximately $0.7 million. The Company has
experienced no significant problems with its systems and equipment to date
related to Year 2000 and does not believe that any significant Year 2000 related
problems will occur in the future. The Company has also not experienced any
problems whereby its vendors or customers have been unable to complete
transactions successfully with the Company due to their Year 2000 problems.
However, it is possible that such problems by vendors and customers may manifest
themselves in the future and adversely impact the Company.
(h) Forward Looking Statements
This Annual Report on Form 10-K contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Act of 1934, as amended. Such
statements are based on assumptions and expectations, which may not be realized
and are inherently subject to risks and uncertainties, many of which cannot be
predicted with accuracy. Future events and actual results, financial and
otherwise, may differ from the results discussed in the forward-looking
statements. Risk and other factors that might cause differences, some of which
could be material, include, but are not limited to, economic and credit market
conditions, the ability to refinance maturing indebtedness, the impact of
competition, consumer buying trends, financing and development risks,
construction and lease-up delays, cost overruns, the level and volatility of
interest rates, the rate of revenue increases versus expense increases and
financial stability of tenants within the retail industry, as well as other
risks listed from time to time in the Company's reports filed with the
Securities and Exchange Commission or otherwise publicly disseminated by the
Company. Although management believes that the assumptions made in connection
with the forward-looking statements are reasonable, there are no assurances that
the assumptions and expectations will prove to have been correct due to the
foregoing and other factors.
Item 7 (a) Quantitative and Qualitative Disclosures About Market Risk
Accounts receivable and accounts payable carrying amounts approximate
the fair value of the accounts receivable and accounts payable balances,
respectively, at December 31, 1999.
In the ordinary course of business, the Company is exposed to risks
that increases in interest rates may adversely affect interest costs associated
with $112.6 million of variable-rate debt, which represents 15.9% of total
long-term debt, and costs when refinancing maturing fixed-rate debt. The
following table presents principal cash flows and related weighted average
interest rates by expected maturity dates (dollars in millions):
Year ending December 31, 2005 and
2000 2001 2002 2003 2004 Thereafter
Long-term debt
Fixed rate debt $5.4 $10.5 $40.5 $12.7 $77.4 $450.0
Average interest rate 7.40% 7.48% 7.97% 7.42% 8.19% 7.51%
Variable rate debt $0.1 $97.2 $0.2 $15.1 $0.0 $0.0
Average interest rate 7.72% 8.77% 7.72% 7.72% - -
Interest rate risk for the Company increased in 1999 due to an
increase in variable rate debt from $71.0 million at December 31, 1998 to $112.6
million at December 31, 1999. The Company's variable rate debt is based
primarily on LIBOR, and the Company will incur increasing interest costs if
LIBOR increases. The Company may enter into interest rate derivative
instruments to mitigate such risks in the future, but as of December 31, 1999,
the Company has no such instruments outstanding.
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees and Shareholders of
Crown American Realty Trust:
We have audited the accompanying consolidated balance sheets of Crown American
Realty Trust (a Maryland real estate investment trust) and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements and the schedules
referred to below are the responsibility of the management of Crown American
Realty Trust. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Crown American
Realty Trust and subsidiaries, as of December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
As explained in Note 2 of the consolidated financial statements, effective
January 1, 1998, the Company changed its method of accounting for contingent
rent.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedules listed in the index of financial
statements are presented for purposes of complying with the Securities and
Exchange Commission rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
February 15, 2000
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Operations
Year Ended December 31,
1999 1998 1997
(in thousands, except per share data)
<S> <C> <C> <C>
Rental operations:
Revenues:
Minimum rent $ 101,978 $ 93,521 $ 81,044
Percentage rent 7,077 7,191 6,544
Property operating cost recoveries 35,513 32,570 30,513
Temporary and promotional leasing 10,654 9,661 9,312
Net utility income 3,157 2,991 2,806
Miscellaneous income 695 814 775
Net 159,074 146,748 130,994
Property operating costs:
Recoverable operating costs 46,545 43,755 39,467
Property administrative costs 2,375 2,533 2,349
Other operating costs 1,991 2,262 1,963
Depreciation and amortization 44,306 41,712 38,311
Net 95,217 90,262 82,090
Net 63,857 56,486 48,904
Other expenses:
General and administrative 4,751 5,066 4,698
Restructuring costs 2,251
Interest 51,075 45,417 42,663
Net 58,077 50,483 47,361
Net 5,780 6,003 1,543
Property sales and adjustments:
Gain on sale of outparcel land 471 1,210 1,051
Gain on asset sale 1,290
Net 1,761 1,210 1,051
Income before cumulative effect of
accounting change,
extraordinary items and minority interest 7,541 7,213 2,594
Cumulative effect of change in accounting
method (1,703)
Extraordinary loss on early
extinguishment of debt (22,512) (2,331)
Income (loss) before minority interest in
Operating Partnership 7,541 (17,002) 263
Minority interest in loss of
Operating Partnership 1,734 8,363 1,644
Net income (loss) 9,275 (8,639) 1,907
Dividends on preferred shares (13,750) (13,750) (6,646)
Net (loss) applicable to common
shares $ (4,475) $ (22,389) $ (4,739)
Per common share information:
Basic EPS
(Loss) before extraordinary items $ (0.17) $ (0.18) $ (0.11)
Cumulative effect of a change in
accounting method (0.05)
Extraordinary items (0.62) (0.06)
Net (loss) $ (0.17) $ (0.85) $ (0.17)
Weighted average shares outstanding (000) 26,208 26,393 27,228
Diluted EPS
(Loss) before extraordinary items $ (0.17) $ (0.18) $ (0.11)
Cumulative effect of a change in
accounting method (0.05)
Extraordinary items (0.62) (0.06)
Net (loss) $ (0.17) $ (0.85) $ (0.17)
Weighted average shares outstanding (000) 26,208 26,393 27,228
The accompanying notes are an Integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Balance Sheets
December 31,
1999 1998
(in thousands, except share
and per share data)
<S> <C> <C>
Assets
Income-producing properties:
Land $ 154,341 $ 145,226
Buildings and improvements 986,042 946,654
Deferred leasing and other charges 44,313 42,469
Net 1,184,696 1,134,349
Accumulated depreciation and amortization (388,965) (347,649)
Net 795,731 786,700
Other Assets:
Investment in joint venture 5,055 5,799
Cash and cash equivalents 17,171 13,512
Restricted cash and escrow deposits 15,635 15,005
Tenant and other receivables 15,859 17,430
Deferred charges and other assets 25,757 30,842
Net $ 875,208 $ 869,288
Liabilities and Shareholders' Equity
Liabilities:
Debt on income-producing properties $ 709,000 $ 669,971
Accounts payable and other liabilities 37,630 38,076
Net 746,630 708,047
Minority interest in Operating Partnership 2,727 11,724
Commitments and contingencies
Shareholders' equity:
Non-redeemable senior preferred shares, 11.00%
cumulative, $.01 par value, 2,500,000 shares
issued and outstanding 25 25
Common shares, par value $.01 per share, 120,000,000
shares authorized, 27,742,317 and 27,741,542 shares
issued at December 31, 1999 and 1998, respectively 277 277
Additional paid-in capital 316,421 314,252
Accumulated deficit (176,220) (150,385)
Net 140,503 164,169
Less common shares held in treasury at cost,
1,534,398 shares at both December 31, 1999
and 1998 (14,652) (14,652)
Net 125,851 149,517
Net $ 875,208 $ 869,288
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Cash Flows
Year Ended December 31,
1999 1998 1997
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 9,275 $ (8,639) $ 1,907
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Minority interest in Operating Partnership (1,734) (8,363) (1,644)
Equity earnings in joint venture (235) (360) (528)
Depreciation and amortization 50,071 48,411 45,886
Gain on asset sales (1,290)
Extraordinary loss on early extinguishment
of debt 22,512 2,331
Cumulative effect of a change in accounting
method 1,703
Restructuring costs 2,251
Net changes in:
Tenant and other receivables 1,571 (2,147) 520
Restricted cash and escrow deposits (125) (768) (11,013)
Deferred charges and other assets (1,583) (9,393) 3,156
Accounts payable and other liabilities (1,262) 11,878 (1,868)
Net cash provided by operating activities 56,939 54,834 38,747
Cash flows from investing activities:
Investment in income properties (53,654) (64,223) (39,152)
Acquisitions of enclosed malls, net of debt
assumed (46,720) (31,981)
Proceeds from asset sales 3,361 8,148
Distributions from joint venture 610 150
Net cash (used in) investing activities (49,683) (102,795) (70,983)
Cash flows from financing activities:
Net proceeds from issuance of senior
preferred shares 118,671
Net proceeds from exercise of share options
and from dividend reinvestment plan 6 117 921
Proceeds from issuance of debt, net of loan
deposits and prepayment penalties 56,349 576,257 231,723
Cost of issuance of debt (2,351) (6,806) (4,774)
Debt repayments (17,350) (476,108) (265,002)
Dividends and distributions paid on common
shares and partnership units (29,474) (29,063) (29,287)
Dividends paid on senior preferred shares (13,750) (13,750) (5,921)
Purchase of common shares held in treasury (2,430) (12,222)
Cash flow support payments 2,973 3,784 853
Net cash provided by (used in) financing
activities (3,597) 52,001 34,962
Net increase in cash and cash equivalents 3,659 4,040 2,726
Cash and cash equivalents, beginning of
period 13,512 9,472 6,746
Cash and cash equivalents, end of period $ 17,171 $ 13,512 $ 9,472
Interest paid (net of amounts capitalized) $ 49,362 $ 42,674 $ 39,351
Interest cost capitalized $ 1,636 $ 2,192 $ 2,463
Non-cash financing activities:
Issuance of partnership units related to the
purchase of Middletown Mall and
Greater Lewistown Center $ $ 4,479 $
Cash flow support credited to minority
interest and paid-in capital
that was prefunded in 1995 $ $ $ 1,889
Difference between preferred dividends $ $ $
accrued versus paid 725
Debt assumed as part of properties acquired $ $ 14,718 $
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Shareholders' Equity
Common Senior
Shares Preferred Common
Outstanding Shares Shares
(in thousands)
<S> <C> <C> <C>
Balance, December 31, 1996 27,613 $ $ 276
Issuance of 2,500,000 Preferred Shares 25
Common Shares issued under
dividend reinvestment plan 114 1
Common Shares purchased and
held in treasury (1,252)
Transfer in (out) of limited
partners' interest in the
Operating Partnership
Capital contributions from Crown
Investments Trust:
Cash flow support
Net income
Dividends paid and accrued
Balance, December 31, 1997 26,475 25 277
Common Shares issued under
employee option plan 14
Common Shares purchased and
held in treasury (282)
Transfer in (out) of limited
partners' interest in the
Operating Partnership
Capital contributions from Crown
Investments Trust:
Cash flow support
Net (loss)
Dividends paid and accrued
Balance, December 31, 1998 26,207 25 277
Common Shares issued under
employee option plan 1
Transfer in (out) of limited
partners' interest in the
Operating Partnership
Capital contributions from Crown
Investments Trust:
Cash flow support
Net income
Dividends paid and accrued
Balance, December 31, 1999 26,208 $ 25 $ 277
Retained Common
Additional Earnings Shares
Paid-in (Accumulated) Held in
Capital Deficit) Treasury Total
Balance, December 31, 1996 $ 184,205 $ (80,405) $ $ 104,076
Issuance of 2,500,000 Preferred
Shares 118,646 118,671
Common Shares issued under
dividend reinvestment plan 920 921
Common Shares purchased and
held in treasury (12,222) (12,222)
Transfer in (out) of limited
partners' interest in the
Operating Partnership 2,029 2,029
Capital contributions from Crown
Investments Trust:
Cash flow support 2,771 2,771
Net income 1,907 1,907
Dividends paid and accrued (28,383) (28,383)
Balance, December 31, 1997 308,571 (106,881) (12,222) 189,770
Common Shares issued under
employee option plan 117 117
Common Shares purchased and
held in treasury (2,430) (2,430)
Transfer in (out) of limited
partners' interest in the
Operating Partnership 2,817 2,817
Partnership
Capital contributions from Crown
Investments Trust:
Cash flow support 2,747 2,747
Net (loss) (8,639) (8,639)
Dividends paid and accrued (34,865) (34,865)
Balance, December 31, 1998 314,252 (150,385) (14,652) 149,517
Common Shares issued under
employee option plan 6 6
Transfer in (out) of limited
partners' interest in the
Operating Partnership 8 8
Capital contributions from Crown
Investments Trust:
Cash flow support 2,155 2,155
Net income 9,275 9,275
Dividends paid and accrued (35,110) (35,110)
Balance, December 31, 1999 $ 316,421 $ (176,220) $ (14,652) $125,851
The accompanying notes are an integral part of these statements.
</TABLE>
CROWN AMERICAN REALTY TRUST
Notes to Consolidated Financial Statements
NOTE 1 - ORGANIZATION, NATURE OF OPERATIONS, AND BASIS OF PRESENTATION
Organization
Crown American Realty Trust (the "Company") was formed on May 14, 1993 as a
Maryland real estate investment trust (a "REIT") to acquire and operate
substantially all of the enclosed shopping mall properties and two office
buildings (the "Properties") owned by Crown American Associates ("Crown
Associates"), formerly Crown American Corporation. Crown Associates is a wholly-
owned subsidiary of Crown Holding Company ("Crown Holding"). Crown Associates,
which was founded in 1950, was engaged principally in the development,
acquisition, ownership and management of enclosed shopping malls and, to a
lesser extent, strip shopping centers, hotels and office buildings. The Company
raised approximately $405 million in equity through an initial public offering
of approximately 25.5 million shares, which occurred on August 17, 1993, and
used the proceeds to purchase an initial 78% general partnership interest in
Crown American Properties, L.P. (the "Operating Partnership"), a partnership
which was formed just prior to consummation of the offering to own and operate
the Properties. These proceeds, along with new borrowings, were used by the
Operating Partnership to retire debt related to the Properties.
Simultaneously with the public offering, Crown Associates and an affiliate
transferred the Properties and the management operations into either the
Company, the Operating Partnership, or Crown American Financing Partnership (the
"Financing Partnership").
The limited partnership interest in the Operating Partnership and the 1.6
million shares in the Company received for two malls transferred in 1993 are
currently held by Crown Investments Trust ("Crown Investments") and by Crown
American Investment Company (a subsidiary of Crown Investments). As described
in Notes 14 and 15, the Company acquired one property in 1997, three properties
in 1998, and sold one property in 1998.
As further described in Note 6, on July 3, 1997 the Company completed an
offering of 2,500,000 11.00% non-convertible senior preferred shares at an
initial offering price of $50.00 per share.
Nature of Operations
The Company is a fully-integrated real estate company primarily engaged in the
ownership, operation, management, leasing, acquisition, development,
redevelopment, expansion, renovation and financing of enclosed shopping malls.
The Company's revenues are primarily derived under real estate leases with
national, regional and local department store and other specialty retailers.
The Company's top five tenants in terms of total revenues are as follows:
Percent of Total Revenues
1999 1998
Sears Roebuck and Co. 5.6% 5.8%
J C Penney, Inc. 4.3% 4.3%
The Limited Stores, Inc. 3.7% 3.9%
The Bon-Ton Stores, Inc. 3.1% 3.3%
Venator Group, Inc. 2.9% 3.5%
Amounts for Venator Group, Inc. include Woolworth, Kinney, Footlocker, Lady
Footlocker, Champs, and Northern Reflections.
The Properties currently consist of: (1) 26 wholly-owned enclosed shopping malls
(and adjacent leased outparcels and strip centers at certain of the enclosed
malls) located in Pennsylvania, New Jersey, Maryland, Tennessee, North Carolina,
West Virginia, Virginia and Georgia, (2) a 50% general partnership interest in
Palmer Park Mall Venture, which owns Palmer Park Mall located in Easton,
Pennsylvania, (3) a non-enclosed strip shopping center located in Lewistown, PA,
(4) Pasquerilla Plaza, an office building in Johnstown, Pennsylvania, which
serves as the headquarters of the Company and is partially leased to other
parties, and (5) a parcel of land and building improvements located in
Pennsylvania (under ground lease with a purchase option) sub-leased to a
department store chain. The Company also owns approximately 72 acres of land
adjacent to a number of the mall properties which are held for development,
ground lease, or sale to third parties.
As the owner of real estate, the Company is subject to risks arising in
connection with the underlying real estate, including defaults under or
non-renewal of tenant leases, tenant bankruptcies, competition, inability to
rent unleased space, failure to generate sufficient income to meet operating
expenses, as well as debt service, capital expenditures and tenant improvements,
environmental matters, financing availability and changes in real estate and
zoning laws. The success of the Company also depends upon certain key
personnel, the Company's ability to maintain its qualification as a REIT,
compliance with the terms and conditions of the Mortgage Loans and other debt
instruments, and trends in the national and local economy, including interest
rates, income tax laws, governmental regulations and legislation, and population
trends.
Basis of Presentation
The accompanying consolidated financial statements of the Company include all
accounts of the Company, its wholly-owned subsidiaries, and its majority-owned
subsidiary, the Operating Partnership. The Operating Partnership directly owns
seven malls, the 50% joint venture interest in Palmer Park Mall, the Corporate
headquarters building, and the Westgate anchor pad. All remaining properties
are owned by seven partnerships and limited liability companies that are either
99.5% or 100.0% owned by the Operating Partnership. The remaining 0.5%
interests in these second-tier entities are owned by the Company through its
wholly-owned subsidiaries. The Operating Partnership also has all paid
employees and manages all properties except the Palmer Park Mall and the
Westgate anchor pad. Other than its ownership interests in its subsidiaries,
the Company owns no other assets and has no other business activities. The
Company is the sole general partner in the Operating Partnership, and at
December 31, 1999 the Company held 100% of the preferred partnership interests
(see Note 6) and 72.47% of the common partnership interests. All significant
intercompany amounts have been eliminated.
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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Certain reclassifications have been made to prior year amounts to conform to the
current year presentation.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Change in Accounting Method for Percentage Rent
On May 21, 1998 the Emerging Issues Task Force ("EITF") discussed Issue 98-9
"Accounting for Contingent Rent" and reached a consensus that lessors should
defer the accounting recognition of contingent rent, such as percentage rent,
until the specific tenant sales breakpoint target is achieved. On November 19,
1998, the EITF rescinded its consensus reached on May 21, 1998. On December 3,
1999, the Securities and Exchange Commission issued Staff Accounting Bulletin
No. 101 ("Revenue Recognition") which essentially affirmed the accounting method
for contingent rents that the EITF had initially adopted on May 21, 1998.
During the third quarter of 1998 and prior to the EITF's rescission on November
19, 1998, the Company implemented the May 21, 1998 EITF consensus as a change in
accounting method and accordingly recorded as of January 1, 1998 a $1.7 million
cumulative effect adjustment representing the change in prior years' percentage
rent income based on the new method of accounting. The impact on percentage
rent income of the new method for the year ended December 31, 1998 was a
reduction of percentage rents of about $12,000 from what would have been
reported under the Company's previous method of accounting. The Company's
previous accounting method, which was fully acceptable under generally accepted
accounting principles ("GAAP"), recognized percentage rent on a pro-rata basis
when a tenant's achievement of its sales breakpoint was considered probable.
The impact on the fourth quarter of 1998 was an increase in percentage rent of
approximately $66,000 over what would have been reported. The impact on the
previously reported first, second, and third quarters of 1998 was immaterial.
Income-Producing Properties
Income-producing properties are recorded at the lower of cost or net realizable
value. Included in such costs are acquisition, development, construction,
tenant improvements, interest incurred during construction, certain capitalized
improvements and replacements and certain allocated overhead. Allocated
overhead is computed primarily on the basis of time spent by certain departments
in various operations and represents costs which meet the definition of
"indirect costs" in Statement of Financial Accounting Standards No. 67,
"Accounting for Costs and Initial Rental Operations of Real Estate Projects."
Depreciation on buildings and improvements is provided utilizing the
straight-line method over estimated useful lives of 10 to 45 years resulting in
an average composite life of approximately 30 years. Depreciation on tenant
improvements is provided utilizing the straight-line method over the life of the
related leases.
With respect to assets held for the long-term production of income, the Company
assesses impairment based on whether the estimated future net cash flows
expected to be generated by the asset (undiscounted and without interest) is in
excess of the net book value of the asset. If a property held for long term
production of income is impaired, its basis is adjusted to fair value. With
respect to assets held for sale, the Company assesses impairment based on
whether the net realizable value (estimated fair value sales price less direct
cost to sell) is in excess of the net book value of the asset. If a property
held for sale is impaired, its net book value is adjusted to fair value less
estimated direct cost to sell.
Certain improvements and replacements are capitalized when they extend the
useful life, increase capacity, or improve the efficiency of the asset. All
other repair and maintenance items are expensed as incurred. Total repairs and
maintenance expenses were $10.0 million, $9.3 million, and $8.5 million for the
years ended December 31, 1999, 1998, and 1997, respectively. Leasing charges,
including tenant construction allowances and direct costs incurred by the
Company to obtain a lease, are deferred and amortized over the related leases or
terms appropriate to the expenditure.
Substantially all of the income-producing properties have been pledged to secure
the Company's currently outstanding debt and the $156.0 million in lines of
credit ($96.9 million borrowed under the lines of credit as of December 31,
1999).
Interest and Financing Costs
Interest costs are capitalized related to income-producing properties under
construction, to the extent such assets qualify for capitalization. Total
interest capitalized was $1.6 million, $2.2 million, and $2.5 million, for the
years ended December 31, 1999, 1998, and 1997, respectively. Interest expense
includes amortization of deferred financing costs related to completed
financings (see Note 3 to the Consolidated Financial Statements) and is net of
miscellaneous interest income on cash and escrow deposit balances aggregating
$1.7 million, $1.3 million, and $1.5 million, for the years ended December 31,
1999, 1998, and 1997, respectively. Financing costs are based on actual costs
incurred in obtaining the financing and are deferred and amortized as part of
interest expense over the term of the related debt instrument. Costs incurred
for financings which are not completed are expensed as part of interest costs.
Unamortized financing costs related to debt that is extinguished early is
written off as an extraordinary item.
Revenue Recognition
The Company, as a lessor, has retained substantially all of the risks and
benefits of ownership and accounts for its leases as operating leases. Minimum
rents are recognized on a straight-line basis; as such, the rental revenues for
leases which contain rent abatements and contractual increases are recognized on
a straight-line basis over the initial term of the related lease. Property
operating cost recoveries from tenants of common area maintenance, real estate
taxes, and other recoverable costs are recognized in the period the expenses are
incurred. These recoveries also include certain capital expenditures that are
recovered from the tenants in the period the depreciation is recognized.
Income Taxes
The Company elected to be taxed as a Real Estate Investment Trust (REIT) under
Sections 856 through 860 of the Internal Revenue Code of 1986 (the "Code"),
commencing with its first taxable year ended December 31, 1993, and intends to
conduct its operations so as to continue to qualify as a REIT under the Code.
As a REIT, the Company generally will not be subject to Federal or state income
tax on its net income that it currently distributes to shareholders.
Qualification and taxation as a REIT depends on the Company's ability to meet
certain dividend distribution tests, share ownership requirements, and various
qualification tests prescribed in the Code.
The Company's taxable income (loss) (before the dividends paid deduction) for
the years ended December 31, 1999, 1998, and 1997 was approximately $13.6
million, $(6.1) million, and $1.8 million, respectively. These amounts differ
significantly from net income (loss) as reported in the Company's consolidated
financial statements for the same periods. In order to maintain REIT status,
the Company must distribute to its common and preferred shareholders at least
95% of its taxable income in the form of deductible dividends. This required
distribution is significantly less than the amounts actually distributed each
year since the Company elected REIT status in 1993.
If the Company fails to qualify as a REIT in any taxable year, the Company will
be subject to Federal and state income taxes (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates. Even
if the Company qualifies for taxation as a REIT, the Company may be subject to
certain state and local taxes on its income and property and to Federal income
and excise taxes on its undistributed income.
The annual amount and the federal tax treatment of dividends paid on common
shares were as follows:
Total Paid Current
Per Common Taxable Non-Taxable
Share Dividends Return of Capital
Year ended December 31, 1999 $0.815 5% 95%
Year ended December 31, 1998 $0.800 0% 100%
Year ended December 31, 1997 $0.800 0% 100%
During the years ended December 31, 1999 and 1997, the Company paid dividends of
$5.50 and $2.3681 per preferred share, respectively, all of which was current
taxable income. During the year ended December 31, 1998 the Company paid
dividends of $5.50 per preferred share, all of which was tax deferred return of
capital.
Investment in Joint Venture
The Company's 50% joint venture investment in Palmer Park Mall Venture, which
owns Palmer Park Mall (not managed by the Company), is accounted for under the
equity method. As such, earnings of the joint venture are reflected in
miscellaneous income in the period earned and distributions of the joint venture
are reflected as a reduction in the carrying amount of the investment. The
investment amount in excess of the underlying net assets, net of accumulated
amortization, is $3.9 million at December 31, 1999, with a remaining
amortization period of approximately 11 years. The Company has guaranteed $10.0
million of the total $20.0 million of mortgage debt owed by Palmer Park Mall
Venture.
Minority Interest
Minority interest represents the common partnership units in the Operating
Partnership that are owned by Crown Investments and its subsidiary. At December
31, 1999 Crown Investments and its subsidiary owned 9,956,398 common partnership
units, or 27.53% of the total common partnership units outstanding. Crown
American Realty Trust owns the remaining 72.47%. The minority interest balance
is adjusted each year for Crown Investments' and its subsidiary's proportionate
share of net income (loss) of the Operating Partnership (after deducting
preferred unit distributions), common partnership distributions, and additional
capital contributions. Primarily because the common partnership distributions
have been larger than the Operating Partnership's income (loss) after preferred
unit distributions, the minority interest account on the consolidated balance
sheet has been declining each year. Based on current trends, the balance will
be reduced to zero in 2000. Under generally accepted accounting principles,
when and if the minority partner's share of the Operating Partnership's net
income (loss) and the minority partner's cash distributions and capital
contributions, would cause the minority interest balance to be less than zero,
such balance must be reported at zero unless there is a legal obligation of the
minority partner to reimburse the Operating Partnership for such excess amounts.
The partnership agreement does not provide for any such obligation by the
minority partner. Accordingly, when the minority interest account is reduced to
zero, the minority partner's share of income and loss and cash distributions,
net of its capital contributions, must be charged for financial reporting
purposes against the Company's share of earnings, as the general partner.
Subsequently, any future positive amounts representing the minority partner's
share of the Operating Partnership's income and loss and cash distributions net
of capital contributions would be credited in full to the Company's share of
earnings to the extent such amounts were previously charged against the
Company's earnings. This accounting method will not impact the cash flows of
the Company or the cash distributions made to shareholders or to the minority
partner.
Cash and Cash Equivalents
Cash and cash equivalents includes all unrestricted cash and cash equivalent
investments with original maturities of three months or less.
Net Income (Loss) Per Share
During 1997 the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, Earnings Per Share. Under SFAS No. 128, basic income (loss)
per common share is computed by dividing net income (loss) applicable to common
shares, as shown in the Consolidated Statements of Operations, by the weighted
average number of common shares outstanding for the year. Diluted income (loss)
per share is computed the same way except that the weighted average number of
common shares outstanding is increased, using the treasury stock method, for the
assumed exercise of options under the Company's share incentive plans, which are
the Company's only dilutive securities. Because no anti-dilution is permitted
under SFAS No. 128, diluted and basic EPS for 1999, 1998 and 1997 are identical.
The calculation of diluted earnings per share for 1999, 1998 and 1997 would have
included approximately 0 shares, 115,000 shares and 20,000 shares, respectively,
for the assumed exercise of options under the Company's share incentive plans,
except that no anti-dilution is permitted under SFAS No. 128.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS No. 133"). The Statement establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
FASB has approved Statement No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the effective date of FASB Statement No. 133,
which amends Statement 133 to be effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. Had the Company applied this standard
currently, the effect on the Company's financial position and results of
operations for the year ended December 31, 1999 would be immaterial.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition ("SAB No. 101"), to provide
guidance on the recognition, presentation and disclosure of revenue in financial
statements. Specifically, SAB No. 101 provides guidance on lessors' accounting
for contingent rent. SAB No. 101 explains the SEC staff's general framework for
revenue recognition. SAB No. 101 does not change existing literature on revenue
recognition, but rather clarifies the SEC's position on preexisting literature.
SAB No. 101 did not require the Company to change existing revenue recognition
policies and therefore had no impact on the Company's financial position or
results of operations at December 31, 1999.
NOTE 3 - DEFERRED CHARGES AND OTHER ASSETS
Deferred charges, net of amortization, and other assets are summarized as
follows (in thousands):
December 31, 1999 December 31, 1998
Deferred operating covenant costs $ 2,623 $ 5,253
Deferred financing costs 9,361 8,721
Prepaid expenses and miscellaneous
receivables 8,495 12,538
Furniture, fixtures, equipment,
and other 5,278 4,330
$ 25,757 $ 30,842
Deferred Operating Covenant Costs
During fiscal year 1991, approximately $23 million was paid to three anchor
tenants with respect to leases at ten of the malls and in 1992 an additional $4
million was paid in order to obtain operating covenants (a covenant requiring
the anchor, among other things, to maintain operations in certain of the
Properties for the duration of the lease period) and to extend the terms of
their leases beyond fiscal year 2000. In April 1993, an additional $0.2 million
was paid to another tenant to obtain similar rights. These costs were
capitalized and are being amortized over the life of the operating covenants
with the amortization recorded as a reduction of minimum rent. Amortization
was $2.6 million in each of the years ended December 31, 1999, 1998, and 1997,
respectively.
In addition, one of these tenants has exercised its option to require the
Company to expand and renovate certain of the leased premises, at the Company's
expense, and to reimburse the tenant for fixtures allowances, which together
aggregate approximately $9.0 million. As of December 31, 1999, $8.6 million of
these costs have been incurred and capitalized in the consolidated financial
statements with the remainder expected to be incurred in 2000.
Deferred Financing Costs
Deferred financing costs, net of accumulated amortization, at December 31, 1999,
consists of approximately $4.7 million related to the $465 million mortgage debt
refinancing with GECC in August 1998, approximately $2.9 million related to the
GECC line of credit refinancing in September 1999, and $1.8 million for new debt
obtained after the formation of the Company. Amortization of deferred financing
costs was $1.7 million, $2.7 million, and $3.3 million for the years ended
December 31, 1999, 1998 and 1997, respectively. Deferred financing costs
written off as part of extraordinary losses on early extinguishment of debt were
$5.9 million and $1.6 million for the years ended December 31, 1998 and 1997,
respectively. Deferred financing costs incurred and capitalized were $3.7
million, $6.8 million, and $4.8 million for the years ended December 31, 1999,
1998, and 1997, respectively.
NOTE 4 - RESTRUCTURING COSTS
During the first and third quarters of 1999, the Company recorded restructuring
charges of $1.0 million and $1.2 million, respectively, related to severance and
related costs for employees affected by two reductions in the number of
corporate office staff together with reductions in other corporate office-
related expenses. The restructurings involved approximately thirty-five home
office employees who were terminated and who represented a cross-section of
management, clerical, and secretarial employees.
The restructuring costs are shown as a separate line item in the Consolidated
Statements of Operations. The amount remaining to be paid at December 31, 1999
was approximately $0.7 million, and is included in "Accounts payable and other
liabilities" in the Consolidated Balance Sheet. It is expected that most of the
remaining liability that exists at December 31, 1999 will be paid out in 2000.
NOTE 5 - DEBT ON INCOME-PRODUCING PROPERTIES
Debt on income-producing properties consisted of the following (in thousands):
December 31, December 31,
1999 1998
Mortgage loans $ 465,000 $ 465,000
Permanent loans 131,429 133,960
Construction loans 15,625 2,932
Secured term loans and lines of credit 96,946 68,079
$ 709,000 $ 669,971
Mortgage Loans
Concurrently with the offering of shares of the Company in 1993, the Financing
Partnership borrowed an aggregate $300 million in mortgage debt through Kidder
Peabody Mortgage Capital Corporation (collectively, the "Kidder Mortgage
Loans"). In connection with obtaining a construction loan for rebuilding and
expanding Logan Valley Mall, in December 1995 the Company repaid $19.4 million
of the Kidder Mortgage Loans in order to release the Logan Valley Mall from the
Kidder Mortgage Loans and Financing Partnership. No prepayment penalty was
incurred. On August 28, 1998, the Company closed a $465 million 10-year
mortgage with General Electric Capital Corporation ("GECC"). The gross proceeds
from the new loan (the "GECC Mortgage Loan") were used to refinance the $280.6
million Kidder Mortgage Loans, the $110.0 million interim mortgage loan (see
below), and the $30.0 million secured term loan. The remaining proceeds were
used largely to establish escrows to fund the remaining expansion and
redevelopment costs of Patrick Henry Mall and Nittany Mall, and to fund closing
costs, initial loan reserves and prepayment penalties with respect to $200.0
million of the Kidder Mortgage Loans and the $30.0 million secured term loan
that were pre-paid prior to their maturity dates. The prepayment penalties for
the Kidder Mortgage Loans and the $30 million term loan were approximately $16.6
million. In addition, approximately $5.9 million of unamortized deferred
financing costs related to the Kidder Mortgage Loans and the $110.0 million
interim mortgage loan were written off. Both of these items were accounted for
as an extraordinary loss on early extinguishment of debt. The GECC Mortgage
Loan has a fixed stated interest rate of 7.43% and is secured by cross-
collateralized mortgages on 15 of the malls. The loan provides for payment of
interest only during the first two years and interest and principal
amortization, based on 25 year amortization, during the last eight years. Crown
Investments has guaranteed $250 million of the GECC Mortgage Loan. In
connection with the GECC Mortgage Loan, in November 1997, the Company made a
$6.0 million interest-bearing good-faith deposit with GECC, and in July and
August 1998, the Company made $12.2 million in non-interest bearing rate lock
deposits with GECC. These deposits were refunded at closing.
Permanent Loans
At December 31, 1999, permanent loans consisted of nine loans secured by seven
properties held by the Operating Partnership. Included in permanent loans is a
$2.7 million interest free Urban Development Action Grant loan with the City of
Johnstown, Pennsylvania, secured by an office building and due October 2006. A
$1.1 million loan related to Carlisle Plaza Mall is an Industrial Development
Bond secured with a $1.1 million letter of credit. Crown Holding has guaranteed
one of the permanent loans with a current outstanding balance of $10.4 million.
Construction Loans
In September 1998 the Company entered into a $26.8 million construction and
three-year permanent bank loan to finance a renovation and expansion of
Washington Crown Center. The loan has an interest rate of LIBOR plus 1.90%.
The construction loan term is for two years followed by a three-year permanent
term loan.
Secured Term Loans and Lines of Credit
In September 1999 the Company completed an extension to November 2001 and
certain modifications to its existing secured line of credit facility with
General Electric Capital Corporation. Prior to the modifications, the line of
credit consisted of a $50 million general line, of which $49.2 million was
outstanding, and a $100 million acquisition line of which $27.1 million was
outstanding related to the 1998 acquisition of Jacksonville Mall. The modified
credit facility combines the prior two lines into a single line of credit with a
$150 million maximum commitment level, and an initial $109 million availability,
of which $20 million is reserved for the Valley Mall expansion project. The
availability under the line can be increased up to the maximum amount upon
achieving certain financial and debt service ratio tests that depend on the
future operating performance of the five malls that secure the line and on
future interest rates. Interest under the modified line is based on LIBOR plus
2.95%. Borrowings under this credit facility totaled $96.9 million at December
31, 1999.
In addition to the above facility, the Company has a $6.0 million line with a
bank secured by a mortgage on the Company's headquarters office building bearing
interest at LIBOR plus 3.00%. This line is renewable annually on April 30 and
has been renewed through April 30, 2000. This line has a 0.125% per annum
commitment fee based on the unused amount of the line. No amounts were
outstanding under this line as of December 31, 1999.
Covenants and Restrictions
Various of the above loans and lines of credit contain certain financial
covenants and other restrictions, including limitations on the ratios, as
defined, of total Company debt to EBITDA, EBITDA to fixed charges, and floating
rate debt to total debt. The Company was in compliance with all such loan
covenants as of and during the period ended December 31, 1999. Twenty of the
Company's malls are mortgaged under the GECC Mortgage Loan and the GECC lines of
credit. All of these malls are owned by special purpose subsidiaries of the
Company. The sole business purpose of these subsidiaries, as an ongoing
covenant under the related loan agreements, is the ownership and operation of
the properties. The mortgaged malls and related assets owned by these
subsidiary entities are restricted under the loan agreements for the payment of
the related mortgage loans and are not available to pay other debts of the
consolidated Company. However, so long as the loans are not under an event of
default, as defined in the loan agreements, the cash flows from these
properties, after debt service and reserve payments are made, are available for
the general use of the consolidated Company.
Interest Rates
The Mortgage Loans on the Financing Partnership properties and nine of the
permanent loans with an aggregate principal balance of $596.4 million at
December 31, 1999 have fixed interest rates ranging from 4.25% to 9.11%. The
weighted average interest rate on this fixed-rate debt at December 31, 1999, and
1998 was 7.63% and 7.64%, respectively. The weighted average interest rate
during the years ended December 31, 1999, 1998, and 1997 was 7.63%, 7.58%, and
7.73%, respectively. All of the remaining loans with an aggregate principal
balance of $112.6 million at December 31, 1999 have variable interest rates
based on spreads ranging from 1.90% to 3.00% above 30 day LIBOR. The weighted
average interest rate on the variable rate debt at December 31, 1999 and 1998
was 8.63% and 7.18%, respectively. The weighted average interest rate during
the years ended December 31, 1999, 1998, and 1997 was 7.67%, 7.50%, and 7.93%,
respectively.
Debt Maturities
As of December 31, 1999, the scheduled principal payments on all debt, including
extensions available at the Company's option provided the debt is not in default
at the extension dates, are as follows (in thousands):
Year Ending
December 31,
2000 $ 5,466
2001 107,678
2002 40,710
2003 27,819
2004 77,376
Thereafter 449,951
Net $709,000
NOTE 6 - PREFERRED SHARE OFFERING AND TREASURY SHARES
The Company completed an offering of 2,500,000 11.00% non-convertible senior
preferred shares on July 3, 1997. The initial offering price was $50.00 per
share. The preferred shares are non-callable by the Company for a ten-year
period (until July 31, 2007). On or after July 31, 2007, the Company, at its
option, may redeem the preferred shares for cash at the redemption price per
share set forth below:
Redemption Price
Redemption Period Per Share
July 31, 2007 through July 30, 2009 $52.50
July 31, 2009 through July 20, 2010 $51.50
On or after July 31, 2010 $50.00
The net proceeds from the offering were $118.7 million after underwriter's
commission and other offering expenses. The net proceeds were contributed by the
Company to the Operating Partnership in exchange for 2,500,000 preferred
Partnership Units. The terms of the new class of preferred Partnership Units
generally parallel those of the Company's preferred shares as to distributions
and redemption rights. In turn, the Operating Partnership used the proceeds
received from the Company primarily to repay $58.3 million of debt, to
repurchase $12.2 million of common shares held in treasury under a common share
repurchase program approved by the Board of Trustees, and to acquire Valley Mall
for $32.0 million in November 1997.
As stipulated in the Prospectus Supplement, additional dividends shall be paid
quarterly to the holders of the preferred shares if the Company's total debt (as
defined) exceeds the product of 6.5 times EBITDA, as defined, (the "Leverage
Ratio") without the consent of the holders of at least 50% of the preferred
shares outstanding at the time. The Leverage Ratio computed as of December 31,
1999, is 6.08 to 1. If required to be paid, additional dividends will be for an
amount per preferred share equal to 0.25% of the Preferred Liquidation
Preference Amount (defined below) on an annualized basis for the first quarter
with respect to which an additional dividend is due. For each quarter
thereafter that the Company continues to exceed the permitted Leverage Ratio,
the additional dividend will increase by an amount per preferred share equal to
an additional 0.25% of the Preferred Liquidation Preference Amount on an
annualized basis. However, the maximum total dividend on the preferred shares,
including any additional dividends, will not at any time exceed 13.00% of the
Preferred Liquidation Preference Amount per annum. The Preferred Liquidation
Preference Amount is equal to the sum of $50.00 per share plus an amount equal
to any accrued and unpaid dividends thereon (including any additional dividends)
and whether or not earned or declared to the date of payment.
In connection with the preferred share offering, the Company's Board of Trustees
also authorized the Company to make open market purchases of the Company's
common shares. As of December 31, 1999 and 1998, the Company had repurchased
1,534,398 common shares for an aggregate purchase price of $14.7 million; these
shares are currently held as treasury shares. Under the current Board
resolution, additional repurchases of common shares will require re-approval by
the Board. In connection with such repurchases, the Operating Partnership
redeemed from the Company an equivalent number of common Partnership Units for
the equivalent repurchase cost, thus maintaining a 1.0 to 1.0 relationship
between the number of the Company's outstanding common shares of beneficial
interest and the number of common Partnership Units in the Operating Partnership
that are owned by the Company.
NOTE 7 - LEASING ACTIVITIES
The Company is primarily a lessor of shopping malls and the concentration of
tenants are in the retail industry. Leases are generally noncancelable and
expire on various dates through approximately the year 2021. The future minimum
lease payments to be received under existing leases as of December 31, 1999, are
as follows (in thousands):
Year Ending
December 31,
2000 $103,829
2001 95,687
2002 84,398
2003 76,527
2004 68,177
Thereafter 263,070
Net $691,688
The future minimum lease payments above do not include payments from tenants
which are due based upon a percentage of their gross sales or payments for the
tenants' share of common area maintenance costs and real estate taxes.
Total direct costs incurred by the Company to obtain leases, which are deferred
and amortized over the life of the lease, are as follows (in thousands):
Beginning Ending
Year Ended Balance Additions Amortization Other Balance
December 31, 1999 $ 16,474 $ 2,705 $ 3,372 $ - $ 15,807
December 31, 1998 16,348 4,550 3,673 (751) 16,474
December 31, 1997 17,914 2,398 3,964 - 16,348
NOTE 8 - RELATED PARTY TRANSACTIONS
Crown Rights
Pursuant to the Operating Partnership Agreement, Crown Investments, and its
subsidiary, Crown American Investment Company, have certain rights (the "Crown
Rights"), which enable them to require the Operating Partnership to redeem part
or all of their common Partnership Units for a price equal to the equivalent
value of the common shares of the Company (on a one-for-one basis). Crown
Investments currently owns 8,169,939 common Partnership Units and Crown American
Investment Company owns 1,786,459 common Partnership Units. The obligation to
redeem these Partnership Units may be assumed by the Company in exchange for, at
the Company's election, either shares (on a one-for-one basis) or the cash
equivalent thereof, provided that the Company may not pay for such redemption
with shares to the extent that it would result in Crown Investments and its
affiliates beneficially or constructively owning more than 16.0% of the
outstanding shares. Crown Investments and its affiliates may require the
Company to assume the obligation to pay for such redemption with shares to the
extent that Crown Investments and its affiliates own less than 16.0% of the
outstanding shares. Crown Investments and its subsidiary have pledged
substantially all their Partnership Units (the "Pledged Units") as collateral
for a loan made by an unrelated third party. In June 1995 the Company filed a
Registration Statement on Form S-3 with the Securities and Exchange Commission
relating to the Pledged Units. If at the time of any such permitted exchange
the Shelf Registration is not effective, the Company is obligated to purchase a
specified portion of the Pledged Units. The Company also has the right to
purchase the Pledged Units in lieu of effecting an exchange.
Management Agreements
The Company manages certain retail properties for Crown Associates pursuant to a
management agreement. Certain of these properties were transferred to an
affiliate of Crown Associates in 1995 and 1996. For its services, the Company
receives management and leasing fees which amounted to $0.04 million, $0.06
million, and $0.18 million, for the years ended December 31, 1999, 1998, and
1997, respectively.
In addition, Crown Investments, Crown Associates, and their affiliates have
agreed to pay the Company sales commissions up to 15% of the net sales price for
its services in selling certain land and other assets owned by these parties.
Total commissions earned were $0.1 million, $0.1 million, and $0.0 million for
the years ended December 31, 1999, 1998, and 1997, respectively, and are
included in miscellaneous income.
Support Agreement
In connection with the Company's formation, Crown Investments entered into a
cash flow support agreement (the "Support Agreement"), which was subsequently
amended in 1997 and 1994, with the Operating Partnership and the Financing
Partnership with respect to Mount Berry Square, Martinsburg Mall, Oak Ridge Mall
and Bradley Square, all of which were opened in 1991 and were in various stages
of initial lease-up, with mall store occupancy rates below 75%.
The Support Agreement provides that Crown Investments will guarantee, on a
quarterly basis, up to a maximum of $1.0 million per quarter, that each of these
four malls will generate a stipulated aggregate amount of base rents from each
such mall. The quarterly amounts due under the Support Agreement are calculated
as the difference between the aggregate amount of actual base rents earned in
the quarter at each mall and the stipulated aggregate amount of base rents. The
1997 amendment provided that the quarterly support amounts after 1997 shall be
reduced by 2.5% of the gross sales price of any sales of outparcel land that
occur after 1997, which is intended to approximate the base rents that could
have been earned had such outparcel land been leased or developed, rather than
sold. Crown Investments was also obligated to fund any tenant improvement and
leasing costs associated with a fixed amount of shortfall space, as defined.
The obligations of Crown Investments under the Support Agreement presently
continue as to all four malls and will terminate as to a mall when the aggregate
base rents at such mall achieve the stipulated amount over four consecutive
quarters (as determined by the independent trustees of the Company).
Total cash flow support earned by the Company was $3.0 million, $3.8 million,
and $3.7 million, for the years ended December 31, 1999, 1998, and 1997,
respectively. In addition, Crown Investments agreed to fund certain tenant
improvement costs incurred for signed leases as of June 30, 1993 scheduled to
commence subsequent thereto. These tenant improvement costs were funded in 1993
and 1994 and have been insignificant thereafter. During 1995 Crown Holding
advanced $6.4 million to the Company primarily to pre-fund future payments under
the Support Agreement. This pre-funding did not change or terminate the Support
Agreement, and additional funding recommenced in 1997. Earned support payments
and funded tenant improvements under the Support Agreement are accounted for as
capital contributions made by the minority owner in the Operating Partnership
and are credited to minority interest (as to the minority ownership percentage)
with the remainder to the Company's paid-in capital. As a result of the above
transactions, the Company had a receivable of $0.7 million from Crown
Investments at December 31, 1999.
Crown Associates Lease at Pasquerilla Plaza
Approximately 14,500 square feet of Pasquerilla Plaza is leased to Crown
Associates and an affiliate for annual base rent of approximately $272,000. The
rent was determined based on rental rates being paid by existing third party
tenants and on the fact that Crown Associates' lease includes certain
furnishings and equipment and allows Crown Associates use of certain facilities
in the building not available to other third party tenants. The lease with Crown
Associates ends July 31, 2003 and includes a five-year renewal option at then
market rents. The lease with the affiliate ends March 31, 2009, but the
affiliate has the right to cancel the lease at the end of March 31, 2004. Total
rent earned by the Company for the years ended December 31, 1999, 1998, and 1997
was $283,516, $262,063, and $245,500, respectively.
Lease at Logan Valley Mall between the Company and Crown American Enterprises
Crown American Enterprises (CAE) entered into a lease for a 1,962 square foot
mall shop space at the Company's Logan Valley Mall. CAE subsequently assigned
this lease to Crown Max LLC, a company which is owned by CAE and an unrelated
third party. The lease began on January 1, 1998 and had a ten-year term with an
annual base rent of $44,000 plus contributions to common area maintenance and
real estate taxes. The terms were comparable to rates for similar space rented
to third parties at this property. CAE used this space to operate a virtual-
reality entertainment facility. In addition to the rental income, the Company
was interested in determining the economic feasibility of adding similar
entertainment facilities to other Company malls. CAE closed the entertainment
facility on December 31, 1998, and the Company and CAE negotiated a lease
surrender and termination agreement whereby CAE paid an additional $22,000 to
the Company as consideration for the lease termination as of December 31, 1998.
The total amounts received by the Company under the lease, including the lease
termination payment, exceeded the Company's non-recoverable investment in the
leased premises.
Line of Credit with Crown Financing Company
In December 1996 the Board of Trustees approved the terms of a $10 million
standby line of credit with Crown Financing Company, a wholly-owned subsidiary
of Crown Holding Company. Under this unsecured facility, the Company was
permitted to borrow up to $10 million with interest based on the prime rate plus
1 5/8%. This line of credit expired during 1998 and no amounts were ever
borrowed under this line.
Amounts due to or from Crown Associates and Crown Investments
In addition to the above items, the Company allocates a portion of the costs
related to its administration, communications, MIS, legal, and risk management
departments to Crown Associates based on estimated usage. These allocated costs
aggregated $0.6 million, $0.5 million, and $0.5 million for the years ended
December 31, 1999, 1998, and 1997, respectively. Conversely, Crown Associates
and its affiliates charge the Company for use of their corporate aircraft, hotel
and dining services. Such costs totaled $0.4 million in 1999, $0.8 million for
1998, and $0.1 million for 1997. As a result of the above transactions, the
Company had a net receivable from Crown Associates and Crown Holding at
December 31, 1999 of $0.1 million.
NOTE 9 - LEASES
The Company is the lessee under third-party ground leases for Shenango Valley
Mall, Crossroads Mall, and Greater Lewistown Plaza, and is the lessee under two
third-party ground leases for Uniontown Mall. The Shenango Valley Mall lease
expires on July 24, 2017. The Greater Lewistown lease expires on February 1,
2045 and the Crossroads lease expires in October, 2027 with a 49 year option
period. One lease for Uniontown Mall expires on March 30, 2038 with up to seven
five-year renewal options and the other lease expires on April 30, 2039 with up
to four five-year renewal options. All five leases require fixed annual
payments. Fixed rental expense related to these leases for the years ended
December 31, 1999, 1998, and 1997 was $297,000, $246,000, and $153,000,
respectively. Future minimum lease payments on these leases are $298,022 per
year through 2004 and $9,782,000 for all years thereafter.
Under the Uniontown Mall and Greater Lewistown leases additional rents are paid
based on mall tenant percentage rents. These additional rents were $83,000,
$64,000, and $58,000, for the years ended December 31, 1999, 1998, and 1997,
respectively.
Capital Leases
Assets under capital leases, primarily office and mall equipment, are
capitalized using interest rates appropriate at the inception of each lease.
Capital lease obligations amounted to $0.9 million and $0.5 million at
December 31, 1999 and 1998, respectively, and are included in accounts payable
and other liabilities.
NOTE 10 - RETIREMENT SAVINGS AND SHARE INCENTIVE PLANS
Retirement Savings Plan and Savings Restoration Plan
The Company established the Crown American Realty Trust Retirement Savings Plan
(the "Retirement Savings Plan") pursuant to Section 401(k) of the Internal
Revenue Code to cover employees of the Operating Partnership. Employees who
have completed at least one year of service, working 1,000 hours per year, and
have attained age 21 are eligible to participate in the Retirement Savings Plan.
The Operating Partnership contributes a percentage of each eligible employee's
base pay (the "Supplemental Employer Contribution") to the Retirement Savings
Plan on behalf of each eligible employee. The Supplemental Employer
Contribution is 2% of base pay if the employee is under 35 years of age, 3% if
35 to 49 years of age, and 5% if 50 years of age or older. In addition,
participants may elect to contribute between 1% and (subject to certain
restrictions) 15%. Employee contributions are matched (the "Matching
Contribution") by the Company up to 50% of the first 3% of the participant's
compensation.
The receipt of benefits attributable to the Operating Partnership's Matching
Contribution and Supplemental Employer Contribution is subject to the vesting
and forfeiture provisions of the Retirement Savings Plan. Supplemental Employer
Contributions become 100% vested after five years of service is credited to the
employee. Matching Contributions become vested 20% after two years of service
and an additional 20% becomes vested per year thereafter. Years of service
include service with Crown American Corporation. Other amounts are fully vested
at all times.
Total plan costs for the years ended December 31, 1999, 1998, and 1997 were
$546,000, $605,000, and $512,000, respectively. The plans of predecessor
affiliated entities were terminated upon the formation of the Company.
In late 1996 the Company adopted The Savings Restoration Plan which is designed
to allow eligible employees to defer current compensation in amounts that exceed
the limits that can be deferred under The Retirement Savings Plan. The plan
became effective January 1, 1997 and $102,000, $129,000 and $114,000 was
deferred in 1999, 1998 and 1997, respectively, under the plan. Amounts deferred
are charged to expense in the current period; as such, all compensation expense
under the above plans is being fully recognized as it is earned.
Share Incentive Plans
Prior to the initial public offering, the shareholders of the Company approved
the 1993 Crown American Realty Option Plan (the "Employee Option Plan"), and the
1993 Crown American Realty Trustees' Option Plan (the "Trustees' Option Plan").
Under the Employee Option Plan, options to purchase a total of 1,200,000 common
Partnership "Units" of the Operating Partnership are currently available for
grant to officers and key employees. The Board of Trustees, subject to
shareholder approval, has approved an increase in the number of shares available
for grant by 1,000,000 shares. The Chairman and CEO currently does not
participate in any share incentive plan. Under the Employee Option Plan,
options are to be granted at not less than the market value of the common shares
on the date of grant. In certain circumstances, option holders may redeem the
Units for cash or Shares (at the option of the Company).
Currently, all the Employee Option Agreements provide that an option may only be
exercised after the optionee has completed two years of employment with the
Operating Partnership after the date of the grant of the option. Under such
Option Agreements, an option first becomes exercisable to the extent of 20% of
the total number of Units subject to the option on each of the second, third,
fourth, fifth and sixth anniversaries of the date of the grant of the option.
If employment is terminated after the option has partially or fully vested, the
option may be exercised to the extent it was exercisable at the time of
termination of employment. There are certain limitations on the timing of
exercise of the option after termination of employment. Currently, all the
Option Agreements provide that options expire five years after the date they
first become exercisable.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Units Price Units Price Units Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, 1,179,870 $ 8.14 1,126,000 $ 8.13 1,036,000 $ 8.00
beginning of period
Granted 65,000 7.27 150,000 8.84 90,000 9.53
Canceled (276,000) 8.02 (88,800) 9.13
Exercised (775) 7.75 (7,330) 7.83
Options outstanding, 968,095 $ 8.13 1,179,870 $ 8.14 1,126,00 $ 8.13
end of period
Range of option $ 6.06 to $ 7.75 to $ 7.50 to
exercise prices $ 9.25 $ 9.25 $ 9.75
Weighted average fair
value of options
granted during the
year $ 0.52 $ 0.30 $ 0.59
Weighted average
contractual life at
end of period
(in years) 5.1 5.9 7.1
Options exercisable
at period end 393,522 187,974 2,000
Total compensation
expense recognized
during the period $ 0 $ 0 $ 0
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999, 1998, and 1997, respectively: dividend
yield of 11.30%, 9.06%, and 8.40%; expected volatility of 30%, 16%, and 17%;
risk-free interest rates of 5.6%, 5.1%, and 6.3%; and expected lives of 9.0
years, 7.4 years, and 9.0 years.
The Trustees' Option Plan was amended and restated effective as of December 30,
1997. As amended, options to purchase a total of 125,000 common shares of
beneficial interest of the Company are available to non-employee Trustees. Each
non-employee Trustee automatically is granted on December 31 of each year an
option to purchase 5,000 common shares having an exercise price equal to 100% of
the fair market value of the shares at the date of grant. The amended Trustees'
Option Plan also provides for an automatic grant of 5,000 options to purchase
common shares with an exercise price equal to 100% of the fair market value of
the shares at the date of grant upon the appointment or election of each new
non-employee Trustee to the Board. As of December 31, 1999 there were
62,000 options to purchase common shares held by the Trustees. To date, all
options granted to the Trustees under the Trustees' Option Plan have been
exercisable immediately upon grant, and as of December 31, 1999 only 1,000
options have been exercised. Options under the Trustees' Option Plan expire
five years from the date of grant.
The Company applies APB Opinion 25 and related Interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized for its option
plans. Had compensation cost for the Company's option plans been determined
based on the fair value at the grant dates for awards under those plans
consistent with the method of SFAS No. 123, the Company's net income for the
years ended December 31, 1999, 1998, and 1997 would have been reduced by
approximately $0.05 million, $0.10 million, and $0.13 million, respectively, or
$0.002, $0.004, and $0.005 per share, respectively.
NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS AND MARKET RISKS
Statement of Financial Accounting Standards No. 107, Fair Value of Financial
Instruments, requires disclosures about fair value for all financial
instruments. Based on the borrowing rates currently available to the Company,
the carrying amount of the Company's $596.4 million of fixed rate debt has an
estimated fair value of $560.5 million at December 31, 1999. The remaining
$112.6 million of debt is at floating interest rates which approximate current
rates available to the Company for such debt, and accordingly the fair value of
such floating rate debt approximates the current carrying amount.
NOTE 12 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1999 and 1998 is shown below (in
thousands, except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Year ended December 31, 1999:
Revenues $ 38,119 $ 37,715 $ 38,416 $ 44,824
Operating income before interest,
asset sales and adjustments, and
extraordinary items 12,455 13,336 12,779 18,285
Income (loss)before minority
interest in Operating Partnership 249 911 (116) 6,497
Net income (loss) allocated to
common shares $ (2,266) $ (1,867) $ (2,570) $ 2,228
Net income (loss) per share:
Basic $ (.09) $ (.07) $ (.10) $ .09
Diluted $ (.09) $ (.07) $ (.10) $ .09
Year ended December 31, 1998:
Revenues $ 34,308 $ 35,263 $ 35,952 $ 41,225
Operating income before interest,
asset sales and adjustments, and
extraordinary items 11,384 12,276 11,760 16,000
Extraordinary (losses) (1,703) (22,512)
Income (loss)before minority
interest in Operating Partnership 45 1,685 (22,532) 3,800
Net income (loss) allocated to
common shares $ (2,468) $ (1,266) $(18,918) $ 263
Net income (loss) per share:
Basic $ (.09) $ (.05) $ (.73) $ (.02)
Diluted $ (.09) $ (.05) $ (.73) $ (.02)
</TABLE>
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Company obtains insurance for worker's compensation, automobile, general
liability, property damage, and medical claims. However, the Company has
elected to retain a portion of expected losses for property damage, and general
liability through the use of deductibles which generally range up to $250,000
per claim with certain maximum aggregate policy limits per year. Provisions for
losses expected under these programs are recorded based on estimates, provided
by consulting actuaries who utilize the Company's claims experience and
actuarial assumptions, of the aggregate liability for claims incurred and claims
incurred but not reported. The total estimated liability for these losses at
December 31, 1999 and 1998 was $3.9 million and $4.0 million, respectively, and
is included in accounts payable and other liabilities.
Based on environmental studies completed on the Properties, management believes
any exposure related to environmental clean-up will be immaterial.
The Company from time to time is subject to litigation and claims incidental to
its business. Except as described below, neither the Company nor any of the
Partnerships are currently involved in any material litigation and, to the best
of the Company's knowledge, there are no material litigation or claims currently
threatened against the Company or the Partnerships, other than routine
litigation or claims, asserted or unasserted, arising in the ordinary course of
business, most of which is expected to be covered by liability insurance or
established reserves.
Shareholder litigation
On August 10, 1995, August 17, 1995, and September 8, 1995 complaints were filed
by various individuals on behalf of themselves and also purportedly on behalf of
other similarly situated persons against the Company and certain of its
executive officers in United States District Court for the Western District of
Pennsylvania to recover unspecified damages under the federal securities laws
resulting from a decline in the market price for the Company's common shares of
beneficial interest which are listed and traded on the New York Stock Exchange.
The decline in the Company's share price followed the announcement on August 8,
1995 of various operational and capital resource initiatives by the Company,
including the reduction of the Company's quarterly dividend to increase its
levels of retained internal cash flow and the planned sale of certain assets
that at the time did not fit the Company's growth strategy. The complaints in
these three cases were consolidated by the Court and a consolidated amended
complaint was filed on July 30, 1996. The consolidated amended complaint
asserts a class period extending from March 1, 1995 to August 8, 1995,
inclusive.
A fourth Complaint was filed the week of December 15, 1995 by an individual on
behalf of himself and also purportedly on behalf of other similarly situated
persons against the Company and certain of its current and former executive
officers in the United States District Court for the Eastern District of
Pennsylvania (the Warden action). This action was subsequently transferred to
the Western District of Pennsylvania. While this Complaint is substantially
similar to the previous Complaints, it alleged a class period extending from
August 17, 1993 (the IPO date) to August 8, 1995.
The Company filed a motion seeking to dismiss the consolidated action and
negotiated a stay of the Warden action pending resolution of the motion to
dismiss the consolidated actions. On September 15, 1997 the Court issued an
opinion dismissing the consolidated amended complaint. In its ruling, the Court
dismissed certain allegations with prejudice and others with an opportunity to
amend. On October 10, 1997 the Plaintiffs filed a second amended complaint in
the consolidated action. On December 2, 1997 the court entered an order
consolidating the cases for pretrial purposes. On December 16, 1997 the
Plaintiff in the Warden action filed a second amended complaint, which changed
the end of the putative class period to February 28, 1995. On January 16, 1998
the Company filed motions seeking dismissal of both the consolidated action and
the Warden action. On October 15, 1998 the Court in the Warden action granted
the Company's motion to dismiss and permitted the plaintiffs to file a third
amended complaint.
On November 2, 1998, the Court granted in part and denied in part the Company's
motion to dismiss the second amended complaint in the consolidated action. In
its ruling, the Court dismissed the Company as a defendant and dismissed all of
the plaintiff's claims with prejudice, except for a narrow set of allegations
relating to projections of the 1995 dividend at a March 1995 REIT conference and
in the 1994 annual report. On November 30, 1998, the plaintiffs in the Warden
action and the consolidated action each filed third amended complaints. In the
consolidated action, plaintiffs sought to renew certain claims against the
Company notwithstanding the Court's prior rulings. On December 21, 1998, the
Company filed a motion seeking dismissal of the third amended complaint in the
Warden action. On February 5, 1999, the Company filed a motion to dismiss the
third amended complaint in the consolidated action.
On July 6, 1999, the Court granted the Company's motion to dismiss the third
amended complaint in the Warden action in its entirety with prejudice. On
August 5, 1999, the plaintiffs filed an appeal to the U.S. Court of Appeals for
the Third Circuit. On July 20, 1999, the Court granted in part and denied in
part the Company's motion to dismiss the third amended complaint in the
consolidated action. In its ruling, the Court dismissed the Company as a
defendant and otherwise ruled consistent with its November 2, 1998, decision,
dismissing all of the claims, except for the narrow set of allegations
referenced above.
The consolidated legal action and the Warden action are both in a preliminary
stage. However, the Company believes, based on the advice of legal counsel,
that it and the named officers have substantial defenses to the plaintiffs'
claims, and the Company intends to vigorously defend the action. The Company's
current and former officers that are named in this litigation are covered under
a liability insurance policy paid for by the Company. The Company's officers
also have indemnification agreements with the Company. While the final
resolution of this litigation cannot be presently determined, management does
not believe that it will have a material adverse effect on the Company's
consolidated results of operations or financial condition.
Tenant litigation
In July 1997, the Bon-Ton Department Stores, Inc. filed suit in a Pennsylvania
state court against Crown American Financing Partnership and the May Department
Stores Company seeking to enjoin the development of a Kaufmann's department
store at the Nittany Mall. Bon-Ton claims that the proposed Kaufmann's store
would violate a restrictive covenant in Bon-Ton's lease with the Company. The
Company and May disputed Bon-Ton's position and filed a counterclaim seeking a
declaratory judgment that the proposed transaction did not violate the
restrictive covenant. The parties stipulated to a trial of all issues (except
the availability of damages to Bon-Ton should it establish liability but not the
entitlement to injunctive relief). After this trial, the Court ruled in favor
of the Company and May, denying Bon-Ton's request for injunctive relief and
granting the Company's and May's motion for a declaratory judgment. Bon-Ton
appealed to the Pennsylvania Superior Court which entered an Order in favor of
the Company and May on April 7, 1999. Bon-Ton filed an Application Requesting
Reargument which the Pennsylvania Superior Court denied by Order dated June 15,
1999. On July 15, 1999, Bon-Ton filed a Petition for Allowance of Appeal to the
Pennsylvania Supreme Court, which said Court denied by Order dated October 18,
1999. Bon-Ton has filed no further appeal.
Commitments
The Company has various purchase commitments in the normal course of business.
The Company also has commitments under signed leases with tenants to make future
cash allowances and/or to construct tenant premises, which aggregate
approximately $14.5 million as of December 31, 1999, excluding amounts committed
in connection with mall expansions as described in Note 14.
NOTE 14 - MALL ACQUISITIONS AND EXPANSIONS
In May 1998 the Company acquired, in a single transaction, two regional shopping
malls: Jacksonville Mall in Jacksonville, North Carolina, and Crossroads Mall
in Beckley, West Virginia. The two malls include gross leasable area of 415,000
and 450,000 square feet, respectively. Sears, JCPenney and Belk Stores anchor
both malls. The total purchase price was approximately $61 million, which
includes 10 acres of vacant land at Jacksonville Mall which is being used for
the addition of a multi-screen theater expected to open in late 2000. The
purchase was funded from existing credit lines and also from assumption of debt
related to one of the properties. Each property is held in a limited partnership
or a limited liability corporation.
In April 1998 the Independent Trustees approved the purchase of the partnership
interests in Greater Lewistown Shopping Mall. The partnership owned an existing
ground lease interest in Greater Lewistown Plaza, a 172,000 square feet non-
enclosed retail shopping center located near Lewistown, PA together with fee
simple interests in 4 separate adjacent parcels that total 0.59 acres (together
the "Greater Lewistown Plaza"). The partnership had been 99.5% owned by Frank
Pasquerilla and 0.5% owned by Crown American Enterprises, a company that is a
wholly-owned indirect subsidiary of Crown Holding. The purchase price was $4.5
million and was paid by the assumption of the existing first mortgage ($3.686
million), issuance of 79,551 common partnership units to Frank Pasquerilla,
valued at $10.183 per unit which was based on the weighted average closing
market price of the Company's common shares for the ten days preceding the
May 31, 1998 closing date, and a cash payment of $4,071 to Crown American
Enterprises for its 0.5% ownership interest. Greater Lewistown Plaza is
currently 100% leased, and the major tenants include a Weis Markets and a J.C.
Penney store.
In November 1997 the Company acquired Valley Mall located in Hagerstown,
Maryland for $31.7 million in cash, plus $0.4 million in transaction costs. The
purchase was funded entirely from the proceeds of the Preferred Share Offering
(see Note 6). Valley Mall is an enclosed regional mall currently consisting of
approximately 889,000 square feet of gross leasable area ("GLA"), of which
123,400 square feet is owned by the current department store occupant. The
purchase also included 30.8 acres of additional adjacent undeveloped land which
was used in the expansion described below.
The Company has substantially completed construction of an expansion and
redevelopment of Washington Crown Center and an expansion at Valley Mall. The
total costs of the two projects, including capitalized construction overhead,
interest, and tenant allowances, are estimated at $33 million and $33 million,
respectively, of which $21 million and $20 million, respectively, had been
incurred as of December 31, 1999. In addition to amounts incurred at December
31, 1999, the Company is committed for future payments under various
construction purchase orders and certain leases. The Company has secured
through a bank lender a $26.8 million construction and three-year permanent loan
for the Washington Crown Center expansion and redevelopment; the loan bears
interest at LIBOR plus 1.90%, and $15.6 million was borrowed and outstanding at
December 31, 1999. The Valley Mall expansion is being financed under the line
of credit with GECC as described in Note 5.
NOTE 15 - PROPERTY SALES AND DISPOSALS
With respect to Middletown Mall, a property acquired by the Company on February
1, 1995 from Crown Associates, additional contingent consideration, in the form
of 437,888 common Partnership Units, was paid to Crown Investments Trust
effective as of January 1, 1998, as consideration for the contribution of
Middletown Mall to the Operating Partnership. The 437,888 units represented
approximately 1.2% of the total common Partnership Units outstanding prior to
the issuance of the new units. In July 1998 the Company sold Middletown Mall,
together with approximately 60 acres of undeveloped outparcels and vacant land,
to an unrelated third party. The aggregate purchase price was $12.2 million.
The Company received $8.5 million in cash, net of closing costs, and received a
$3.5 million one-year 9.5% mortgage from the purchaser, secured by a first
mortgage on all the undeveloped land and outparcels and by a second mortgage on
the mall. The note was paid in full in December 1999 at which time the deferred
gain of $1.3 million was recognized.
NOTE 16 - SHAREHOLDER RIGHTS PLAN
On January 21, 2000, the Company's Board of Trustees adopted a Shareholder
Rights Plan (the "Rights Plan") designed to protect shareholders and to assure
that they receive fair treatment in the event of any proposed takeover of the
Company. The intent of the Rights Plan is to encourage negotiation with the
Company's Board of Trustees prior to any takeover attempt and to give the Board
increased leverage in such negotiations. The Plan was not adopted in response to
any specific offer or takeover threat.
In connection with the Rights Plan, the Company will distribute one
Preferred Share Purchase Right (a "Right") for each outstanding Common
Share to common shareholders of record at the close of business on February
4, 2000. Each Right initially will entitle the holder to buy one one-
hundredth of a share of a new Series A Junior Participating Preferred
Shares at an exercise price of $20.00. The Rights will become exercisable
after a person or group has acquired twenty percent or more of the
Company's outstanding Common Shares or has announced a tender offer that
would result in the acquisition of twenty percent or more of the Company's
outstanding Common Shares. The Company's Board of Trustees has the option
to redeem the Rights for $0.001 per Right prior to their becoming
exercisable.
Assuming the Rights have not been redeemed, after a person or group has
acquired twenty percent or more of the Company's outstanding Common Shares,
each Right (other than those owned by a holder of twenty percent or more of
the Common Shares) will entitle its holder to purchase, at the Right's then
current exercise price, that number of the Company's Common Shares having a
market value at that time of twice the Right's exercise price. In
addition, at any time after the Rights become exercisable and prior to the
acquisition by the acquiring party of fifty percent or more of the
outstanding Common Shares, the Company's Trustees may exchange the Rights
(other than those owned by the acquiring person or its affiliates) for
Common Shares of the Company at an exchange ratio of one share per Right,
or for Series A Junior Preferred Shares of the Company at an exchange ratio
of one one-hundredth of such preferred share per Right.
Initially, the Rights will not be exercisable and certificates will not be
issued. The Rights will be evidenced by and trade with the Company's Common
Shares until they become exercisable and are separated from the Common Shares
upon the occurrence of certain future events. Until that time, one Right will
also be issued with respect to each new Common Share that shall become
outstanding. The Rights will expire on January 20, 2010 unless they are earlier
exchanged or redeemed.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable
PART III
Items 10 through 13.
In accordance with the provisions of General Instruction G (3) to
Form 10-K, the information required by Item 10 (Directors and Executive
Officers of the Registrant), Item 11 (Executive Compensation), Item 12
(Security Ownership of Certain Beneficial Owners and Management) and
Item 13 (Certain Relationships and Related Transactions) is not set forth herein
(except for the information concerning "Executive Officers of the Company" which
appears at the end of Part I hereof) because the Company's definitive Proxy
Statement for its Annual Meeting of Shareholders to be held on April 26, 2000,
which includes such information, will be filed with the Commission not later
than 120 days after the end of the fiscal year covered by this annual report.
Such information is incorporated in this annual report by reference, except for
the information required to be included in the Proxy Statement by paragraphs (k)
and (l) of Item 402 of Regulation S-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The financial statements, financial statement schedules and exhibits listed
below are filed as part of this annual report:
Page No.
(a) (1) Financial Statements
Report of Independent Public Accountants 29
Consolidated Statements of Operations of Crown 30
American Realty Trust for the years ended
December 31, 1999, 1998 and 1997.
Consolidated Balance Sheets of Crown American
Realty Trust as of December 31, 1999, and 1998. 31
Consolidated Statements of Cash Flows of Crown
American Realty Trust for the years ended
December 31, 1999, 1998 and 1997. 32
Consolidated Statements of Shareholders' Equity
of Crown American Realty Trust for the years ended
December 31, 1999, 1998 and 1997. 33
Notes to Consolidated Financial Statements 34-50
(2) Financial Statement Schedules
Schedule III - Consolidated Real Estate and
Accumulated Depreciation 55-56
Schedule IV - Valuation and Qualifying Accounts
and Reserves 57
(b) Reports on Form 8-K No events which resulted in the filing of a
current report on Form 8-K occurred during the fiscal quarter ended December 31,
1999.
(c) Exhibits
3.1 Second Amended and Restated Declaration of Trust of the Company. (c)
3.2 Bylaws of the Company. (c)
4.1 See Second Amended and Restated Declaration of Trust of the Company,
(Exhibit 3.1). (c)
4.2 Articles Supplementary Classifying and Designating a Series of
Preferred Shares (filed as Exhibit 4.4 to the Company's Amendment
No. 2 to Registration Statement on Form S-3, filed on June 27, 1997)
4.3 Form of Preferred Share Certificate (filed as Exhibit 4.5 to the
Company's Amendment No. 2 to Registration Statement on Form S-3,
filed on June 27, 1997
10.1 Amended and Restated Agreement of Limited Partnership of Crown
American Properties, L.P. (b)
10.2 (a) First Amendment to Amended and Restated Agreement of Limited
Partnership of Crown American Properties, L.P. (b)
10.2 (b) Second Amendment to Amended and Restated Agreement of Limited
Partnership of Crown American Properties, L.P. (a)
10.2 (c) Third Amendment to Amended and Restated Agreement of Limited
Partnership of Crown American Properties, L.P. (a)
10.2 (d) Fourth Amendment to Amended and Restated Agreement of Limited
Partnership of Crown American Properties, L.P. (f)
10.2 (e) Fifth Amendment to Amended and Restated Agreement of Limited
Partnership of Crown American Properties, L.P. (g)
10.2 (f) Sixth Amendment to Amended and Restated Agreement of Limited
Partnership of Crown American Properties, L.P. (g)
10.2 (g) Amendment dated September 10, 1998, to the Sixth Amendment to Amended
and Restated Agreement of Limited Partnership of Crown American
Properties, L.P. (g)
10.3 Amended and Restated Partnership Agreement of Crown American
Financing Partnership. (b)
10.4 Certificate of Incorporation and Bylaws of Crown American
Financing Corporation. (b)
10.5 Real Estate Management Agreements between the Operating Partnership
and the following entities:
(a) Financing Partnership (g)
(b) Crown American Associates (b)
(h) Crown American WL Associates, L.P., as amended (g)
(i) Crown American Acquisition Associates I, L.P. (f)
(j) Crown American Lewistown Associates, L.P. (g)
(k) Crown American Acquisition Associates II, L.P. (g)
(l) Crown American Crossroads LLC (g)
(m) Washington Crown Center Associates, L.P. (g)
10.6 Key Executive Bonus Incentive Plan. (c) #
10.7 Retirement Savings Plan. (c) #
10.8 Sample Indemnification Agreement between the Company and its
Trustees and officers (together with a schedule identifying the other
agreements not being filed and material differences therein). (b)
10.9 Permanent Loan Agreement between Crown American Financing, L.P. and
Crown American W L Associates, L.P. and General Electric Capital
Corporation (g)
10.10 Amended and Restated Credit Agreement with General Electric Capital
Corporation, dated September 8, 1999 (h)
10.11 Amended and Restated Cash Flow Support Agreement, dated
May 9, 1994 (a)
10.11 (a) Amendment dated December 3, 1997, to the Amended and Restated Cash
Flow Support Agreement dated May 9, 1994. (f)
10.12 1993 Crown American Realty Option Plan. (c)
#10.13 Amended and Restated Crown American Realty Trustees' Option Plan, as
of December 30, 1997 (f) #
10.14 Sample Option Agreement for Employees (together with a schedule
identifying the other agreements not being filed and material
differences therein). (b) #
10.15 Sample Option Agreement for Trustees (together with a schedule
identifying the other agreements not being filed and material
differences therein). (b)#
10.16 Not used
10.17 Registration Rights Agreement, dated as of August 13, 1999 between the
Company and PNC Bank National Association (h)
10.18 Exchange Agreement, dated as of August 13, 1999, among PNC Bank,
National Association, the Company, Crown American Properties, L.P.,
Crown Investments Trust, and Crown American Investment Company (h)
10.19 Crown American Properties L.P. Savings Restoration Plan (e) #
21 List of subsidiaries of the Company. (g)
23 Consent of Arthur Andersen LLP (h)
24 Powers of Attorney (h)
99(a) Press release dated February 28, 2000 (h)
99(b) Fourth Quarter 1999 Supplemental Financial and Operational Information
Package (h)
(a) Filed as an Exhibit to the Company's Report on Form 10K for the year
ended December 31, 1994.
(b) Filed as an Exhibit to the Company's Report on Form 10K for the period
ended December 31, 1993.
(c) Filed as an Exhibit to the Company's Registration Statement on
Form S-11, effective as of August 9, 1993.
(d) Filed as an Exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-3, Registration No. 33-91880, effective as of
June 9, 1995.
(e) Filed as an Exhibit to the Company's report on Form 10K for the year
ended December 31, 1996.
(f) Filed as an Exhibit to the Company's report on Form 10K for the year
ended December 31, 1997.
(g) Filed as an Exhibit to the Company's report on Form 10K for the year
ended December 31, 1998.
(h) Filed herewith
# Indicates management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Company has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
CROWN AMERICAN REALTY TRUST
By /s/Mark E. pasquerilla
Mark E. Pasquerilla
Chief Executive Officer & President
Date: March 14, 2000
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
Company in the capacities indicated and on the dates indicated.
Signature Title Date
/s/ Mark E. Pasquerilla Trustee, Chairman of the Board, March 14, 2000
Mark E. Pasquerilla CEO and President
/s/ Terry L. Stevens Trustee, Executive Vice President March 14, 2000
Terry L. Stevens and Chief Financial Officer
/s/ John A. Washko Vice President and Chief March 14, 2000
John A. Washko Accounting Officer
* Trustee March 14, 2000
Clifford A. Barton
* Trustee March 14, 2000
Donald F. Mazziotti
* Trustee March 14, 2000
Peter J. Siris
* Trustee March 14, 2000
Zachary L. Solomon
*By: /s/ Terry L. Stevens
Terry L. Stevens
as Attorney-in-Fact
<TABLE>
<CAPTION>
Schedule III
CROWN AMERICAN REALTY TRUST
Consolidated Real Estate and Accumulated Depreciation as of December 31, 1999
(Dollars in Thousands)
Costs Capitalized
Initial Cost Subsequent To Acquisition
Buildings Buildings
and Land and
Encum- Improve- Improve- Improve- Carrying
Properties brances Land ments ments ments Costs
<S> <C> <C> <C> <C> <C> <C>
Bradley Square
Cleveland, TN $ 12,894 (E) $ 7,012 $ 29,385 $ (281) $ 2,948 $ 0
Capital City
Harrisburg, PA 39,630 1,580 11,269 (193) 11,462 216
Carlisle
Carlisle, PA 11,500 (D) 379 611 9 9,761 139
Chambersburg
Chambersburg, PA 20,000 (F) 2,363 14,063 38 12,191 271
Crossroads
Beckley, WV 14,171 2,732 19,941 6 485 0
Francis Scott Key
Frederick, MD 35,000 (F) 3,784 12,170 (636) 20,935 100
Greater Lewistown
Lewistown, PA 3,490 657 3,845 22 393 0
Jacksonville
Jacksonville, NC 26,079 (E) 11,062 26,835 (220) 941 0
Logan Valley
Altoona, PA 57,000 (F) 2,138 954 2,086 79,091 7,411
Lycoming
Williamsport, PA 35,000 (F) 2,110 14,204 (13) 17,904 638
Martinsburg
Martinsburg,WV 17,500 (F) 8,375 37,547 (653) 4,321 22
Mt. Berry Square
Rome, GA 17,741 (E) 6,260 37,434 (115) 5,427 0
New River Valley
Christiansburg, VA 17,000 (F) 3,923 27,094 38 6,411 0
Nittany
State College, PA 30,000 (F) 6,683 6,204 95 32,137 5,834
North Hanover
Hanover, PA 20,000 (F) 1,272 1,325 591 15,992 194
Oak Ridge
Oak Ridge, TN 24,761 9,393 31,323 (272) 9,249 1,371
Pasquerilla Plaza
Johnstown, PA 2,656 3,289 23,010 3 930 0
Patrick Henry
Newport News, VA 50,500 (F) 3,953 22,432 17 17,268 541
Phillipsburg
Phillipsburg, NJ 30,000 (F) 11,169 50,368 36 5,182 0
Schuylkill
Frackville, PA 35,220 10,332 24,843 105 10,892 5
Shenango Valley
Sharon, PA 11,246 (E) 0 6,403 22 9,312 151
South
Allentown, PA 15,000 (F) 3,465 2,331 23 14,600 0
Uniontown
Uniontown, PA 24,000 (F) 0 6,635 1,384 33,631 2,540
Valley Mall
Hagerstown, MD 28,987 (E) 12,036 19,945 4,939 15,900 40
Viewmont
Scranton, PA 30,000 (F) 1,696 4,602 6,799 41,240 7,701
Washington Crown Ctr
Washington, PA 15,625 2,977 3,915 4,987 35,230 355
West Manchester
York, PA 27,000 (F) 7,694 24,122 2,455 21,385 777
Westgate Anchor Pad
Bethlehem, PA 0 0 3,219 0 3 0
Wyoming Valley
Wilkes-Barre, PA 57,000 (F) 6,825 52,057 (90) 4,417 12
Total $709,000 $ 133,159 $ 518,086 $ 21,182 $439,638 $ 28,318
See following page for note references (A) to (F).
</TABLE>
<TABLE>
<CAPTION>
Gross Amounts at Which Carried
at Close of Period
Buildings
and Date of Date
Improve- Accum. Construc- Ac-
Properties Land ments Total Deprec. tion quired
<S> <C> <C> <C> <C> <C> <C>
Bradley Square
Cleveland, TN $ 6,731 $ 32,333 $ 39,064 $ (11,436) 1991
Capital City
Harrisburg, PA 1,387 22,947 24,334 (12,220) 1974
Carlisle
Carlisle, PA 388 10,511 10,899 (6,107) 1964
Chambersburg
Chambersburg, PA 2,401 26,525 28,926 (14,239) 1982
Crossroads
Beckley, WV 2,738 20,426 23,164 (2,151) 1998
Francis Scott Key
Frederick, MD 3,148 33,205 36,353 (17,809) 1978
Greater Lewistown
Lewistown, PA 679 4,238 4,917 (291) 1998
Jacksonville
Jacksonville, NC 10,842 27,776 38,618 (2,866) 1998
Logan Valley
Altoona, PA 4,224 87,456 91,680 (20,718) 1965,
1995-96
Lycoming
Williamsport, PA 2,097 32,746 34,843 (16,652) 1978,
1990
Martinsburg
Martinsburg,WV 7,722 41,890 49,612 (13,898) 1991
Mt. Berry Square
Rome, GA 6,145 42,861 49,006 (14,310) 1991
New River Valley
Christiansburg, VA 3,961 33,505 37,466 (10,785) 1988
Nittany
State College, PA 6,778 44,175 50,953 (17,549) 1968,
1970,
1991
North Hanover
Hanover, PA 1,863 17,511 19,374 (11,419) 1967
Oak Ridge
Oak Ridge, TN 9,121 41,943 51,064 (18,503) 1989
Pasquerilla Plaza
Johnstown, PA 3,292 23,940 27,232 (8,400) 1989
Patrick Henry
Newport News, VA 3,970 40,241 44,211 (13,745) 1987
Phillipsburg
Phillipsburg, NJ 11,205 55,550 66,755 (20,886) 1989
Schuylkill
Frackville, PA 10,437 35,740 46,177 (19,806) 1980
Shenango Valley
Sharon, PA 22 15,866 15,888 (9,308) 1967,
1995
South
Allentown, PA 3,488 16,931 20,419 (6,561) 1980
Uniontown
Uniontown, PA 1,384 42,806 44,190 (21,346) 1969,
1984
1989
Valley Mall
Hagerstown, MD 16,975 35,885 52,860 (3,007) 1999 1997
Viewmont
Scranton, PA 8,495 53,543 62,038 (18,042) 1968,
1994-95
Washington Crown Ctr
Washington, PA 7,964 39,500 47,464 (13,012) 1969,
1999
West Manchester
York, PA 10,149 46,284 56,433 (16,521) 1981,
1995
Westgate Anchor Pad
Bethlehem, PA 0 3,222 3,222 (1,112) 1988
Wyoming Valley
Wilkes-Barre, PA 6,735 56,486 63,221 (19,416) 1995
Total $ 154,341 $ 986,042 $1,140,383 $ (362,115)
</TABLE>
<TABLE>
<CAPTION>
Schedule III (continued)
CROWN AMERICAN REALTY TRUST
Consolidated Real Estate and Accumulated
Depreciation as of December 31, 1999
(Dollars in Thousands)
Depreciation and amortization of the Company's investment in buildings and
improvements reflected in the statements of operations are calculated over
the estimated useful lives of the assets as follows:
Base Building 45 years
Building Components 10 - 20 years
Tenant Improvements Terms of Leases or useful lives,
whichever is shorter
The aggregate cost for Federal income tax purposes was approximately $1,102
million at December 31, 1999.
The changes in total real estate assets and accumulated depreciation and
amortization for the years ended December 31, 1995, 1996, 1997, 1998,
and 1999 are as follows:
Total Real Estate Assets
Years ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Balance, beginning of $ 1,091,880 $ 984,729 $ 919,469 $ 880,279 $ 799,090
period
Additions and 50,904 59,988 34,230 50,245 46,916
improvements
Acquisitions 65,602 31,981 70,180
Adjustments to (35,000)
carrying value
Cost of real estate (482) (16,270) (341) (9,612) (907)
sold
Other writeoffs (1,919) (2,169) (610) (1,443)
Balance, end of $ 1,140,383 $ 1,091,880 $ 984,729 $ 919,469 $ 880,279
period
Accumulated Depreciation & Amortization
Years ended December 31,
1999 1998 1997 1996 1995
Balance, beginning of $ 323,425 $ 292,375 $ 259,099 $ 232,771 $ 190,379
period
Depreciation and 40,609 38,979 33,886 29,987 29,546
amortization
Acquisitions 12,846
Cost of real estate (5,760) (2,216)
sold
Other writeoffs (1,919) (2,169) (610) (1,443)
Balance, end of $ 362,115 $ 323,425 $ 292,375 $ 259,099 $ 232,771
period
(A) Initial cost for constructed malls is cost at end of first complete
fiscal year subsequent to opening and includes carrying costs on
initial construction.
(B) Improvements are reported net of dispositions.
(C) Carrying costs consist of capitalized construction period interest and
taxes on expansions and major renovations subsequent to initial
construction of the mall.
(D) Includes $1,060 secured only by a bank letter of credit.
(E) Shenango Valley, Mt. Berry Square, Bradley Square, Jacksonville and
Valley Mall are mortgaged to secure the $150.0 million GECC working
capital line of credit. These five properties are cross-defaulted
and cross-collateralized. Amounts shown for each property represent
the allocated amount of the total loan outstanding.
(F) Thirteen malls in the Financing Partnership and Logan Valley and Wyoming
Valley Malls are cross-defaulted and cross-collateralized under the
$465 million mortgage loan with General Electric Capital Corporation.
Amounts shown for each property represent the allocated amount of the
total loan outstanding.
</TABLE>
<TABLE>
<CAPTION>
Schedule IV
CROWN AMERICAN REALTY TRUST
Valuation and Qualifying Accounts and Reserves
(Dollars in Thousands)
Balance Balance
at Additions at
January Charged December
1, to 31,
Description 1999 Expense Other Deductions 1999
<S> <C> <C> <C> <C> <C>
Allowance for $ 1,117 $ 1,477 $ $ (1,633) $ 961
doubtful accounts
Reserve for uninsured 3,981 1,145 (1,232) 3,894
risks
Restructuring costs 2,251 (1,587) 664
</TABLE>
EXHIBIT 10.10
AMENDED AND RESTATED CREDIT AGREEMENT
among
CROWN AMERICAN REALTY TRUST,
CROWN AMERICAN PROPERTIES, L.P., CROWN AMERICAN ACQUISITION ASSOCIATES I, L.P.,
CROWN AMERICAN ACQUISITION ASSOCIATES II, L.P., CROWN AMERICAN ACQUISITION
ASSOCIATES III, L.P., CROWN AMERICAN ACQUISITION ASSOCIATES IV, L.P., CROWN
AMERICAN ACQUISITION ASSOCIATES V, L.P., CROWN AMERICAN ACQUISITION ASSOCIATES
VI, L.P., CROWN AMERICAN ACQUISITION ASSOCIATES VII, L.P., CROWN AMERICAN
ACQUISITION ASSOCIATES VIII, L.P., CROWN AMERICAN ACQUISITION ASSOCIATES IX,
L.P. and CROWN AMERICAN ACQUISITION ASSOCIATES X, L.P., as Borrowers,
and
GENERAL ELECTRIC CAPITAL CORPORATION,
as Lender
Dated as of September __ , 1999
___________________________
REVOLVING CREDIT LOAN
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS 2
1.1 Defined Terms 2
1.2 Other Definitional Provisions 21
SECTION 2. AMOUNT AND TERMS OF COMMITMENT 21
2.1 Commitment 21
2.2 Procedure for Borrowing 21
2.3 Additional Properties 24
2.4 Release of Properties 25
2.5 Servicing Fee, Commitment Fee, Extension Fee,
Exit Fee 25
2.6 Intentionally Omitted 25
2.7 Release of Out-Parcel 25
2.8 Release of Option Parcels 29
SECTION 3. GENERAL PROVISIONS APPLICABLE TO LOAN 30
3.1 Interest Rates and Payment Dates 30
3.2 Optional Prepayments 31
3.3 Mandatory Prepayments 32
3.4 Payments. 32
3.5 Increased Cost and Reduced Return 32
3.6 Illegality 33
3.7 Taxes 34
3.8 Reserves 34
SECTION 4. REPRESENTATIONS AND WARRANTIES 35
4.1 Financial Condition 35
4.2 No Change 36
4.3 Existence; Compliance with Law 36
4.4 Power; Authorization; Enforceable Obligations 36
4.5 No Legal Bar 36
4.6 No Material Litigation 36
4.7 No Default 37
4.8 Ownership of Property; Liens 37
4.9 Intellectual Property 37
4.10 No Burdensome Restrictions 37
4.11 Taxes 37
4.12 Federal Regulations 38
4.13 ERISA 38
4.14 Investment Company Act; Other Regulations 38
4.15 Security Documents 38
4.16 Accuracy and Completeness of Information 38
4.17 Labor Relations 39
4.18 Solvency 39
4.19 Compliance with Laws 39
4.20 Condemnation 40
4.21 Brokers 40
4.22 FIRPTA 40
4.23 Purpose of Loan 40
4.24 No Conflicts 40
4.25 Taxes and Assessments 40
4.26 Location of Borrowers 41
4.27 Forfeiture 41
4.28 Flood Zone 41
4.29 No Prior Assignment 41
4.30 Insurance 41
4.31 Certificate of Occupancy; Licenses 41
4.32 Physical Condition 41
4.33 Boundaries 42
4.34 Filing and Recording Taxes 42
4.35 Property Management 42
4.36 Ground Lease Representations and Warranties 42
4.37 Reciprocal Easement Agreements 44
4.38 Leases 44
4.39 Cross Default 44
4.40 Building Loan Agreement 44
SECTION 5. CONDITIONS TO ADVANCES 45
SECTION 6. AFFIRMATIVE COVENANTS 47
6.1 Financial Statements 47
6.2 Certificates; Other Information 48
6.3 Payment of Obligations 49
6.4 Conduct of Business and Maintenance of Existence 49
6.5 Maintenance of Property; Insurance 50
6.6 Inspection of Property; Books and Records;
Discussions 50
6.7 Notices 50
6.8 Intentionally Omitted 51
6.9 Condemnation 51
6.10 Use of Loan 52
6.11 Funding Threshold 52
6.12 Status as REIT 52
6.13 Easements and Agreements 52
6.14 Compliance with Laws 53
6.16 Loan Documents 53
6.17 Single Purpose Entity/Separateness 53
6.18 Estoppel Certificates 54
6.19 Forfeiture 54
6.20 Property Management 55
6.21 Alterations 55
6.22 Leasing 55
6.23 Right of Last Look 56
SECTION 7. NEGATIVE COVENANTS 56
7.1 Financial Condition Covenants 57
7.2 Intentionally Omitted 57
7.3 Limitation on Liens 57
7.4 Intentionally Omitted 58
7.5 Limitation on Fundamental Changes 58
7.6 Limitation on Sale of Assets 59
7.7 Limitation on Investments, Loans and Advances 59
7.8 Intentionally Omitted 59
7.9 Limitation on Transactions with Affiliates 59
7.10 Limitation on Changes in Fiscal Year 59
7.11 Limitation on Lines of Business 60
7.12 Limitation on Use of Loan 60
7.13 Limitation on Transfer and Further Encumbrance 60
7.14 Limitation on Restrictions 62
7.15 Limitations of ERISA 62
SECTION 8. ENVIRONMENTAL MATTERS 62
8.1 Certain Definitions 62
8.2 Representations and Warranties on Environmental
Matters 63
8.3 Covenants on Environmental Matters 63
8.4 Allocation of Risks and Indemnity 64
8.5 No Waiver 65
SECTION 9. EVENTS OF DEFAULT 65
SECTION 10. EVENTS OF DEFAULT 68
SECTION 10. MISCELLANEOUS 68
11.1 Amendments; No Novation 68
11.2 Notices 69
11.3 No Waiver; Cumulative Remedies 69
11.4 Survival of Representations and Warranties 70
11.5 Payment of Expenses and Taxes 70
11.6 Successors and Assigns; Participations and
Assignments 70
11.7 Set-off 71
11.8 Counterparts 71
11.9 Severability 71
11.10 Integration 71
11.11 Governing Law 72
11.12 Submission To Jurisdiction; Waivers 73
11.13 Acknowledgments 73
11.14 Waivers of Jury Trial 73
11.15 Public Disclosure 74
11.16 Recourse Obligations 74
11.17 Sole Discretion 74
11.18 Further Assurances 74
11.19 Name Changes 74
SCHEDULES
Schedule 1 Closing Deliveries
Schedule 2 Loan Data Checklist
Schedule 4.6 Description of Pending or Threatened Litigation
Schedule 4.38 Schedule of Defaulted and/or Terminating Leases
Schedule 4.39 Schedule of Cross-Defaulted Obligations
Schedule 8.2 Schedule of Site Assessments
EXHIBITS
Exhibit A Insurance Coverage
Exhibit B Restoration
Exhibit C Form of Mortgage
Exhibit D Form of Assignment of Leases and Rents
Exhibit E Form of SNDA
Exhibit F Delineation of Mt. Berry Square Mall Out-Parcel
Exhibit G Delineation of Valley Mall Out-Parcel
Exhibit H Delineation of Jacksonville Out-Parcel
Exhibit I May Option Legal Description
Exhibit J Montgomery Ward Option Legal Description
Exhibit K Jacksonville Mall J.C. Penney and Sears Lease Amendments
Exhibit L Individual Property Values
Exhibit M Valley Mall Expansion Parcel
Exhibit N Conditions to Release of Mt. Berry Square Mall Multi-Family
Parcel
AMENDED AND RESTATED CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement") is made as of
_______________, 1999, among CROWN AMERICAN REALTY TRUST, a real estate
investment trust organized and existing under the laws of the State of Maryland,
having an address at Pasquerilla Plaza, Johnstown, Pennsylvania 15901, CROWN
AMERICAN PROPERTIES, L.P., a Delaware limited partnership, having an address at
Pasquerilla Plaza, Johnstown, Pennsylvania 15901, CROWN AMERICAN ACQUISITION
ASSOCIATES I, L.P., a Pennsylvania limited partnership, having an address at
Pasquerilla Plaza, Johnstown, Pennsylvania 15901, CROWN AMERICAN ACQUISITION
ASSOCIATES II, L.P., a Pennsylvania limited partnership, having an address at
Pasquerilla Plaza, Johnstown, Pennsylvania 15901, CROWN AMERICAN ACQUISITION
ASSOCIATES III, L.P., a Pennsylvania limited partnership, having an address at
Pasquerilla Plaza, Johnstown, Pennsylvania 15901, CROWN AMERICAN ACQUISITION
ASSOCIATES IV, L.P., a Pennsylvania limited partnership, having an address at
Pasquerilla Plaza, Johnstown, Pennsylvania 15901, CROWN AMERICAN ACQUISITION
ASSOCIATES V, L.P., a Pennsylvania limited partnership, having an address at
Pasquerilla Plaza, Johnstown, Pennsylvania 15901, CROWN AMERICAN ACQUISITION
ASSOCIATES VI, L.P., a Pennsylvania limited partnership, having an address at
Pasquerilla Plaza, Johnstown, Pennsylvania 15901, CROWN AMERICAN ACQUISITION
ASSOCIATES VII, L.P., a Pennsylvania limited partnership, having an address at
Pasquerilla Plaza, Johnstown, Pennsylvania 15901, CROWN AMERICAN ACQUISITION
ASSOCIATES VIII, L.P., a Pennsylvania limited partnership, having an address at
Pasquerilla Plaza, Johnstown, Pennsylvania 15901, CROWN AMERICAN ACQUISITION
ASSOCIATES IX, L.P., a Pennsylvania limited partnership, having an address at
Pasquerilla Plaza, Johnstown, Pennsylvania 15901, and CROWN AMERICAN ACQUISITION
ASSOCIATES X, L.P., a Pennsylvania limited partnership, having an address at
Pasquerilla Plaza, Johnstown, Pennsylvania 15901 (each a "Borrower" and,
together, the "Borrowers"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation, having an address at 292 Long Ridge Road, Stamford, Connecticut
06927 (the "Lender").
WHEREAS, Borrowers and Lender entered into that certain Credit
Agreement dated as of November 17, 1997, as amended by that certain First
Amendment to Credit Agreement (the "First Amendment"), dated December 12, 1997,
between Borrowers and Lender, and as further amended by that certain Second
Amendment (the "Second Amendment"), dated May 13, 1998, between Borrowers and
Lender (such original Credit Agreement as so amended by the First Amendment and
by the Second Amendment, being the "Existing Credit Agreement"), pursuant to
which Lender agreed to lend and Borrowers agreed to borrow a revolving credit
loan in the amount of up to One Hundred Fifty Million and No/100 Dollars
($150,000,000.00) (such revolving credit loan, as existing prior to the
modifications effected by this Agreement, being herein sometimes called the
"Existing Secured Credit Line"), all pursuant to and in accordance with the
terms of the Existing Credit Agreement;
WHEREAS, the Borrowers and Lender are executing this Amended and
Restated Credit Agreement (a) to combine into a single line of credit the
Acquisition Line (as defined in the Existing Credit Agreement ) and the Working
Capital Line (as defined in the Existing Credit Agreement ), (b) to extend the
termination date of the Loan (as defined in the Existing Credit Agreement ) for
two years, and to eliminate any further extension options, (c) to change the
rate of interest on the Loan, (d) to provide for construction financing for the
expansion of the Valley Mall (as defined in the Existing Credit Agreement ), and
for the construction of stadium theaters at the Bradley Square Mall, located in
Cleveland, Tennessee (the "Bradley Square Mall") and the Jacksonville Mall (as
defined in the Existing Credit Agreement ), (e) to pay off existing debt, to
provide financing for the Borrowers' capital investment in the Secured Line
Properties (as defined in the Existing Credit Agreement ) and/or for their
investment, through the REIT or the Operating Partnership or their single-asset
subsidiaries or affiliates, in the acquisition of additional regional shopping
malls, and (f) to make certain additional modifications and amendments, as
further described herein; and
WHEREAS, Borrowers and Lender wish to modify, amend and restate the
Existing Credit Agreement to reflect the terms of the revised structure, to be
effective as of the date of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Borrowers and Lender, intending to be legally
bound, hereby agree that the Existing Credit Agreement is hereby amended and
restated in its entirety to read as follows:
RECITALS
The Borrowers have requested that the Lender make available to the
Borrowers credit in the form of a revolving credit loan in the aggregate
principal amount at any one time outstanding not to exceed $150,000,000, to
finance the acquisition of real property by the Borrowers, to pay off existing
debt, to finance the Borrowers' investment in non-Borrower affiliates and
subsidiaries of the REIT (hereinafter defined) and/or the Operating Partnership
(hereinafter defined) that will acquire and own other properties, to provide
construction financing for the expansion of the Valley Mall and for the
construction of stadium theaters at the Bradley Mall and the Jacksonville Mall,
and for the Borrowers' general corporate purposes. The Lender is willing to
make such credit available to the Borrowers, but only on the terms, and subject
to the conditions, set forth in this Agreement.
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:
"Additional Advance": an advance under the Loan that is not an Initial
Funding or a Bradley and Jacksonville Mall Advance.
"Additional Percentage Rent" as used herein shall mean, with respect
to tenants in place and paying rent for less than twelve months and only
for such tenants that are credit worthy national retailing chains, (a) if
such tenant's lease requires payment of a base rent with percentage rent
above a specified break point, an amount equal to 50% of the earned
percentage rent during any measurement period (without annualizing same),
and (b) if such tenant's lease requires only a payment of percentage rents
based on a percentage of the gross revenues of such tenant, an amount equal
to 75% of the lesser of (i) the actual amount of percentage rent actually
earned during the measurement period, (ii) the market rent for such space
during the measurement period, and (iii) with respect to such leases that,
at some point in time during the lease term (whether upon the happening of
an event or otherwise) converts to a lease that provides for payments of
base rent, the amount of the initial base rent payments that would have
been earned during the measurement period had the base rent provisions been
in effect, in each case, without annualizing such amounts.
"Additional Secured Line Property": any real property owned by the
Operating Partnership or by a Borrower that is a Single Purpose Entity upon
which the Lender is granted a Mortgage subsequent to the Third Modification
Date, all in accordance with the terms of this Agreement.
"Affiliate": (a) any corporation in which a Borrower or any partner,
shareholder, director, officer, member, or manager of a Borrower directly
or indirectly owns or controls more than ten percent (10%) of the
beneficial interest, (b) any partnership, joint venture or limited
liability company in which a Borrower or any partner, shareholder,
director, officer, member, or manager of a Borrower is a partner, joint
venturer or member, (c) any trust in which a Borrower or any partner,
shareholder, director, officer, member or manager of a Borrower is a
trustee or beneficiary, (d) any entity of any type which is directly or
indirectly owned or controlled in an amount of ten percent (10%) or greater
by Borrower or any partner, shareholder, director, officer, member or
manager of a Borrower, or (e) any partner, shareholder, director, officer,
member, manager or employee of a Borrower.
"Aggregate Property Value": the sum of the Individual Property
Values for all Secured Line Properties.
"Agreement": this Credit Agreement, as amended, supplemented or
otherwise modified from time to time.
"Applicable Margin": a rate per annum equal to 2.95%."
"Assignment of Leases and Rents": each assignment of leases and rents
to be given by the Borrowers to the Lender as security for the payment of
the Obligations and constituting a first lien on all of the applicable
Borrower's right, title and interest now owned or hereafter acquired in and
to all Leases and Rents pertaining to or derived from each Secured Line
Property, substantially in the form of Exhibit D hereto, and with such
modifications thereto as may be necessary or advisable to permit the
recording thereof in any relevant jurisdiction, as the same may be amended,
supplemented or otherwise modified from time to time.
"Base LIBOR Rate": with respect to each Interest Period, the rate
(expressed as a percentage per annum and rounded upward, if necessary, to
the next nearest 1/1000 of 1%) for deposits in Dollars, for a one-month (30
day) period, that appears on Telerate Page 3750 (or the successor thereto)
as of 11:00 a.m., London time, on the related Determination Date. If such
rate does not appear on Telerate Page 3750 as of 11:00 a.m., London time,
on such Determination Date, the Base LIBOR Rate shall be the arithmetic
mean of the offered rates (expressed as a percentage per annum) for
deposits in Dollars for a one-month period that appear on the Reuters
Screen Libor Page as of 11:00 a.m., London time, on such Determination
Date, if at least two such offered rates so appear. If fewer than two such
offered rates appear on the Reuters Screen Libor Page as of 11:00 a.m.,
London time, on such Determination Date, the Lender shall request the
principal London office of any four major reference banks in the London
interbank market selected by the Lender to provide such bank's offered
quotation (expressed as a percentage per annum) to prime banks in the
London interbank market for deposits in Dollars for a one-month period as
of 11:00 a.m., London time, on such Determination Date for the amounts of
not less than U.S. $1,000,000. If at least two such offered quotations are
so provided, the Base LIBOR Rate shall be the arithmetic mean of such
quotations. If fewer than two such quotations are so provided, the Lender
shall request any three major banks in New York City selected by the Lender
to provide such bank's rate (expressed as a percentage per annum) for loans
in Dollars to leading European banks for a one-month period as of
approximately 11:00 a.m., New York City time on the applicable
Determination Date for amounts of not less than U.S. $1,000,000. If at
least two such rates are so provided, the Base LIBOR Rate shall be the
arithmetic mean of such rates. If fewer than two such rates are provided,
then the Base LIBOR Rate for the Interest Period shall be the Base LIBOR
Rate for the previous Interest Period. Each determination of the Base
LIBOR Rate applicable to a particular Interest Period shall be made by the
Lender and shall be conclusive and binding upon the Borrowers absent
manifest error.
"Borrower Affiliate": a Single Purpose Entity that is a subsidiary or
affiliate of the REIT or the Operating Partnership.
"Borrowers": means, collectively, the REIT, the Operating
Partnership, and all other entities identified as "Borrowers" in this
Agreement.
"Borrowing Base Deficiency": as defined in Section 3.3(a).
"Borrowing Base Restoration Plan": as defined in Section 3.3(a).
"Borrowing Date": any Business Day specified in a Notice of Borrowing
pursuant to Section 2.2 as a date on which the Borrowers request the Lender
to make an advance hereunder.
"Bradley and Jacksonville Mall Advances": advances under the Loan
used to finance a Stadium Theater at each of the Bradley Square Mall and
the Jacksonville Mall, as applicable.
"Bradley and Jacksonville Mall Advance Additional Funding Threshold
Requirements": (a) the aggregate principal amount of advances to finance
construction of a Stadium Theater at the Bradley Square Mall may not exceed
the lesser of (i) $4,000,000, (ii) the actual costs thereof required to be
paid for, or reimbursed to tenant by, the landlord, or (iii) such lower
amount as may be permitted under the Funding Threshold or the Building Loan
Agreement, and (b) the aggregate principal amount of advances to finance
construction of a Stadium Theater at the Jacksonville Mall may not exceed
the lesser of (i) $5,500,000, (ii) the actual costs thereof required to be
paid for, or reimbursed to tenant by, the landlord, or (iii) such lower
amount as may be permitted under the Funding Threshold or the Building Loan
Agreement.
"Bradley Square Mall": that certain shopping mall known as the Bradley
Square Mall, Cleveland, TN.
"Building Loan Agreement": the Building Loan Agreement of even date
herewith, executed and delivered by the Lender and the Borrowers, pursuant
to which Construction Loan proceeds will be disbursed.
"Business Day": any day on which the Lender is open for business in
the city in which its principal office is located and on which commercial
banks in the City of London, England are open for dealings in Dollar
deposits in the London Interbank Market and, except for purposes of
determining the Interest Rate pursuant to Section 3.1 hereof, on which
commercial banks in the State of Pennsylvania are not required to be
closed; provided, however, that during any period of time during which the
entire Principal Balance is bearing interest at the Floating Rate, the term
"Business Day" shall mean any day on which the Lender is open for business
in the city in which its principal office is located and, except for
purposes of determining the Interest Rate pursuant to Section 3.1 hereof,
on which commercial banks in the State of Pennsylvania are not required to
be closed.
"COC": a ratio as of the date for which the calculation is being
made, expressed as a percentage, in which:
(a) the numerator is the Underwritten Net Operating Income of
the Secured Line Properties; and
(b) the denominator is the Principal Balance (assuming that the
full amount of the proposed available funds is outstanding)
as of such date.
If the COC is calculated for the purpose of determining whether
Borrowers are entitled to an advance under the Loan or for increasing
the amount of funds available under the Loan, the Underwritten Net
Operating Income of the Secured Line Properties shall be determined as
of the end of each calendar quarter (unless the Lender has exercised
its right to re-audit such Underwritten Net Operating Income pursuant
to Section 2.2(i) of this Agreement) and the Principal Balance shall
be determined by assuming that the increase being requested by
Borrowers in the amount of funds available under the Loan has been
fully funded by Lender.
"Capital Stock": any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation,
any and all similar ownership interests in a Person (other than a
corporation) and any and all warrants or options to purchase any of the
foregoing.
"Cash Equivalents": (i) securities with maturities of 90 days or less
from the date of acquisition issued or fully guaranteed or insured by the
United States Government or any agency thereof, (ii) certificates of
deposit with maturities of 90 days or less from the date of acquisition and
overnight bank deposits of the Lender or of any commercial bank having
capital and surplus in excess of $500,000,000, (iii) repurchase obligations
of the Lender or of any commercial bank satisfying the requirements of
clause (ii) of this definition, having a term of not more than seven days
with respect to securities issued or fully guaranteed or insured by the
United States Government, (iv) commercial paper of a domestic issuer rated
at least A-2 or the equivalent thereof by S&P or P-2 or the equivalent
thereof by Moody's and in either case maturing within 90 days after the day
of acquisition, (v) securities with maturities of 90 days or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth
or territory of the United States, by any political subdivision or taxing
authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory,
political subdivision, taxing authority or foreign government (as the case
may be) are rated at least A by S&P or A by Moody's, (vi) securities with
maturities of 90 days or less from the date of acquisition backed by
standby letters of credit issued by the Lender or any commercial bank
satisfying the requirements of clause (ii) of this definition or (vii)
shares of money market mutual or similar funds which invest exclusively in
assets satisfying the requirements of clauses (i) through (vi) of this
definition.
"Cash Flow Support Agreement": that certain Amended and Restated Cash
Flow Support Agreement, dated as of August 17, 1993, made by and between
Crown Investments Trust, the Operating Partnership and Crown American
Financing Partnership.
"Code": the Internal Revenue Code of 1986, as amended, and as it may
be further amended from time to time, any successor statutes thereto, and
applicable U.S. Department of Treasury regulations issued pursuant thereto
in temporary or final form.
"Collateral": all property (real and personal) upon which a Lien has
been or is purported or intended to have been granted to the Lender under
any Security Document.
"Commitment": the obligation of the Lender to make the Loan to the
Borrowers hereunder in an aggregate principal amount at any one time
outstanding not to exceed the Funding Threshold.
"Commitment Fee" means the commitment fee payable to the Lender for
the Third Modification in the amount of 0.5% of the Loan, payable as
provided in Section 2.5(b) of this Agreement.
"Commitment Period": the period from and including the date hereof
to, but not including, the Termination Date or such earlier date on which
the Commitment shall terminate as provided herein.
"Construction Loan": the Valley Mall Construction Loan and the
Bradley and Jacksonville Mall Advances, as applicable.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Control": with respect to any Person, the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities or other beneficial interest or
by contract or otherwise.
"Debt Service Coverage Ratio": means the ratio, expressed as a
percentage, as of the date for which the calculation is being made, of (a)
the Underwritten Net Operating Income of the Secured Line Properties, to
(b) the aggregate interest to be due under the Loan for such period
(assuming that the full amount of the proposed available funds had been
outstanding, and calculated at the interest rate in effect at the time of
calculation). If the Debt Service Coverage Ratio is calculated for the
purpose of determining whether Borrowers are entitled to an advance under
the Loan or for increasing the amount of funds available under the Loan,
the Underwritten Net Operating Income of the Secured Line Properties shall
be determined as of the end of each calendar quarter (unless the Lender has
exercised its right to re-audit such Underwritten Net Operating Income
pursuant to Section 2.2(i) of this Agreement) and the aggregate interest
due under the Loan shall be determined by assuming that the increase being
requested by Borrowers in the amount of funds available under the Loan had
been fully funded by Lender.
"Default": any of the events specified in Section 9, whether or not
any requirement for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.
"Determination Date": with respect to any Interest Period, the date
that is two (2) Business Days prior to the commencement of such Interest
Period.
"Dollars" and "$": dollars in lawful currency of the United States of
America.
"EBITDA": with respect to the REIT and its consolidated subsidiaries
for any period, earnings (or losses) before interest and taxes of the REIT
and its consolidated subsidiaries for such period plus, to the extent
deducted in computing such earnings (or losses) before interest and taxes,
depreciation and amortization expense, all as determined on a consolidated
basis with respect to the REIT and its consolidated subsidiaries in
accordance with GAAP; provided, however, EBITDA shall exclude earnings or
losses resulting from (i) cumulative changes in accounting practices, (ii)
discontinued operations, (iii) extraordinary items, (iv) net income of any
entity acquired in a pooling of interest transaction for the period prior
to the acquisition, (v) net income of any consolidated subsidiary of the
REIT that is unavailable to the REIT, (vi) net income not readily
convertible into Dollars or remittable to the United States, (vii) gains
and losses from the sale of assets or changes in the carrying value of long
lived assets as required under GAAP (other than out-parcel sales), and
(viii) net income from corporations, partnerships, associations, joint
ventures or other entities in which the REIT or any consolidated
subsidiaries have a minority interest and in which neither the REIT nor its
consolidated subsidiaries has Control, except to the extent actually
received.
"Environmental Laws": as defined in Section 8.1(a) hereof.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Event of Default": any of the events specified in Section 9;
provided that any requirement for the giving of notice, the lapse of time,
or both, or any other condition, has been satisfied.
"Existing Secured Credit Line": the Loan as it existed prior to the
Third Modification Date.
"Exit Fee": 0.5% of (a) $135,000,000.00, plus (b) the amount by which
the highest Principal Balance under the Loan at any time has exceeded
$135,000,000.
"Financing Lease": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance
with GAAP to be capitalized on a balance sheet of the lessee.
"Financing Statements": Uniform Commercial Code Financing Statements,
in form and content acceptable to the Lender in its sole and absolute
discretion.
"Floating Rate": a rate per annum equal to the Prime Rate plus the
amount of basis points (the "Spread") needed to be added to the Prime Rate
in order to equal the LIBOR Rate in effect immediately prior to the
conversion of the Interest Rate from a LIBOR Rate to a Floating Rate (but
in no event shall the addition of the Spread result in a reduction of the
Prime Rate). While the Prime Rate may fluctuate over time, the Spread
shall only be calculated once and shall then be effective for the entire
continuous period during which the Floating Rate is in effect. Any change
in the Floating Rate as a result of a change in the Prime Rate shall be
effective on the effective date of any such change in the Prime Rate. The
Floating Rate shall be calculated for the actual number of days elapsed on
the basis of a 360-day year. Each determination of the Floating Rate shall
be made by the Lender and shall be conclusive and binding upon the
Borrowers absent manifest error.
"Funding Threshold": means at any time the maximum principal amount
that: (a) will not cause the Principal Balance to exceed $150,000,000, (b)
results in a Debt Service Coverage Ratio equal to at least 1.3 to 1.0, (c)
results in a Loan-to-Value Ratio equal to no greater than 77%, (d)
satisfies the applicable Minimum COC Requirements, (e) in the case of the
Initial Funding, (i) satisfies the Initial Funding Additional Funding
Threshold Requirements, and (ii) is subject to the Initial Deemed
Satisfaction, (f) in the case of Bradley and Jacksonville Mall Advances,
satisfies the Bradley and Jacksonville Mall Advance Additional Funding
Threshold Requirements, (g) in the case of the Valley Mall Expansion,
satisfies the Valley Mall Expansion Additional Funding Threshold
Requirements, and (h) in the case of all Additional Advances (including,
without limitation, the Valley Mall Theater Advance), assumes for purposes
of all funding tests and calculations required hereunder that the Valley
Mall Theater Advance has been fully funded.
"GAAP": generally accepted accounting principles in the United States
of America in effect from time to time.
"Governing Documents": as to any Person, its articles or certificate
of incorporation and by-laws, its partnership agreement, its certificate of
formation and operating agreement, and/or the other organizational or
governing documents of such Person.
"Governmental Authority": any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government having jurisdiction over the Borrower and/or the
Secured Line Properties.
"Ground Lease": that certain Lease Agreement, dated May 31, 1966,
between Ground Lessor, as ground lessor, and Original Ground Lessee, as
ground lessee, a notice and memorandum of which was recorded in Mercer
County, Pennsylvania in A.R. 297 of 1966; as amended by Lease Amendment,
dated May 15, 1967, between Ground Lessor and Original Ground Lessee and
recorded in Mercer County, Pennsylvania in A.R. 280 of 1968; as amended by
letter, dated September 16, 1977 pursuant to which Original Ground Lessee
exercised three (3) renewal options of five (5) years each; as assigned by
Original Ground Lessee to Pasquerilla Partnership, a Pennsylvania general
partnership, by Assignment of Lease, dated January 31, 1991 and recorded in
Mercer County, Pennsylvania at 91 DR 4878; and as further assigned by
Pasquerilla Partnership to the Operating Partnership by Assignment and
Assumption Agreement, dated August 17, 1993, and recorded in Mercer County,
Pennsylvania at 93 DR 11293.
"Ground Lessor": George F. McConnell, Eleanor G. McConnell, G. Thomas
McConnell, Charlene McConnell, William G. McConnell, Eugenia F. McConnell,
Mary Eleanor Milheim, Irvine G. Milheim, Jr., Martha Sue McConnell Beezer
and Gene Beezer, as individuals, together with their successors and
assigns.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
any obligation of (a) the guaranteeing person or (b) another Person
(including, without limitation, any bank under any letter of credit) to
induce the creation of which the guaranteeing person has issued a
reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends
or other obligations (the "primary obligations") of any other third Person
(the "primary obligor") in any manner, whether directly or indirectly,
including, without limitation, any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or
any property constituting direct or indirect security therefor, (ii) to
advance or supply funds (1) for the purchase or payment of any such primary
obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation or (iv) otherwise to assure or hold harmless the owner
of any such primary obligation against loss in respect thereof; provided,
however, that the term Guarantee Obligation shall not include endorsements
of instruments for deposit or collection in the ordinary course of
business. The terms "Guarantee" and "Guaranteed" used as a verb shall have
a correlative meaning.
"Hazardous Materials": as defined in Section 8.1(b) hereof.
"Hazardous Materials Indemnity Agreement": that certain Hazardous
Materials Indemnity Agreement dated the Original Closing Date made by and
the Borrowers and the Lender in connection with the Loan, and all
modifications and amendments thereto.
"Indebtedness": for any Person, without duplication: (a) all
indebtedness of such Person for borrowed money, for amounts drawn under a
letter of credit, or for the deferred purchase price of property for which
such Person or its assets is liable, (b) all unfunded amounts under a loan
agreement, letter of credit, or other credit facility for which such Person
would be liable, if such amounts were advanced under the credit facility,
(c) all amounts required to be paid by such Person as a guaranteed payment
to partners or a preferred or special dividend, including any mandatory
redemption of shares or interests, (d) all indebtedness guaranteed by such
Person, directly or indirectly, (e) all obligations under leases that
constitute capital leases for which such Person is liable, and (f) all
obligations of such Person under interest rate swaps, caps, floors, collars
and other interest hedge agreements, in each case whether such Person is
liable contingently or otherwise, as obligor, guarantor or otherwise, or in
respect of which obligations such Person otherwise assures a creditor
against loss.
"Individual Property Value": with respect to any Secured Line
Property existing on the date of this Agreement, the value of such Secured
Line Property, determined in accordance with the provisions set forth on
Exhibit L attached hereto and, with respect to each Additional Secured Line
Property, the value for such Property determined by Lender in a similar
manner in its sole discretion.
"Initial Deemed Satisfaction": the deemed satisfaction, for the
purposes of the Funding Threshold, of the Debt Service Coverage Ratio,
Loan- to-Value Ratio and Minimum COC Requirements for purposes of the
Initial Funding, for the six month period beginning on the Third Modifi-
cation Date.
"Initial Funding": the initial advance or advances under the Loan made
on or after the Third Modification Date that satisfy the Initial Funding
Additional Threshold Requirements and the conditions for disbursement of
such funds set forth herein.
"Initial Funding Additional Threshold Requirements": (a) the aggregate
principal amount of the Initial Funding may not exceed $109,000,000, and
(b) the proceeds of the Initial Funding must be used for the following
purposes up to the amounts set forth below:
A. Principal Balance of Existing $76,358,770
Secured Credit Line
B. Valley Mall Reimbursement Advance $6,000,000
C. Other Valley Mall Costs $14,000,000
D. Investment in Borrower Affiliates $12,641,230
or the Operating Partnership
finance acquisition of regional malls,
to finance working capital, or to be
used for other purposes as determined
by Borrowers in their sole discretion
TOTAL: $109,000,000
"In-Line Space": the gross leasable area at a Property occupied or to
be occupied by tenants other than anchor and theater tenants.
"Interest Payment Date": the first day of each month on or after the
Third Modification Date during the term of the Loan; provided, however,
that if the first day of any such month shall not be a Business Day, the
Interest Payment Date for such month shall be the next succeeding Business
Day.
"Interest Period": the period commencing on the first day of each
calendar month and ending on the last day of each such calendar month;
provided, however, that (i) the initial Interest Period hereunder shall
commence on the date hereof and end on the Third Modification Date, and
(ii) any Interest Period that would otherwise extend beyond the Termination
Date shall end on the Termination Date.
"Interest Rate": (a) for all interest accrued on the Loan prior to
the Third Modification Date, the rate specified in the Existing Credit
Agreement, and (b) for all interest accrued on the Loan beginning on the
Third Modification Date, the rate of interest payable from time to time on
the Principal Balance, as determined in accordance with the terms of this
Agreement and the Note.
"Leases": all leases, licenses and other agreements now or hereafter
entered into and affecting or relating to the use or occupancy of the
Secured Line Properties.
"Lender": General Electric Capital Corporation, a New York
corporation, or any successor or co-lender pursuant to Section 11.6, as the
Lender under this Agreement and the other Loan Documents.
"LIBOR Rate": a rate per annum equal to the Applicable Margin plus
the Base LIBOR Rate applicable to such Interest Period. Each determination
of the LIBOR Rate applicable to a particular Interest Period shall be made
by the Lender and shall be conclusive and binding upon the Borrowers absent
manifest error.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other
security interest (other than mechanics liens that are bonded or released
within ninety (90) days after their occurrence) or any preference, priority
or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, any conditional sale or
other title retention agreement and any Financing Lease having
substantially the same economic effect as any of the foregoing), and the
filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction in respect of any of the foregoing.
"Loan": a revolving credit loan in the aggregate principal amount at
any one time outstanding not to exceed $150,000,000.
"Loan Documents": this Agreement, the Note, the Security Documents,
the Hazardous Materials Indemnity Agreement, the Reserve Agreement, the
Building Loan Agreement and all other documents executed or to be executed
in connection with the Loan (including each Construction Loan) and all
amendments, modifications, renewals, substitutions or replacements of any
of the foregoing.
"Loan-to-Value Ratio": as of the date such calculation is being made,
the ratio of the Principal Balance to the Aggregate Property Value of the
Secured Line Properties. If the Loan-to-Value Ratio is calculated for the
purpose of determining whether Borrowers are entitled to an advance under
the Loan or for increasing the amount of funds available under the Loan,
the Principal Balance shall be determined by assuming that the increase
being requested by Borrowers in the amount of funds available under the
Loan has been fully funded by Lender.
"Lockout Period": the six (6) month period beginning on the Third
Modification Date and ending on the six month anniversary thereafter.
"Major Lease(s)" with respect to each Secured Line Property, a lease
that is for greater than or equal to ten thousand (10,000) square feet of
gross leaseable area of such Secured Line Property, or greater than or
equal to ten (10%) of the total gross rental revenues of such Secured Line
Property, and having an initial term of not less than three (3) years.
"Material Adverse Effect": a material adverse effect on (a) the
business, operations, property, condition (financial or otherwise) or
prospects of the Borrowers and their Subsidiaries taken as a whole or
(b) the validity or enforceability of this or any of the other Loan
Documents or the rights or remedies of the Lender hereunder or thereunder
(subject to (i) applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting the rights of creditors
generally, and (ii) the exercise of judicial discretion in accordance with
general principles of equity).
"May Option" shall mean that certain option to purchase granted in
that certain Lease and Contract to Purchase Real Estate to be entered into
by and between Crown American Acquisition Associates I, L.P. and The May
Department Stores Company, wherein Crown American Acquisition Associates I,
L.P. granted The May Department Stores Company an option to purchase a
certain parcel of real property as more particularly described and shown on
Exhibit I attached hereto.
"Minimum COC Requirements": (a) with respect to the Initial Funding, a
COC equal to or greater than 12.3%, (b) with respect to the Bradley and
Jacksonville Mall Advances, a COC equal to or greater than 12.5%, and (c)
with respect to Additional Advances, a COC equal to or greater than the
following percentages, as applicable (such calculations with respect to
Additional Advances to be made as if the Valley Mall Theater Advance has
been fully funded, whether or not all or any portion of the Valley Mall
Theater Advance has been funded at the time of calculation):
Outstanding Balance Required COC
$109,000,000 to $120,000,000 13.0%1
$120,001,000 to $127,000,000 13.5%
$127,001,000 to $135,000,000 14.0%
$135,001,000 to $142,000,000 14.5%
$142,001,000 to $150,000,000 15.0%
"Montgomery Ward Option" shall mean that certain option to purchase
granted in that certain Like-Kind Exchange Agreement dated as of June 30,
1999 among Crown American Acquisition Associates I, L.P. and Montgomery
Ward & Co., Incorporated and Paulward Properties Co., Inc., wherein Crown
American Acquisition Associates I, L.P. granted said parties an option to
purchase a certain parcel of real property as more particularly described
and shown on Exhibit J attached hereto.
"Moody's": Moody's Investor Service, Inc.
"Mortgage Amendments" the amendments of even date herewith to all
Mortgages in effect as of the Third Modification Date to revise the
description of the Credit Agreement, and the indebtedness secured by
Existing Mortgages, to reflect modifications made pursuant to this Amended
and Restated Credit Agreement.
"Mortgage": each mortgage, deed of trust, deed to secure debt, or
similar instrument providing for the granting in favor of the Lender of a
first Lien on any Secured Line Property, substantially in the form of
Exhibit C hereto, and with such modifications thereto as may be necessary
or advisable to permit the recording thereof in any relevant jurisdiction,
as the same may be amended, supplemented or otherwise modified from time to
time, including, without limitation, the Mortgage Amendments.
"Net Cash Flow": with respect to any property for any period, Net
Cash Flow shall be Net Operating Income less (a) all replacement reserves
required to be paid for such period by the Borrowers pursuant to the terms
of this Agreement and (b) tenant improvement costs and leasing commissions
actually paid by Borrowers for such period.
"Net Operating Income": with respect to any Property for any period,
all revenues of such Property for such period, including all base, storage
and percentage rents, all escalation charges, overage, temporary tenant
income, promotional rent, seasonal rental income, net utility revenues and
all miscellaneous tenant charges, reimbursements (but specifically
excluding (a) proceeds from dispositions of assets constituting any part of
such Property, and (b) Rents paid by any anchor or theater tenant at such
Property which has "gone dark", and (c) any revenue received on account of
reimbursable management fees) less any and all costs and expenses of a non-
capital nature, including but not limited to operating expenses,
maintenance, taxes, ground rents, management fees in an amount equal to
3.5% of revenue, administrative, promotional, marketing, legal and
accounting costs and expenses, incurred in connection with the Properties
(as adjusted by such pro forma additions and deductions as shall be
approved by the Lender to reflect such secured Property on a stand-alone
basis). For purposes of this definition, revenues and expenses will be
accounted for using the accrual method in accordance with GAAP, adjusted
for the following: (i) revenues shall exclude all non-cash free rent,
tenant improvements, abatements, (ii) revenues shall be reduced for bad
debt / uncollectible accounts receivables by the greater of (A) 1%, and
(B) actual experience for the prior 12 months, (iii) revenues shall exclude
amortization of operating covenant payments previously made to tenants
(which amortization the Borrowers currently record as a reduction to
revenues), and (iv) expenses shall exclude (i) all interest expense and
interest income related to the Loan and (ii) non-cash amortization and
depreciation of capitalized real estate, tenant allowances, leasing
commissions, equipment, and capitalized repairs or replacements.
"Note": that certain Promissory Note of even date herewith made by
the Borrowers in favor of the Lender in the principal amount of
$150,000,000, or so much thereof as may be advanced from time to time.
"Notice of Borrowing": as defined in Section 2.2 hereof.
"Obligations": the unpaid principal amount of, and interest
(including, without limitation, interest accruing after the maturity of the
Loan and interest accruing after the filing of any petition in bankruptcy,
or the commencement of any insolvency, reorganization or like proceeding,
relating to the Borrowers, whether or not a claim for post-filing or post-
petition interest is allowed in such proceeding) on the Loan, and all other
obligations and liabilities of the Borrowers to the Lender, whether direct
or indirect, absolute or contingent, due or to become due, or now existing
or hereafter incurred, which may arise under, or out of or in connection
with this Agreement, the Note, the Security Documents and any other Loan
Documents and any other document made, delivered or given in connection
therewith or herewith, whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses (including,
without limitation, all reasonable fees and disbursements of counsel to the
Lender that are required to be paid by the Borrowers pursuant to the terms
of the Loan Documents) or otherwise.
"Operating Partnership": Crown American Properties, L.P., a Delaware
limited partnership, together with its successors and assigns.
"Operating Partnership Developer Fee": the developer's fee to the
Operating Partnership payable in connection with the Townward Site
Improvements in an amount up to $735,000.
"Original Ground Lessee": Crown Construction Company, now known as
Crown American Associates, a Pennsylvania business trust.
"Option Parcel" means collectively (a) with respect to the May
Option, the real property more particularly described on Exhibit I
attached hereto; and (b) with respect to the Montgomery Ward Option, the
real property more particularly described on Exhibit J attached hereto.
"Other Taxes": as defined in Section 3.7(b).
"Other Valley Mall Costs": costs of the Valley Mall Expansion, other
than those reimbursed from the Valley Mall Reimbursement Advance and other
than the costs of the Townward Site Improvements.
"Out-Parcels": those certain parcels of real property located upon or
adjacent to (a) the Mt. Berry Square Mall located in Rome, Georgia, as more
particularly delineated on the survey attached hereto as Exhibit F, (b) the
Valley Mall, as more particularly delineated on the survey attached hereto
as Exhibit G, (c) the Jacksonville Mall located in Jacksonville, North
Carolina, as more particularly delineated as the "Out-Parcel" on the survey
attached hereto as Exhibit H.
"Partnership": any general or limited partnership, joint venture,
corporation, limited liability company or limited liability partnership in
which the Borrowers or any Subsidiary has an ownership interest, but which
does not constitute a Subsidiary of the Borrowers.
"Permitted Encumbrances": the outstanding Liens, easements,
restrictions, security interests and other exceptions to title set forth in
the policy of title insurance insuring the lien of the Mortgage encumbering
the applicable Secured Line Property, together with the Liens and security
interests in favor of Lender created by the Loan Documents.
"Person": an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of
whatever nature.
"Prime Rate": means the highest prime rate (or base rate) reported in
the Money Rates column or section of The Wall Street Journal, as such rate
may change from time to time, being the rate in effect for corporate loans
at large U.S. money center commercial banks (whether or not such rate has
actually been charged by any such bank). If The Wall Street Journal ceases
publication of the Prime Rate, the "Prime Rate" shall mean the prime rate
(or base rate) announced by Bankers Trust Company, New York, New York
(whether or not such rate has actually been charged by such bank). If such
bank discontinues the practice of announcing the Prime Rate, the "Prime
Rate" shall mean the highest rate charged by such bank on short-term,
unsecured loans to its most creditworthy large corporate borrowers. Any
change in the Prime Rate shall be effective on the date such change is
announced by Bankers Trust Company or published in the Wall Street Journal,
as applicable.
"Principal Balance": the outstanding principal balance of the Loan
from time to time (after taking into account any requested advance, if so
required hereby).
"REIT": Crown American Realty Trust, a real estate investment trust
organized and existing under the laws of the State of Maryland, together
with its successors and assigns.
"Rents": all rents, royalties, issues, profits, rent equivalent
income, security deposits, insurance proceeds, tax refunds, any other
revenues, income benefits or proceeds of any nature whatsoever generated
by, arising from or otherwise relating to the Secured Line Properties.
"Requirement of Law": as to any Person, the certificate of
incorporation and by-laws or other organizational or Governing Documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Reserve Agreement": that certain Loan Reserves and Security
Agreement, dated November 17, 1997, in favor of Lender, as amended by that
that certain First Amendment to Loan Reserves and Security Agreement, dated
December 12, 1997, between Borrowers and Lender, as further amended by that
certain Second Amendment to Loan Reserves and Security Agreement, dated May
13, 1998, between Borrowers and Lender, as further being amended by that
certain Third Amendment to Loan Reserves and Security Agreement, dated the
Third Modification Date, between Borrowers and Lender.
"Responsible Officer": the chief executive officer, president or
managing member of a Borrower or, with respect to financial matters, the
chief financial officer of such Borrower.
"Rollover Reserve": as defined in the Reserve Agreement.
"S&P": Standard & Poor's Ratings Services, a division of The McGraw-
Hill Companies, Inc.
"Secured Line Properties": (a) each of the following properties on
which Lender holds a Mortgage on the fee simple interest of the applicable
Borrower that owns such property (other than the Shenango Valley Mall, in
which case Lender's Mortgage covers such Borrower's leasehold interest):
(i) the Mount Berry Mall, Rome, GA; (ii) the Bradley Square Mall; (iii)
the Shenango Valley Mall; (iv) the Jacksonville Mall; and (v) the Valley
Mall; and (b) the Additional Secured Line Properties.
"Security Documents": the collective reference to the Mortgages, the
Assignments of Leases and Rents, the Financing Statements and all other
security documents hereafter delivered to the Lender granting a Lien on any
asset or assets of any Person to secure any of the Obligations or to secure
any guarantee of any such Obligations.
"Shenango Valley Mall": that certain shopping mall located in
Hermitage, Pennsylvania.
"Single Purpose Entity": a Person, other than an individual, a
government or any agency or political subdivision thereof, which (i) exists
solely for the purpose of owning an Additional Secured Line Property, (ii)
observes corporate, company or partnership formalities, as applicable,
independent of any other Person, (iii) is owned entirely by the REIT and/or
the Operating Partnership and (iv) otherwise complies in all material
respects with the covenants set forth in Section 6.17 hereof.
"Site Assessment" an environmental engineering report for each
Secured Line Property prepared at the Borrowers' expense by an engineer
engaged by the Borrowers and approved by the Lender, and in a manner
satisfactory to the Lender, based upon an investigation relating to and
making appropriate inquiries concerning the existence of Hazardous
Materials on or about each such Secured Line Property, and the past or
present discharge, disposal, release or escape of any such substances, all
consistent with ASTM Standard E1527-93 or any successor thereto published
by ASTM and good customary and commercial practice. A list of Site
Assessments in existence as of the Third Modification Date is attached
hereto as Schedule 8.2.
"Stadium Theater": a theater to be constructed at each of the Bradley
Square Mall and the Jacksonville Mall.
"Subsidiary": as to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having
ordinary voting power to elect a majority of the board of directors or
other managers of such corporation, partnership or other entity are at the
time owned, or the management of which is otherwise controlled, directly or
indirectly through one or more intermediaries, or both, by such Person.
Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or
Subsidiaries of the Borrowers.
"Taxes": as defined in Section 3.7(a).
"Termination Date": November 17, 2001.
"Third Modification": collectively, the modifications and
amendments to the Existing Secured Credit Line made pursuant to the
Amended and Restated Credit Agreement dated the Third Modification
Date between the Borrowers and the Lender.
"Third Modification Commitment": Lender's commitment letter
dated August 11, 1999 to the Borrowers in connection with the Third
Modification.
"Third Modification Date": September ___, 1999.
"Total Liabilities": consolidated debt from all properties owned by
each Borrower (including its Subsidiaries) determined as a weighted average
based on the number of days such debt was outstanding.
"Townward Site Improvements: the following components of the Valley
Mall Expansion: (a) the reimbursement to the tenant for a portion of the
costs of construction of a movie theater in an amount up to $3,449,000, (b)
the payment of the Montgomery Ward tenant allowance in an amount up to
$1,014,000, (c) the funding of an interest reserve in an amount up to
$836,000, and (d) the payment of the Operating Partnership Developer's Fee.
"Underwritten Net Operating Income": as of the date of determination,
a calculation of Net Operating Income (as determined and adjusted pursuant
to the definition thereof) annualized for the succeeding twelve (12) month
period, based upon tenants in place as of such date (i.e., tenant has taken
possession and has commenced paying rent, provided that if all related
unpaid leasing commissions and tenant and capital improvement allowances
and work have not been paid, the availability under the Loan shall be
reduced by an amount necessary to pay for such costs not yet paid until
such time as such costs have been paid), as of the date of such
determination and as further adjusted as follows:
(a) Revenues shall be (i) adjusted for a maximum occupancy of In-Line
Space of not more than 95% for Jacksonville Mall and Valley Mall and
not more than 85% for the other Properties, (ii) reduced by an amount
of all replacement reserves required to be maintained by the Borrowers
pursuant to the terms of the Reserve Agreement (including, without
limitation, replacement reserves equal to $0.15 per square foot of
owned gross leaseable area contained in the Properties in the
aggregate), (iii) reduced to exclude all income from any tenants that
are more than 90 days past due in payment of any of their lease
obligations other than payment of "CAM" charges and related
reimbursement charges which a tenant may be disputing in good faith
(except as Lender may determine in its discretion to include), (iv) in
Lender's reasonable discretion, reduced for all Major Leases expiring
within the next three (3) months succeeding the determination date
(Lender's reasonable discretion shall be exercised taking into
account, among other things, the length of time that such tenant has
been at the Property, its credit history, past renewal history, the
sales per square foot of such tenant at the Property and the
availability of competitive space to such tenant in the related
market), (v) in Lender's reasonable discretion, reduced for reserves
or deductions for anchor leases or Stadium Theater tenants that have
not previously been approved as creditworthy (Lender hereby
acknowledging that all existing anchor tenants and Stadium Theater
tenants (including Marquee for Bradley Mall and, subject to the
provisions set forth herein and in this definition below, Carmike for
Jacksonville Mall) have been approved as of the date hereof) or have
delivered termination notices or declined to exercise renewal options
or have defaulted on lease obligations, declared bankruptcy, or has
had a material adverse change in its financial or operating condition
such that its ability to perform its lease obligations will be
materially impaired, (vi) with respect to the portion thereof derived
from temporary tenants, promotional income and miscellaneous mall
income, based on 95% of the immediately preceding four quarters (the
"T12"), (vii) with respect to percentage rents and percentage rents in
lieu of base rent, (A) for tenants in place at least twelve (12)
months, based on 95% of the actual percentage rent from such tenants
adjusted for inflation at a rate equal to the consumer price index for
the preceding twelve month period (provided that the amount of such
adjustment shall not exceed the inflation adjustment for expenses
below), and (B) for tenants in place for less than 12 months, based on
the Additional Percentage Rent, and (viii) expense recoveries shall be
based on applying the recovery rate for the T12 and adjusting same for
the change in in-place occupancy (as adjusted above) but no more than
what is then currently being billed for in-place tenants on an
annualized basis subject to adjustment for inflation (to the extent
that leases allow for increases in the expense recoveries for
inflation); and
(b) Expenses shall be based on the T12 (as adjusted for reserves,
management fees and other items as expressly set forth in this
definition and in the definition of Net Operating Income) and shall
(i) be adjusted for actual known changes at the date of determination
in taxes, insurance, and other contractually fixed expenses, (ii)
increased for inflation at a rate equal to the consumer price index
for the preceding twelve month period (unless adjusted pursuant to
clause (i) hereof), and (iii) adjusted, in Lender's reasonable
determination, for significant non-recurring credits or charges
included in the expenses for the T12.
Notwithstanding anything to the contrary contained herein, until such
time as the Valley Mall Anchor Lease Requirements have been satisfied, all
revenue and income from any tenant under a lease executed with respect to
the Valley Mall Expansion shall be excluded, whether or not such tenant is
in occupancy. In addition, notwithstanding anything to the contrary
contained herein, solely for the purposes of determining Underwritten Net
Operating Income in order to qualify for the Bradley and Jacksonville
Advances, the projected base rent income from the Stadium Theater tenants
of the Bradley Mall and Jacksonville Mall during the twelve (12) month
period succeeding the determination date shall be included as revenue upon
execution of leases for such theaters which leases have been approved by
Lender (without such tenant having taken possession or commenced paying
rent), and all projected expenses related thereto shall be included as
expenses (including, without limitation, the assumed management fee, a
$0.15 per square foot replacement reserve) . Notwithstanding anything to
the contrary contained herein (including the immediately preceding
sentence) the Marquee Stadium Theater income at the Bradley Square Mall
shall be excluded from all calculations of Underwritten Net Operating
Income, for all purposes (and whether for purposes of a Bradley and
Jacksonville Advance or any other advance) and the advance for the Marquee
Stadium Theater at Bradley Square Mall shall not be made by Lender unless
Borrowers provide evidence to Lender that Marquee Theaters at the Bradley
Square Mall is contributing not less than $1,500,000 of its own funds to
the construction and fixturing of the Marquee Stadium Theater at Bradley
Square Mall.
"Valley Mall": that certain shopping mall located in Hagerstown,
Maryland, including, but not limited to, the Valley Mall Expansion, unless
otherwise specified herein.
"Valley Mall Anchor Lease Requirements": as defined in the
Building Loan Agreement.
"Valley Mall Construction Loan": a portion of the Loan not to
exceed the lesser of (a) $26,034,000, (b) the actual cost required to
be paid by the Borrower that owns the Valley Mall, as landlord, to
complete the Valley Mall Expansion, or (c) such lower amount as may be
permitted under the Funding Threshold or the Building Loan Agreement)
to finance construction of the Valley Mall Expansion, such Valley Mall
Construction Loan to include the Valley Mall Reimbursement Advance and
the Valley Mall Theater Advance.
"Valley Mall Expansion": as defined in the Building Loan
Agreement.
"Valley Mall Expansion Additional Funding Threshold
Requirements": advances for the Valley Mall Expansion, including the
Valley Mall Reimbursement Advance, may not exceed $26,034,000 in the
aggregate, of which no more than $6,034,000 may be used for the Valley
Mall Theater Advance.
"Valley Mall Expansion Parcel": the real property described on
Exhibit M attached hereto.
"Valley Mall Like-Kind Exchange Parcels": the Valley Mall
Expansion Parcel and the Montgomery Ward Option Parcel, collectively.
"Valley Mall Reimbursement Advance": the portion of the Initial
Funding to be used to reimburse Borrowers for expenditures of up to
$6,000,000 incurred as of the Third Modification Date and approved by
Lender with respect to the Valley Mall Expansion.
"Valley Mall Theater Advance": a portion of the Valley Mall
Construction Loan made pursuant to Additional Advances in an aggregate
amount up to $6,034,000, to be used to finance the Townward Site
Improvements.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in the Note or any certificate or other document made or delivered
pursuant hereto.
(b) As used herein and in the Note, and any certificate or other
document made or delivered pursuant hereto, accounting terms relating to the
Borrowers and their respective Subsidiaries not defined in Section 1.1 and
accounting terms partly defined in Section 1.1, to the extent not defined, shall
have the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENT
2.1 Commitment. Subject to the terms and conditions hereof, the
Lender agrees to make the Loan to the Borrowers during the Commitment Period in
an aggregate principal amount at any one time outstanding which does not exceed
the Funding Threshold. During the Commitment Period the Borrowers may use the
Commitment by borrowing, prepaying the Loan in whole or in part at such times,
and under such conditions, as permitted under this Agreement, and reborrowing,
all in accordance with the terms and conditions hereof.
2.2 Procedure for Borrowing. (a) The Borrowers may borrow under the
Commitment during the Commitment Period in an aggregate principal amount not
exceeding the Funding Threshold then in effect; provided that the Borrowers
shall give the Lender notice of such borrowing (a "Notice of Borrowing"), which
notice must be received by the Lender prior to 10:00 a.m., New York time, at
least 30 days prior to the requested Borrowing Date for any advance under a
Construction Loan and at least 10 Business Days prior to the requested Borrowing
Date for any other advance (provided, however, that if Lender elects pursuant to
the provisions of subparagraph (i) below to re-audit the Underwritten Net
Operating Income of the Secured Line Properties, Lender shall have 45 days from
the request for an advance to make such advance). The Notice of Borrowing shall
include a certification of a Responsible Officer specifying (1) the amount to be
borrowed, (2) the requested Borrowing Date, (3) whether the borrowing is for an
advance under a Construction Loan, (4) the calculation of the Funding Threshold,
and a certification that the Funding Threshold will not be exceeded by such
requested borrowing, (5) the purpose for which such advance is requested (which
purpose shall be a permitted purpose hereunder), and (6) a certification that
all other conditions for such Advance, including conditions set forth in Article
V hereof and in the Building Loan Agreement, if applicable, have been satisfied.
In the event the Borrowers revoke such Notice of Borrowing prior to the Lender's
disbursement of an advance, the Borrowers shall reimburse the Lender and its
agents and contractors for all reasonable expenses actually incurred by such
parties in connection with such proposed advance.
(b) Beginning on the Third Modification Date, borrowings shall only
be permitted under the Commitment for (i) the Initial Funding, (ii) the Bradley
and Jacksonville Mall Advances, and (iii) Additional Advances, pursuant to and
in accordance with the terms of this Agreement.
(c) Each borrowing under the Commitment (other than advances under a
Construction Loan) shall be in an amount equal to or greater than $3,000,000,
and each borrowing under a Construction Loan shall be in an amount equal to or
greater than $500,000. No borrowings shall be permitted more than once in any
calendar month.
(d) Notwithstanding anything to the contrary contained herein, the
Borrowers shall not be permitted to borrow under the Commitment at any time
after the first day of the last full calendar month immediately preceding the
Termination Date, any advance during the last 120 days prior to the Termination
Date to be based on the Funding Threshold in effect as of the end of the
previous calendar quarter.
(e) On and after the Third Modification Date, Borrowers shall be
entitled to advances of the Initial Funding, provided that:
(i) amounts advanced do not exceed the Funding Threshold (Lender
hereby acknowledging that the calculation thereof to be based on
the Initial Deemed Satisfaction);
(ii) amounts advanced are used for the purposes permitted under this
Agreement;
(iii) no advances may be made under the Valley Mall Construction
Loan unless the requirements of subparagraph (h) below have been
satisfied (provided, however, that the Valley Mall Anchor Lease
Requirements need not be satisfied for the Initial Funding);
(iv) the Valley Mall Reimbursement Advance is subject to verification
by Lender's construction consultant of (A) work in place (hard
costs and Lender approved soft costs) of not less than $6,000,000
performed in accordance with the plans and specifications
previously approved by Lender, (B) remaining cost to complete the
Valley Mall Expansion of not more than $20,034,000, and (C) other
draw conditions contained in the Building Loan Agreement;
(v) Borrowers shall be entitled to a disbursement of up to
$12,641,230 of the Initial Funding to be applied to the
Borrowers' capital investment in Borrower Affiliates or the
Operating Partnership to finance the acquisition of regional
shopping malls, to working capital needs and to other purposes,
as determined by Borrowers in their sole discretion; and
(vi) all other conditions for such advances set forth in Section 5
below have been satisfied.
(f) On and after the Third Modification Date, Borrowers shall be
entitled to the Bradley and Jacksonville Mall Advances, provided that:
(i) amounts advanced do not exceed the Funding Threshold;
(ii) amounts advanced are used for the purposes permitted under this
Agreement;
(iii) Lender has approved the creditworthiness of the tenant for
the Stadium Theater to be constructed (provided that if such
tenant is Carmike for Jacksonville Mall and Marquee for Bradley
Mall, Lender has approved, or waived the approval of, the
creditworthiness of such tenants);
(iv) the requirements of subparagraph (h) below with respect to
Construction Loans have been satisfied;
(v) the Borrowers shall not have already borrowed Additional Advances
in excess of $109,000,000 on the basis of achieving a COC in
excess of 13.0% for purposes of the applicable Minimum COC
Requirements used in determining the Funding Threshold; and
(vi) all other conditions for such advances set forth in Section 5
below have been satisfied.
(g) On and after the Third Modification Date, Borrowers shall be
entitled to Additional Advances, provided that:
(i) amounts advanced do not exceed the Funding Threshold;
(ii) the proceeds of such Additional Advances will be used for
purposes permitted by this Agreement;
(iii) the Operating Partnership shall be entitled to funding of
the Operating Partnership Developer Fee only if at least 65% of
the In-Line Space of the Valley Mall Expansion is leased
pursuant to arm's-length leases and the tenants thereof
have taken possession and commenced paying rent;
(iv) prior to funding any Additional Advance, Borrowers shall have
satisfied the Valley Mall Anchor Lease Requirements;
(v) prior to funding any Additional Advance above and beyond a Valley
Mall Theatre Advance, Borrowers shall have satisfied all other
conditions for, and there shall be availability under the Loan
for, disbursements under the Valley Mall Theater Advance; and
(iv) all other conditions for such advances set forth in Section 5
below have been satisfied.
(h) Advances under each Construction Loan shall be made by Lender
pursuant to the following terms and conditions. In addition to all conditions
set forth herein, including, without limitation, all conditions set forth in
Section 5 hereof:
(i) the Building Loan Agreement shall have been executed and
delivered simultaneously with the execution and delivery of this
Agreement; and
(ii) Construction Loan advances will be made on the terms and
conditions set forth in the Building Loan Agreement, and Lender
will advance funds under such Construction Loan to pay for
construction costs (A) as part of the Initial Funding, to the
extent permitted hereunder, and (B) otherwise, as such costs are
incurred, in accordance with, and subject to, the terms and
provisions of the Building Loan Agreement.
(i) Lender shall have the right to condition an advance upon a re-
audit of the Underwritten Net Operating Income of the Secured Line Properties,
in scope and substance as reasonably determined by Lender, (i) if Borrowers have
requested an increase in the amount of funds available under the Loan since the
date of the last audit of the Underwritten Net Operating Income, (ii) at the end
of each calendar year, and (iii) if Lender reasonably determines that a material
adverse change may have occurred in the business or financial condition or
management of Borrowers, the Secured Line Properties or any anchor or theater
tenant or non-tenant anchor since the date of the last audit of the Underwritten
Net Operating Income, provided, however, that Lender may require that any such
re-audit be performed by an outside third-party accountant at Borrowers' expense
no more than once each year and at any other times as a re-audit may be
performed under (iii) above (any additional re-audits permitted hereunder to be
performed internally by the Lender).
2.3 Additional Properties. If Borrowers desire to obtain funds in
excess of the amount then available pursuant to the Funding Threshold (but in no
event in excess of $150,000,000), Borrowers may from time to time identify to
Lender one or more properties to secure the Loan in addition to the then
existing Secured Line Properties, which will be subject to approval by Lender in
its sole and absolute discretion following the performance by Lender of its
customary underwriting procedures. Lender shall not be under any obligation to
accept any such property as collateral for the Loan. If the Borrowers wish to
submit a proposed property for inclusion as an Additional Secured Line Property,
the Borrowers shall, at the Borrowers' sole cost and expense, submit to the
Lender for the Lender's review and approval, all of the due diligence materials
more particularly set forth in Schedules 1 and 2 attached hereto (including,
without limitation, a Subordination, Non-Disturbance and Attornment Agreement
substantially in the form of Exhibit E hereto from each of the tenants under
leases at such proposed property, as requested by the Lender, or evidence
satisfactory to the Lender and the title insurance company issuing a commitment
to insure the Lender's proposed advance with respect to such proposed property
that such leases are subordinate by their terms). The Lender shall endeavor,
but shall not be obligated, to complete its underwriting procedures with respect
to such proposed Additional Secured Line Property and, in the event the Lender
grants its approval to such property, to complete the funding of an advance
hereunder for the purpose of acquiring such proposed Additional Secured Line
Property, within forty-five (45) days following the Lender's receipt of all
documentation required hereunder (excluding any estoppels and Subordination,
Non-Disturbance and Attornment Agreements).
2.4 Release of Properties. Except as provided in Sections 2.7 and 2.8
below with respect to Out-Parcels and Option Parcels, respectively, no Secured
Line Property or any portion thereof will be released from the Lien of its
corresponding Security Documents (a "Release") until such time as the Loan and
all other amounts (including, without limitation, the Exit Fee) payable under
the Loan Documents have been paid in full (subject in all respects to the
prepayment prohibition in Section 3.2) and this Agreement has been terminated in
accordance with the provisions hereof.
2.5 Servicing Fee, Commitment Fee, Extension Fee, Exit Fee. (a) The
Lender may, at its option, enter into such sub-servicing arrangements as the
Lender deems appropriate for purposes of servicing the Loan. Lender shall be
responsible for any obligations to CB Servicing, Inc. under that certain Amended
and Restated Subservicing Agreement dated September 24, 1998 between Lender and
CB Servicing, Inc., as amended by the amendment thereto being executed and
delivered simultaneously with the execution and delivery of this Agreement.
(b) The Borrowers agree to pay to the Lender a commitment fee equal
to 0.5% of the principal amount of the Loan, in consideration of Lender's
agreement to extend the Termination Date, as provided herein and in the Third
Modification Commitment, which fee is payable as follows:
(i) on the Third Modification Date the Borrowers shall pay a portion
of the commitment fee equal to $675,000 (representing 0.5% of $135,000,000), and
(ii) beginning at such time as the Borrowers request an advance
hereunder that would cause the Principal Balance to exceed $135,000,000, the
Borrowers shall pay Lender, as a condition for receipt of such requested
advance, a commitment fee equal to 0.5% of the portion of the Principal Balance
(after taking into account the requested advance) in excess of $135,000,000 for
which the commitment fee has not yet been paid.
(c) The Borrowers agree to pay to the Lender the Exit Fee on date of
payment in full of the Loan, whether on or prior to the Termination Date.
2.6 Intentionally Omitted
2.7 Release of Out-Parcel. At any time after the date hereof, the
Borrowers may obtain a release of an Out-Parcel, or, a portion of an Out-Parcel,
from the lien of the related Mortgage upon sixty (60) days prior written notice,
provided that such release shall only be granted if the following conditions
have been met or satisfied:
(i) The Borrowers shall reimburse the Lender for any reasonable
costs and expenses the Lender actually incurs arising from
the transfer of the Out-Parcel and any release of the Out-
Parcel from the lien of the related Mortgage (including,
without limitation, reasonable attorneys fees and expenses);
(ii) At the time the Borrowers request such release and at the
time such release is granted there is no Event of Default
continuing;
(iii) The intended use of the Out-Parcel shall be for income
producing activities and consistent with the use to which
out-parcel and expansion parcels are generally used in
first class retail shopping malls;
(iv) No part of the remaining Secured Line Property shall be part
of a tax lot affecting any portion of the Out-Parcel
released or portion thereof released;
(v) Each applicable municipal authority exercising jurisdiction
over the Out-Parcel has approved a lot-split ordinance or
other applicable action under local law dividing the Out-
Parcel to be released or portion thereof to be released from
the remainder of the Secured Line Property and assigning
separate tax identification numbers to each;
(vi) A metes and bounds description of the Out-Parcel has been
delivered to Lender, together with, if previously not
delivered to the Lender, an ALTA survey meeting the
requirements of this Agreement, or other evidence reasonably
satisfactory to the Lender describing the remaining Secured
Line Property, and a site plan for all construction intended
to be financed at such Secured Line Property with proceeds
of a Construction Loan hereunder, demonstrating that such
Out-Parcel is not necessary for the construction or
operation of the Valley Mall Expansion or the Stadium
Theater, as applicable;
(vii) All requirements under all laws, statutes, rules and
regulations (including, without limitation, all zoning and
subdivision laws, setback requirements, sideline
requirements, parking ratio requirements, use requirements,
building and fire code requirements, environmental
requirements and wetlands requirements) applicable to the
Secured Line Property necessary to accomplish the lot split
shall have been fulfilled, and all necessary variances, if
any, shall have been obtained, and evidence thereof has
been delivered to the Lender which in form and substance
would be acceptable to a prudent lender;
(viii) As a result of the lot split, the remaining Secured
Line Property and the Out-Parcel each considered alone
will not be in violation of any applicable law, statute,
rule or regulation (including, without limitation, all
zoning and subdivision laws, setback requirements,
sideline requirements, parking ratio requirements, use
requirements, building and fire code requirements,
environmental requirements and wetland requirements) and
all necessary variances, if any, shall have been obtained
and evidence thereof has been delivered to the Lender
which in form and substance would be acceptable to a
prudent lender;
(ix) The Lender shall have received evidence reasonably
satisfactory to it that the Out-Parcel has been transferred
to a Person who is not an Affiliate of the Borrowers, except
in the case of any Valley Mall Out-Parcel which is intended
to be used for the development of a strip shopping center;
(x) Appropriate reciprocal easement agreements for the benefit
and burden of the remaining Secured Line Property and the
Out-Parcel regarding the use of common facilities of such
parcels, including, but not limited to, roadways, parking
areas, utilities and community facilities by the occupants
of the remaining Secured Line Property and the Out-Parcel,
in a form and substance that would be acceptable to a
prudent lender, shall be declared and recorded. The
remaining Secured Line Property and the Out-Parcel shall be
in compliance with all applicable Major Leases (including,
but not limited to, parking requirements and parking
ratios), and all easements and property agreements contained
in the Permitted Encumbrances, as applicable, for such
Secured Line Property;
(xi) The occupancy rate (including anchor tenants) of such
Secured Line Property shall be greater than the greater of
(A) 80% and (B) the occupancy rate on the date hereof
(provided that if the occupancy rate was 90% or greater on
the date hereof it shall not be necessary that such property
have an occupancy rate greater than 90%);
(xii) The Underwritten Net Operating Income as of the date of
the Out-Parcel release allocable to the remaining Secured
Line Properties shall not be less than the Underwritten
Net Operating Income for the Secured Line Properties as
of the date hereof;
(xiii) No tenant under any Lease whose parent's long-term
unsecured debt rating is rated at least "BBB" has
executed, or is negotiating in contemplation of
executing, a Lease with respect to a portion of the
Out-Parcel (unless such tenant is replaced by a
tenant whose parent's rating is equal or better);
(xiv) Title policy endorsements have been delivered to the
effect that the release of the Out-Parcel will not have an
adverse affect on the priority of the Lien of the Mortgage
on the remaining portion of the Secured Line Property;
(xv) The Borrowers have delivered an officer's certificate to the
effect that the conditions in subsection (i) - (xiv) have
occurred;
(xvi) Approval of such release by the Lender, which approval
shall not be unreasonably withheld, conditioned or delayed;
(xvii) The Borrowers shall execute such documents and
instruments and obtain such opinions of counsel as a
prudent lender would require;
(xviii) The Borrowers shall deliver evidence reasonably
satisfactory to the Lender that the release of the
Out- Parcel will not have a Material Adverse Effect;
(xix)The Borrowers shall deliver to the Lender all net proceeds
of the sale of the Out-Parcel (such proceeds, in the case of
Valley Mall, to be net of up to $1,220,000 reimbursement
to the Borrowers of Out-Parcel development costs, in
addition to other customary sales transaction costs) for
deposit by Lender into the Rollover Reserve, to be used to
pay for leasing commissions and tenant improvements at
the respective Secured Line Property, in accordance with the
provisions of the Reserve Agreement;
(xx) Borrowers have delivered to Lenders a site plan or other
satisfactory evidence that no portion of such Out-Parcel is
required for the Valley Mall Expansion or the construction
of the Stadium Theaters at either Bradley Square Mall or
Jacksonville Mall;
(xxi)If the Out-Parcel is the 20-acre Out-Parcel at Mt. Berry
Mall for which Borrowers requested Lender to approve a
change in zoning, all requirements of Lender's approval set
forth in Exhibit N have been satisfied;
(xxii) Any sale commission payable to the REIT or any of its
Affiliates does not exceed 15%, unless otherwise approved
by Lender; and
(xxiii) Such Out-Parcel is not an income-producing property (the
release of any income-producing Out-Parcel to be subject to
the approval of the Lender in its sole discretion, and
subject to satisfaction of such additional conditions
as Lender may impose).
2.8 Release of Option Parcels. At any time, Borrowers may obtain the
release of an Option Parcel from the lien of the applicable Mortgage, provided
that such release is made in accordance with the May Option or Montgomery Ward
Option, as applicable, and shall only be granted if the following conditions
have been met or satisfied:
(i) Borrower shall reimburse Lender for any reasonable costs and
expenses it actually incurs arising from the release of the
Option Parcel from the lien of the applicable Mortgage
(including, without limitation, reasonable attorneys fees and
expenses);
(ii) At the time the Borrowers request such release and at the time
such release is granted there is no Default or Event of Default
continuing;
(iii) Each applicable municipal authority exercising jurisdiction
over the Option Parcel shall have approved, or shall be prepared
to approve, as part of its standard approval process, a lot-split
ordinance or other applicable action under local law dividing the
Option Parcel from the remainder of the applicable Secured Line
Property and assigning separate tax identification numbers to
each;
(iv) Upon the release of the Option Parcel and after the completion of
the standard approval process for tax lot-splits by the
applicable municipal authority exercising jurisdiction over the
Option Parcel, no part of the remaining applicable Secured Line
Property shall be part of a tax lot affecting any portion of the
Option Parcel;
(v) Lender shall have received appropriate title endorsements to the
title policies issued in connection with the Loan confirming the
priority of the lien of the Mortgage on the remaining portion of
the Secured Line Property;
(vi) A metes and bounds description of the Option Parcel has been
delivered to Lender, together with, if previously not delivered
to the Lender, an ALTA meeting the requirements of this Agreement
or other evidence reasonably satisfactory to Lender describing
the remaining Secured Line Property, and a site plan for all
construction intended to be financed at such Secured Line
Property with proceeds of a Construction Loan hereunder,
demonstrating that the conveyance of such Option Parcel will not
negatively affect the operation of the Valley Mall (including the
Valley Mall Expansion);
(vii) All requirements under all laws, statutes, rules and
regulations (including, without limitation, all zoning and
subdivision laws, setback requirements, sideline requirements,
parking ratio requirements, use requirements, building and fire
code requirements, environmental requirements and wetlands
requirements) applicable to the Secured Line Property necessary
to accomplish the lot split shall have been fulfilled, and all
necessary variances, if any, shall have been obtained, and
evidence thereof has been delivered to the Lender which in form
and substance is appropriate for the jurisdiction in which the
Secured Line Property is located;
(viii) The Lender shall receive evidence that the Option Parcel is
transferred to a Person who is not an Affiliate of Borrowers, and
that such Option Parcel will be used for the purposes set forth
in the May Option or the Montgomery Ward Option, as applicable;
(ix) Appropriate reciprocal easement agreements for the benefit and
burden of the remaining Secured Line Property and the Option
Parcel regarding the use of common facilities of such parcels,
including, but not limited to, roadways, parking areas, utilities
and community facilities by the occupants of the remaining
Secured Line Property and the Option Parcel, in form and
substance reasonably acceptable to Lender, shall be declared and
recorded. In addition, all operating covenants, if any, of the
tenants under the May Option Agreement or Montgomery Ward Option
Agreement, as applicable, remain in full force and effect after
such release;
(x) The remaining portion of the Secured Line Property and the Option
Parcel shall be in compliance with all applicable covenants under
all anchor leases and Major Leases (including, but not limited
to, parking requirements) and all easements and property
agreements contained in the Permitted Encumbrances for such
Secured Line Property; and
(xi) Borrowers shall execute such documents and instruments and obtain
such opinions of counsel as are typical for similar transactions.
SECTION 3. GENERAL PROVISIONS APPLICABLE TO LOAN
3.1 Interest Rates and Payment Dates. (a) The Loan shall bear
interest for each day during each Interest Period with respect thereto at a rate
per annum equal to the LIBOR Rate determined for such Interest Period, provided,
however, that during the first Interest Period, for each day up to and including
the Third Modification Date, the Loan shall bear interest at the Interest Rate
specified in the Existing Credit Agreement. In the event, and on each occasion,
that on any Determination Date the Lender shall have determined in good faith
(which determination shall be conclusive and binding upon the Borrowers) that
Dollar deposits in an amount approximately equal to the portion of the Principal
Balance which is to bear interest at a particular LIBOR Rate during such
particular Interest Period in accordance with the provisions of this Agreement
are not generally available at such time in the London Interbank Market, or
reasonable means do not exist for ascertaining a LIBOR Rate for such particular
Interest Period, the Lender shall so notify the Borrowers and the interest rate
applicable to the portion of the Principal Balance with respect to which such
LIBOR Rate was to pertain shall automatically be converted to the Floating Rate
as of the date upon which such particular Interest Period was to have commenced,
it being agreed that the Floating Rate shall remain in effect thereafter with
respect to such portion of the Principal Balance unless and until the Lender
shall have determined in good faith (which determination shall be conclusive and
binding upon the Borrowers) that the aforesaid circumstances no long exist,
whereupon the interest rate applicable to such portion of the Principal Balance
shall be converted back to a LIBOR Rate determined in the manner hereinabove set
forth effective as of the first Interest Period which occurs ten (10) Business
Days or more after such good faith determination by the Lender. If any change
in any law or regulation or in the interpretation thereof by any governmental
authority charged with the administration or interpretation thereof shall make
it unlawful for the Lender to make or maintain LIBOR Rates with respect to the
Principal Balance or any portion thereof or to fund the Principal Balance or any
portion thereof at LIBOR Rates in the London Interbank Market or to give effect
to its obligations as contemplated by this Section, then, upon notice by the
Lender to the Borrowers, the interest rate applicable to the entire Principal
Balance shall be automatically converted to the Floating Rate, it being agreed
that any notice given by the Lender to the Borrowers pursuant to this sentence
shall, if lawful, be effective insofar as it pertains to any particular portion
of the Principal Balance bearing interest at a particular LIBOR Rate on the last
day of the then existing Interest Period pertaining to such particular portion
of the Principal Balance, or if not lawful, shall be effective immediately upon
being given by the Lender to the Borrowers, and that the Floating Rate shall
remain in effect thereafter with respect to such particular portion of the
Principal Balance unless and until the Lender shall have determined in good
faith (which determination shall be conclusive and binding upon the Borrowers)
that the aforesaid circumstances no longer exist, whereupon the interest rate
applicable to such portion of the Principal Balance shall be converted to a
LIBOR Rate determined in the manner hereinabove set forth effective as of the
first Interest Period which occurs ten (10) Business Days or more after such
good faith determination by the Lender.
(b) Interest shall be calculated on the basis of a 360-day year and
the actual number of days elapsed. If all or a portion of (i) any principal of
the Loan, (ii) any interest payable thereon, (iii) any Commitment Fee, (iv) the
Exit Fee, or (v) any other amount payable hereunder or under any Loan Document
shall not be paid when due (whether at the stated maturity, by acceler-
ation or otherwise), the Principal Balance and any such overdue interest, Com-
mitment Fee, Exit Fee or other amount shall bear interest at a rate per annum
which is the rate that would otherwise be applicable thereto pursuant to the
provisions of this Agreement plus 5%, in each case from the date of such
non-payment until such overdue principal, interest, Commitment Fee, servicing
fee or other amount is paid in full.
(c) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to subparagraph (b) of this
Section shall be payable from time to time on demand.
(d) Notwithstanding anything to the contrary contained herein, the
entire Principal Balance and all other Obligations due and payable under the
Loan Documents, if not sooner paid or required to be paid pursuant to the
terms of this Agreement, shall be immediately due and payable on the Termination
Date.
3.2 Optional Prepayments. The Loan may not be prepaid, in whole or in
part, during the Lockout Period, other than prepayment of the entire Loan on any
scheduled payment date, in connection with an arm's-length sale by Borrowers to
a non-affiliated entity of one or more Secured Line Properties, provided that
Borrowers (a) provide Lender with at least ten (10) Business Days irrevocable
notice of such prepayment, and (b) pay Lender the Exit Fee. Thereafter, the
Secured Credit Line may be prepaid, in whole or in part on any scheduled payment
date or other date mutually satisfactory to Borrowers and Lender, upon at least
ten (10) Business Days irrevocable notice to Lender, subject to payment of the
Exit Fee upon any prepayment in full and termination of this Agreement. If
following the occurrence of any Event of Default, Borrowers shall tender payment
of an amount sufficient to satisfy all or any portion of the Obligations, such
tender by Borrower shall be deemed to be voluntary and may be accepted or
rejected by Lender in its sole discretion. If Lender accepts such tender,
Borrower shall pay, in addition to the Obligations, the Exit Fee. If any such
notice is given, the amount specified in such notice shall be due and payable on
the Interest Payment Date specified therein, together with the Exit Fee.
Partial prepayments pursuant to this Section 3.2 shall be in an aggregate
principal amount of $1,000,000 or multiples of $100,000 in excess thereof.
3.3 Mandatory Prepayments. (a) If on any date the Principal Balance
exceeds the Funding Threshold in effect on such date or the Funding Threshold
is exceeded as calculated (such condition, a "Borrowing Base Deficiency"), the
Borrowers shall, (i) within 15 days of the first date on which a Borrowing Base
Deficiency existed which has not been subsequently cured, submit to the Lender a
plan (a "Borrowing Base Restoration Plan"), in reasonable detail, and in form
and substance satisfactory to the Lender, pursuant to which the Borrowers
propose to eliminate such Borrowing Base Deficiency whether by prepayment or
designation of additional Acquired Properties, which Borrowing Base Restoration
Plan shall be certified by a Responsible Officer as having been approved and
adopted on behalf of the Borrowers and which approval remains in effect, and
(ii) within 60 days after the submission by the Borrowers of the Borrowing Base
Restoration Plan with respect to such Borrowing Base Deficiency to the Lender,
eliminate the Borrowing Base Deficiency.
(b) If such Borrowing Base Deficiency is not eliminated within 60
days, then the entire outstanding of the Loan, together with all accrued
interest, shall be immediately due and payable, together with the Exit Fee and
all other amounts payable hereunder.
3.4 Payments. Each payment by the Borrowers hereunder or under the
Note or under any other Loan Document shall be made in funds settled through the
New York Clearing House Interbank Payments System or other funds immediately
available to the Lender by 12:00 p.m., New York City time, on the date such
payment is due by deposit to such account as the Lender may designate by written
notice to the Borrowers. Whenever any payment hereunder or under the Note shall
be stated to be due on a day which is not a Business Day, such payment shall be
made on the first Business Day thereafter.
3.5 Increased Cost and Reduced Return. (a) If, after the date
hereof, the adoption of any applicable law, rule, or regulation, or any change
in any applicable law, rule, or regulation, or any change in the interpretation
or administration thereof by any Governmental Authority, central bank, or
comparable agency charged with the interpretation or administration thereof, or
compliance by the Lender with any request or directive (whether or not having
the force of law) of any such Governmental Authority, central bank, or
comparable agency, in each case of general application:
(i) shall subject the Lender to any tax, duty, or other charge with
respect to the Loan, the Note, or its obligation to make the Loan, or change
the basis of taxation of any amounts payable to the Lender under this Agree-
ment or the Note in respect of the Loan (other than corporate, stock or fran-
chise taxes and other taxes imposed on the overall net income of the Lender by
any jurisdiction);
(ii) shall impose, modify, or deem applicable any reserve, special
deposit, assessment or similar requirement relating to any extensions of credit
of the type of which the Loan is a part by the Lender; or
(iii) shall impose on the Lender or on the London Interbank Market any
other condition affecting this Agreement or the Note or any of such exten-
sions of credit or liabilities or commitments;
and the result of any of the foregoing is to increase the actual cost to the
Lender of making or maintaining the Loan or to reduce any sum received or
receivable by the Lender under this Agreement or the Note with respect to the
Loan, then the Borrowers shall pay to the Lender on demand such amount or
amounts as will compensate the Lender for such increased cost or reduction.
(b) If, after the date hereof, the Lender shall have determined that
the adoption of any applicable law, rule, or regulation regarding capital
adequacy or any change therein or in the interpretation or administration
thereof by any Governmental Authority, central bank, or comparable agency
charged with the interpretation or administration thereof, or any request or
directive regarding capital adequacy (whether or not having the force of law)
of any such Governmental Authority, central bank, or comparable agency, in
each case of general application, has or would have the effect of reducing the
rate of return on the capital of the Lender as a consequence of the
Lender's obligations hereunder to a level below that which the Lender could
have achieved but for such adoption, change, request, or directive (taking
into consideration its policies with respect to capital adequacy), then from
time to time upon demand the Borrowers shall pay to the Lender such additional
amount or amounts as will compensate the Lender for such reduction.
(c) The Lender shall promptly notify the Borrowers of any event of
which it has knowledge, occurring after the date hereof, which will entitle
the Lender to compensation pursuant to this Section. In the event the
Lender claims compensation under this Section, it shall furnish to the
Borrowers a detailed statement setting forth the additional amount or
amounts to be paid to it hereunder, which shall be conclusive in the
absence of manifest error. In determining such amount, the Lender may
use any reasonable averaging and attribution methods. The agreements of
the Borrowers to provide additional compensation pursuant to this Section
shall survive the termination of this Agreement and the payment of the Loan
and all other amounts payable hereunder.
3.6 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for the Lender to make,
maintain, or fund the Loan hereunder, then the Lender shall promptly notify the
Borrowers thereof and the Lender's obligation to continue funding the Loan shall
be suspended until such time as the Lender may again make, maintain, and fund
the Loan. If such suspension lasts longer than thirty (30) days, the Borrowers,
upon payment in full of the then outstanding portion of the Obligations, may
terminate this Agreement and, upon such termination, shall have no further
liability hereunder or under the other Loan Documents except for such
liabilities which are specifically intended to survive the prepayment of the
Loan.
3.7 Taxes. (a) Any and all payments by the Borrowers to or for the
account of the Lender hereunder or under any other Loan Document shall be made
free and clear of and without deduction for any and all present or future taxes,
duties, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of the Lender, taxes
imposed on its income, and franchise taxes imposed on it, by the jurisdiction
under the laws of which the Lender is organized or any political subdivision
thereof (all such non-excluded taxes, duties, levies, imposts, deductions,
charges, withholdings, and liabilities being hereinafter referred to as
"Taxes"). If the Borrowers shall be required by law to deduct any Taxes from or
in respect of any sum payable to the Lender under this Agreement or any other
Loan Document, (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 3.7) the Lender receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the Borrowers
shall make such deductions, (iii) the Borrowers shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law, and (iv) the Borrowers shall furnish to the Lender, at its
address referred to in Section 11.2, the original or a certified copy of a
receipt evidencing payment thereof. Notwithstanding the foregoing, the
Borrowers may, in good faith, and by proper legal proceedings, diligently
contest the validity, amount or application of any Taxes in accordance with the
provisions (if any) of the applicable Mortgage.
(b) In addition, the Borrowers agree to pay any and all present or
future stamp or documentary taxes and any other excise or property taxes or
charges or similar levies which arise from any payment made under this Agre-
ement or any other Loan Document or from the execution or delivery of, or
otherwise with respect to, this Agreement or any other Loan Document (herein-
after referred to as "Other Taxes").
(c) The Borrowers agree to indemnify the Lender for the full amount
of Taxes and Other Taxes (including, without limitation, any Taxes or Other
Taxes imposed or asserted by any jurisdiction on amounts payable under this
Section 3.7) paid by the Lender and any liability (including penalties,
interest, and expenses) arising therefrom or with respect thereto.
(d) Except as otherwise specifically set forth in the Reserve Agree-
ment, the
Borrowers shall pay all Taxes on or before the delinquency thereof and shall
furnish to the Lender, within ten (10) Business Days following the Borrowers'
receipt from the applicable Governmental Authority, the original or a certified
copy of a receipt evidencing such payment.
(e) Without prejudice to the survival of any other agreement of the
Borrowers hereunder, the agreements and obligations of the Borrowers contained
in this Section 3.7 shall survive the termination of the Commitment and the
payment in full of the Note.
3.8 Reserves. The Borrowers shall at all times maintain with the
Lender such reserves and in such amounts as the Lender may, from time to time,
require in the Lender's sole and absolute discretion (the "Reserves"). In
furtherance of the foregoing and not by way of limitation thereof, the Borrowers
shall pay to the Lender on each Interest Payment Date (a) one-twelfth of an
amount which would be sufficient to pay the real property taxes and assessments
applicable to the Secured Line Properties payable, or estimated by the Lender to
be payable, during the next ensuing twelve (12) months and (b) following the
occurrence and continuance of an Event of Default or failure to pay a required
insurance premium, one-twelfth of an amount which would be sufficient to pay the
Insurance Premiums due for the renewal of the coverage afforded by the Insurance
Policies upon the expiration thereof. If the Reserves are not sufficient to pay
the items set forth above, the Borrowers shall promptly pay to the Lender,
within five (5) days of demand therefor, an amount which the Lender shall
reasonably estimate as sufficient to make up the deficiency. The Lender shall
hold all Reserves in an interest bearing escrow account bearing interest at a
money-market rate as determined by the Lender. All interest earned on the
Reserves shall be added back into the Reserves. The Lender shall not be
responsible for any losses resulting from the investment of the Reserves or for
obtaining any specific level or percentage of earnings on such investments.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make the
Loan, each Borrower hereby represents and warrants to the Lender that:
4.1 Financial Condition. (a) The consolidated balance sheet of each
Borrower and its consolidated Subsidiaries as of December 31, 1998 and the
related consolidated statements of income and of cash flows for the fiscal year
ended on such date, reported on by such Borrower's accounting firm, copies of
which have heretofore been furnished to the Lender, are complete and correct and
present fairly the consolidated financial condition of each Borrower and its
consolidated Subsidiaries as of such date, and the consolidated results of their
operations and their consolidated cash flows for the fiscal year then ended.
The unaudited consolidated balance sheet of each Borrower and its consolidated
Subsidiaries as at June 30, 1999 and the related unaudited consolidated
statements of income and of cash flows for the six-month period ended on such
date, certified by a Responsible Officer, copies of which have heretofore been
furnished to the Lender, are complete and correct and present fairly the
consolidated financial condition of each Borrower and its consolidated
Subsidiaries as at such date, and the consolidated results of their operations
and their consolidated cash flows for the six-month period then ended (subject
to normal year-end audit adjustments). All such financial statements, including
the related schedules and notes thereto, have been prepared in accordance with
GAAP applied consistently throughout the periods involved. Neither the
Borrowers nor any of their consolidated Subsidiaries had, at the date of the
most recent balance sheet referred to above, any material Guarantee Obligation,
contingent liability or liability for taxes, or any long-term lease or unusual
forward or long-term commitment, including, without limitation, any interest
rate or foreign currency swap or exchange transaction or other financial
derivative, which is not reflected in the foregoing statements or in the notes
thereto. During the period from June 30, 1999 to and including the date hereof
there has been no sale, transfer or other disposition by such Borrower or any of
its consolidated Subsidiaries of any material part of its business or property
and no purchase or other acquisition of any business or property (including any
Capital Stock of any other Person) material in relation to the consolidated
financial condition of such Borrower and its consolidated Subsidiaries at
June 30, 1999.
(b) No Borrower is contemplating either the filing of a petition by
it under state or federal bankruptcy or insolvency laws or the liquidation of
all or a major portion of its assets or property, and no Borrower has knowledge
of any Person contemplating the filing of any such petition against it.
4.2 No Change. Since December 31, 1998 there has been no development
or event which has had or could reasonably be expected to have a Material
Adverse Effect.
4.3 Existence; Compliance with Law. Each Borrower (a) is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) has the power and authority, and the legal
right, to own and operate its property, to lease the property it operates as
lessee and to conduct the business in which it is currently engaged, (c) is duly
qualified as a foreign partnership and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of property or the conduct
of its business requires such qualification, and (d) is in compliance with all
Requirements of Law except to the extent that the failure to comply therewith
could not, in the aggregate, reasonably be expected to have a Material Adverse
Effect.
4.4 Power; Authorization; Enforceable Obligations. Each Borrower has
the power and authority, and the legal right, to make, deliver and perform the
Loan Documents and to borrow hereunder and has taken all necessary action to
authorize the borrowings on the terms and conditions of this Agreement and the
Note and to authorize the execution, delivery and performance of the Loan
Documents to which it is a party. No consent or authorization of, filing with,
notice to or other act by or in respect of, any Governmental Authority or any
other Person is required in connection with the borrowings hereunder or with the
execution, delivery, performance, validity or enforceability of the Loan
Documents to which it is a party. This Agreement has been, and each other Loan
Document to which it is a party will be, duly executed and delivered on behalf
of such Borrower. This Agreement constitutes, and each other Loan Document to
which it is a party when executed and delivered will constitute, a legal, valid
and binding obligation of such Borrower enforceable against such Borrower in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
4.5 No Legal Bar. The execution, delivery and performance of the
Loan Documents to which each Borrower is a party, the borrowings hereunder and
the use of the proceeds thereof will not violate any Requirement of Law or
Contractual Obligation of such Borrower and will not result in, or require, the
creation or imposition of any Lien on any of its properties or revenues pursuant
to any such Requirement of Law or Contractual Obligation (other than Liens
created by the Security Documents in favor of the Lender).
4.6 No Material Litigation. To the best of each Borrower's knowledge
and except as set forth on Schedule 4.6 of this Agreement, no litigation,
investigation or proceeding of or before any arbitrator or Governmental
Authority is pending or, to the knowledge of each Borrower, threatened by or
against such Borrower or against any of its properties or revenues which could
reasonably be expected to have a Material Adverse Effect.
4.7 No Default. No Borrower is in default under or with respect to
any of its Contractual Obligations in any respect which could reasonably be
expected to have a Material Adverse Effect. No Default or Event of Default has
occurred and is continuing.
4.8 Ownership of Property; Liens. (a) Each Borrower has good record
and marketable title in fee simple to, or a valid leasehold interest in, each of
its Secured Line Properties, and good title to, or a valid leasehold interest
in, all its other property, Lender acknowledging, however, that the Valley Mall
Borrower does not yet have title to the Valley Mall Expansion Parcel. None of
the Collateral is subject to any Lien except for the Security Documents. To the
best of each Borrower's knowledge, there are no claims for payment for work,
labor or materials affecting any of the Secured Line Properties which are or may
become a Lien prior to, or of equal priority with, the Liens created by the
Security Documents.
(b) Each of the Secured Line Properties has rights of access to
public ways and is served by adequate water, sewer, sanitary sewer and storm
drain facilities. Except as may be shown on the applicable survey, all public
utilities necessary or convenient to the full use and enjoyment of the Secured
Line Properties are located in the public right-of-way abutting each of the
Secured Line Properties, and all such utilities are connected so as to serve the
Secured Line Properties without passing over other property, except to the
extent such other property is subject to a perpetual easement for such utility
benefiting each of the Secured Line Properties. All roads necessary for the
full utilization of each of the Secured Line Properties for its current purpose
have been (or with respect to the Valley Mall Expansion, will be) completed and
have been (or with respect to the Valley Mall Expansion, will be) dedicated to
public use and accepted by all governmental authorities.
4.9 Intellectual Property. Each Borrower owns, or is licensed to
use, all trademarks, tradenames, copyrights, technology, know-how and processes
necessary for the conduct of its business as currently conducted except for
those the failure to own or license which could not reasonably be expected to
have a Material Adverse Effect (the "Intellectual Property"). No claim has been
asserted and is pending by any Person challenging or questioning the use of any
such Intellectual Property or the validity or effectiveness of any such
Intellectual Property, nor does such Borrower know of any valid basis for any
such claim. The use of such Intellectual Property by such Borrower does not
infringe on the rights of any Person, except for such claims and infringements
that, in the aggregate, could not reasonably be expected to have a Material
Adverse Effect.
4.10 No Burdensome Restrictions. No presently existing Requirement of
Law or existing Contractual Obligation of any Borrower could reasonably be
expected to have a Material Adverse Effect.
4.11 Taxes. Each Borrower has filed or caused to be filed all tax
returns which are required to be filed and has paid all taxes shown to be due
and payable on said returns or on any assessments made against it or any of its
property and all other taxes, fees or other charges imposed on it or any of its
property by any Governmental Authority (other than any the amount or validity of
which are currently being contested in good faith by appropriate proceedings and
with respect to which reserves in conformity with GAAP have been provided on the
books of such Borrower); no tax Lien has been filed, and, to the knowledge of
each Borrower, no claim is being asserted, with respect to any such tax, fee or
other charge.
4.12 Federal Regulations. No part of the proceeds of the Loan will be
used for "purchasing" or "carrying" any "margin stock" in a manner that violates
in any respect Regulation G or Regulation U of the Board of Governors of the
Federal Reserve System as now and from time to time hereafter in effect, or for
any purpose which violates, or which would be inconsistent with, the provisions
of the regulations of such Board of Governors. If requested by the Lender, the
Borrowers will furnish to the Lender a statement to the foregoing effect in
conformity with the requirements of FR Form G-1 or FR Form U-1 referred to in
said Regulation G or Regulation U, as the case may be.
4.13 ERISA. (a) No Borrower or any of its Subsidiaries has taken any
action which would cause it to become an "employee benefit plan" as defined in
Section 3(3) of ERISA, or a "governmental plan" as defined in Section 3(32) of
ERISA, or a "plan" as defined in Section 4975(e)(1) of the Code, or which would
cause its assets to become "plan assets" as defined in 29 C.F.R. Section
2510.3-101.
4.14 Investment Company Act; Other Regulations. No Borrower is an
investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No
Borrower is subject to regulation under any Federal or state statute or
regulation (other than Regulation X of the Board of Governors of the Federal
Reserve System) which limits its ability to incur Indebtedness.
4.15 Security Documents. The provisions of each Security Document are
effective to create in favor of the Lender a legal, valid and enforceable
security interest in all right, title and interest of each Borrower thereto in
the "Collateral" described therein.
4.16 Accuracy and Completeness of Information. (a) All factual
information, reports and other papers and data with respect to each Borrower
(other than projections) furnished, and all factual statements and
representations made, to the Lender by such Borrower, or on behalf of such
Borrower, were, at the time the same were so furnished or made, when taken
together with all such other factual information, reports and other papers and
data previously so furnished and all such other factual statements and
representations previously so made, complete and correct in all material
respects, to the extent necessary to give the Lender true and accurate knowledge
of the subject matter thereof in all material respects, and did not, as of the
date so furnished or made, contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances in which the same
were made.
(b) All projections with respect to each Borrower furnished by or on
behalf of such Borrower to the Lender were prepared and presented in good faith
by or on behalf of such Borrower. No fact is known to any Borrower which
materially and adversely affects or in the future is reasonably likely (so far
as such Borrower can reasonably foresee) to have a Material Adverse Effect which
has not been set forth in the financial statements referred to in Section
4.1 or in such information, reports, papers and data or otherwise disclosed
in writing to the Lender prior to the date hereof.
4.17 Labor Relations. No Borrower is engaged in any unfair labor
practice which could reasonably be expected to have a Material Adverse Effect.
There is (a) no unfair labor practice complaint pending or, to the best
knowledge of each Borrower, threatened against such Borrower before the National
Labor Relations Board which could reasonably be expected to have a Material
Adverse Effect and no grievance or arbitration proceeding arising out of or
under a collective bargaining agreement is so pending or threatened; (b) no
strike, labor dispute, slowdown or stoppage pending or, to the best knowledge of
each Borrower, threatened against such Borrower; and (c) no union representation
question existing with respect to the employees of such Borrower and no union
organizing activities are taking place with respect to any thereof.
4.18 Solvency. On the date hereof, after giving effect to the
consummation of the transactions contemplated by the Loan Documents to occur on
the date hereof and to the incurrence of all indebtedness and obligations being
incurred on or prior to such date in connection herewith and therewith, (i) the
amount of the "present fair saleable value" of the assets of the Borrowers and
their Subsidiaries, taken as a whole, will, as of such date, exceed the amount
of all "liabilities of the Borrowers, and their Subsidiaries, taken as a whole,
contingent or otherwise", as of such date, as such quoted terms are determined
in accordance with applicable federal and state laws governing determinations of
the insolvency of debtors, (ii) the present fair saleable value of the assets of
the Borrowers, and their Subsidiaries, taken as a whole, will, as of such date,
be greater than the amount that will be required to pay the liabilities of the
Borrowers, and their Subsidiaries, taken as a whole, on their respective debts
as such debts become absolute and matured, (iii) neither the Borrowers, nor
their Subsidiaries, taken as a whole, will have, as of such date, an
unreasonably small amount of capital with which to conduct their respective
businesses, and (iv) the Borrowers, and their Subsidiaries, taken as a whole,
will be able to pay their respective debts as they mature. For purposes of this
Section 4.18, "debt" means "liability on a claim", "claim" means any (x) right
to payment, whether or not such a right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured, and (y) right to an equitable remedy for
breach of performance if such breach gives rise to a right to payment, whether
or not such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured or unmatured, disputed, undisputed, secured or unsecured.
4.19 Compliance with Laws. (a) All of the Secured Line Properties
and their use comply in all material respects with all applicable zoning
resolutions, building codes, fire safety, subdivision and other applicable laws,
rules and regulations including, without limitation, the Americans with
Disabilities Act, except with respect to the Valley Mall Expansion Parcel, in
which case such approvals are pending or will be obtained at such times as the
same are required.
(b) Each Borrower has all requisite licenses, permits, franchises,
qualifications, certificates of occupancy (other than with respect to the Valley
Mall Expansion) or other governmental authorizations to own, lease and operate
each of its Secured Line Properties and carry on its business, and each of the
Secured Line Properties is in compliance with all applicable legal requirements
and is free of structural defects, and all building systems contained therein
are in good working order, subject to ordinary wear and tear. None of the
Secured Line Properties constitutes, in whole or in part, a legally non-
conforming use under applicable legal requirements.
4.20 Condemnation. No condemnation or eminent domain proceeding has
been commenced, or to the knowledge of each Borrower, is threatened against any
Secured Line Property.
4.21 Brokers. No Borrower has dealt with a financial advisor, broker,
underwriter, placement agent, agent or finder in connection with the
transactions contemplated by this Agreement other than L. J. Melody & Company,
and the Borrowers are responsible for payment of all fees of L.J. Melody &
Company. The Borrowers and the Lender hereby agree to indemnify and hold the
other harmless from and against any and all claims, liabilities, costs and
expenses of any kind in any way relating to or arising from a claim by any other
Person that such Person acted on behalf of the indemnifying party in connection
with the transactions contemplated herein. The Borrowers acknowledge that CB
Servicing, Inc., an affiliate of L.J. Melody & Company, or its predecessor, has
entered into a subservicing agreement with respect to the Loan and that CB
Servicing, Inc. may receive a fee from the Lender in connection therewith. The
provisions of this Section 4.21 shall survive the expiration and termination of
this Agreement and the payment and performance of the Obligations.
4.22 FIRPTA. No Borrower is a "foreign person" within the meaning of
Sections 1445 or 7701 of the Code.
4.23 Purpose of Loan. The proceeds of the Loan shall be used by the
Borrowers to repay existing debt, to construct the Valley Mall Expansion and the
Stadium Theaters at the Bradley Square Mall and the Jacksonville Mall, to
provide financing for Borrowers' capital investment in the Secured Line
Properties and/or for Borrowers' investment, through Borrower Affiliates or the
Operating Partnership or their single-asset subsidiaries, in the acquisition of
regional shopping malls, and for general corporate purposes.
4.24 No Conflicts. The execution, delivery and performance of this
Agreement and the other Loan Documents by the Borrowers will not conflict with
or result in a breach of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge or
encumbrance (other than pursuant to the Loan Documents) upon any of the property
or assets of the Borrowers pursuant to the terms of any indenture, mortgage,
deed of trust, loan agreement, partnership agreement or other agreement or
instrument to which any Borrower is a party or by which any of such Borrower's
property or assets is subject, nor will such action result in any violation of
the provisions of any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over such Borrower or any of
such Borrower's properties or assets, and any consent, approval, authorization,
order, registration or qualification of or with any court or any such regulatory
authority or other governmental agency or body required for the execution,
delivery and performance by such Borrower of this Agreement or any other Loan
Documents has been obtained and is in full force and effect.
4.25 Taxes and Assessments. Each of the Secured Line Properties is
comprised of one or more parcels, each of which constitutes a separate tax lot
and none of which constitutes a portion of any other tax lot. There are no
pending or, to best of each Borrower's knowledge, proposed, special or other
assessments for public improvements or otherwise affecting the Secured Line
Properties, nor are there any presently contemplated improvements to the Secured
Line Properties that may result in such special assessments, provided, however,
that reassessments are anticipated at Valley Mall, Bradley Square Mall and
Jacksonville Mall upon completion of the Improvements described in the Building
Loan Agreement.
4.26 Location of Borrowers. The Borrowers' principal place of
business and chief executive offices are located at the address stated in
Section 11.2.
4.27 Forfeiture. To the best of each Borrower's knowledge, there has
not been committed by the Borrowers or any other person in occupancy of or
involved with the operation or use of the Secured Line Properties any act or
omission affording the federal government or any state or local government the
right of forfeiture as against the Secured Line Properties or any part thereof
or any monies paid in performance of the Borrowers' obligations under any of the
Loan Documents.
4.28 Flood Zone. No portion of the improvements comprising each of
the Secured Line Properties is located in an area identified by the Secretary of
Housing and Urban Development or any successor thereto as an area having special
flood hazards pursuant to the National Flood Insurance Act of 1968, the Flood
Disaster Protection Act of 1973 or the National Flood Insurance Act of 1994, as
amended, or any successor law, or, if located within any such area, the
Borrowers have obtained and will maintain the insurance prescribed in Section
6.5 hereof.
4.29 No Prior Assignment. There are no prior assignments of the
Leases or any portion of the Rents due and payable or to become due and payable
which are presently outstanding or effective.
4.30 Insurance. The Borrowers have obtained and have delivered to the
Lender certified copies of all insurance policies reflecting the insurance
coverages, amounts and other requirements set forth in this Agreement. No
claims have been made under any such insurance policies, and no Person,
including the Borrowers, has done, by act or omission, anything which would in
either case materially impair the coverage of any such policies.
4.31 Certificate of Occupancy; Licenses. All certifications, permits,
licenses and approvals, including without limitation, certificates of completion
and occupancy permits required for the legal use, occupancy and operation of
each of the Secured Line Properties by the Borrowers as a retail shopping center
(other than those required for the Valley Mall Expansion) have been obtained and
are in full force and effect. The Borrowers shall keep and maintain all
licenses necessary for the operation of each of the Secured Line Properties as a
retail shopping center. The use being made of each Secured Line Property is in
conformity with the certificate of occupancy issued for such Secured Line
Property.
4.32 Physical Condition. Except as set forth in the engineering
reports obtained by the Lender in connection with the underwriting of the
Existing Secured Credit Line, each of the Secured Line Properties, including,
without limitation, all buildings, improvements, parking facilities, sidewalks,
storm drainage systems, roofs, plumbing systems, HVAC systems, fire protection
systems, electrical systems, equipment, elevators, exterior sidings and doors,
landscaping, irrigation systems and all structural components, are in good
condition, order and repair in all material respects; there exists no structural
or other material defects or damages in any of the Secured Line Properties,
whether latent or otherwise, and the Borrowers have not received notice from any
insurance company or bonding company of any defects or inadequacies in any of
the Secured Line Properties, or any part thereof, which would materially and
adversely affect the insurability of the same or cause the imposition of
extraordinary premiums or charges thereon or of any termination or threatened
termination of any policy of insurance or bond.
4.33 Boundaries. Except as may be shown on the applicable surveys and
except for the Valley Mall Expansion, all of the improvements located on each
Secured Line Property lie wholly within the boundaries and building restriction
lines of such Secured Line Property, and no improvements on adjoining properties
encroach upon such Secured Line Property, and no easements or other encumbrances
upon the applicable Secured Line Property encroach upon any of the improvements,
so as to materially and adversely affect the value or marketability of the
applicable Secured Line Property except those which are insured against by title
insurance.
4.34 Filing and Recording Taxes. All transfer taxes, deed stamps,
intangible taxes or other amounts in the nature of transfer taxes required to be
paid by any Person under applicable Requirements of Law currently in effect in
connection with the transfer of the Secured Line Properties to the Borrowers
have been paid. All mortgage, mortgage recording, stamp, intangible or other
similar tax required to be paid by any Person under applicable Requirements of
Law currently in effect in connection with the execution, delivery, recordation,
filing, registration, perfection or enforcement of any of the Loan Documents,
including, without limitation, the Mortgages, have been paid, and, under current
Requirements of Law, the Mortgages are enforceable in accordance with their
respective terms by the Lender (or any subsequent holder thereof), except as
such enforcement may be limited by bankruptcy, insolvency, reorganization
moratorium or other laws relating to or affecting creditors' rights generally,
and by general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
4.35 Property Management. Each of the Secured Line Properties is
managed by the Operating Partnership.
4.36 Ground Lease Representations and Warranties. The Borrowers
hereby represent and warrant to the Lender the following with respect to the
Ground Lease:
(a) Recording; Modification. (i) A memorandum of the Ground Lease
has been duly recorded, (ii) the Ground Lease permits the interest of the
Operating Partnership to be encumbered by a mortgage or the Ground Lessor has
approved and consented to the encumbrance of the applicable Secured Line
Property by a Mortgage and (iii) there have not been amendments or modifications
to the terms of the Ground Lease since recordation of the memorandum of ground
lease pertaining thereto, with the exception of written instruments which have
been recorded (other than that certain letter, dated September 16, 1977 pursuant
to which Original Ground Lessee exercised three (3) renewal options of five (5)
years each). The Ground Lease may not be canceled, terminated, surrendered or
amended without the prior written consent of the Lender.
(b) No Liens. Except for the Permitted Encumbrances, the Borrowers'
interest in the Ground Lease is not subject to any liens or encumbrances
superior to, or of equal priority with, the Mortgage encumbering the Shenango
Valley Mall, other than the Ground Lessor's related fee interest.
(c) Ground Lease Assignable. The Operating Partnership's interest in
the Ground Lease is assignable to the Lender upon notice to, but without the
consent of, the Ground Lessor. The Ground Lease is further assignable by the
Lender, its successors and assigns without Ground Lessor's consent.
(d) Default. As of the date hereof, the Ground Lease is in full
force and effect and no default has occurred under the Ground Lease and there is
no existing condition which, but for the passage of time or the giving of
notice, could result in a default under the terms of the Ground Lease.
(e) Notice. The Ground Lease requires the Ground Lessor to give
notice of any default by the Operating Partnership to the Lender. The Ground
Lease, or an estoppel letter received by the Lender from Ground Lessor, further
provides that notice of termination given under the Ground Lease is not
effective against the Lender unless a copy of the notice has been delivered to
the Lender in the manner described in the Ground Lease.
(f) Cure. The Lender is permitted the opportunity (including, where
necessary, sufficient time to gain possession of the interest of the Operating
Partnership under the Ground Lease) to cure any default under the Ground Lease,
which is curable after the receipt of notice of any of the default before the
Ground Lessor may terminate the Ground Lease.
(g) Term. The Ground Lease has a term which extends not less than
ten (10) years beyond the Termination Date.
(h) New Lease. The Ground Lease requires the Ground Lessor to enter
into a new lease with Lender upon termination of the Ground Lease.
(i) Insurance Proceeds. Under the terms of this Agreement, the
Ground Lease and the Mortgage encumbering the Shenango Valley Mall, taken
together, any related insurance proceeds will, subject to the terms of the Loan
Documents, be applied either to the repair or restoration of all or part of the
Shenango Valley Mall, with the Lender having the right to hold and disburse the
proceeds as the repair or restoration progresses, or to the payment of the
outstanding of the Loan together with any accrued interest thereon.
(j) Condemnation Awards. Under the terms of this Agreement, the
Ground Lease and the Mortgage encumbering the Shenango Valley Mall, taken
together, any related condemnation awards related to the improvements on such
Secured Line Property will, subject to the terms of the Loan Documents, and
after deducting the expenses incurred by the Ground Lessor in connection with
such condemnation proceeding, be applied either to the repair or restoration of
all or part of the Shenango Valley Mall, with the Ground Lessor having the right
to hold and disburse the award as the repair or restoration progresses pursuant
to the Ground Lease, or to the payment of the outstanding of the Loan together
with any accrued interest thereon as of the date of the vesting of title in said
condemning authority.
(k) Subleasing. The Ground Lease does not impose any restrictions on
subleasing.
(l) No Violation. The execution and delivery of this Agreement will
not conflict with or cause any violation under the Ground Lease. The consent of
the Ground Lessor is not required for Borrowers' execution and delivery of, or
performance under, this Agreement.
(m) Estoppels. Within 60 days after the Third Modification Date, and
at all times thereafter if the same is not delivered to Lender during such time
period, Borrowers will use reasonable efforts to deliver to Lender an estoppel
certificate from the Ground Lessor in form and substance satisfactory to Lender
and its counsel, indicating, among other things, that the Third Modification
will not affect, diminish or reduce any rights Lender had with respect to the
Ground Lease and the Ground lessor prior to the Third Modification. On the
Third Modification Date, Borrowers shall execute and deliver to Lender a
corresponding estoppel certificate from Borrowers.
4.37. Reciprocal Easement Agreements. All costs and expenses due
and payable to and/or from, and all obligations to be performed by, the
Borrowers and, to the Borrowers' knowledge, every other party to any reciprocal
easement agreement benefiting or burdening any Secured Line Property have been
fully paid or performed.
4.38. Leases. With respect to the Leases for each Secured Line
Property, to the best of the Borrowers' knowledge, after due inquiry and
investigation: (a) the rent roll delivered to the Lender as of June 30, 1999 is
true, complete and correct, the Leases are valid and in and full force and
effect, and there has been no material adverse change in such rent rolls since
April 30, 1999; (b) the Leases (including amendments) are in writing, and there
are no oral agreements with respect thereto; (c) the copies of the Leases
delivered to the Lender are true and complete; (d) except as set forth on
Schedule 4.38 neither the landlord nor to the best of the Borrowers' knowledge
any tenant is in default under any of the Leases; (e) except as set forth on
Schedule 4.38 the Borrowers have no knowledge of any notice of termination or
default with respect to any Lease; (f) the Borrowers have not assigned or
pledged pursuant to a presently effective assignment any of the Leases, the
rents or any interests therein except to the Lender; (g) no tenant has the right
to terminate its Lease prior to expiration of the stated term of such Lease,
except as set forth in the Leases provided to the Lender; (h) no tenant has
prepaid more than one month's rent in advance (except for bona fide security
deposits not in excess of an amount equal to two month's rent); and (i) no
tenant under any Lease has any right or option for additional space, except as
set forth in the Leases provided to the Lender.
4.39. Cross Default. Except as disclosed in Schedule 4.39, none
of the Borrowers is a party to any loan agreement, mortgage, deed of trust, deed
to secure debt, or other loan document which contains a default provision making
it an automatic default, after any applicable notices and/or cure periods
thereunder should any such Borrower default under any other loan agreement,
mortgage, deed of trust, deed to secure debt, or other loan document.
4.40. Building Loan Agreement. Each of the Borrowers has been
provided with a copy of, and has reviewed and approved, the Building Loan
Agreement.
SECTION 5. CONDITIONS TO ADVANCES
The agreement of the Lender to make any extension of credit
requested to be made by it on any date (including, without limitation, its
initial extension of credit) is subject to the satisfaction of the following
conditions:
(a) Representations and Warranties. Each of the representations and
warranties made by the Borrowers in or pursuant to this Agreement and the
Loan Documents shall be true and correct in all material respects
(including with respect to each Additional Secured Line Property) on
and as of such date as if made on and as of such date.
(b) No Default. No Default or Event of Default shall have occurred
and be continuing on such date or after giving effect to the extensions
of credit requested to be made on such date, other than any Default or
Event of Default that may exist prior to the acquisition by the Valley
Mall Borrower of the Valley Mall Like-Kind Exchange Parcel as a result
of Borrowers' commencement of the construction of the Valley Mall Expansion
before acquiring legal title to the Valley Mall Like-Kind Exchange Parcel
prior to the Third Modification Date.
(c) Notice of Borrowing. Receipt by the Lender of a Notice of
Borrowing as required by Section 2.2 hereof.
(d) Available Commitment. Immediately after such borrowing, the
Principal Balance will not exceed the Commitment.
(e) Receipt of Due Diligence Materials. The Lender shall have
received and approved all of the due diligence materials set forth in
Schedules 1 and 2.
(f) Security Documents. Security Documents in favor of the Lender
shall have been executed by the owner of each Secured Line Property.
All Mortgages shall be cross-defaulted and cross-collateralized, and
Lender shall be provided with title insurance (i) insuring all of the
Secured Line Properties for the aggregate amount of $150,000,000, with
coverage on each individual Secured Line Property in such amount as may be
determined by Lender, as well as "tie-in" endorsements with all of the
other mortgagee title insurance policies insuring the other Secured Line
Properties, (provided, however, that Lender may require the Borrowers to
increase the aggregate $150,000,000 and the individual loan policy amount
of any Secured Line Property located in a state which does not permit
"tie-in" endorsements), (ii) endorsements insuring the continuing
coverage under all existing title insurance policies after recordation
of the Mortgage Amendments (subject to the additional changes to such
policies required by (i) above), and (iii) such reinsurance and direct
access agreements with reinsurers as the Lender may require.
(g) Reimbursement of the Lender. The Lender shall have been re-
imbursed for all of its reasonable out-of-pocket expenses actually
incurred in connection with such requested extension of credit (includ-
ing all mortgage closing costs in the event an Additional Secured Line
Property is being encumbered by a Mortgage).
(h) No Adverse Change. There shall have been no material adverse
change in the business or financial condition or management of the
Borrowers or any Secured Line Property or any tenant of a Stadium
Theater or any anchor tenant or any non- tenant anchor or tenant under a
Major Lease for a Secured Line Property as of such date.
(i) Establishment of Single Purpose Entity. In the event an
Additional Secured Line Property is being encumbered with a
Mortgage pursuant to this Agreement, (i) a Single Purpose Entity accept-
able to the Lender in the Lender's reasonable discretion shall have been
established to hold title to such Additional Secured Line Property, and
(ii) such Single Purpose Entity shall have executed and delivered a
Mortgage satisfactory to Lender. In the event the proceeds of an advance
are to be used by Borrowers' investment in any regional shopping mall
that is not a Secured Line Property, a Borrower Affiliate acceptable to
Lender or the Operating Partnership shall have been established to hold
title to such property.
(j) Contribution Agreement. The Lender shall have received from the
Borrowers a copy of a fully executed contribution agreement pursuant to
which the Borrowers agree to indemnify and hold harmless each other from
and against any and all liability under the Note in excess of the fair
market value of its Secured Line Property.
(k) Title Rundowns. The Lender shall be satisfied that each of the
title insurance policies insuring the respective Liens of the
Mortgages will, subsequent to the making of each advance under the
Loan, continue to insure the respective Liens of the Mortgages as first
Liens on each of the Secured Line Properties for the amounts required pur-
suant to Section 5(f). In this regard, the Borrowers shall deliver to
the Lender at the Borrowers' sole cost and expense such continuations of
title and endorsements to the title insurance policies insuring the
respective Liens of the Mortgages as may be reasonably required by the
Lender (and as may be available in the respective states in which such
Secured Line Properties are located) to evidence compliance with the
provisions of this subparagraph.
(l) Lien Waivers. Lender shall have received such lien waivers as
the Lender may require with respect to any work contemplated or in
progress at any of the Secured Line Properties.
(m) Re-Audit of Properties. The Lender may, in furtherance of its
rights pursuant to Section 2.2(i) and not by way of limitation thereon,
re-audit the Underwritten Net Operating Income for the Secured Line
Properties in order to confirm the Borrowers' compliance with this
Section 5.
(n) Advance for Initial Funding. If the requested advance is an
advance under the Initial Funding, (i) the requirements of
Section 2.2(e) shall have been satisfied, and (ii) the Borrowers
shall have delivered to Lender a compliance certificate demonstrating
compliance with the financial covenants set forth in Section 7.1 hereof.
(o) Bradley and Jacksonville Mall Advances. If the requested advance
is a Bradley and Jacksonville Mall Advance, the requirements of
Section 2.2(f) shall have been satisfied.
(p) Additional Advances. If the requested advance is an Additional
Advance, the requirements of Section 2.2(g) shall have been satisfied.
(q) Construction Loan Advances. If the requested advance is an
advance under a Construction Loan, the requirements of Section 2.2(h)
shall have been satisfied.
(r) Commitment Fee. The Borrowers shall have paid the Commitment Fee
on any portion of the Loan amount for which the Commitment Fee
has not yet been paid, or a portion of the proceeds of such advance will
be used to pay such Commitment Fee.
(s) Additional Matters. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection
with the transactions contemplated by this Agreement, and the
other Loan Documents, shall be satisfactory in form and substance
to the Lender, and the Lender shall have received such other documents
and legal opinions in respect of any aspect or consequence of the
transactions contemplated hereby or thereby as it shall reasonably
request.
Each borrowing by the Borrowers hereunder shall constitute a representation and
warranty by the Borrowers as of the date thereof that the conditions contained
in this Section 5 have been satisfied at the time of such borrowing.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrowers hereby agree that, so long as any of the Commitment
remains in effect or the Note remains outstanding and unpaid or any amount is
owing to the Lender hereunder or under any other Loan Document, each Borrower
shall:
6.1 Financial Statements. Furnish to the Lender:
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of such Borrower, a copy of the consolidated
balance sheet of such Borrower and its consolidated Subsidiaries as at the
end of such year and the related consolidated statements of income and re-
tained earnings and of cash flows for such year. As it relates to the
REIT and to Crown American Properties, L.P., such statements shall be
certified by independent certified public accountants of nationally
recognized standing. The statements of the other Borrowers shall be
certified by a Responsible Officer. The audited financial statements
of Crown American Properties, L.P. shall include supplementary com-
bining and consolidating statements that will include a balance sheet, a
statement of income and a statement of cash flows for each Secured Line
Property; such supplementary statements shall be covered in the independent
auditor's report.
(b) as soon as available, but in any event not later than 45 days
after the end of each fiscal quarter of such Borrower, the unaudited con-
solidated balance sheet of such Borrower and its consolidated Subsidiaries
as at the end of such quarter and the related unaudited consolidated state-
ments of income and retained earnings and of cash flows of such Borrower
and its consolidated Subsidiaries for such quarter, together with a
statement setting forth (i) the calculations of Net Operating Income,
Underwritten Net Operating Income and Net Cash Flow for each of its
Secured Line Properties (with a detailed description of the
calculations used in such determination, which such calculations shall be
consistent with the definitions of Net Operating Income, Underwritten Net
Operating Income and Net Cash Flow set forth herein) and (ii) the calcu-
lation of the ratios set forth in Section 7.1 hereof, all certified by a
Responsible Officer as being fairly stated in all material respects;
(c) as soon as available, but in any event within 45 days after the
end of each fiscal year of such Borrower, annual operating statements for
each Secured Line Property owned by such Borrower, certified by a Respons-
ible Officer as being fairly stated in all material respects;
(d) as soon as available, but in any event within 45 days after the
end of each calendar month of such Borrower, monthly operating statements
for each Secured Line Property owned by such Borrower, together with a
statement setting forth the calculations of Net Operating Income for each
Secured Line Property (with a detailed description of the calculations
used in such determination, which such calculations shall be consistent
with the definitions of Net Operating Income set forth herein), certified
by a Responsible Officer as being fairly stated in all material
respects; and
(e) as soon as available, but in any event within 45 days after the
end of each fiscal quarter of such Borrower, a rent roll for each Secured
Line Property owned by such Borrower, certified by a Responsible Officer
as being fairly stated in all material respects.
All such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods.
6.2 Certificates; Other Information. Furnish to the Lender:
(a) concurrently with the delivery of the financial statements
referred to in Section 6.1(a), a certificate of the independent certified
public accountants reporting on such financial statements (i) stating
that in making the examination necessary therefor no knowledge was ob-
tained of any Default or Event of Default, except as specified in such
certificate, and (ii) confirming compliance with (A) Sections 7.1 (EBITDA
tests), and (B) the minimum 1.3 to 1.0 Debt Service Coverage Ratio and
maximum 77% Loan-to-Value Ratio required for purposes of calculating the
Funding Threshold (all of such certifications to include supporting calcu-
lations reasonably necessary for such conclusions);
(b) concurrently with the delivery of the financial statements refer-
red to in Sections 6.1(a), (b), (c), (d) and (e), a certificate of a
Responsible Officer stating that, to the best of such Responsible Officer's
knowledge, such Borrower during such period has observed or performed all
of its covenants and other agreements, and satisfied every condition, con-
tained in this Agreement and the other Loan Documents to be observed,
performed or satisfied by it, and that such Responsible Officer has
obtained no knowledge of any Default or Event of Default except as
specified in such certificate;
(c) within five days after the same are filed, copies of all
financial statements and reports which such Borrower may make to, or file
with, the Securities and Exchange Commission or any successor or analogous
Governmental Authority;
(d) promptly and in any event within ten (10) days after such
Borrower obtains knowledge thereof, notice of (x) any litigation or
governmental proceeding pending or actions threatened against such
Borrower as to which there is a reasonable possibility of an adverse
determination and which, if adversely determined, is likely to individ-
ually or in the aggregate, result in a Material Adverse Effect, and
(y) any other event, act or condition which is likely to result in a
Material Adverse Effect;
(e) promptly and in any event within ten (10) Business Days after
such Borrower obtains actual knowledge of any of the following events, a
certificate of a Responsible Officer, specifying the nature of such con-
dition and such Borrower's proposed initial response thereto: (i) the
receipt by such Borrower of any written communication, whether from a
Governmental Authority, citizens group, employee or otherwise, that alleges
that such Borrower or any Subsidiary is not in compliance with applicable
Environmental Laws, and such noncompliance is likely to have a Material
Adverse Effect, (ii) such Borrower or any Subsidiaries shall obtain
actual knowledge that there exists any environmental claim pending
or threatened against such Borrower or its Subsidiaries, or (iii) such
Borrower or its Subsidiaries obtain actual knowledge of any release,
emission, discharge or disposal of any Hazardous Materials (as defined in
Section 8.1) that is likely to form the basis of any environmental claim
against such Borrower or its Subsidiaries; and
(f) promptly, such additional financial and other information as the
Lender may from time to time reasonably request.
6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at
or before maturity or before they become delinquent, as the case may be, all its
obligations of whatever nature, except where the amount or validity thereof is
currently being contested in good faith by appropriate proceedings and reserves
in conformity with GAAP with respect thereto have been provided on the books of
such Borrower or its Subsidiaries, as the case may be, or where the failure to
do so would not reasonably be expected to have a Material Adverse Effect.
6.4 Conduct of Business and Maintenance of Existence. Continue to
engage in business of the same general type as now conducted by it and preserve,
renew and keep in full force and effect its existence as a corporation,
partnership, limited liability company or real estate investment trust, as
applicable, and take all reasonable action to maintain all rights, privileges
and franchises necessary or desirable in the normal conduct of its business; and
comply with all Contractual Obligations and Requirements of Law except to the
extent that failure to comply therewith could not, in the aggregate, be
reasonably expected to have a Material Adverse Effect.
6.5 Maintenance of Property; Insurance. (a) Comply in all material
respects with, and do or cause to be done all things necessary to preserve,
renew and keep in full force and effect, its material rights, licenses, permits
and franchises and the rights and franchises, pertaining to or comprising part
of any Secured Line Property or the other Collateral unless the failure to do so
does not have a Material Adverse Effect on such Secured Line Property or any
other Collateral or on the business, assets, operations, property or financial
or other condition of such Borrower; comply with all laws, rules and regulations
applicable to it except where the failure to do so does not have a Material
Adverse Effect on any Secured Line Property or any other Collateral or on the
business, assets, operations, property or financial or other condition of such
Borrower; at all times maintain and preserve all property used or useful in the
conduct of its business and keep the same in good repair, working order and
condition, and from time to time make or cause to be made, all repairs, renewals
and replacements thereto, so that the business carried on in connection
therewith may be properly conducted at all times except where the failure to do
so does not have a Material Adverse Effect on any Secured Line Property or any
other Collateral or on the business, assets, operations, property or financial
or other condition of such Borrower.
(b) Cause each of its Secured Line Properties to be insured against
such perils and hazards, and in such amounts and with such limits, as the Lender
may from time to time reasonably require, and in any event will continuously
maintain with respect to each such Secured Line Property, without cost to the
Lender, the insurance described in Exhibit A of this Agreement.
(c) If a Secured Line Property shall be damaged or destroyed, in
whole or in part, by fire or other casualty, give prompt notice of such damage
to the Lender and promptly commence and diligently prosecute the completion of
the repair and restoration of such Secured Line Property as nearly as possible
to the condition such Secured Line Property was in immediately prior to such
fire or other casualty, with such alterations as may be reasonably approved by
the Lender (a "Restoration") and otherwise in accordance with Exhibit B of this
Agreement. The Borrowers shall pay all costs of such Restoration whether or not
such costs are covered by insurance. The Lender may, but shall not be obligated
to, make proof of loss if not made promptly by the Borrowers.
6.6 Inspection of Property; Books and Records; Discussions. Keep
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; and, upon
reasonable prior notice to such Borrower, permit representatives of the Lender
to visit and inspect any of its properties and examine and make abstracts from
any of its books and records at any reasonable time and as often as may
reasonably be desired and to discuss the business, operations, properties and
financial and other condition of such Borrower with officers and employees of
such Borrower and with its independent certified public accountants.
6.7 Notices. Promptly give written notice to the Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual Obli-
gation of such Borrower or its Subsidiaries or (ii) litigation,
investigation or proceeding which may exist at any time between such
Borrower or any of its Subsidiaries and any Governmental Authority, which
in either case, if not cured and if adversely determined, as the case may
be, could reasonably be expected to have a Material Adverse Effect; and
(c) any litigation or proceeding affecting such Borrower or any of
its Subsidiaries in which the amount involved is (i) $1,000,000 or more,
or (ii) $250,000 or more if such litigation or proceeding involves a
Secured Line Property, and not covered by insurance or in which injunctive
or similar relief which might have a Material Adverse Effect is sought.
Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action such Borrower proposes to take with respect thereto.
6.8 Intentionally Omitted.
6.9 Condemnation. Promptly give the Lender notice of the actual or
threatened commencement of any condemnation or eminent domain proceeding (a
"Condemnation") affecting any material portion of the Secured Line Properties
and deliver to the Lender copies of any and all papers served in connection with
such proceedings. The Lender may participate in any such proceedings and the
Borrowers shall deliver to the Lender all instruments required to permit
participation in such proceedings. The Borrowers shall, at their expense,
diligently prosecute any such proceedings, and shall consult with the Lender,
its attorneys and experts, and cooperate with them in the carrying on or defense
of any such proceedings. The Lender is hereby irrevocably appointed as the
Borrowers' attorney-in-fact, coupled with an interest, with exclusive power to
collect, receive and retain any Award (as defined herein) and to make any
compromise or settlement in connection with any such Condemnation.
Notwithstanding any taking by any public or quasi-public authority through
eminent domain or otherwise (including but not limited to any transfer made in
lieu of or in anticipation of the exercise of such taking), the Borrowers shall
continue to pay the Obligations at the time and in the manner provided for their
payment in the Loan Documents and the Obligations shall not be reduced until any
award or payment therefor (an "Award") shall have been actually received and
applied by the Lender, after the deduction of expenses of collection, to the
reduction or discharge of the Obligations. The Lender shall not be limited to
the interest paid on the Award by the condemning authority, but shall be
entitled to receive out of the award interest at the rate or rates provided
herein or in the Note. If a Secured Line Property or any portion thereof is
taken by a condemning authority, the Borrower shall promptly commence and
diligently prosecute the Restoration of such Secured Line Property and otherwise
comply with the provisions of Exhibit B of this Agreement, subject to the
provisions of Section 4.36(j). If a Secured Line Property is sold, through
foreclosure or otherwise, prior to the receipt by the Lender of the Award, the
Lender shall have the right, whether or not a deficiency judgment on the Note
shall have been sought, recovered or denied, to receive the Award, or a portion
thereof sufficient to pay the Obligations.
6.10 Use of Loan. Use all advances under the Loan solely to construct
the Valley Mall Expansion and the Stadium Theaters at the Bradley Square Mall
and the Jacksonville Mall, to provide financing for Borrowers' capital
investment in the Secured Line Properties and/or for Borrowers' investment,
through Borrower Affiliates or the Operating Partnership, in the acquisition of
regional shopping malls, and for general corporate purposes. In addition:
(a) proceeds of the Initial Funding may be used only for the
following purposes up to the amounts set forth below:
(i) Principal Balance of Existing $76,358,770
Secured Credit Line
(ii) Valley Mall Reimbursement Advance $ 6,000,000
(iii) Other Valley Mall Costs $14,000,000
(iv) Investment in Borrower Affiliates $12,641,230
or the Operating Partnership to finance
acquisition of regional malls, to
finance working capital, or to be
used for other purposes as determined
by Borrowers in their sole discretion
(b) proceeds of the Bradley and Jacksonville Mall Advances may be
used only for construction of a Stadium Theater at the Bradley Square Mall and
the Jacksonville Mall, respectively; and
(c) proceeds of Additional Advances may be used only for the
Borrowers' acquisition of interests in other regional shopping malls, to finance
working capital, or for other purposes as determined by the Borrowers in their
sole discretion.
6.11 Funding Threshold. Satisfy at all times the Funding Threshold,
subject to any cure provisions set forth in Section 3.3.
6.12 Status as REIT. In the case of the REIT, do or cause to be done
all things necessary to preserve, renew and keep in full force and effect its
existence as a real estate investment trust and its tax status as a REIT under
Section 856 of the Code.
6.13 Easements and Agreements. (a) Comply in all material respects
with the requirements of, and to the extent within such Borrower's control,
maintain, preserve, enforce and renew rights of way, easements, grants,
privileges, licenses and restrictive covenants which from time to time affect
or pertain to the whole or any portion of a Secured Line Property, (b) not
modify, amend or terminate any rights of way, easements, grants, privileges,
licenses or restrictive covenants which from time to time affect or pertain to
the whole or any portion of a Secured Line Property, unless required to do so by
the terms of such instruments or unless such modification, amendment or
termination would not be reasonably expected to have a Material Adverse Effect
and (c) not, without obtaining the prior consent of the Lender (which consent
may be granted or withheld in the Lender's sole and absolute discretion) modify,
amend or terminate, or surrender any of its rights under, any of such rights of
way, easements, grants, privileges, licenses or restrictive covenants, unless
required to do so by the terms of such instruments or unless such modification,
amendment, termination or surrender would not be reasonably expected to have a
Material Adverse Effect.
6.14 Compliance with Laws. Comply with and cause each of its Secured
Line Properties to continue to substantially comply with all existing and future
Requirements of Law, except where the failure to do so does not have a Material
Adverse Effect on such Secured Line Property or any other Collateral or on the
business assets, operations, property, financial or other condition of such
Borrower.
6.15 Intentionally Omitted.
6.16 Loan Documents. Observe and perform, and cause to be observed
and performed, in all material respects, all of the terms, covenants and
provisions contained in the Loan Documents.
6.17 Single Purpose Entity/Separateness. Each Borrower which is a
Single Purpose Entity agrees that:
(a) it will not own any asset or property other than (i) its Secured
Line Property, and (ii) incidental personal property necessary for the ownership
or operation of such Secured Line Property;
(b) it will not engage in any business other than the ownership,
management and operation of its Secured Line Property and will conduct and
operate its business as presently conducted and operated;
(c) it will not enter into any contract or agreement with any
Affiliate or any constituent party except upon terms and conditions that are
intrinsically fair and substantially similar to those that would be available on
an arms-length basis with third parties other than any such party;
(d) it will not incur any Indebtedness other than (i) the Loan, (ii)
trade and operational debt incurred in the ordinary course of business with
trade creditors and in amounts as are normal and reasonable under the
circumstances, provided such debt is not evidenced by a note and is paid when
due, and (iii) Indebtedness incurred in the financing of equipment and other
personal property used on the Secured Line Property. No Indebtedness other than
the Loan may be secured (subordinate or pari passu) by such Secured Line
Property;
(e) it will not make any loans or advances (as distinguished from
distributions) to any third party (including any Affiliate or constituent party)
and shall not acquire obligations or securities of its Affiliates;
(f) it will remain solvent and will pay its debts and liabilities
(including, as applicable, shared personnel and overhead expenses) from its
assets as the same shall become due;
(g) it will do all things reasonably necessary to observe
organizational formalities and preserve its existence, and will not, nor will it
permit any constituent party to amend, modify or otherwise change the
partnership certificate, partnership agreement, articles of incorporation and
bylaws, operating agreement, trust or other organizational documents of such
Single Purpose Entity or such constituent party without the prior written
consent of the Lender;
(h) it will maintain all of its books, records, financial statements
and bank accounts separate from those of its Affiliates and any constituent
party and will file its own tax returns. Such Single Purpose Entity shall
maintain its books, records, resolutions and agreements as official records;
(i) it will hold itself out to the public as, a legal entity separate
and distinct from any other entity (including any Affiliate and any constituent
party), shall correct any known misunderstanding regarding its status as a
separate entity, shall conduct business in its own name, shall not identify
itself or any of its Affiliates as a division or part of the other and shall
maintain and utilize separate stationery, invoices and checks;
(j) it will maintain adequate capital for the normal obligations
reasonably foreseeable in a business of its size and character and in light of
its contemplated business operations;
(k) neither such Single Purpose Entity nor any constituent party will
seek the dissolution, winding up, liquidation, consolidation or merger in whole
or in part, of such Single Purpose Entity;
(l) it will maintain its assets in such a manner that it will not be
costly or difficult to segregate, ascertain or identify its individual assets
from those of any Affiliate or constituent party, or any other person;
(m) it will not hold itself out to be responsible for the debts or
obligations of any other person; and
(n) if such Single Purpose Entity is a limited partnership or a
limited liability company, each general partner or managing member (each, an
"SPC Party") shall be a corporation or a business trust whose sole asset is its
interest in such Single Purpose Entity and each such SPC Party will at all times
comply, and will cause such Single Purpose Entity to comply, with each of the
representations, warranties, and covenants contained in this Section 6.17 as if
such representation, warranty or covenant was made directly by such SPC Party.
6.18 Estoppel Certificates. Within ten (10) days after request,
furnish to the Lender a written statement, duly acknowledged, setting forth to
the best of the Borrowers' knowledge the amount due on the Loan, the terms of
payment of the Loan, the date to which interest has been paid, whether any
offsets or defenses exist against the Loan and, if any are alleged to exist, the
nature thereof in detail, and such other matters as the Lender reasonably may
request.
6.19 Forfeiture. Not commit or knowingly suffer to be committed by
any other person in occupancy of or involved with the operation or use of the
Secured Line Properties any act or omission affording the federal government or
any state or local government the right of forfeiture as against the Secured
Line Properties or any part thereof or any monies paid in performance of the
Borrowers' obligations under any of the Loan Documents.
6.20 Property Management. Not enter into any agreement relating to
the management or operation of any of the Secured Line Properties without the
express written consent of the Lender, which consent shall not be unreasonably
withheld. If at any time the Lender consents to the appointment of a new
property manager, such new manager and the Borrower which owns such Secured Line
Property shall, as a condition of the Lender's consent, execute a Manager's
Consent and Subordination of Management Agreement in the form then used by the
Lender.
6.21 Alterations. Obtain the Lender's prior written consent, which
consent shall not be unreasonably withheld or delayed, to any alterations to any
improvements or the construction of new improvements, on any Secured Line
Property, that may have a Material Adverse Effect, other than (a) tenant
improvement work performed pursuant to the terms of any Lease executed before
the date hereof, (b) tenant improvement work performed pursuant to the terms and
provisions of a Lease and not materially adversely affecting any structural
component of any improvements, any utility or HVAC system contained in any
improvements or the exterior of any building constituting a part of any
improvements or any common areas, (c) alterations performed in connection with
the restoration of a Secured Line Property after the occurrence of a casualty or
condemnation in accordance with the terms and provisions of this Agreement, (d)
construction of the Valley Mall Expansion, and (e) construction of the Stadium
Theaters. Other than with respect to a casualty or condemnation, if the total
unpaid amounts due and payable with respect to alterations to the improvements
(other than such amounts to be paid or reimbursed by tenants under the Leases)
shall at any time exceed Five Million and 00/100 Dollars ($5,000,000.00) in the
aggregate (other than costs paid for with proceeds of any Construction Loan),
for all Secured Line Properties (the "Threshold Amount"), the Borrowers shall
promptly deliver to the Lender as security for the payment of such amounts and
as additional security for the Borrowers' obligations under the Loan Documents
any of the following: (i) cash, (ii) Cash Equivalents, (iii) other securities
having a rating acceptable to the Lender, or (iv) a completion bond or
irrevocable letter of credit (payable on sight draft only) issued by a financial
institution having a rating by Standard & Poor's Ratings Group of not less than
A-1+ if the term of such bond or letter of credit is no longer than three (3)
months or, if such term is in excess of three (3) months, issued by a financial
institution having a rating that is acceptable to the Lender. Such security
shall be in an amount equal to the excess of the total unpaid amounts with
respect to alterations to the improvements on the applicable Secured Line
Property (other than such amounts to be paid or reimbursed by tenants under the
Leases) over the Threshold Amount and may be reduced from time to time by the
cost estimated by the Lender to terminate any of the alterations and restore the
applicable Secured Line Property to the extent necessary to prevent any Material
Adverse Effect.
6.22 Leasing. (a) Submit all Major Leases to the Lender for its
approval; provided, however, if such Major Leases are not approved or
disapproved by the Lender within thirty (30) days of receipt, such Major Leases
shall be deemed approved by the Lender. Each Lease form shall provide that (i)
the Lease is subordinate to the Mortgage on such Secured Line Property, and (ii)
the tenant shall attorn to the Lender. To the extent required by applicable
law, the Borrowers shall hold all tenant security deposits in a segregated
account and shall not commingle any such funds with any other funds of the
Borrowers. Within ten (10) days after the Lender's request, the Borrowers
shall furnish to the Lender a statement of all tenant security deposits, and
copies of all Leases not previously delivered to the Lender, certified by the
Borrowers as being true and correct.
(b) (i) Perform in all material respects the obligations which the
Borrowers are required to perform under the Leases; (ii) enforce the material
obligations to be performed by the tenants; (iii) promptly furnish to the Lender
any notice of default or termination received by the Borrowers under any Major
Lease, and any notice of default or termination given by the Borrowers to any
Major Tenant; (iv) not collect any rents for more than thirty (30) days in
advance of the time when the same shall become due, except for bona fide
security deposits not in excess of an amount equal to two months rent; (v) not,
except with the Lender's prior written consent, which consent shall not be
unreasonably withheld, delayed or conditioned, enter into any ground lease, and
not, except with the Lender's prior written consent, cancel, or accept surrender
or termination of any master lease of any part of the Secured Line Properties;
(vi) not further assign or encumber any Lease; (vii) not, except with the
Lender's prior written consent, cancel or accept surrender or termination of any
Major Lease, provided that Borrowers give Lender written notice thirty (30) days
prior to such cancellation, surrender or termination; and (viii) not, except
with the Lender's prior written consent, modify or amend any Major Lease. Any
action in violation of clauses (v), (vi), (vii), and (viii) of this
Section 6.22(b) shall be void at the election of the Lender.
(c) At the request of the Lender, the Borrowers shall use best
efforts to obtain and furnish to the Lender, written estoppels in form and
substance satisfactory to the Lender, executed by tenants under Leases in the
Secured Line Properties and confirming the term, rent, and other provisions and
matters relating to the Leases.
6.23 Right of Last Look. In connection with any refinancing of debt
or acquisition financing secured by real property(ies) owned by any of the
Borrowers or any of their subsidiaries which is not, as of the date hereof, the
subject of an executed commitment letter, such Borrower shall provide the Lender
with a "right of last look", provided that such right of last look shall only
exist for so long as the Lender continues to provide the Borrowers with REO and
property portfolio acquisition/management opportunities.
6.24 Ground Lessor Estoppel. Use reasonable efforts to deliver to
Lender, within 60 days after the Third Modification Date, and, if necessary,
continue to use reasonable efforts thereafter, the estoppel certificate from the
Ground Lessor required by Section 4.36(m) hereof.
SECTION 7. NEGATIVE COVENANTS
Each Borrower (provided, however, that with respect to the financial
covenants contained in Section 7.1 only, such covenants shall apply to the
consolidated financial condition of the Borrowers and their Subsidiaries) hereby
agrees that, so long as any of the Commitment remains in effect or the Note
remains outstanding and unpaid or any amount is owing to the Lender hereunder or
under any other Loan Document, it shall not at any time, directly or indirectly:
7.1 Financial Condition Covenants.
(a) (1) permit the ratio of their Total Liabilities to their EBITDA
(of the previous fiscal quarter) to be equal to or greater than 6.5 to
1.0. In calculating EBITDA, (i) certain cash flow support payments made
by Crown Investments Trust to the REIT pursuant to the Cash Flow Support
Agreement and (ii) interest income, will be included in such calculation.
Total Liabilities and EBITDA shall be calculated quarterly, on a trailing
four quarters basis. The Borrowers' independent accountant will audit the
calendar quarterly calculations of the Borrowers and the Borrowers shall
promptly deliver such calculations and related report of such independent
accountant to the Lender.
(2) notwithstanding the foregoing, if the Borrowers' ratio of Total
Liabilities to EBITDA is equal to or greater than 6.5 to 1.0, but less than
7.0 to 1.0, such condition shall not be an Event of Default if the
Borrowers agree to pay an increased LIBOR Rate or Floating Rate, as
applicable, such increase to be 0.25% on an annualized basis for the first
quarter following the end of the non-compliant quarter. For each quarter
thereafter that the permitted Total Liabilities to EBITDA ratio is
exceeded, the LIBOR Rate or Floating Rate, as applicable, shall increase by
an additional 0.25% on an annualized basis (not to exceed 2.0% in the
aggregate). Beginning on the quarter in which the permitted Total
Liabilities to EBITDA ratio is achieved for the preceding quarter, the
requirement to pay the increased LIBOR Rate or Floating Rate, as
applicable, shall terminate;
(b) permit the ratio of EBITDA to fixed charges (including dividends
on preferred stock and debt service on all debt (secured and unsecured))
for any trailing twelve (12) month period to be less than 1.2 to 1.0; and
(c) incur floating rate debt that is not subject to a 10% interest
rate cap (if such debt is not capped by its terms, such cap shall be pro-
vided by an institution having at least an "AA" rating for long-term
unsecured debt) in an aggregate principal amount in excess of 25% of its
aggregate debt (not including debt to the Lender).
7.2 Intentionally Omitted.
7.3 Limitation on Liens. Create, incur, assume or suffer to exist
any Lien upon any Secured Line Property or the revenues therefrom, except for:
(a) Liens for Taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that (i) the Borrowers notify
the Lender that they intend to contest such Taxes, (ii) the Borrowers
provide the Lender with an indemnity, bond or other security satisfactory
to the Lender assuring the discharge of the Borrowers' obligations for such
Taxes, including interest and penalties, (iii) the Borrowers are diligently
contesting the same by appropriate legal proceedings in good faith and at
its own expense and concludes such contest prior to the tenth (10th) day
preceding the earlier to occur of the Termination Date or the date on which
a Secured Line Property is scheduled to be sold for non-payment, (iv) the
Borrowers promptly upon final determination thereof pay the amount of any
such Taxes, together with all costs, interest and penalties which may be
payable in connection therewith; and (v) notwithstanding the foregoing, the
Borrowers shall immediately upon request of the Lender pay any such Taxes
notwithstanding such contest if, in the opinion of the Lender, any Secured
Line Property or any part thereof or interest therein may be in danger of
being sold, forfeited, foreclosed, terminated, canceled or lost. The
Lender may pay over any cash deposit or part thereof to the claimant
entitled thereto at any time when, in the judgment of the Lender, the
entitlement of such claimant is established;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are
not overdue for a period of more than 60 days or which are being contested
in good faith by appropriate proceedings, provided that adequate reserves
with respect thereto are maintained on the books of such Borrower in
conformity with GAAP;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), Leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of such Secured Line Property or
materially interfere with the ordinary conduct of the business of such
Borrower; and
(f) Liens created pursuant to the Security Documents.
7.4 Intentionally Omitted.
7.5 Limitation on Fundamental Changes. Except as specifically
provided in Section 7.13 hereof, enter into any merger, consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, lease, assign, transfer or
otherwise dispose of, all or substantially all of its property, business or
assets, or make any material change in its present method of conducting
business, except:
(a) any Subsidiary of any Borrower may be merged or consolidated with
or into such Borrower (provided that such Borrower shall be the continuing
or surviving entity) or with or into any one or more wholly owned Subsi-
diaries of such Borrower (provided that the wholly owned Subsidiary or
Subsidiaries shall be the continuing or surviving entity);
(b) any wholly owned Subsidiary may sell, lease, transfer or other-
wise dispose of any or all of its assets (upon voluntary liquidation or
otherwise) to such Borrower or any other wholly owned Subsidiary of such
Borrower; and
(c) as permitted under Section 7.6.
7.6 Limitation on Sale of Assets. Except as specifically provided in
Section 7.13 hereof, convey, sell, lease, assign, transfer or otherwise dispose
of any of its property, business or assets (including, without limitation,
receivables and leasehold interests), whether now owned or hereafter acquired,
or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary's
Capital Stock to any Person other than such Borrower or any wholly owned
Subsidiary, except:
(a) the leasing of portions of such Borrower's properties in the
ordinary course of business for occupancy by the tenants thereunder;
(b) except as permitted by Section 2.7 or 2.8 hereof, the sale of
such Borrower's properties, other than Secured Line Properties, in the
ordinary course of such Borrower's business; and
(c) as permitted by Section 7.5(b).
7.7 Limitation on Investments, Loans and Advances. Make any advance,
loan, extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of or any assets constituting a
business unit of, or make any other investment in, any Person, except:
(a) investments in Cash Equivalents;
(b) investments in real properties;
(c) investments in Subsidiaries and Partnerships formed for the sole
purpose of acquiring and holding one or more Secured Line Properties; and
(d) investments in complimentary income producing activities so long
as such investments do not threaten the "real estate investment trust"
status of the REIT for federal income tax purposes.
7.8 Intentionally Omitted.
7.9 Limitation on Transactions with Affiliates. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) not expressly prohibited by this Agreement, (b) in the
ordinary course of such Borrower's or its Subsidiaries' business and (c) upon
fair and reasonable terms no less favorable to such Borrower or such Subsidiary,
as the case may be, than it would obtain in a comparable arm's length
transaction with a Person which is not an Affiliate.
7.10 Limitation on Changes in Fiscal Year. Permit the fiscal year of
such Borrower to end on a day other than December 31.
7.11 Limitation on Lines of Business. Enter into any business, either
directly or through any Subsidiary, except for those businesses in which such
Borrower and its Subsidiaries are engaged on the date of this Agreement, or
which are directly related thereto.
7.12 Limitation on Use of Loan. Use any advances under the Loan for
the payment of any dividends to the shareholders of the REIT to the extent such
dividends are in excess of EBITDA for the applicable period.
7.13 Limitation on Transfer and Further Encumbrance. (a) Sell,
assign, convey, transfer, mortgage, grant a security interest in, pledge or
otherwise dispose of (collectively, a "Transfer") (i) any portion of any of the
Secured Line Properties (other than Leases and other encumbrances permitted
under this Agreement and other than transfers permitted under Sections 2.4, 2.7,
2.8 and 3.2 hereof) or (ii) any interest in such Borrower, direct or indirect,
without the prior written consent of the Lender. Notwithstanding the foregoing,
the Lender's consent shall not be required for any of the following Transfers:
(i) with respect to the REIT, (A) any Transfer of all or any portion of any
shares of beneficial interest of the REIT, and (B) issuance of additional shares
of beneficial interest in the REIT, even if such issuance results in a reduction
of the partnership interest of the REIT in the Operating Partnership (a
"Reduction") so long as the REIT continues to own greater than 50% of the voting
interest in the Operating Partnership; (ii) with respect to the Operating
Partnership, the following Transfers (x) to an Affiliate or to any Person owned
or Controlled by Mark Pasquerilla or to any Person in connection with an
acquisition of such Person, by merger, share exchange or otherwise, directly or
indirectly, by the REIT, shall be permissible without the prior written consent
of the Lender so long as no Event of Default has occurred and is continuing and
(y) to any other Person shall be permissible with the prior written consent of
the Lender, which consent shall not be unreasonably withheld so long as no Event
of Default has occurred and is continuing, (a) any Transfer of limited
partnership interests in the Operating Partnership so long as after giving
effect to such Transfer or series of Transfers the REIT owns greater than 50% of
the voting interest in the Operating Partnership, (b) the issuance of additional
limited partnership units or other securities, even if such issuance results in
a Reduction so long as the REIT continues to own greater than 50% of the voting
interest in the Operating Partnership; and (c) any Fundamental Transaction.
Notwithstanding the provisions of clause 7.13(a)(ii)(x) to the contrary and
subject to the remaining terms of this Section 7.13, with respect to the
Operating Partnership, a Transfer to an Affiliate or to any Person owned or
Controlled by Mark Pasquerilla shall be permitted following the occurrence and
continuance of an Event of Default so long as such Transfer does not exceed 6.5%
of the ownership interest in the Operating Partnership in the aggregate and is
made in connection with the exercise of management share options in the ordinary
course of the Operating Partnership's business.
(b) In addition to any other requirements or restrictions regarding
Transfers set forth in this Section 7.13, any Transfer shall also be conditioned
upon the Lender's receipt of (i) a satisfactory opinion of counsel from the
counsel to the proposed transferee (the "Transferee") that, in a properly
presented case, a bankruptcy court in a case involving the Transferee would not
disregard the corporate, company or partnership form of the Transferee and (ii)
payment in full of the Lender's actual expenses in connection with such
Transfer.
(c) As used herein, the term "Fundamental Transaction" shall mean,
with respect to the Operating Partnership, any acquisition by, merger with or
consolidation with or into, or sale of substantially all of its assets to, an
entity ("Transferee") if:
(i) Transferee owns, directly or indirectly, substantially
all the assets which the Operating Partnership owned immediately prior
to the effective date of such merger, consolidation or sale;
(ii) Transferee agrees in writing to assume all obligations
of the Operating Partnership under the Loan Documents to which the
Operating Partnership is a party;
(iii) Transferee has executive officers reasonably
acceptable to the Lender;
(iv) The Lender has received confirmation in writing that
such Transferee is not subject to on-going criminal or bankruptcy
proceedings;
(v) Transferee is a Qualified Resultant Owner (hereinafter
defined) and the Lender has received written confirmation from each of
the rating agencies rating the Permanent Loan that such Transfer will
not result in qualification, reduction or withdrawal of the then
current ratings assigned to the related certificates issued in
connection with such Permanent Loan.
(vi) The property manager after such transaction is either
the Operating Partnership or an Affiliate or is a prominent nationally
recognized professional management company which at the time of its
engagement as manager shall be the property manager for at least 10
regional malls containing at least six million aggregate leaseable
square feet (inclusive of anchor stores but exclusive of the Secured
Line Properties).
(vii) The Secured Line Properties being transferred will
be owned by one or more Single Purpose Entities and a non-
consolidation opinion acceptable to the Lender and the rating agencies
rating the Permanent Loan has been delivered;
(viii) Transferee's organizational structure satisfies
all of the covenants set forth in this Agreement, including, without
limitation, those covenants set forth in Sections 6.17 and 7.1; and
(ix) 60 days' notice to the Lender has been given.
(d) As used herein, a "Qualified Resultant Owner" means any one or
more of the following persons who own, individually or collectively, at least a
51% beneficial interest in and control of the Transferee: a person that (A) is
or is controlled by either a pension fund, pension fund advisor, an insurance
company, a domestic bank (with total assets of at least $45 billion), or a
person who's long-term unsecured debt is rated at least investment grade by each
of the rating agencies rating the Permanent Loan, (B) has a current net worth of
at least $250,000,000 and total real estate assets of at least $500,000,000, in
each case exclusive of the Secured Line Properties (or in the case of a pension
fund advisor, controls $1 billion in real estate assets), and (C) controls
(exclusive of the Secured Line Properties) at least 10 regional malls containing
in the aggregate at least 6,000,000 square feet of leaseable space.
(e) Any Transfer that is not a permitted Transfer as described above
and any Transfer to Mark Pasquerilla, or any Person controlled by either of
them, such that the REIT shall cease to own directly or indirectly greater than
50% of the Operating Partnership, shall be permitted only with the Lender's
prior written consent.
7.14 Limitation on Restrictions. Initiate, join in or consent to any
private restrictive covenant, zoning ordinance, or other public or private
restrictions, limiting or affecting the uses which may be made of any Secured
Line Property or any part thereof in such a way that would have a Material
Adverse Effect.
7.15 Limitations of ERISA. Take any action which would cause it to
become an "employee benefit plan" as defined in Section 3(3) of ERISA, or a
"governmental plan" as defined in Section 3(32) of ERISA, or a "plan" as defined
in Section 4875(e)(1) of the Code, or its assets to become "plan assets" as
defined in 29 C.F.R. Section 2510.3-101, or (ii) sell, assign or transfer any
Secured Line Property, or any portion thereof or interest therein (other than a
Lease entered into a conformity with the provisions of this Agreement), to any
transferee which does not execute and deliver to the Lender its written
assumption of the obligations of this covenant.
SECTION 8. ENVIRONMENTAL MATTERS
8.1 Certain Definitions. As used herein, the following terms have
the meanings indicated:
(a) "Environmental Laws". Any local, state, federal or other
governmental authority, statute, ordinance, code, order, decree, law, rule or
regulation applicable to the Secured Line Properties pertaining to or imposing
liability or standards of conduct concerning environmental regulation,
contamination or clean-up including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the Resource
Conservation and Recovery Act, as amended, the Emergency Planning and Community
Right-to-Know Act of 1986, as amended, the Hazardous Materials Transportation
Act, as amended, the Solid Waste Disposal Act, as amended, the Clean Water Act,
as amended, the Clean Air Act, as amended, the Toxic Substances Control Act, as
amended, the Safe Drinking Water Act, as amended, the Occupational Safety and
Health Act, as amended, The Pennsylvania Land Recycling and Environmental
Remediation Standards Act of 1995, as amended, any state superlien and
environmental clean-up statutes and all regulations adopted in respect of the
foregoing laws whether presently in force or coming into being and/or
effectiveness hereafter.
(b) "Hazardous Materials" means (i) petroleum or chemical products,
whether in liquid, solid, or gaseous form, or any fraction or by-product
thereof, (ii) asbestos or asbestos-containing materials, (iii) polychlorinated
biphenyls (pcbs), (iv) radon gas, (v) any explosive or radioactive substances,
(vi) lead or lead-based paint, or (vii) any other substance, material, waste or
mixture which is or shall be listed, defined, or otherwise determined by any
governmental authority to be hazardous, toxic, or otherwise regulated,
controlled or giving rise to liability under any Environmental Laws.
8.2 Representations and Warranties on Environmental Matters. To each
Borrower's knowledge, except as set forth in the Site Assessments, as of the
Third Modification Date, (a) no Hazardous Material is now or was formerly used,
stored, generated, manufactured, installed, treated, discharged, disposed of or
otherwise present at or about any Secured Line Property or any property adjacent
to any Secured Line Property (except for cleaning and other products currently
used by the Borrowers or any tenants thereunder in connection with the routine
maintenance or repair of a Secured Line Property or sold or used in the ordinary
course of business each in full compliance with Environmental Laws) and no
Hazardous Material was removed or transported from any Secured Line Property
other than as disclosed to the Lender in writing, (b) all permits, licenses,
approvals and filings required by Environmental Laws have been obtained, and the
use, operation and condition of any Secured Line Property does not, and did not
previously, violate any Environmental Laws, (c) no civil, criminal or
administrative action, suit, claim, hearing, investigation or proceeding has
been brought or been threatened which is still pending, nor have any material
settlements been reached by or with any parties or any liens imposed in
connection with any Secured Line Property concerning Hazardous Materials or
Environmental Laws; and (d) no underground storage tanks exist on any part of
any Secured Line Property other than as disclosed to the Lender in a Site
Assessment delivered to Lender at the time or origination of the Existing Credit
Line and the Valley Mall Construction Loan.
8.3 Covenants on Environmental Matters.
(a) Borrowers shall (i) comply in all material respects with
applicable Environmental Laws; (ii) notify Lender immediately upon any
Borrower's discovery of any spill, discharge, release or presence of any
Hazardous Material at, upon, under, within, contiguous to or otherwise affecting
any Secured Line Property; (iii) promptly remove and/or remediate such Hazardous
Materials as required by and in full compliance with Environmental Laws; and
(iv) promptly forward to Lender copies of all orders, notices, permits,
applications or other communications and reports received by the Borrowers in
connection with any spill, discharge, release or the presence of any Hazardous
Material or any other matters relating to the Environmental Laws or any similar
laws or regulations, as they may affect any Secured Line Property or any
Borrower.
(b) Borrowers shall not cause, shall prohibit any other Person within
the control of Borrowers from causing, and shall use prudent, commercially
reasonable efforts to prohibit other Persons (including tenants) from
(i) causing any spill, discharge or release, or the use, storage, generation,
manufacture, installation, or disposal, of any Hazardous Materials at, upon,
under, within or about any Secured Line Property or the transportation of any
Hazardous Materials to or from any Secured Line Property (except for cleaning
and other products used in connection with routine maintenance or repair of any
Secured Line Property or sold or used in the ordinary course of business in full
compliance with Environmental Laws), (ii) installing any underground storage
tanks at any Secured Line Property, provided that the Borrowers shall be
permitted with the consent of the Lender, which consent shall not be
unreasonably withheld or delayed, to replace underground storage tanks with new
underground storage tanks if such replacement is performed in accordance with
all Environmental Laws, or (iii) conducting any activity that requires a permit
or other authorization under Environmental Laws prior to obtaining the same.
(c) Borrowers shall provide to Lender, at Borrowers' expense promptly
upon the written request of Lender from time to time, a Site Assessment or, if
required by Lender, an update to any existing Site Assessment, to assess the
presence or absence of any Hazardous Materials and the potential costs in
connection with abatement, cleanup or removal of any Hazardous Materials found
on, under, at or within any Secured Line Property to the extent such abatement,
cleanup or removal is required by applicable Environmental Law. Borrower shall
pay the cost of no more than one such Site Assessment or update in any twelve
(12)-month period, unless Lender's request for an additional Site Assessment or
updated assessment is based on information provided under Section 8.3(a), a
reasonable suspicion of Hazardous Materials at or near any Secured Line
Property, a breach of representations under Section 8.2, or an Event of Default,
in which case any such Site Assessment or update shall be at Borrowers' expense.
8.4 Allocation of Risks and Indemnity. As between Borrowers and
Lender, all risk of loss associated with non-compliance with Environmental Laws,
or with the presence of any Hazardous Material at, upon, within, contiguous to
or otherwise affecting any Secured Line Property, shall lie solely with
Borrowers except as otherwise provided herein. Accordingly, Borrowers shall
bear all risks and costs associated with any loss (including any loss in value
attributable to Hazardous Materials), damage or liability therefrom, including
all costs of removal of Hazardous Materials or other remediation required by
Environmental Law. Borrowers shall indemnify, defend and hold Lender and its
shareholders, directors, officers, employees and agents harmless from and
against all loss, liabilities, damages, claims, costs and expenses (including
reasonable costs of defense and consultant fees, investigation and laboratory
fees, court costs, and other litigation expenses) arising out of or associated,
in any way, with (a) the non-compliance with applicable Environmental Laws, or
(b) the existence of Hazardous Materials in, on, or about any Secured Line
Property, (c) any personal injury (including wrongful death) or property damage
(real or personal) arising out of or related to Hazardous Materials in, on or
about any Secured Line Property; (d) any lawsuit brought or threatened,
settlement reached, or government order relating to Hazardous Materials in, on
or about any Secured Line Property, (e) a breach of any representation, warranty
or covenant contained in this Article 8, whether based in contract, tort,
implied or express warranty, strict liability, criminal or civil statute or
common law, or (f) the imposition of any environmental lien encumbering any
Secured Line Property; provided, however, Borrowers shall not be liable under
such indemnification to the extent such loss, liability, damage, claim, cost or
expense results solely from Lender's gross negligence or willful misconduct.
Borrowers' obligations under this Section 8.4 shall arise upon the discovery of
the presence of any Hazardous Materials, whether or not the Environmental
Protection Agency, any other federal agency authorized to enforce Environmental
Laws or any governmental authority has taken or threatened any action in
connection with the presence of any Hazardous Material, and whether or not the
existence of any such Hazardous Material or potential liability on account
thereof is disclosed in a Site Assessment and shall continue notwithstanding the
repayment of the Loan or any transfer or sale of any right, title and interest
in any Secured Line Property (by foreclosure, deed in lieu of foreclosure or
otherwise) except as otherwise provided herein. Notwithstanding the foregoing,
the Borrowers shall have no obligation to indemnify the Lender, and the
indemnification provisions set forth in this Section 8.4 shall not apply to any
release or presence of Hazardous Materials which the Borrowers can establish
either (i) occurred solely after the payment of the Debt in full and
satisfaction of all of the Borrowers' obligations under the Loan Documents and
transfer of the Secured Line Properties resulting from a foreclosure or deed in
lieu of foreclosure accepted by the Lender and was not caused by the Borrowers
or an Affiliate thereof, or (ii) occurred solely from the Lender's knowing and
willful instruction to the Borrowers to take an action that the Lender knew
would cause an immediate release of Hazardous Materials or which violated an
applicable Environmental Law. The Borrowers shall have the burden of proving
the foregoing. Additionally, if any Hazardous Materials affect or threaten to
affect the Secured Line Properties, Lender may (but shall not be obligated to)
give such notices and take such actions as it deems necessary or advisable at
the expense of the Borrowers in order to abate the discharge of any Hazardous
Materials or remove the Hazardous Materials if the Borrowers have failed to
promptly and diligently take such action after notice the Lender. Any
reasonable amounts actually incurred by and payable to Lender by reason of the
application of this Section 8.4 shall become immediately due and payable upon
receipt of written notice by the Borrower and shall bear interest at the default
rate set forth in Section 3.1(b) hereof from the date such notice is received by
the Borrowers. The obligations and liabilities of Borrowers under this Section
8.4 shall survive any termination, satisfaction, assignment, entry of a judgment
of foreclosure or delivery of a deed in lieu of foreclosure except as otherwise
provided herein.
8.5 No Waiver. Notwithstanding any provision in this Section 8 or
elsewhere in the Loan Documents, or any rights or remedies granted by the Loan
Documents, Lender does not waive and expressly reserves all rights and benefits
now or hereafter accruing to Lender under the "security interest" or "secured
creditor" exception under applicable Environmental Laws, as the same may be
amended. No action taken by Lender pursuant to the Loan Documents shall be
deemed or construed to be a waiver or relinquishment of any such rights or
benefits under the "security interest exception."
SECTION 9. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any regularly scheduled install-
ment of principal, interest or other amounts due under the Loan Documents
within five (5) days of (and including) the day it is due, or the Borrowers
shall fail to pay the Loan at the Termination Date, whether by acceleration
or otherwise; or
(b) Any representation or warranty made by the Borrowers herein or in
any other Loan Document or which is contained in any certificate, document
or financial or other statement furnished by them at any time under or in
connection with this Agreement or any such other Loan Document shall
prove to have been incorrect in any material respect on or as of the date
made; provided, however, no Event of Default shall arise under this
Section 9(b) if (i) the facts which give rise to the incorrect re-
presentation or warranty are capable of being cured by the Borrowers
and (b) such underlying facts are cured by the Borrowers within
fifteen (15) days of notice given to the Borrowers by the Lender of the
existence of such incorrect representation or warranty; or
(c) The Borrowers shall fail to maintain in full force and effect
insurance as required under Section 6.5 of this Agreement; or
(d) The Borrowers shall default in the observance or performance of
any agreement contained in Sections 6.4, 6.7, 6.10, 6.11, 6.12 or 6.18,
Sections 7.1, 7.5, 7.6, 7.7, 7.11, 7.12, 7.13 or 7.15 of this Agreement, or
there shall occur any "Event of Default" as defined in any Mortgage; or
(e) The Borrowers shall default in the observance or performance of
any other agreement contained in this Agreement or any other Loan Document
(other than as provided in paragraphs (a) through (d) of this Section), and
such default shall continue unremedied for a period of thirty (30) days,
provided, however, that if such default cannot reasonably be cured within
such thirty (30) day period and the Borrowers shall have commenced to cure
such default within such thirty (30) day period and thereafter diligently
and expeditiously proceed to cure the same, such thirty (30) day period
shall be extended for so long as it shall require the Borrowers in the
exercise of due diligence to cure such default, it being agreed that no
such extension shall be for a period in excess of ninety (90) days; or
(f) (i) Any Borrower shall commence any case, proceeding or other
action (A) under any existing or future law of any jurisdiction, domestic
or foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking reorgan-
ization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or
(B) seeking appointment of a receiver, trustee, custodian, conservator or
other similar official for it or for all or any substantial part of
its assets, or such Borrowers shall make a general assignment for the
benefit of its creditors; or (ii) there shall be commenced against such
Borrower any case, proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order for relief or
any such adjudication or appointment or (B) remains undismissed, undis-
charged or unbonded for a period of 90 days; or (iii) there shall be com-
menced against such Borrower any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results
in the entry of an order for any such relief which shall not have been
vacated, discharged, or stayed or bonded pending appeal within 90 days from
the entry thereof; or (iv) such Borrower shall take any action in further-
ance of, or indicating its consent to, approval of, or acquiescence in, any
of the acts set forth in clause (i), (ii), or (iii) above; or (v) such
Borrower shall generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due; or
(g) One or more judgments or decrees shall be entered against any
Borrower involving in the aggregate a liability (not paid or fully covered
by insurance)of $5,000,000 or more, and all such judgments or decrees shall
not have been vacated, discharged, stayed or bonded pending appeal
within 90 days from the entry thereof; or
(h) (i) Any of the Security Documents shall cease, for any reason,
to be in full force and effect, or any Borrower shall so assert or (ii) the
Lien created by any of the Security Documents shall cease to be enforceable
and of the same effect and priority purported to be created thereby; or
(i) The Operating Partnership shall fail in the payment of any rent,
additional rent or other charge mentioned in or made payable by the Ground
Lease as and when such rent or other charge is payable; or
(j) There shall occur any "Event of Default" by the Operating Part-
nership, as tenant under the Ground Lease, in the observance or performance
of any term, covenant or condition of the Ground Lease on the part of the
Operating Partnership, to be observed or performed, and said default is not
cured prior to the expiration of any applicable grace period therein pro-
vided, or if any one or more of the events referred to in the Ground Lease
shall occur which would cause the Ground Lease to terminate without notice
or action by the Ground Lessor or which would entitle the Ground Lessor to
terminate the Ground Lease and the term thereof by giving notice to the
Operating Partnership, as tenant thereunder, or if the leasehold estate
created by the Ground Lease shall be surrendered or the Ground Lease
shall be terminated or canceled for any reason or under any
circumstances whatsoever, or if any of the terms, covenants or conditions
of the Ground Lease shall in any manner be modified, changed, supplemented,
altered, or amended without the consent of the Lender;
(k) The REIT shall lose its status as a "real estate investment
trust" for federal income tax purposes; or
(l) An Event of Default shall occur under the Building Loan
Agreement;
then, and in any such event, the Lender (i) shall have no obligation to make any
further advances under the Loan, (ii) shall have the absolute and unconditional
right in its sole and absolute discretion to declare the Obligations, or any
portion thereof, immediately due and payable, (iii) shall have the right to
pursue any and all remedies provided for in the Loan Documents or otherwise
available to the Lender at law or in equity or otherwise, (iv) shall have the
absolute and unconditional right in its sole and absolute discretion to
terminate the Commitment and its obligations with respect thereto under this
Agreement, and (v) shall have the right to require the Borrowers to institute
lock-boxes at each Secured Line Property for the benefit of the Lender pursuant
to lock-box agreements acceptable to the Lender in its sole and absolute
discretion, pursuant to which all cash-flow from such Secured Line Properties
shall be used to repay the Obligations in such order and in such priority at the
Lender may from time to time, in its sole and absolute discretion, designate.
All remedies afforded to the Lender under this Agreement or under any of the
Loan Documents are separate and cumulative remedies and it is agreed that none
of such remedies shall be deemed to be in exclusion of any other remedies
available to the Lender and shall not in any manner limit or prejudice any other
legal or equitable remedies which the Lender may have. In addition to the
foregoing, during the continuance of an Event of Default, the Borrowers shall
not, and shall cause their Subsidiaries not to, pay any amounts owing to
Affiliates, including, without limitation, any management fees, with respect to
the Secured Line Properties, unless and until the Obligations have been paid in
full.
SECTION 10. CROSS-DEFAULT; CROSS-COLLATERALIZATION; WAIVER OF MARSHALLING
(a) The Borrowers acknowledge that the Lender has made the Loan to
the Borrowers upon the security of their collective interest in the Secured Line
Properties and in reliance upon the aggregate of the Secured Line Properties
taken together being of greater value as collateral security than the sum of the
Secured Line Properties taken separately. The Borrowers agree that the
Mortgages are and will be cross-collateralized and cross-defaulted with each
other so that (i) an Event of Default under any of the Mortgages shall
constitute an Event of Default under each of the other Mortgages which secure
the Note; (ii) an Event of Default under the Note or this Agreement shall
constitute an Event of Default under each Mortgage; and (iii) each Mortgage
shall constitute security for the Note as if a single blanket Lien were placed
on all of the Secured Line Properties as security for the Note.
(b) To the fullest extent permitted by law, the Borrowers, for
themselves and their successors and assigns, waive all rights to a marshalling
of the assets of the Borrowers, the Borrowers' partners and others with
interests in the Borrowers, and of the Secured Line Properties, or to a sale in
inverse order of alienation in the event of foreclosure of all or any of the
Mortgages, and agree not to assert any right under any laws pertaining to the
marshalling of assets, the sale in inverse order of alienation, homestead
exemption, the administration of estates of decedents, or any other matters
whatsoever to defeat, reduce or affect the right of the Lender under the Loan
Documents to a sale of the Secured Line Properties for the collection of the
Obligations without any prior or different resort for collection or of the right
of the Lender to the payment of the Obligations out of the net proceeds of the
Secured Line Properties in preference to every other claimant whatsoever. In
addition, the Borrowers, for themselves and their successors and assigns, waive
in the event of foreclosure of any or all of the Mortgages, any equitable right
otherwise available to the Borrowers which would require the separate sale of
the Secured Line Properties or require the Lender to exhaust its remedies
against any particular Secured Line Property or any combination of the Secured
Line Properties before proceeding against any other particular Secured Line
Property or combination of Secured Line Properties; and further in the event of
such foreclosure the Borrowers do hereby expressly consent to and authorize, at
the option of the Lender, the foreclosure and sale either separately or together
of any combination of the Secured Line Properties.
SECTION 11. MISCELLANEOUS
11.1 Amendments; No Novation. Neither this Agreement nor any other
Loan Document, nor any terms hereof or thereof may be amended, supplemented,
modified or terminated, in whole or in part, except by an agreement in writing
executed by the parties hereto. The parties intend that the Third Modification
shall not constitute a novation. In addition, unless expressly modified and
amended hereby, all terms and conditions of the Existing Secured Credit Line
shall remain in full force and effect. Notwithstanding the foregoing
provisions, the terms and provisions of this Agreement shall supersede in all
respects the terms and provisions of the Existing Credit Agreement.
11.2 Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and either shall be mailed by certified mail,
postage prepaid, return receipt requested, or sent by overnight air courier
service, or personally delivered to a representative of the receiving party, or
sent by telecopy (provided an identical notice is also sent simultaneously by
mail, overnight courier, or personal delivery as otherwise provided in this
Section 11.2). All such communications shall be mailed, sent or delivered,
addressed to the party for whom it is intended at its address set forth below.
The Borrowers: c/o Crown American Realty Trust
Crown American Properties, L.P.
Pasquerilla Plaza
Johnstown, Pennsylvania 15901
Attention: Chief Financial Officer
Fax: (814) 535-9336
The Lender: General Electric Capital Corporation Real Estate
1528 Walnut Street
9th Floor
Philadelphia, Pennsylvania 19102
Attention: Asset Management
Fax: (215) 772-0361
Any communication so addressed and mailed shall be deemed to be given on the
earliest of (a) when actually delivered, (b) on the first Business Day after
deposit with an overnight air courier service, or (c) on the third Business Day
after deposit in the United States mail, postage prepaid, in each case to the
address of the intended addressee, and any communication so delivered in person
shall be deemed to be given when receipted for by, or actually received by the
Lender or the Borrowers, as the case may be. If given by telecopy, a notice
shall be deemed given and received when the telecopy is transmitted to the
party's telecopy number specified above confirmation of complete receipt is
received by the transmitting party during normal business hours or on the next
Business Day if not confirmed during normal business hours. Either party may
designate a change of address by written notice to the other by giving at least
ten (10) days prior written notice of such change of address.
11.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Lender, any right, remedy, power or
privilege hereunder or under the other Loan Documents shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
11.4 Survival of Representations and Warranties. All representations
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loan hereunder.
11.5 Payment of Expenses. (a) The Borrowers agree to pay on demand
all costs and expenses of the Lender in connection with the preparation,
execution, delivery, administration, modification, and amendment of this
Agreement, the other Loan Documents, and the other documents delivered or to be
delivered hereunder, including, without limitation, the reasonable fees and
expenses of counsel for the Lender (including the cost of internal counsel) with
respect thereto and with respect to advising the Lender as to its rights and
responsibilities under the Loan Documents. The Borrowers further agree to pay
on demand all reasonable costs and expenses of the Lender, if any (including,
without limitation, reasonable attorneys' fees and expenses and the reasonable
cost of internal counsel), in connection with the enforcement (whether through
negotiations, legal proceedings, or otherwise) of the Loan Documents and the
other documents to be delivered hereunder.
(b) The Borrowers agree, to indemnify and hold harmless the Lender
and each of its affiliates and its respective officers, directors, employees,
agents, and advisors (each, an "Indemnified Party") from and against any and
all claims, damages, losses, liabilities, reasonable costs, and expenses
(including, without limitation, reasonable attorneys' fees) that may be
actually incurred by or awarded against any Indemnified Party, in each
case arising out of or in connection with or by reason of (including,
without limitation, in connection with any investigation, litigation, or
proceeding or preparation of defense in connection therewith) the Loan
Documents, any of the transactions contemplated herein or the actual or
proposed use of the proceeds of the Loan, except to the extent such claim,
damage, loss, liability, cost, or expense is found in a final, non-
appealable judgment by a court of competent jurisdiction to have resulted
from such Indemnified Party's gross negligence or willful misconduct.
In the case of an investigation, litigation or other proceeding to which the
indemnity in this Section 11.5 applies, such indemnity shall be effective
whether or not such investigation, litigation or proceeding is brought by the
Borrowers, their directors, shareholders or creditors or an Indemnified Party or
any other Person or any Indemnified Party is otherwise a party thereto and
whether or not the transactions contemplated hereby are consummated. The
Borrowers agree not to assert any claim against the Lender, any of its
affiliates, or any of its respective directors, officers, employees, attorneys,
agents, and advisers, on any theory of liability, for special, indirect,
consequential, or punitive damages arising out of or otherwise relating to the
Loan Documents, any of the transactions contemplated herein or the actual or
proposed use of the proceeds of the Loan.
(c) Without prejudice to the survival of any other agreement of the
Borrowers hereunder, the agreements and obligations of the Borrowers contained
in this Section 11.5 shall survive the payment in full of the Loan and all
other amounts payable under this Agreement.
11.6 Successors and Assigns; Participations and Assignments. (a)
This Agreement shall be binding upon and inure to the benefit of the Borrowers,
the Lender and their respective successors and assigns, except that the
Borrowers may not assign or transfer any of their rights or obligations under
this Agreement without the prior written consent of the Lender.
(b) The Lender may assign to one or more Persons all or a portion of
its rights and obligations under this Agreement; provided, however, that
notwithstanding anything to the contrary contained herein, the Lender shall not
assign its rights and obligations under this Agreement to (i) any competitors of
the REIT primarily involved in the ownership and operation of retail properties
or (ii) any Person that will not execute a standstill agreement with respect to
the acquisition of the Borrowers and a confidentiality agreement.
(c) Subject to the restrictions set forth in Section 11.6(b), the
Lender may sell participations to one or more Persons in all or a portion of its
rights and obligations under this Agreement (including all or a portion of the
Commitment and the Loan);
(d) Subject to the restrictions set forth in Section 11.6(b), the
Lender may furnish any information concerning the Borrowers or any of their Sub-
sidiaries in the possession of the Lender from time to time to assignees and
participants (including prospective assignees and participants).
11.7 Set-off. Upon the occurrence and during the continuance of any
Event of Default, the Lender (and each of its Affiliates) is hereby authorized
at any time and from time to time, to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by the Lender (or any of its Affiliates) to or for the credit or the account of
the Borrowers against any and all of the obligations of the Borrowers or
hereafter existing under this Agreement and any note held by the Lender,
irrespective of whether the Lender shall have made any demand under this
Agreement or such note and although such obligations may be unmatured. The
Lender agrees promptly to notify the Borrowers after any such set-off and
application made by the Lender; provided, however, that the failure to give such
notice shall not affect the validity of such set-off and application. The
rights of the Lender under this Section are in addition to other rights and
remedies (including, without limitation, other rights of set-off) that the
Lender may have.
11.8 Counterparts. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts (including
by facsimile transmission of signature pages hereto), and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
11.9 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11.10 Integration. This Agreement and the other Loan Documents
represent the agreement of the Borrowers and the Lender with respect to the
subject matter hereof, and there are no promises, undertakings, representations
or warranties by the Lender relative to the subject matter hereof not expressly
set forth or referred to herein or in the other Loan Documents.
11.11 GOVERNING LAW.
(A) THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE
BY THE LENDER AND ACCEPTED BY THE BORROWERS IN THE STATE OF NEW YORK, AND THE
PROCEEDS OF THE NOTE DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE STATE OF
NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE
PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS,
INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS
ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH
STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICT LAWS) AND ANY APPLICABLE LAW OF
THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE
CREATION, PERFECTION, AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS
CREATED PURSUANT HERETO AND PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATE IN WHICH THE
APPLICABLE SECURED LINE PROPERTY IS LOCATED, IT BEING UNDERSTOOD THAT, TO THE
FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE LAW OF THE STATE OF NEW
YORK SHALL GOVERN THE CONSTRUCTION, VALIDITY AND ENFORCEABILITY OF ALL LOAN
DOCUMENTS AND ALL OF THE OBLIGATIONS ARISING HEREUNDER OR THEREUNDER. TO THE
FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY
WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS
AGREEMENT AND THE NOTE, AND THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO
SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
(B) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST THE LENDER OR THE
BORROWERS ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY AT THE LENDER'S
OPTION BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE CITY OF NEW YORK,
COUNTY OF NEW YORK PURSUANT TO SECTION 5-1402 OF THE NEW YORK GENERAL
OBLIGATIONS LAW, AND THE BORROWERS WAIVE ANY OBJECTIONS WHICH THEY MAY NOW OR
HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT,
ACTION OR PROCEEDING, AND THE BORROWERS HEREBY IRREVOCABLY SUBMIT TO THE
JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. THE BORROWERS
DO HEREBY DESIGNATE AND APPOINT CT CORPORATION SYSTEM, HAVING AN ADDRESS AT 1633
BROADWAY, NEW YORK, NEW YORK 10019, AS THEIR AUTHORIZED AGENT TO ACCEPT AND
ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN
ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW YORK,
NEW YORK, AND AGREE THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND
WRITTEN NOTICE OF SAID SERVICE MAILED OR DELIVERED TO THE BORROWERS IN THE
MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON THE BORROWERS, IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE
OF NEW YORK. THE BORROWERS (I) SHALL GIVE PROMPT NOTICE TO THE LENDER OF ANY
CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY TIME AND FROM
TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN NEW YORK,
NEW YORK (WHICH SUBSTITUTE AGENT AND OFFICE SHALL BE DESIGNATED AS THE PERSON
AND ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH A
SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN OFFICE IN NEW YORK, NEW
YORK OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR.
11.12 Waiver of Punitive or Consequential Damages. Neither the
Lender nor the Borrowers shall be responsible or liable to the other or to any
other Person for any punitive, exemplary or consequential damages which may be
alleged as a result of the Loan or the transaction contemplated hereby,
including any breach or other default by any party hereto.
11.13 Acknowledgments. Each Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) the Lender has no fiduciary relationship with or duty to the
Borrowers arising out of or in connection with this Agreement or any of the
other Loan Documents, and the relationship between the Borrowers and the
Lender, in connection herewith or therewith is solely that of debtor and
creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby
among the Borrowers and the Lender.
11.14 WAIVERS OF JURY TRIAL. THE BORROWERS AND THE LENDER HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY
AND VOLUNTARILY BY THE BORROWERS AND THE LENDER, AND IS INTENDED TO ENCOMPASS
INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY
JURY WOULD OTHERWISE ACCRUE. THE BORROWERS AND THE LENDER ARE EACH HEREBY
AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE
EVIDENCE OF THIS WAIVER BY THE OTHER PARTY.
11.15 Public Disclosure. Each party hereunder shall have the
right to review and approve all references to it or them, as applicable, and/or
the Loan contained in any press release or public documents prepared by or on
behalf of the other party(ies), except with respect to filings required to be
made with any Governmental Authority.
11.16 Recourse Obligations. The Borrowers' obligations in respect
of the Loan shall constitute the full, joint and several recourse obligations of
the Borrowers.
11.17 Sole Discretion. Except as may otherwise be expressly
provided to the contrary, wherever pursuant to the Note, the Mortgages, this
Agreement, or any of the other Loan Documents, the Lender exercises any right
given to it to consent or not consent, or to approve or disapprove, or any
arrangement or term is to be satisfactory to the Lender, the decision of the
Lender shall be in the sole but reasonable discretion of the Lender and shall be
final and conclusive.
11.18 Further Assurances. The Borrowers agree to do or cause to
be done all such further reasonable acts and things, and to execute and deliver
or cause to be executed and delivered all such additional conveyances,
assignments, agreements and instruments as the Lender may at any time reasonably
request solely in connection with the administration or enforcement of this
Agreement and the other Loan Documents or in order better to assure, perfect and
confirm unto the Lender its rights, powers and remedies under this Agreement and
under the other Loan Documents. Nothing contained in this paragraph shall be
construed as obligating the Borrowers to provide or to cause to be provided any
collateral or security for the Loan other than as expressly contemplated by the
provisions of this Agreement and the other Loan Documents.
11.19 Name Changes. The Borrowers and the Lender hereby acknowledge
and agree that any Single Purpose Entity may change its name so long as (i) the
Borrowers provide Lender with written notice of such name change at least twenty
(20) Business Days prior to the occurrence of such name change, (ii) the
Borrowers promptly reimburse the Lender for all of the Lender's reasonable costs
and expenses incurred in connection with evaluating and documenting such name
change, including, without limitation, any costs of refiling any Financing
Statements, (iii) at no time shall the Lien of any Security Document be
materially affected other than in connection with the simultaneous substitution
of a new Financing Statement and (iv) the Borrowers shall execute such
amendments to the Loan Documents and provide the Lender with such title
endorsements reflecting such name change as the Lender may require.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized
representatives as of the day and year first above written.
CROWN AMERICAN REALTY TRUST, a Maryland real
estate investment trust, in its capacity as a
Borrower and as a guarantor
By: __________________________________
Name:
Title:
CROWN AMERICAN PROPERTIES, L.P., a Delaware
limited partnership, in its capacity as a Borrower
and as a guarantor
By: Crown American Realty Trust, a Maryland
real estate investment trust, its sole general
partner
By: _________________________________
Name:
Title:
CROWN AMERICAN ACQUISITION
ASSOCIATES I, L.P., a Pennsylvania limited
partnership
By: Crown American Acquisition Associates I, a
Delaware business trust, its sole general
partner
By: _________________________________
Name:
Title:
CROWN AMERICAN ACQUISITION
ASSOCIATES II, L.P., a Pennsylvania limited
partnership
By: Crown American Acquisition Associates II, a
Delaware business trust, its sole general
partner
By: _________________________________
Name:
Title:
CROWN AMERICAN ACQUISITION
ASSOCIATES III, L.P., a Pennsylvania limited
partnership
By: Crown American Acquisition Associates III, a
Delaware business trust, its sole general
partner
By: _________________________________
Name:
Title:
CROWN AMERICAN ACQUISITION
ASSOCIATES IV, L.P., a Pennsylvania limited
partnership
By: Crown American Acquisition Associates IV,
a Delaware business trust, its sole general
partner
By: _________________________________
Name:
Title:
CROWN AMERICAN ACQUISITION
ASSOCIATES V, L.P., a Pennsylvania limited
partnership
By: Crown American Acquisition Associates V,
a Delaware business trust, its sole general
partner
By: _________________________________
Name:
Title:
CROWN AMERICAN ACQUISITION
ASSOCIATES VI, L.P., a Pennsylvania limited
partnership
By: Crown American Acquisition Associates VI,
a Delaware business trust, its sole general
partner
By: _________________________________
Name:
Title:
CROWN AMERICAN ACQUISITION
ASSOCIATES VII, L.P., a Pennsylvania limited
partnership
By: Crown American Acquisition Associates VII,
a Delaware business trust, its sole general
partner
By: _________________________________
Name:
Title:
CROWN AMERICAN ACQUISITION
ASSOCIATES VIII, L.P., a Pennsylvania limited
partnership
By: Crown American Acquisition Associates VIII,
a Delaware business trust, its sole general
partner
By: _________________________________
Name:
Title:
CROWN AMERICAN ACQUISITION
ASSOCIATES IX, L.P., a Pennsylvania limited
partnership
By: Crown American Acquisition Associates IX,
a Delaware business trust, its sole general
partner
By: _________________________________
Name:
Title:
CROWN AMERICAN ACQUISITION
ASSOCIATES X, L.P., a Pennsylvania limited
partnership
By: Crown American Acquisition Associates X,
a Delaware business trust, its sole general
partner
By: _________________________________
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation
By:_______________________________________
Name: Peter Tzelios
Title: Attorney-In-Fact
_______________________________
1 From $109,000,000 to $118,500,000, the required COC shall be 12.5% if funds
are used for the Bradley and Jacksonville Mall Advances, as provided in
Section 2.2(f) hereof.
EXHIBIT 10.17
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of the 13th day of August,
1999 (this "Agreement"), by and between CROWN AMERICAN REALTY TRUST, a Maryland
real estate investment trust (the "Company"), and PNC BANK, NATIONAL ASSOCIATION
and its assigns (the "Bank").
W I T N E S S E T H:
WHEREAS, Crown Investments Trust, a Delaware business trust ("CIT"),
and the Bank have entered into a Revolving Credit Agreement, dated as of
August 13, 1999, (the "Credit Agreement");
WHEREAS, as security for the obligations of CIT under the Credit
Agreement, CIT and Crown American Investment Company, a Delaware corporation
("CAIC"), have agreed, respectively, to pledge to the Bank 7,652,000 and 511,265
common partnership units (the '"Partnership Units") of Crown American
Properties, L.P., a Delaware limited partnership ("CAP");
WHEREAS, concurrently herewith, CIT, CAIC, and the Bank are entering
into a Units Pledge Agreement (the "Pledge Agreement"); and
WHEREAS, the Company, CAP, CIT, CAIC, and the Bank are entering into
an Exchange Agreement dated as of the date hereof (the "Exchange Agreement")
pursuant to which the Company has agreed, on the terms and conditions set forth
therein, to exchange the Partnership Units for Common Shares of Beneficial
Interest of the Company.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and subject to and
on the terms and conditions herein set forth, the parties hereto agree as
follows:
1. Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Business Day" means any day on which the New York Stock Exchange is
open for trading.
"Demand Registration Request" means a written notice from the Bank
directing the Company to register the Bank's Eligible Shares pursuant to
Section 2.1 and specifying the intended method or methods of disposition of such
Eligible Shares.
"Eligible Shares" means all but not less than all of the Shares
pledged to the Bank under the Pledge Agreement, including any shares issued by
the Company to the Bank pursuant to the Exchange Agreement. As to any proposed
offer or sale of Eligible Shares, such securities shall cease to be Eligible
Shares when a registration statement with respect to the sale of such securities
shall have become effective under the Securities Act and such securities shall
have been disposed of in accordance with such registration statement.
"Event of Default" has the meaning given to such term in the Credit
Agreement.
"Majority Holder" means PNC Bank, National Association.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with the registration requirements set forth in
this Agreement but shall not include underwriting discounts or commissions
attributable to Eligible Shares, transfer taxes applicable to Eligible Shares.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder, all as the same shall be in effect
at the relevant time.
"Pledge Agreement" has the meaning set forth in the recitals to this
Agreement.
2. Registration Rights.
2.1 Shelf Registration Rights. (a) At any time after the occurrence
and continuance of an Event of Default beyond any applicable grace period
provided therefor, the Bank shall have the right to require the Company to file
a "shelf" registration statement (a "Shelf Registration") pursuant to Rule 415
under the Securities Act and/or any successor rule that may be adopted by the
SEC and use its best efforts to have the Shelf Registration declared effective
as soon as practicable after such filing and in any event within 60 days after
the date of the Event of Default and to keep the Shelf Registration continuously
effective until such time as the Majority Holder shall have otherwise notified
the Company in writing.
(b) The holders of the Eligible Shares may offer or sell Eligible
Shares pursuant to an effective Shelf Registration as soon as the Shelf
Registration becomes effective.
(c) To the extent necessary, the Company shall update the information
then provided in the Shelf Registration in order to include all information
required under the Securities Act which is necessary to effect the offer and
sale pursuant to the Shelf Registration of the Eligible Shares, all to the
extent requisite to permit the disposition thereof by the holders of Eligible
Shares.
2.2 Demand Registration Rights. Subject to Sections 2.4(a) and (c),
at any time after an Event of Default when a Shelf Registration pursuant to
Section 2.1 is not effective (after giving effect to the 60-day period provided
in Section 2.1), the Bank shall have the right, on one or more occasions chosen
by such party, to require the Company to register all, or any part, of the
Eligible Shares held by it (the "Demand Registration Right").
As promptly as practicable, and in no event later than 30 days after
the Company receives a Demand Registration Request, the Company shall file and
use its reasonable best efforts to cause to be declared effective a registration
statement with the SEC providing for the registration of all Eligible Shares
which the Bank has directed in the Demand Registration Request.
2.3 Incidental Demand Registration Rights. Subject to Sections
2.4(b), (d) and (e), if at any time the Company proposes to register any of its
Common Shares of Beneficial Interest ("Common Shares") or any other securities
under the Securities Act for the purpose of an offering or sale by or on behalf
of the Company of its Common Shares or its other securities for its own account
(a "Primary Offering"), or upon the request or for the account of any holder of
its Common Shares or any other securities (a "Secondary Offering"), or for the
purposes of a combined Primary and Secondary Offering, the Bank shall have the
right, at any such time when a Shelf Registration pursuant to Section 2.1 is not
effective, to require the Company to register all, or any part of, the Eligible
Shares held by it (the "Incidental Demand Registration Rights"). The Company
shall, at least 20 Business Days prior to the time when any such registration
statement is filed with the SEC, give prompt written notice to the Bank of its
intention to do so. Such notice shall specify, at a minimum, the number and
class of Common Shares or securities so proposed to be registered, the proposed
date of filing of such registration statement, any proposed means of
distribution of such Common Shares or securities so proposed managing
underwriter or underwriters of such Common Shares or securities and a good faith
estimate by the Company of the proposed maximum offering price thereof, as such
price is to appear on the facing page of such registration statement.
Notwithstanding the foregoing, the Bank shall not have any rights under this
Section 2.3 if the registration proposed to be effected by the Company relates
solely to Common Shares or other securities which are issuable solely to
officers or employees of the Company or any subsidiary thereof pursuant to a
bona fide employee stock option, bonus or other employee benefit plan.
Within fifteen Business Days following the receipt of any such written
notice, the Bank may exercise its Incidental Demand Registration Rights by
serving upon the Company an Incidental Demand Registration Request (as defined
below). An "Incidental Demand Registration Request" means a written notice from
the Bank directing the Company to include all or any part of the Eligible Shares
in the contemplated registration statement to the extent necessary to permit the
sale or other disposition of such Eligible Shares, and specifying the number of
Eligible Shares intended to be disposed of by the Bank and the intend method of
distribution thereof.
2.4 Exemptions from Registration. (a) Notwithstanding any right
granted to the Bank pursuant to Section 2.2, if, upon receipt of a Demand
Registration Request, the Company is advised in writing (with a copy to the
Bank) by a nationally recognized independing investment banking firm selected by
the Company to act as lead underwriter in connection with a public offering of
Common Shares by the Company that, in such firm's opinion, a registration of
Eligible Shares at the time and on the terms requested would materially
adversely affect such public offering of Common Shares by the Company (other
than an offering in connection with employee benefit and similar plans) that had
been contemplated by the Company prior to Demand Registration Request (a
"Company Offering"), the Company shall not be required to effect a registration
until the earliest of (i) three months after the completion of such Company
Offering, (ii) promptly after abandonment of such Company Offering, or (iii)
four months after the date the Demand Registration Request was delivered to the
Company.
(b) Notwithstanding any right granted to the Bank pursuant to Section
2.3, if the Company shall have been advised in writing (with a copy to the Bank)
by a nationally recognized independent investment banking firm selected by the
Company to act as lead underwriter in connection with the public offering of
Common Shares by the Company that, in such firm's opinion, a registration at
that time would reasonably be expected to materially and adversely affect the
Company's own scheduled offering, the Company shall not be required to effect
such registration; provided, however, that if an offering of some but not all of
the Eligible Shares requested to be registered by the Bank would not adversely
affect the Company's offering, the number of Eligible Shares requested to be
included in such offering by the Bank shall be reduced to the maximum number of
Eligible Shares that could be registered without so adversely affecting the
Company's offering.
(c) Notwithstanding any right granted to the Bank pursuant to Section
2.2, if, while a Demand Registration Request is pending, the Company determines
in the good faith judgment of the Board of Trustees of the Company, with the
advice of counsel, that the filing of a registration statement would require the
disclosure of non-public material information the disclosure of which would
otherwise adversely affect a material financing, acquisition, disposition,
merger or other comparable significant transaction or would require the
inclusion of audited financial statements which would not otherwise be required
to be filed before the date of filing of such registration statement, the
Company shall deliver a certificate to such effect signed by its President or
any Vice President to the Bank and the Company shall not be required to effect a
registration pursuant to Section 2.2, until the earlier of (i) the date upon
which such material information is disclosed to the public or ceases to be
material, or (ii) 60 days after the Company makes such good faith determination.
(d) Notwithstanding any right granted to the Bank pursuant to Section
2.3, if, at any time after giving such written notice of its intention to
register any of its Common Shares or any other securities under the Securities
Act and prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for any reason
not to register such Common Shares or other securities, the Company may, at its
election, give written notice of such determination to the Bank and thereupon
the Company shall be relieved of its obligation to register such Eligible Shares
in connection with the registration of such Common Shares or other securities
(but not from its obligation to pay Registration Expenses to the extent incurred
in connection therewith as provided in Section 2.5 without prejudice, however,
to the rights (if any) of the Bank immediately to request that such registration
by effected under Section 2.2).
(e) Notwithstanding any right granted to the Bank pursuant to Section
2.3, the Company shall not be required to effect the registration of any
Eligible Shares under Section 2.3 incidental to the registration of any of its
securities in connection with mergers, acquisitions, exchange offers,
subscription offers, dividend reinvestment plans or stock options or other
employee benefit plans.
2.5 Payment of Registration Expenses. With respect to any
registration directed pursuant to this Agreement, the Company shall pay all
Registration Expenses.
3. Registration Procedures.
3.1 Registration and Qualification. In connection with the Company's
obligations with respect to the registration of Eligible Shares pursuant to this
Agreement and in accordance with the intended method or methods of distribution
thereof, the Company shall, as soon as reasonably practicable (and, in any
event, subject to the terms of this Agreement, at or before the time required by
applicable laws and regulations), take such action as may reasonably and
customarily be required in order to effect the registration and sale of the
Eligible Shares under the Securities Act, including:
(a) prepare and file with the SEC a registration statement on
any appropriate form under the Securities Act, which form shall be available for
the sale of the respective Eligible Shares in accordance with the intended
method or methods of distribution thereof, and use its reasonable best efforts
to cause such registration statements to become effective as soon as possible
after the filing thereof;
(b) prepare and file with the SEC such amendments and post-
effective amendments to such registration statement and supplements to the
related prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Eligible Shares until the
earlier of such time as all of such Eligible Shares have been disposed of in
accordance with the intended methods of disposition by the Bank set forth in
such registration statement or the expiration of 180 days after such
registration statement becomes effective;
(c) make available for inspection by the Bank, any underwriter
participating in any disposition pursuant to such registration statement and any
attorney,accountant or other agent retained by the Bank or underwriter (collect-
ively, the "Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries (collectively, the
"Records") as shall be necessary to enable them to conduct their due diligence
review, and cause the officers, trustees and employees of the Company and is
subsidiaries to supply all information reasonably requested by any such
Inspector in connection with such review. In addition, the Company shall use
its best efforts to make available, to discuss the Company's business with the
Inspectors, the independent public accountants who have certified its most
recent annual financial statements, and shall provide such opportunities as are
necessary for the Inspectors to discuss the Company's business with the
Company's trustees and officers. Records that the Company determines, in good
faith, to be confidential and that it notifies the Inspectors are confidential,
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in the
registration statement, (ii) the release of such Records is ordered pursuant to
a subpoena or other order from a court of competent jurisdiction, (iii) the
disclosure of such Records is required by any governmental regulatory body with
jurisdiction over the Bank, or (iv) the information in such Records has been
made generally available to the public. The Bank agrees that, upon learning
that disclosure of such Records is sought in a court of competent jurisdiction
or by any governmental body, it will give notice to the Company and allow the
Company, at its expense, to undertake appropriate action to prevent disclosure
of the Records deemed confidential;
(d) notify the Bank, the sales or placement agent or agents, if
any, for the Eligible Shares and the managing underwriter or underwriters, if
any, thereof, after becoming aware thereof, (i) when any registration statement
or a prospectus included therein or any prospectus amendment or supplement or
post-effective amendment has been filed, and, with respect to the registration
statement or any post-effective amendment, when the same has become effective,
(ii) of any request by the SEC for amendments or supplements to the registration
statement or related prospectus or for additional information, (iii) of the
issuance by the SEC of any stop order suspending the effectiveness of any
registration statement or the initiation of any proceedings for that purpose,
(iv) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Eligible Shares for sale in any
jurisdiction or the initiation of any proceeding for such purpose, or (v) the
happening of any event which makes any statement in the relevant registration
statement or any post-effective amendment thereto, prospectus or any amendment
or supplement thereto, or any document incorporated therein by reference untrue
in any material respect or which requires the making of any changes in such
registration statement or post-effective amendment thereto or prospectus or
amendment or supplement thereto so that they will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein (in the case of any
prospectus, in the light of the circumstances under which they were made) not
misleading;
(e) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of a registration statement or any post-effective
amendment thereto;
(f) register or qualify all Eligible Shares covered by such
registration statement under such other securities or blue sky laws of such
jurisdictions as the Bank or any underwriter of such Eligible Shares shall
reasonably request, and do any and all other acts and things which may be
reasonably requested by the Bank or any underwriter to consummate the dis-
position of the Eligible Shares in such jurisdictions covered by such
registration statement, provided, however, the Company shall not be required to
(i) qualify generally to do business in any jurisdiction wherein it is not so
qualified, (ii) subject itself to taxation in any jurisdiction where it is not
then subject to taxation, (iii) consent to general service of process in any
jurisdiction where it is not then subject to service of process, provided that
the Company shall execute consents to service of process in the forms custom-
arily requested in connection with registration or qualification of securities
under state securities or blue sky laws, or (iv) make any changes to its dec-
laration of trust or bylaws or enter into any undertakings with respect to its
corporate affairs other than undertakings customarily given in connection
with qualifications of securities for sale which do not restrict the conduct
of its business;
(g) cause the Eligible Shares to be registered with, or approved
by, such other governmental agencies or authorities as may be necessary by
virtue of the markets on which the Eligible Shares are listed or quoted and the
business and operations of the Company to enable the Lenders to consummate the
disposition of such Eligible Shares in accordance with the intended method or
methods of distribution thereof;
(h) use its best efforts to list the Eligible Shares on each
national securities exchange or automated quotation system on which the
Company's Common Shares of Beneficial Interest are then listed, if the listing
of such securities is then permitted under the rules of such exchange;
(i) upon written notice from the Bank that it intends to publicly
offer and sell the Eligible Shares, cooperate with the Bank and the managing
underwriter or underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Eligible Shares to be sold, which cer-
tificates shall not bear any restrictive legends except as required by law or
otherwise; and, in the case of an underwritten offering, enable such Eligible
Shares to be in such denomination and registered in such names as the managing
underwriter or underwriters may request in writing at least two Business Days
prior to any sale of the Eligible Shares to the underwriters;
(j) upon written notice from the Bank that it intends to offer and
sell the Eligible Shares, enter into such agreements (including, if the offering
is an underwritten offering, an underwriting agreement) as are customary in
transactions of that type and take such other actions that are reasonably
required in connection therewith in order to expedite or facilitate the
disposition of such Eligible Shares;
(k) (i) make such representations and warranties with respect to
the registration statement or posteffective amendment or supplement thereto,
prospectus or amendment thereto, and documents incorporated by reference
therein, if any, to the Bank and the managing underwriter or underwriters, if
any, of the Eligible Shares and to other participants in the offering, if any,
in form, substance and scope as are customarily made by similar registrants in
secondary offerings of common shares in transactions of that type, (ii) obtain
an opinion of counsel in customary form and covering matters of the type
customarily covered by such an opinion as the managing underwriter or
underwriters, if any, and the Bank may reasonably request, addressed to the Bank
and such managing underwriter or underwriters, if any, and dated the effective
date of such registration statement (and dated the date of the closing of the
sale of the Eligible Shares relating thereto), (iii) obtain a "comfort" letter
or letters from the independent certified public accountants of the Company who
have certified the Company's most recent audited financial statements that are
incorporated by reference in the registration statement which is addressed to
the Bank and the managing underwriter or underwriters, if any, and is dated the
date of the prospectus used in connection with the initial offering of the
Eligible Shares and the date of any subsequent prospectus which includes
unaudited or audited financial statements as of a date or for a period
subsequent to that of the latest such statements included in such registration
statement prior to the amendment thereto (and, if the registration statement
contemplates an underwritten offering pursuant to any prospectus which includes
unaudited or audited financial statements as of a date or for a period
subsequent to that of the latest such statements included in such registration
statement prior to the amendment thereto, dated the date of the closing under
the underwriting agreement relating thereto), such letter or letters to be in
customary form and covering such matters of the type customarily covered by
"comfort" letters of such type, (iv) deliver such documents and certificates as
may be reasonably requested by the Bank and the managing underwriter or
underwriters, if any, of the Eligible Shares to evidence compliance with any
customary conditions contained in the underwriting agreement or other agreement
entered into by the Company, and (v) undertake such obligations relating to
expense reimbursement, indemnification and contribution as provided in Section 4
hereof; and
(l) comply with all applicable rules and regulations of the SEC.
3.2 Information Provided to Company by Bank. The Bank shall furnish
to the Company in writing such information regarding the Bank and its intended
method of distribution of the Eligible Shares as the Company may from time to
time reasonably request in writing, but only to the extent that such information
is required in order for the Company to comply with its obligations under all
applicable securities and other laws and to ensure that the prospectus relating
to such Eligible Shares conforms to the applicable requirements of the
Securities Act and the rules and regulations thereunder. The Bank shall notify
the Company as promptly as practicable of any inaccuracy or change in
information previously furnished by the Bank to the Company or of the occurrence
of any event, in either case as a result of which any prospectus relating to the
Eligible Shares contains or would contain an untrue statement of a material fact
regarding the Bank or its intended method of distribution of such Eligible
Shares or omits to state any material fact regarding the Bank or its intended
method of distribution of such Eligible Shares required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and promptly furnish to the Company
any additional information required to correct and update any previously
furnished information or required so that such prospectus shall not contain,
with respect to the Bank or the distribution of the Eligible Shares, an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
4. Indemnification and Contribution.
4.1 Indemnification by the Company. The Company shall, and it hereby
agrees to, indemnify and hold harmless the Bank, and each person who partici-
pates as a placement or sales agent or as an underwriter in any offering or sale
of the Eligible Shares, against any losses, claims, damages or liabilities to
which the Bank or such agent or underwriter may become subject, insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any registration statement under which
such Eligible Shares were registered under the Securities Act, or any prelimin-
ary or final prospectus contained therein, or any amendment or supplement
thereto, or any document incorporated by reference therein, or arise out of or
are based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and the Company shall, and it hereby agrees to, reimburse the Bank
or any such agent or underwriter for any legal or other direct, out-of-pocket
expenses reasonably incurred by them in connection with investigating or defend-
ing any such action, proceeding or claim; provided, however, that the Company
shall not be liable to any such person in any such case to the extent that any
such loss, claim, damage, liability (or action or proceeding in respect thereof)
or expense arises out of, or is based upon, an untrue statement or alleged
untrue statement or omission or alleged omission made in such registration
statement, or preliminary or final prospectus, or amendment or supplement
thereto, in reliance upon and in conformity with written information furnished
to the Company by the Bank or any agent, underwriter or representative of the
Bank expressly for use therein, or by the Bank's failure to furnish the Company,
upon request, with the information with respect to the Bank, or any agent,
underwriter o rrepresentative of the Bank, or the Bank's intended method of
distribution, that is the subject of the untrue statement or omission or if the
Company shall sustain the burden of proving that the Bank or such agent or
underwriter sold securities to the person alleging such loss, claim, damage or
liability without sending or giving, at or prior to the written confirmation of
such sale, a copy of the applicable prospectus (excluding any documents incorp-
orated by reference therein) or of the applicable prospectus, as then amended or
supplemented(excluding any documents incorporated by reference therein) if the
Company had previously furnished copies thereof to the Bank or such agreement or
underwriter, and such prospectus corrected such true statement or alleged untrue
statement or omission or alleged omission made in such registration statement.
4.2 Indemnification by the Bank. The Bank, by virtue of exercising
its registration rights under this Agreement, agrees and undertakes to enter
into, at the request of the Company, the customary indemnification arrangement
to indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 4.1), the Company, each director of the Company, each officer
of the Company who shall sign such registration statement, each Person who
participates as an underwriter in the offering or sale of such securities, each
Person, if any, who controls the Company or any such underwriter within the
meaning of the securities Act, with respect to any statement in or omission from
such registration statement, any preliminary prospectus or final prospectus
included therein, or any amendment or supplement thereto, but only to the extent
that such statement or omission was made in reliance upon and in conformity with
written information furnished by the Bank to the Company expressly for use in
the registration statement.
4.3 Additional Indemnification by Company and Bank. Indemnifi-
cation and contribution similar to that specified in Sections 4.1 and 4.2
(with appropriate modifications) shall be given by the Company and the Bank with
respect to any required registration or other qualification of such Eligible
Shares under any federal or state law or regulation of governmental authority
other than the Securities Act.
4.4 Notice of Claims. Promptly after receipt by an indemnified
party under Sections 4.1, 4.2 or 4.3 of written notice of the commencement of
any action or proceeding, such indemnified party shall, without regard to
whether a claim in respect thereof is to be made against an indemnifying party
pursuant to the indemnification provisions of, or as contemplated by this
Paragraph 4, notify such indemnifying party in writing of the commencement of
such action or proceeding; but the failure so to notify the indemnifying party
shall not relieve it from any liability which it may have to any indemnified
party in respect of such action or proceeding on account of the indemnification
provisions of or contemplated by Sections 4.1, 4.2 or 4.3 unless the
indemnifying party was prejudiced by such failure of the indemnified party to
give such notice, and in no event shall such failure to notify relieve the
indemnifying party from any other liability it may have to such indemnified
party. In case any such action or proceeding shall be brought against any
indemnified party and it shall notify an indemnifying party of the commencement
thereof, such indemnifying party shall be entitled to participate therein and,
to the extent that it shall determine, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party and, after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, such indemnifying party shall not be liable to such indemnified party
for any legal or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation (unless such indemnified party reasonably objects to such
assumption on the grounds that there may be defenses to it which are different
from or in addition to such indemnifying party in which event the indemnified
party shall be reimbursed by the indemnifying party for the expenses incurred in
connection with retaining one and only one separate counsel). If the
indemnifying party is not entitled to, or elects not to, assume the defense of a
claim, it will not be obligated to pay the fees and expenses of more than one
counsel for each indemnified party with respect to such claim. The indemnifying
party will not be subject to any liability for any settlement made without its
consent, which consent shall not be unreasonably withheld. No indemnifying
party will consent to entry of any judgment or enter into any settlement
agreement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation.
4.5 Contribution. Each party hereto agrees that if, for any
reason, the indemnification provisions contemplated by Sections 4.1, 4.2 or 4.3
hereof are unavailable or insufficient to hold harmless an indemnified party in
respect of any losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions or proceedings in re-
spect thereof) in such proportion as is appropriate to reflect the relative
fault of, and benefits derived by, the indemnifying party and the indemnified
party, as well as any other relevant equitable considerations. The relative
fault of such indemnifying party and indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact
relates to information supplied by such indemnifying party or by such indemni-
fied party, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The relative
benefit derived by the parties shall be determined by reference to the fact that
the Company entered into this Agreement to induce the Bank to engage in the
transaction in which the Eligible Shares were acquired. The parties hereto
agree that it would not be just and equitable if contribution pursuant to this
Section 4.5 were determined (i) by pro rata allocation (even if the Bank or any
agents for, or underwriters of, the Eligible Shares, or all of them, were
treated as one entity for such purpose); or (ii) by giving any weight to the
fact that the Company did not receive any of the proceeds of the sale of the
Eligible Shares; or (iii) by any other method of allocation which does not take
account of the equitable considerations referred to in this Section 4.5. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to above shall be deemed to include (subject to the limitation set
forth in Section 4.4) any legal or other fees or expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action, proceeding or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
4.6 Scope of Indemnification. The obligations of the Company under
this Section 4 shall be in addition to any liability that it may otherwise have
and shall extend, upon the same terms and conditions, to each officer, director
and partner of the Bank and each agent and underwriter of the Eligible Shares
and each person, if any, who controls the Bank and any such agent or underwriter
within the meaning of the Securities Act; and the obligations of the Bank and
any agents or underwriters contemplated by this Section 4 shall be in addition
to any liability that the Bank or its respective agent or underwriter may
otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company (including any person who, with his consent,
is named in any registration statement as about to become a director of the
Company) and to each person, if any, who controls the Company within the meaning
of the Securities Act.
5. Selection of Underwriters. If any of the Eligible Shares are
to be sold pursuant to an underwritten offering, the investment banker or
bankers and the managing underwriter or underwriters thereof shall be selected
by the Bank.
6. Miscellaneous.
6.1 Remedies. In the event of a breach by the Company of its obli-
gations under this Agreement, the Bank, in addition to being entitled to exer-
cise all rights granted by law, including recovery of damages, will be entitled
to specific performance of its rights under this Agreement. The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach of any of the provisions of this Agreement and hereby
agrees to and hereby does waive the defense in any action for specific perform-
ance that a remedy at law would be adequate.
6.2 Severability. In the event that any one or more of the pro-
visions contained herein, or the application thereof in any circumstances, is
held invalid, illegal, or unenforceable in any respect or for any reason, the
validity, legality and unenforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of the
Bank shall be enforceable to the fullest extent permitted by law.
6.3 Attorneys' Fees. In any action or proceeding brought to enforce
anyprovision of this Agreement, or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
6.4 Adequate Public Information. The Company covenants that it will
file the reports required to be filed by it under the Exchange Act, as amended,
so as to enable the Bank to sell Eligible Shares pursuant to Rule 144 under the
Exchange Act.
6.5 Assistance. The Company shall provide such assistance as the
Bank may reasonably request in connection with the offering and sale of Eligible
Shares by the Bank, including without limitation the participation of senior
officers of the Company in customary informational presentations to under-
writers, dealers and prospective investors, to the same extent as if the Company
were making a primary offering of Common Shares of Beneficial Interest. The
Company shall also cooperate with the Bank, its placement agents and counsel,
including providing all reasonably requested information, as may be reasonably
necessary to enable the Bank to effect a private placement of Eligible Shares.
6.6 Notices. All notices, requests, claims, demands, waivers and
other communications hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand, if delivered personally or by courier,
or three days after being deposited in the mail (registered or certified mail,
postage prepaid, return receipt requested) as follows: if to the Company, to
Crown American Realty Trust, Pasquerilla Plaza, Johnstown, Pennsylvania 15907,
Attention: Frank J. Pasquerilla, fax number (814) 535-9486, and if to the Bank,
to PNC Bank, National Association, 249 Fifth Avenue, Pittsburgh, Pennsylvania
15222, Attention: Mr. Randall Cornelius, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notices of change of address shall be effective only upon receipt.
6.7 Parties in Interest. All of the terms and provisions of this
Agreement shall be binding upon, shall inure to the benefit of and shall be
enforceable by the respective successors and permitted assigns of the parties
hereto; provided that the Company may not assign its rights or obligations here-
under to any other person or entity without the prior written consent of the
Bank. The Bank shall be permitted to assign in whole or in part its rights and
obligations hereunder to any other person or entity, provided that it notifies
the Company within three days after such assignment, which notice shall include
the name, address, telephone number and telecopy number of such assignee and the
number of units assigned.
6.8 Survival. The respective indemnities, agreements, represen-
tations, warranties and each other provision set forth in this Agreement or made
pursuant hereto shall remain in full force and effect regardless of any invest-
igation (or statement as to the results thereof) made by or on behalf of the
Bank, any director or officer of the Bank, any agent or underwriter, or any
director, officer or partner thereof, or any controlling person of any of the
foregoing.
6.9 Governing Law. This Agreement shall be governed by and con-
strued inaccordance with the laws of the Commonwealth of Pennsylvania.
6.10 Headings. The descriptive headings of the several sections and
paragraphs of this Agreement are inserted for convenience only, do not con-
stitute a part of this Agreement and shall not affect in any way the meaning or
interpretation of this Agreement.
6.11 Entire Agreement: Amendments. This Agreement and the other
writings referred to herein or delivered pursuant hereto which form a part
hereof contain the entire understanding of the parties with respect to its sub-
ject matter. This Agreement supersedes all prior agreements and understandings
between the parties with respect to its subject matter. This Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by a written instrument duly executed by the Company and the Bank, which
shall be binding on all parties.
6.12 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall con-
stitute one and the same instrument.
[SIGNATURE PAGE 1 OF 1 TO REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the date first written above.
CROWN AMERICAN REALTY TRUST
By:
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
By:
Name:
Title:
EXHIBIT 10.18
EXCHANGE AGREEMENT
This Exchange Agreement (this "Agreement") is entered into as of
August 13, 1999, among PNC Bank, National Association, in its capacity as
Lender pursuant to the Credit Agreement referred to herein, and its assigns (the
"Lender"), Crown American Realty Trust, a Maryland real estate investment trust
(the "REIT"), Crown American Properties, L.P., a Delaware limited partnership
(the "Partnership"), Crown Investments Trust, a Delaware business trust
("Borrower"), and Crown American Investment Company, a Delaware corporation
("CAIC").
WITNESSETH:
WHEREAS, CIT, CAIC and the Lender have entered into a Credit Agreement
dated as of August 13, 1999, as amended from time to time (the "Credit
Agreement");
WHEREAS, the obligations of CIT and CAIC to the Lender under the
Credit Agreement are secured pursuant to that certain Units Pledge Agreement
dated as of even date herewith (such Units Pledge Agreement being referred to
herein as the "Units Pledge Agreement"); and
WHEREAS, it is a condition precedent to the Lender's willingness to
enter into the Credit Agreement that the Lender has the right after an Exchange
Event (as defined in Section 2(g) below, to exchange the Units (as defined in
the Credit Agreement) for shares of beneficial interest in the REIT ("REIT
Shares") so long as such exchange (together with all other REIT Shares then
pledged to the Lender to secure the obligations of the Borrower under the Credit
Agreement, including any REIT Shares held by Lender as a result of exchange by
Lender of Units pledged pursuant to the terms of that certain Units Pledge
Agreement dated as of August 13, 1999) does not cause the REIT to be "closely
held" within the meaning of Section 856(h) of the Internal Revenue Code of 1986,
as amended (the "REIT Regulation"), and subject to the other restrictions
described below.
NOW, THEREFORE, in consideration of the foregoing and the respective
covenants and agreements set forth in this Agreement, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows.
1. Incorporation of Recitals. The foregoing recitals are incorp-
orated by this reference as if fully set forth herein.
2. Exchange of Units. Following the occurrence of an Exchange Event
(as defined below), the Lender shall have the right in its sole and absolute
discretion, on such number of occasions as it shall elect, to exchange the Units
(or any portion thereof) for REIT Shares on the following terms:
(a) The Lender shall initiate each such exchange by delivering to the
REIT with a copy to the Borrower a written notice (i) stating that an Exchange
Event has occurred, (ii) requesting that the REIT issue and deliver to the
Lender or its designee REIT Shares in the denominations designated by the Lender
in exchange for a specified number of Units (the "Tendered Units"), and (iii)
specifying the name in which such REIT Shares shall be registered as specified
by the Lender in its sole and absolute discretion (the "Exchange Notice").
(b) On the applicable Exchange Date (as defined below), the REIT
shall deliver to the Lender a number of REIT Shares (and any associated rights)
equal to the product obtained by multiplying the number of Tendered Units by the
Conversion Factor (as defined in the Amended and Restated Agreement of Limited
Partnership of the Partnership dated as of August 17, 1993, as modified, sup-
plemented or amended from time to time (the "Partnership Agreement")), which
REIT Shares shall be in the denominations and registered in the name specified
in the Exchange Notice; provided, however, that the REIT shall not deliver REIT
Shares to the Lender in exchange for Units pursuant to this Exchange Agreement
on any particular date to the extent that such exchange and delivery would
result in a violation of the REIT Regulation.
(c) Upon the REIT's issuance and the Lender's receipt of REIT Shares
(and any associated rights) in exchange for the Tendered Units in accordance
with this Agreement, the REIT shall be deemed for all purposes to be the owner
of the Tendered Units and shall cause the Partnership's books to be adjusted to
reflect such change in ownership.
(d) The obligation of the REIT to issue REIT Shares in exchange for
the Tendered Units in accordance with the terms hereof shall be absolute and
unconditional and shall not be subject to any defense by reason of the actual or
alleged invalidity, illegality or unenforceability of the Exchange Notice, the
Credit Agreement, the Units Pledge Agreement or any of the other documents
evidencing, securing or otherwise pertaining to the Credit Agreement, the actual
or alleged nonoccurrence of an Exchange Event or otherwise. The Borrower
irrevocably agrees and acknowledges that the delivery of an Exchange Notice
shall be conclusive evidence that an Exchange Event has occurred for purposes of
this Agreement, and the Borrower waives all claims, damages, costs, losses,
demands or actions against the Lender arising out or as a result of a
declaration by the Lender that an Exchange Event has occurred or the exchange of
Units for REIT Shares pursuant to the terms hereof, other than any such claim,
damage, cost, loss, demand or action resulting from any such declaration or
exchange made by the Lender in bad faith.
(e) If an Exchange Notice is delivered to the REIT at or prior to
11:30 a.m. (Eastern Time) on a Business Day (as defined below), the REIT Shares
(and any associated rights) to be issued and delivered by the REIT hereunder
shall be delivered to the Lender not later than 3:30 p.m. (Eastern Time) on the
third Business Day following delivery of such Exchange Notice, and if any
Exchange Notice is delivered by the REIT after 11:30 a.m. on a Business Day,
then such REIT Shares shall be issued and delivered not later than 11:30 a.m.
(Eastern Time) on the fourth Business Day following delivery of such Exchange
Notice (the "Exchange Date"). REIT Shares delivered pursuant to this Agreement
shall be duly and validly issued, fully paid and nonassessable and shall be
evidenced by certificates therefor.
(f) Notwithstanding anything to the contrary herein, the Lender cov-
enants and agrees that any violation or attempted violation of the REIT
Regulation by the Lender or its designee will result, to the extent necessary,
in the exchange of REIT Shares held by the Lender for Excess Shares (as defined
in the Second Amended and Restated Declaration of Trust of the REIT, dated
August 6, 1993 (the "Trust Declaration") in accordance with Section 6.6 of the
Trust Declaration.
(g) For purposes of this Agreement (i) an "Exchange Event" shall mean
the occurrence and continuance beyond any applicable grace period provided
therefor of an Event of Default under and as defined in the Credit Agreement,
and (ii) a "Business Day" shall mean any day excluding Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
Commonwealth of Pennsylvania are authorized or permitted by law or other
government actions to be closed.
(h) The Pledgors (as defined in the Credit Agreement) agree that upon
issuance of such REIT Shares by the REIT, such REIT Shares shall be deemed
Pledged Collateral (under and as defined in the Units Pledge Agreement). The
preceding sentence shall be self-operative and no further instrument,
certificate or stock power shall be required to effectuate the foregoing; pro-
vided, however, the Pledgors shall execute and promptly deliver to the Lender
any instrument, certificate or stock power requested by the Lender to effectuate
or confirm the foregoing.
3. Not a Redemption. Any exchange of Units for REIT Shares pursuant
to this Agreement will not constitute a redemption of Units by the Partnership
under Section 11.1 or any other provision of the Partnership Agreement.
Accordingly, the parties agree that nothing in the Partnership Agreement, in-
cluding, without limitation, the provisions of Section 11.1 thereof, shall
impose a time limitation upon the exercise of the Lender's right of exchange
under Section 2 of this Agreement.
4. Consents and Directions of the Borrowers. Each of the Pledgors
hereby irrevocably (i) consents to the exchange of Units for REIT Shares on the
terms set forth herein and in the Units Pledge Agreement, and (ii) following the
occurrence of any Exchange Event directs the Partnership and the REIT to deliver
all payments due or to become due to such Pledgors arising out of, as a result
of or in connection with the Units and Pledged Collateral, whether as dividends,
distributions of cash or property or otherwise (collectively, the
"Distributions"), directly to the Lender at such account as the Lender may from
time to time designate in writing, for application in accordance with the terms
of the Units Pledge Agreement. Following the occurrence of an Exchange Event,
each of the Partnership and the REIT agrees to deliver all of the Distributions
directly to the Lender in accordance with the foregoing direction from the
Pledgors.
5. Foreclosure on Units. If the Lender shall fail to receive REIT
Shares in exchange for Units in accordance with this Agreement for any reason
whatsoever, the Lender may foreclose or otherwise realize upon such Tendered
Units in accordance with the terms of the Units Pledge Agreement and exercise
any and all other rights and remedies with respect to such Tendered Units as the
Lender may have under such Units Pledge Agreement in its sole and absolute dis-
cretion, and in connection therewith any purchaser or transferee of all or any
portion of the Tendered Units (including, without limitation, the Lender) shall
have the right, at its election, to become either an assignee of the Initial
Limited Partner or a Limited Partner (as such terms are defined in the Partner-
ship Agreement) with respect to such Tendered Units.
6. Obligations of REIT. The REIT shall be entitled and obligated to
rely without inquiry on the written statement of the Lender that an Exchange
Event has occurred. The only obligations of the REIT under this Agreement shall
be to register and deliver REIT Shares (and any associated rights) in exchange
for Tendered Units in accordance with the terms of Section 2 hereof. The REIT
acknowledges and agrees that it waives any right to setoff that it may have in
respect of the REIT Shares to be issued and delivered pursuant to this
Agreement.
7. Notices. All notices, approvals, demands, requests, consents and
other communications provided for hereunder shall be in writing, shall refer to
this Agreement and shall be delivered by hand or by facsimile transmission or
sent by registered or certified mail, return receipt requested, or by overnight
courier service to the recipient at the address set forth below:
If to the REIT:
Crown American Realty Trust
Pasquerilla Plaza
Johnstown, Pennsylvania 15907
Attention: Mark E. Pasquerilla
Telephone: (814) 535-9328
Facsimile: (814) 535-9349
If to the Borrower:
Crown Investments Trust
Pasquerilla Plaza
Johnstown, Pennsylvania 15907
Attention: Mr. Ronald J. Hamilton,
Vice President
Telephone: (814) 533-4657
Facsimile: (814) 536-9525
with a copy to:
Reed Smith Shaw & McClay
Mellon Square
435 Sixth Avenue
Pittsburgh, Pennsylvania 15219
Attention: David L. DeNinno, Esq.
Telephone: (412) 288-7276
Facsimile: (412) 288-3063
If to the Lender:
PNC Bank, National Association
249 Fifth Avenue
P1-POPP-19-2
Pittsburgh, Pennsylvania 15222-2707
Attention: Mr. Randall Cornelius
Telephone: (412) 768-5778
Facsimile: (412) 768-6500
with a copy to:
Buchanan Ingersoll Professional Corporation
One Oxford Centre, 22nd Floor
301 Grant Street
Pittsburgh, PA 15219
Attention: Deborah B. Walrath, Esq.
Telephone: (412) 562-1472
Facsimile: (412) 562-1041
or at such other address or facsimile number as shall be designated by a party
in a written notice to the other party. All such notices and other
communications shall be deemed given and effective: (a) when sent by mail, on
the fourth Business Day after the date deposited in the United States mail,
(b) when sent by overnight courier, on the next Business Day after delivery to
the courier service, and (c) when delivered by hand or transmitted by facsimile,
on the date of delivery or transmission, as the case may be.
8. Severability. If any provision of this Agreement is held
invalid, such invalidity will not affect any other provision of this Agreement
that can be given effect without the invalid provision, and to this end, the
provisions of this Agreement are severable.
9. Assignment. Neither the REIT, the Borrower nor CAIC may assign
any of their rights or obligations hereunder. The Lender may assign its rights
and obligations hereunder as permitted pursuant to the Credit Agreement. This
Agreement is binding upon and shall inure to the benefit of each of the parties
hereto and its respective successors and permitted assigns.
10. Amendment. This Agreement may be modified only by a written
instrument duly executed by all the parties hereto, and compliance with any
provision or condition contained in this Agreement, or the obtaining of any
consent provided for in this Agreement, may be waived only by written instrument
duly executed by the party to be bound by such waiver.
11. Governing Law. The rights of the parties arising under this
Agreement shall be construed and enforced under the laws of the Commonwealth of
Pennsylvania.
12. Captions. The captions in this Agreement are for convenience
only, do not form a part of it, and do not in any way modify, interpret or
construe the intentions of the parties to it.
13. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
14. Specific Performance. The REIT recognizes and agrees that the
Lender's remedy at law for any breach by the REIT of any of the provisions of
this Agreement would be inadequate and that the Lender would be irreparably
injured by any such breach, and the REIT agrees to the fullest extent permitted
by law that for breach or threatened breach of any of such provisions, the
Lender shall, in addition to such other remedies as may be available to it at
law or in equity or as provided in this Agreement, be entitled (without posting
a bond) to injunctive relief (preliminary, mandatory, temporary and permanent)
and to enforce its rights by an action for specific performance. The REIT
agrees to and hereby does waive the defense in any action for specific
performance that a remedy at law would be inadequate.
[SIGNATURE PAGE 1 OF 1 TO EXCHANGE AGREEMENT]
IN WITNESS WHEREOF, each of the undersigned has executed, or caused
its duly authorized representative to execute, this Agreement as of the date set
forth in the first paragraph of this Agreement.
PNC BANK, NATIONAL ASSOCIATION
By:
Name:
Title:
CROWN AMERICAN REALTY TRUST
By:
Name:
Title:
CROWN AMERICAN PROPERTIES, L.P.
By: Its General Partner,
CROWN AMERICAN REALTY TRUST
By:
Name:
Title:
CROWN INVESTMENTS TRUST
By:
Name:
Title:
CROWN AMERICAN INVESTMENT COMPANY
By:
Name:
Title:
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our report dated February 15, 2000 included in
this Crown American Realty Trust's Form 10-K for the year ended December 31,
1999, into Crown American Realty Trust's previously filed registration
statements on Form S-3 dated August 18, 1994, as amended effective November 13,
1998, Form S-3 dated May 4, 1995 and Form S-3 dated June 27, 1997. It should be
noted that we have not audited any financial statements of the Crown American
Realty Trust subsequent to December 31, 1999 or performed any auditing
procedures subsequent to the date of our report.
/s/ ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
March 10, 2000
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Clifford A. Barton, Trustee of
Crown American Realty Trust (the "Company") whose signature appears below
constitutes and appoints Terry L. Stevens and Ronald P. Rusinak, and each of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and revocation, for him and in his name, place and stead, in any
and all capacities, to sign the Company's Annual Report on Form 10-K for the
year ended December 31, 1999, and to file same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
February 24, 2000 /s/Clifford A. Barton
Date (Name) Clifford A. Barton
Title: Trustee
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Donald F. Mazziotti, Trustee of
Crown American Realty Trust (the "Company") whose signature appears below
constitutes and appoints Terry L. Stevens and Ronald P. Rusinak, and each of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and revocation, for him and in his name, place and stead, in any
and all capacities, to sign the Company's Annual Report on Form 10-K for the
year ended December 31, 1999, and to file same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
February 24, 2000 /s/Donald F. Mazziotti
Date (Name) Donald F. Mazziotti
Title: Trustee
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Zachary L. Solomon, Trustee of
Crown American Realty Trust (the "Company") whose signature appears below
constitutes and appoints Terry L. Stevens and Ronald P. Rusinak, and each of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and revocation, for him and in his name, place and stead, in any
and all capacities, to sign the Company's Annual Report on Form 10-K for the
year ended December 31, 1999, and to file same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
February 24, 2000 /s/Zachary L. Solomon
Date (Name) Zachary L. Solomon
Title: Trustee
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Peter J. Siris, Trustee of Crown
American Realty Trust (the "Company") whose signature appears below constitutes
and appoints Terry L. Stevens and Ronald P. Rusinak, and each of them, his true
and lawful attorney-in-fact and agent, with full power of substitution and
revocation, for him and in his name, place and stead, in any and all capacities,
to sign the Company's Annual Report on Form 10-K for the year ended December 31,
1999, and to file same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
February 24, 2000 /s/Peter J. Siris
Date (Name) Peter J. Siris
Title: Trustee
EXHIBIT 99 (a)
NEWS FROM:
C R O W N A M E R I C A N R E A L T Y T R U S T
CONTACT: Media: Christine Menna 814-536-9520
Investors: Terry L. Stevens 814-536-9538
Internet: www.crownam.com
IMMEDIATE RELEASE: Monday, February 28, 2000
CROWN AMERICAN REALTY TRUST REPORTS
SECOND CONSECUTIVE YEAR OF FFO GROWTH
1999 FFO PER SHARE WITHOUT LAND SALES UP 10.4%
SAME CENTER NOI UP 7.0%
COMPARABLE MALL SHOP SALES UP 6.6% TO ALL TIME RECORD OF
$258 PER FOOT WITH SEVEN MALLS OVER $300 PER FOOT
--------------------------------------------
CROWN AMERICAN REALTY TRUST ANNOUNCES
FOURTH QUARTER RESULTS AND DECLARES DIVIDENDS
Johnstown, Pa. - Crown American Realty Trust (NYSE:CWN), a real estate
investment trust, today announced financial results and operating information
for the fourth quarter and for the year ended December 31, 1999. The Board of
Trustees also declared regular quarterly dividends on its common and senior
preferred shares.
________________________________________
"Crown American ended 1999 and began the new millennium as a stronger,
transformed company," stated Company Chairman, CEO and President, Mark E.
Pasquerilla. "FFO per share was $1.28 for the year and $0.40 for the quarter,
up 8.5% and 11.1%, respectively. Excluding gains on sale of outparcel land
which were higher in 1998, FFO per share posted gains of 10.4% for the full year
and 10.7% for the quarter. This growth is the product of strong leasing results
for the last three years, higher occupancy combined with more productive mall
shop tenants, and tight operating cost controls. Our focus will continue to be
on reaping the financial benefits from the property improvements made over the
last few years. With the substantial completion of the Valley Mall expansion
and the Washington Crown Center redevelopment, there are no major capital
improvements projects currently needed in the existing portfolio. In 2000 we
will continue to open tenants in Valley Mall and Washington Crown Center,
including two stadium-seating theater complexes, plus another multiplex theater
at Jacksonville Mall.
"Other operating trends continue to be strong. Mall shop occupancy ended
the year at 84%, up from 82% last year, and we expect mall shop occupancy to
increase again in 2000. Mall shop tenant sales for 1999 were $258 per square
foot, up 6.6% over 1998 and up 25% in the last four years. Average mall shop
base rents in the portfolio increased for the 25th consecutive quarter to $18.63
per square foot, up 6.2% from a year ago. Leasing results for 1999 were very
strong and only slightly behind 1998's all-time record, with 537,000 square feet
of new leases and 393,000 square feet of renewal leases signed. Base rent on
new leases was $22.04 per foot in 1999 compared to $14.02 per foot for tenants
that closed, an uplift of 57%. Net effective rent on new leases signed in 1999
was $18.39 per square foot compared to $16.80 in 1998, up 9.5% (Net effective on
new leases is simply the average annual base rent less the annual amortization
of the incurred tenant allowances and capitalized leasing commissions.). Our
tenants' occupancy cost percentage fell again in 1999 to 10.1% due to tight
property cost controls and strong tenant sales growth; we believe this decrease
in tenant occupancy costs indicates the affordability of our portfolio and
should bode well as we strive to increase mall shop occupancy. Our program of
expense cuts announced in 1999 is producing results with gross corporate office
costs down $2.7 million compared to 1998. As a result of the strong operating
performance, our year-end cash balances and availability under our lines of
credit are significantly improved.
Mr. Pasquerilla continued, "Looking ahead to 2000, we see continuing
positive operating trends and solid NOI growth in the portfolio. However, the
impact of higher LIBOR interest rates on our variable rate debt and the full
year effect of the higher interest rate on the renewed GECC line of credit will
somewhat mitigate our FFO growth next year. Our variable rate debt was $112.6
million at year-end, and relates to our lines of credit and the construction
loan facilities for the Valley Mall expansion and Washington Crown Center
redevelopment. In 2000 we will be adopting NAREIT's new definition of FFO and
will restate prior years. The primary impact is that the restructuring costs in
1999 will be reflected in 1999's FFO which will be reduced by $0.06 on a
restated basis to $1.22 per share. We will continue to focus on improving our
internal cash flows by increasing mall shop occupancy and continuing our cost
containment efforts. In this difficult on-going capital market for REITs, we
are managing the Company conservatively to grow internal cash flow and improve
the Company's financial flexibility.
"Management is committed to exploring a prudent disposition program
intended to recycle our capital and enhance cash flows and decrease leverage.
Our ability to fund operations and capital spending is not dependent on such
dispositions, which if successful will only enhance our cash flows and financial
flexibility.
Mr. Pasquerilla concluded, "Insider ownership in the Company continues to
increase, ending the year at 37.2%, up 4% from a year ago. The management team
is highly motivated to increase shareholder value and to drive the ongoing
transformation of the properties which began to bear fruit in 1998, which
accelerated in 1999, and which we believe will continue in 2000 and beyond."
_______________________________
Financial Information - Twelve Months
For the year ended December 31, 1999, Funds from Operations ("FFO") before
allocations to minority interest and preferred dividends was $60.0 million, up
$3.4 million from 1998. FFO applicable to common shareholders for the year
ended December 31, 1999 was $33.5 million ($1.28 per common share) compared to
$31.2 million ($1.18 per common share) reported in 1998, an increase of 8.5%.
Without the effect of land sales, FFO per share was $1.27 in 1999 compared to
$1.15 in 1998, an increase of 10.4%. Average common shares outstanding during
1999 and 1998 were 26,208,000 and 26,393,000, respectively. FFO and FFO per
share are the same for both "basic" and "fully diluted" presentations in 1998
and 1999.
The increase in 1999 FFO before allocations to minority interest and to
preferred shareholders was due primarily to the following factors:
$6.0 million increase in mall shop and anchor base and percentage rents as a
result of improved tenant sales, higher occupancy and higher average rents;
$0.7 million in higher temporary and seasonal leasing income;
$0.7 million in higher net recovery income, straight-line rents, net utility and
miscellaneous mall revenues, and lease buyout income;
$0.8 million in lower G&A and miscellaneous costs, primarily as a result of the
Company's cost containment efforts;
$1.1 million contribution, net of interest, from the three properties acquired
in May 1998; offset by $0.5 million negative impact from one mall sold in July
1998;
$3.9 million in higher interest expense on existing properties as a result of
higher borrowings to fund the Company's capital spending program;
$0.8 million in lower cash flow support payments; and
$0.7 million in lower gain on land sales.
Total 1999 revenues were $159.1 million compared to $146.7 million in 1998,
an increase of $12.4 million, or 8.5%. Of this $12.4 million increase, $4.8
million was the result of the three centers acquired in 1998, offset by a $1.1
million decrease from one property sold in 1998, while $8.7 million came from
previously-owned centers.
For the full year the Company had net income of $9.3 million compared to a
net loss of $8.6 million in 1998. Net income in 1999 was impacted by $2.3
million in restructuring costs while net income in 1998 was impacted by $22.5
million in extraordinary loss on early extinguishment of debt and $1.7 million
cumulative effect of a change in accounting method. After deducting preferred
dividends, total net loss allocable to common shareholders was $4.5 million, or
$0.17 per common share, compared to a net loss of $22.4 million, or $0.85 per
common share in 1998.
Financial Information - Fourth Quarter
For the quarter ended December 31, 1999, Funds from Operations (FFO) before
allocations to minority interest and preferred dividends was $18.0 million, up
from $16.5 million in 1998. FFO allocable to common shares was $10.5 million, or
$0.40 per common share, compared to $9.5 million, or $0.36 per common share, for
the fourth quarter of 1998. The increase in FFO before allocations to minority
interest and to preferred dividends was due primarily to an increase in mall
shop and anchor base and percentage rents as a result of increased occupancy,
higher average rental rates, and higher tenant sales. The number of properties
in the portfolio was the same in both quarters.
Total revenues for the fourth quarter were $44.8 million, as compared to
$41.2 for the fourth quarter of 1998. For the fourth quarter of 1999, the
Company achieved net income of $5.7 million compared to net income of $4.0
million in the fourth quarter of 1998. After deducting preferred dividends,
there was $2.2 million in net income allocable to common shares, or $0.09 per
share. This compares to $0.6 million net income allocable to common shares, or
$0.02 per share, in the fourth quarter of 1998.
Dividend Information
The Board of Trustees declared regular quarterly dividends of $0.205 per
common share and $1.375 per senior preferred share. Both dividends are payable
March 17, 2000 to shareholders of record on March 6, 2000.
Operating Information
During the fourth quarter of 1999, leases for 192,000 square feet of mall shops
were signed representing $4.0 million in annualized base rental income. This
compares to 188,000 square feet for $3.9 million during the same period in 1998.
A total of 92 leases were signed, which included 39 renewals and 53 new leases.
For the full year 1999, leases for 930,000 square feet of mall shops were signed
representing $19.0 million in annualized base rental income. A total of 429
leases were signed, including 186 renewals and 243 new leases. Average rent per
square foot for 1999 was $20.49, which includes $22.04 per square foot for new
space and $18.30 per square foot for renewals.
The net effective rent (annual gross rent less the annual amortization of tenant
allowances and leasing costs) for new leases signed in 1999 was $18.39 per
square foot as compared to $16.80 per square foot for the full year of 1998, an
increase of 9.5%.
For the full year 1999, the Company signed leases on 104,000 square feet of
theater and freestanding tenants, representing $1.3 million in annualized base
rental income. During the fourth quarter of 1999, a 53,000 square foot theater
lease deal previously reported in the second quarter (which required a $4.0
million investment and was intended to generate $669,000 annual income) was
canceled; the Company plans to restructure the deal as a ground lease.
The average base rent of the portfolio as of December 31, 1999 was $18.63 per
square foot. This is a 6.2% increase from $17.54 per square foot as of December
31, 1998, and the 25th consecutive quarter that average base rent has increased.
Mall shop occupancy was 84% at year-end, up from 82% at the end of 1998.
Mall shop sales for 1999 were $258 per square foot. This is a 6.6% increase
over the $242 per square foot reported for 1998 and considerably higher than the
2.4% increase for the country as reported by the International Council of
Shopping Centers (ICSC).
Occupancy costs, which is the sum of base rent, percentage rent and expense
recoveries as a percentage of mall shop sales at all properties, were 10.1% as
of December 31, 1999, as compared to 10.3% as of December 31, 1998.
Seasonal and promotional leasing income for the full year 1999 amounted to $10.7
million, compared to $9.7 million in 1998, up 10%.
Expansions/Renovation Projects
At Valley Mall (Hagerstown, Md.) an October grand re-opening marked the
completion of a mall expansion included a new 120,000 square foot May Company
department store (Hecht's), a new Gardenside Cafe food court and additional mall
shop space. A 16-screen R/C Theatres complex will open this spring. This
center finished the year with over 90% of total mall shop space leased.
According to our new RCT people counter systems, this mall had the highest
traffic counts during the Christmas season.
A grand re-opening was held in October at Washington Crown Center (formerly
Franklin Mall, Washington, Pa.). This project included the addition of a new
140,000 square foot May Company department store (Kaufmann's), a relocation of
the food court and a complete mall renovation. This spring a new, 14-screen,
Hollywood theater will open.
___________________________________________________
Crown American Realty Trust through various affiliates and subsidiaries
owns, acquires, operates and develops regional shopping malls in Pennsylvania,
Maryland, West Virginia, Virginia, New Jersey, North Carolina, Tennessee and
Georgia. The current portfolio includes 27 enclosed regional malls and one
shopping center aggregating 16 million square feet of gross leasable area.
This news release contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements are
based on assumptions and expectations, which may not be realized and are
inherently subject to risks and uncertainties, many of which cannot be predicted
with accuracy. Future events and actual results, financial and otherwise, may
differ from the results discussed in the forward-looking statements. Risk and
other factors that might cause differences, some of which could be material,
include, but are not limited to, economic and credit market conditions, the
ability to refinance maturing indebtedness, the impact of competition, consumer
buying trends, financing and development risks, construction and lease-up
delays, cost overruns, the level and volatility of interest rates, the rate of
revenue increases versus expense increases and financial stability of tenants
within the retail industry, as well as other risks listed from time to time in
the Company's reports filed with the Securities and Exchange Commission or
otherwise publicly disseminated by the Company.
A copy of the Company's Supplemental Financial and Operational Information
Package follows.
- 30 -
EXHIBIT 99 (b)
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
FOURTH QUARTER 1999
OTHER FINANCIAL AND OPERATING DATA
(unaudited)
Three Months Ended Year Ended
December 31, December 31,
1999 vs. 1998 1999 vs. 1998
FINANCIAL AND ANALYTICAL DATA: (in thousands, except per share data)
<S> <C> <C> <C> <C>
$per $per
Total FFO - Incr (decr) - 1999 $000 share $000 share
compared to 1998:
Base and percentage rents from
anchors and mall shops $ 1,707 $ 0.047 $ 6,042 $ 0.167
Temporary and promotional leasing
income 344 0.010 711 0.020
Mall operating costs, net of tenant
recovery income 55 0.002 122 0.003
Utility and misc. mall income, equity
in Joint venture 54 0.001 47 0.001
Straight line rental income 41 0.001 229 0.006
Core mall operations--same properties 2,201 0.061 7,151 0.197
Contribution before interest of 3
Properties acquired in May 1998 2,938 0.081
Effect of sale of Middletown in July
1998, before interest (534) (0.015)
Property admin. and general & admin.
expenses 240 0.007 473 0.013
Cash flow support earned (202) (0.006) (811) (0.022)
Interest expense, including $1.8
million related to acquired prop. (967) (0.027) (5,658) (0.156)
Gain on sale of outparcel land 89 0.002 (745) (0.021)
Depreciation and amortization expense 115 0.003 323 0.009
Lease buyout income and other
items, net 14 274 0.007
Impact on per share amount from
common share repurchases and
other changes in common shares and
O.P. units outstanding 0.002 0.008
Change before pref'd div's and
minority interest 1,490 0.042 3,411 0.101
Allocation to minority interest in
Operating Partnership (477) (1,088)
Rounding to whole cents (0.002) (0.001)
Change in FFO allocable to common
shareholders $ 1,013 $ 0.040 $ 2,323 $ 0.100
Three Months Ended Year Ended
December 31, December 31,
1999 1998 1999 1998
Funds from Operations ($000 except
per share data):
Net income (loss) $ 5,665 $ 4,008 $ 9,275 $ (8,639)
Adjustments:
Minority Interest in Operating
Partnership 832 (208) (1,734) (8,363)
Restructuring costs 2,251
Depreciation and amortization - real
estate 11,474 11,189 45,925 42,992
Operating covenant amortization 657 657 2,630 2,630
Cash flow support amounts 656 858 2,973 3,784
Cumulative effect of a change in
accounting method 1,703
Gain on sale of assets (1,290) (1,290)
Extraordinary loss on early
extinguishment of debt 22,512
FFO before allocations to minority
interest and pref'd shares 17,994 16,504 60,030 56,619
Allocation to preferred shareholders
(preferred dividends) (3,437) (3,437) (13,750) (13,750)
Allocation to minority interest in
Operating Partnership (4,008) (3,531) (12,741) (11,653)
FFO allocable to common shares $ 10,549 $ 9,536 $33,539 $ 31,216
FFO per common share $ 0.40 $ 0.36 $ 1.28 $ 1.18
Average shares outstanding during the
period 26,208 26,207 26,208 26,393
Shares outstanding at period end 26,208 26,207 26,208 26,207
Avg. partnership units and shares
outstanding during period 36,164 36,164 36,164 36,317
Partnership units and shares
outstanding at period end 36,164 36,164 36,164 36,164
Components of Minimum Rents:
Anchor - contractual or base rents $ 6,156 $ 6,004 $24,307 $ 23,527
Mall shops - contractual or base
rents 19,114 17,750 74,660 67,195
Mall shops - percentage rent in lieu
of fixed base rent 1,060 1,075 2,489 2,908
Straight line rental income 222 181 745 564
Ground lease - contractual or base
rents 513 499 2,057 1,949
Lease buyout income 14 350 8
Operating covenant amortization (657) (657) (2,630) (2,630)
Total minimum rents $ 26,422 $ 24,852 $101,978 $ 93,521
Components of Percentage (Overage)
Rents:
Anchors $ 1,328 $ 1,723 $ 3,352 $ 3,899
Mall shops and ground leases 1,666 1,079 3,725 3,292
Net $ 2,994 $ 2,802 $ 7,077 $ 7,191
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
FOURTH QUARTER 1999
OTHER FINANCIAL AND OPERATING DATA
(unaudited)
Three Months Ended Year Ended
December 31, December 31,
1999 1998 1999 1998
(in thousands, except as noted)
<S> <C> <C> <C> <C>
EBITDA: earnings (including gain on
sale of outparcel land) before
interest, taxes, all depreciation
and amortization and extraordinary
items $ 30,823 $ 28,160 $ 108,288 $ 98,499
Debt and Interest:
Fixed rate debt at period end $ 596,429 $ 598,960 $ 596,429 $ 598,960
Variable rate debt at period end 112,571 71,011 112,571 71,011
Total debt at period end $ 709,000 $ 669,971 $ 709,000 $ 669,971
Weighted avg. interest rate on fixed
rate debt for the period 7.6% 7.7% 7.6% 7.6%
Weighted avg. interest rate on variable
rate debt for the period 8.6% 7.6% 7.7% 7.5%
Total interest expense for period $ 13,443 $ 12,476 $ 51,075 $ 45,417
Amort. of deferred debt cost for
period (incl. in interest exp) 614 349 1,711 2,743
Capitalized interest costs during
period 431 380 1,636 2,192
Capital Expenditures Incurred:
Allowances for mall shop tenants $ 4,067 $ 5,633 $ 15,190 $ 17,149
Allowances for anchor/ big box
tenants 2,045 1,072 6,775 1,644
Leasing costs and commissions 561 329 2,705 4,193
Expansions and major renovations,
including excrow deposits * 4,263 8,315 28,984 41,706
Acquisition of operating properties 475 65,448
All other capital expenditures
included in Other Assets) 1,038 43 1,967 1,573
Total Capital Expenditures during
the period $ 11,974 $ 15,867 $ 55,621 $ 131,713
*1998 data includes approximately $11 million in
deposits to expansion construction and related
escrows under the new GECC mortgage loan.
OPERATING DATA:
Total portfolio occupancy at period end 92.6% 91.6%
Mall shop occupancy at period end 84.2% 81.8%
Comparable store mall shop sales - 12
months (per sq. ft.) $ 258.43 $ 241.82
Mall shop occupancy cost percentage at
period end 10.1% 10.3%
Average mall shop base rent at period end
(per sq. ft.) $ 18.63 $ 17.54
Same center NOI growth 7.0% 3.5%
Mall shop leasing for the period:
New leases - sq. feet (000) 97 73 537 585
New leases - $ per sq. ft. $ 23.92 $ 23.44 $ 22.04 $ 20.56
Number of new leases signed. 53 45 243 281
Net effective rent for new leases
signed in the period (per sq. ft.) $ 18.39 $ 16.80
Renewal leases - sq. feet (000) 95 115 393 623
Renewal leases - $ per sq. ft. $ 17.47 $ 19.09 $ 18.30 $ 18.37
Number of renewal leases signed. 39 51 186 288
Tenant Allowances for leases signed
during the period:
First Generation Space - per sq. ft. $ 61.18 $ 30.29 $ 39.99 $ 23.39
Second Generation Space - per sq. ft. $ 9.78 $ 10.64 $ 13.11 $ 12.09
Leases Signed during the period by:
First Generation Space - sq. feet
(000) 9 18 79 55
Second Generation Space - sq. feet 183 170 851 1,153
(000)
Theater and free-standing leasing for the
period:
New leases- sq. feet (000) (49) 53 104 181
New leases-$ per sq. ft. $ (12.47) $ 13.00 $ 12.13 $ 10.99
Tenant allowances - $ per sq. ft. $ (64.29) $ 65.00 $ 40.52 $ 40.09
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
TOP 25 REVENUE-GENERATING TENANTS
LISTED IN ORDER OF SQUARE FEET OCCUPIED
FOR THE YEAR ENDED DECEMBER 31, 1999
PERCENT OF TOTAL
TOTAL NUMBER OF SQ FT
TENANT NOTES REVENUES OPEN STORES OCCUPIED
<S> <C> <C> <C> <C>
Sears, Roebuck & Co. 5.6% 21 2,119,718
J C Penney Inc. (1) 4.3% 27 1,917,054
May Department Stores Co. 1.1% 12 1,395,525
The Bon-Ton 3.1% 17 1,212,922
Wal-Mart Stores 1.1% 3 405,465
Value City Department 1.1% 5 372,713
Stores
The Limited Stores Inc. (2) 3.7% 43 324,290
K-Mart Corporation 0.9% 3 259,517
The Gap 1.5% 21 196,194
Venator Group (3) 2.9% 52 186,138
Fashion Bug 1.3% 18 166,648
Intimate Brands, Inc. (6) 2.0% 39 127,489
Shoe Show Of Rocky Mt. 1.6% 26 123,064
Inc.
Transworld Entertainment (5) 2.0% 30 109,510
Hallmark-Owned Stores 1.7% 29 107,288
Deb Shops, Inc. 0.9% 15 91,646
Consolidated Stores (4) 1.5% 26 85,282
Payless Shoesource Inc. 1.2% 24 79,047
Walden Book Co., Inc. 1.4% 22 78,479
The Finish Line, Inc. 1.2% 15 76,656
Tandy Corporation (9) 0.9% 27 67,849
Moray Inc. (7) 0.9% 17 64,553
American Eagle Outfitters 1.1% 15 60,406
Claires Inc. (8) 0.9% 42 35,829
Sterling Jewelers (10) 1.0% 18 21,964
TOTALS 44.9% 9,685,246
Notes:
(1) Includes 21 J.C. Penney department stores and 6 Eckerd stores.
(2) Includes Limited Express, Lane Bryant, Lerner Shops, The Limited (core
division), and Structures.
(3) Includes Woolworth, Kinney, Footlocker, Lady Footlocker, Champs, and
Northern Reflections.
(4) Includes Kay-Bee Toys .
(5) Includes Camelot Music and Wall Stores.
(6) Spun off by the Limited. Includes Victoria's Secrets and Bath & Body.
(7) Operates as B. Moss.
(8) Operates as Claires Boutiques, Topkapi, The Icing. Also includes recent
purchase of Afterthoughts.
(9) Operates as Radio Shack.
(10) Operates as Kay Jewelers, Belden Jewelers and Shaw Jewelers.
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Operations
Three Months Ended Year Ended
December 31, December 31,
1999 1998 1999 1998
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Rental operations:
Revenues:
Minimum rent $ 26,422 $ 24,852 $ 101,978 $ 93,521
Percentage rent 2,994 2,802 7,077 7,191
Property operating cost 9,627 8,188 35,513 32,570
recoveries
Temporary and promotional 4,895 4,551 10,654 9,661
leasing
Net utility income 808 767 3,157 2,991
Miscellaneous income 78 65 695 814
Net 44,824 41,225 159,074 146,748
Property operating costs:
Recoverable operating costs 12,797 11,318 46,545 43,755
Property administrative costs 724 805 2,375 2,533
Other operating costs 521 616 1,991 2,262
Depreciation and amortization 11,047 10,877 44,306 41,712
Net 25,089 23,616 95,217 90,262
Net 19,735 17,609 63,857 56,486
Other expenses:
General and administrative 1,450 1,609 4,751 5,066
Restructuring costs 2,251
Interest 13,443 12,476 51,075 45,417
Net 14,893 14,085 58,077 50,483
Net 4,842 3,524 5,780 6,003
Property sales, disposals and
adjustments:
Gain on sale of assets 1,290 1,290
Gain on sale of outparcel land 365 276 471 1,210
Net 1,655 276 1,761 1,210
Income (loss) before
extraordinary items, minority
interest, and cumulative effect
of a change in accounting method 6,497 3,800 7,541 7,213
Extraordinary loss on early
extinguishment of debt (22,512)
Cumulative effect on prior years
(to December 31, 1997) of a change
in accounting method (1,703)
Income (loss) before minority
interest 6,497 3,800 7,541 (17,002)
Minority interest in (income)
loss of Operating Partnership (832) 208 1,734 8,363
Net income (loss) 5,665 4,008 9,275 (8,639)
Dividends on preferred shares (3,437) (3,437) (13,750) (13,750)
Net income (loss) applicable to
common shareholders $ 2,228 $ 571 $ (4,475) $(22,389)
Per common share information:
Basic and Diluted EPS:
Income (loss) before
extraordinary item and
cumulative effect of a
change in accounting method $ 0.09 $ 0.02 $ (0.17) $ (0.18)
Extraordinary item (0.62)
Cumulative effect on prior years
of a change in accounting
method (0.05)
Net income (loss) $ 0.09 $ 0.02 $ (0.17) $ (0.85)
Weighted average shares
outstanding (000) 26,208 26,207 26,208 26,393
FFO per share $ 0.40 $ 0.36 $ 1.28 $ 1.18
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Balance Sheets
(in thousands, except share and per share data)
December 31,
1999 1998
<S> <C> <C>
Assets
Income-producing properties:
Land $ 154,341 $ 145,226
Buildings and improvements 986,042 946,654
Deferred leasing and other charges 44,313 42,469
Net 1,184,696 1,134,349
Accumulated depreciation and amortization (388,965) (347,649)
Net 795,731 786,700
Investment in joint venture 5,055 5,799
Cash and cash equivalents, non-restricted 17,171 13,512
Restricted cash and escrow deposits 15,635 15,005
Tenant and other receivables 15,859 17,430
Deferred charges and other assets 25,757 30,842
Net $ 875,208 $ 869,288
Liabilities and Shareholders' Equity
Debt on income-producing properties $ 709,000 $ 669,971
Accounts payable and other liabilities 37,630 38,076
Net 746,630 708,047
Minority interest in Operating Partnership 2,727 11,724
Commitments and contingencies
Shareholders' equity:
Non-redeemable senior preferred shares, 11%
cumulative, $.01 par value, 2,500,000 shares
issued and outstanding 25 25
Common shares, par value $.01 per share,
120,000,000 shares authorized, 27,742,317 and
27,741,542 shares issued at December 31, 1999
and 1998, respectively 277 277
Additional paid-in capital 316,421 314,252
Accumulated deficit (176,220) (150,385)
Net 140,503 164,169
Less common shares held in treasury at cost;
1,534,398 shares at both December 31, 1999
and 1998 (14,652) (14,652)
Net 125,851 149,517
Net $ 875,208 $ 869,288
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Cash Flows
Year Ended December 31,
1999 1998
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 9,275 $ (8,639)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Minority interest in Operating Partnership (1,734) (8,363)
Equity earnings in joint venture (235) (360)
Depreciation and amortization 50,071 48,411
Restructuring costs 2,251
Gain on sale of assets (1,290)
Extraordinary loss on early extinguishment of debt 22,512
Cumulative effect of a change in accounting method 1,703
Net changes in:
Tenant and other receivables 1,571 (2,147)
Restricted cash and escrow deposits (125) (768)
Deferred charges and other assets (1,583) (9,393)
Accounts payable and other liabilities (1,262) 11,878
Net cash provided by operating activities 56,939 54,834
Cash flows from investing activities:
Investment in income properties and related changes in (53,654) (64,223)
escrow deposits
Acquisition of enclosed malls, net of debt assumed (46,720)
Proceeds from sale of Middletown Mall 3,361 8,148
Distributions from joint venture 610
Net cash (used in) investing activities (49,683) (102,795)
Cash flows from financing activities:
Net proceeds from exercise of stock options and 6 117
dividend
reinvestment plan
Proceeds from issuance of debt 56,349 576,257
Cost of issuance of debt (2,351) (6,806)
Debt repayments (17,350) (476,108)
Dividends and distributions paid on common shares and (29,474) (29,063)
partnership units
Dividends paid on senior preferred shares (13,750) (13,750)
Purchase of common shares held in treasury (2,430)
Cash flow support payments 2,973 3,784
Net cash provided by (used in) financing activities (3,597) 52,001
Net increase in cash and cash equivalents 3,659 4,040
Cash and cash equivalents, beginning of period 13,512 9,472
Cash and cash equivalents, end of period $ 17,171 $ 13,512
Interest paid (net of capitalized amounts) $ 49,362 $ 42,674
Interest capitalized $ 1,636 $ 2,192
Non-cash financing activities:
Issuance of partnership units related to Middletown
Mall and Greater Lewistown acquisitions $ $ 4,479
Assumption of debt related to Greater Lewistown and
Crossroads acquisitions $ $ 14,718
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 17,171
<SECURITIES> 0
<RECEIVABLES> 15,859
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,184,696
<DEPRECIATION> 388,965
<TOTAL-ASSETS> 875,208
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
25
<COMMON> 277
<OTHER-SE> 125,549
<TOTAL-LIABILITY-AND-EQUITY> 875,208
<SALES> 0
<TOTAL-REVENUES> 159,074
<CGS> 0
<TOTAL-COSTS> 95,217
<OTHER-EXPENSES> 7,002
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,075
<INCOME-PRETAX> 7,541
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,541
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,275
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
