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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- -----------
Commission file number 1-13092
MALAN REALTY INVESTORS, INC.
(Exact name of registrant as specified in charter)
Michigan 38-1841410
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
30200 Telegraph Rd., Ste. 105 48025
Birmingham, Michigan (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (248) 644-7110
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
------------------- --------------------------------------
Common Stock, Par Value $0.01 Per Share New York Stock Exchange
9 1/2% Convertible Subordinated
Debentures due 2004 New York Stock Exchange
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for 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 the Form 10-K or any
amendment to this Form 10-K: [X]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was approximately $58,911,000 (computed on the basis of
$17.9375 per share), which was the last sale price on the New York Stock
Exchange on February 27, 1998. (For this computation, the Registrant has
excluded the market value of all shares of its Common Stock reported as
beneficially owned by executive officers and directors of the Registrant; such
exclusion shall not be deemed to constitute admission that any such person is an
"affiliate" of the Registrant.)
As of February 27, 1998, 3,793,580 shares of Common Stock, Par Value
$0.01 Per Share and $55,734,000 aggregate principal 9 1/2% Convertible
Subordinated Debentures due 2004, were outstanding.
LIST OF DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference information from
the Registrant's definitive proxy statement for the annual shareholders' meeting
to be held in 1998, which is to be filed with the Securities and Exchange
Commission within 120 days of the close of Registrant's fiscal year.
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TABLE OF CONTENTS
<TABLE>
Page
PART I
<S> <C> <C>
Item 1. Business 4
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 8. Consolidated Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 42
PART III
Item 10. Directors and Executive Officers of the Registrant 43
Item 11. Executive Compensation 43
Item 12. Security Ownership of Certain Beneficial Owners and Management 43
Item 13. Certain Relationships and Related Transactions 43
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 43
Signatures 44
</TABLE>
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PART I
ITEM 1. BUSINESS
Malan Realty Investors, Inc. (the "Company") is a self-administered and
self-managed real estate investment trust. Prior to the completion of its
initial public offering ("IPO") on June 24, 1994, the Company was a privately
held developer and manager of retail shopping centers owned primarily by third
parties. With funds obtained from the IPO and a related debenture offering and
private placement of notes (collectively, the "Offerings"), the Company acquired
45 properties it had previously managed and developed and is now a fully
integrated real estate company engaging in the ownership, management, leasing,
acquisition, development and redevelopment of commercial properties. The Company
continues on a limited basis to manage properties owned by unrelated third
parties.
The Company is one of the original developers of properties for Kmart
Corporation ("Kmart") and ranks among the leading operators of shopping centers
in the United States. The initial 45 properties acquired consisted of 19
community shopping centers and 26 freestanding retail stores primarily anchored
by Kmart. Since its IPO the Company has maintained a strategy of reducing the
Kmart concentration of its portfolio by acquiring shopping centers anchored by
national retailers other than Kmart. In November 1994 the Company acquired five
community shopping centers anchored by Wal-Mart Corporation ("Wal-Mart"). In
1994 Kmart represented 60.1% of the Company's rental income and 77.5% of the
gross leaseable area within the Company's portfolio. In 1997, approximately
39.4% of the Company's rental income was derived from Kmart and 55.9% its gross
leaseable area was leased to Kmart. Wal-Mart accounted for approximately 6.9% of
the Company's rental income in 1997 and approximately 7.1% of its gross
leaseable area.
Subsequent acquisitions include two shopping centers in Michigan
acquired in 1995 and a 12-plex cinema complex located in Lawrence, Kansas
purchased in 1997. Two of the Company's freestanding stores which were
previously anchored by Kmart are being redeveloped into cinema complexes and are
scheduled for completion in 1998. The current gross leasable area of the
portfolio is approximately 5.7 million square feet.
Objectives of the Company include maximizing growth and enhancing the
value of its portfolio through effective operating, acquisition, development and
financing strategies and management policies. The Company believes that
attractive opportunities exist to increase rental revenues through effective
leasing and management of the properties in its portfolio. The Company has
created and intends to continue to create additional value through the
acquisition and redevelopment of existing community shopping centers,
freestanding retail stores and entertainment facilities, as well as the
development of new commercial properties in selected geographical markets with
an emphasis on small to medium-sized communities where such properties can be
positioned among the leading centers in their respective trade area. The
Company's primary target area has been and is intended to remain the Midwestern
United States;
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however management is aware that attractive opportunities may exist outside of
this geographic area and the Company may pursue such opportunities if management
believes they will enhance overall shareholder value. In addition, certain of
the properties owned by the Company have parcels of undeveloped land which are
available for future development. The Company will also pursue certain expansion
opportunities available within the current portfolio.
The Company has elected to be taxed as a real estate investment trust
("REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986, as
amended (the "Code"), beginning with the taxable year ending December 31, 1994.
As a REIT, the Company generally is not subject to federal income taxes to the
extent it distributes at least 95% of its real estate investment trust taxable
income (as defined in the Code) to its shareholders.
The Company presently has 22 full time employees and believes that its
relationship with its employees is good.
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ITEM 2. Properties
<TABLE>
<CAPTION>
OWNERSHIP YEAR GROSS
INTEREST DEVELOPED LEASABLE PERCENT
(EXPIRATION OR LAND AREA AREA (GLA) LEASED
PROPERTY INCL. OPTIONS) REDEVELOPE (ACRES) (SQ. FT.) OF GLA
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CALIFORNIA
Kmart Colma, CA Fee 1980 8.29 94,282 100%
ILLINOIS
Bricktown Square Fee 1987 26.00 306,433 97%
Chicago, IL
Kmart Chicago, IL Fee 1977 8.51 96,268 100%
Kmart Fairview Hgts, IL Ground Lease (2051) 1976 12.65 96,268 100%
Kmart Franklin Park, IL Fee 1975 9.84 96,268 100%
Kmart Lansing, IL Fee 1976 10.48 96,268 100%
Kmart Lincoln, IL Fee 1975 4.86 39,797
Kmart Loves Park, IL Ground Lease (2026) 1971 12.50 106,084 100%
Melrose Park,IL Ground Lease (2048) 1973 10.90 122,450 19%
Kmart New Lenox, IL Fee 1977 8.72 88,580 100%
North Aurora, IL Fee 1967 11.36 4,856 100%
Kmart Rockford, IL Fee 1971 10.70 110,471 100%
Sherwood Plaza Fee 1975 13.85 125,101 97%
Springfield, IL
Woodriver Plaza Fee 1987 19.40 111,899 98%
Woodriver, IL
INDIANA
Clifty Crossing Fee 1989 19.90 190,919 96%
Columbus, IN
Miller Mall, Gary, IN Ground Lease (2048) 1973 17.95 129,914 82%
Broadway Center Fee 1974 19.89 177,692 98%
Merrillville, IN
Flatrock Village Fee 1988 14.00 73,608 95%
Rushville, IN
Kmart Valparaiso, IN Ground Lease (2050) 1974 9.61 93,592 100%
Cherry Tree Plaza Fee 1988 20.60 143,682 95%
Washington, IN
KANSAS
Arkansas City, KS Fee 1976 4.41 39,797
Emporia, KS Fee 1976 6.55 39,797 100%
Food Bonanza Fee 1977 5.60 39,797 100%
Garden City, KS
Great Bend, KS Fee 1977 5.41 55,552
Orscheln Farm Supply Fee 1977 4.96 40,050 100%
Hayes, KS
Food 4 Less Fee 1976 4.12 39,797 100%
Independence, KS
Pine Ridge Plaza
Lawrence, KS Fee 1974 8.12 91,048 91%
Southwind Theater, Fee
Lawrence, KS Fee 1997 7.89 42,497 100%
Standard Supply Fee 1977 4.57 40,279 100%
Liberal, KS
Kmart Salina, KS Fee 1978 16.00 87,406 100%
Kmart Topeka, KS Ground Lease (2049) 1974 13.93 108,960 77%
South City Center Fee 1976 13.74 130,380 100%
Wichita, KS
MARYLAND
Kmart Forestville, MD Fee 1979 8.00 84,180 100%
<CAPTION>
ANCHOR TENANTS
(LEASE EXPIRATION/
PROPERTY OPTION EXPIRATION)
- -------------------------------------------------------------------------
<S> <C>
CALIFORNIA
Kmart Colma, CA Kmart (2011/2061)
ILLINOIS
Bricktown Square Toys "R" Us (2013/2038)
Chicago, IL Kids "R" Us (2014/2039)
Marshall's(2000/2015)
Sportmart(2003/2018)
Cineplex-Odeon(2008/2018)
Frank's Nursery(2009/2029)
Kmart Chicago, IL Kmart (2011/2061)
Kmart Fairview Hgts, IL Kmart (2001/2051)
Kmart Franklin Park, IL Kmart (2011/2061)
Kmart Lansing, IL Kmart (2011/2061)
Kmart Lincoln, IL (A)
Kmart Loves Park, IL Kmart (2011/2026)
Melrose Park,IL (B)
Kmart New Lenox, IL Kmart (2011/2061)
North Aurora, IL (B)
Kmart Rockford, IL Kmart (2011/2061)
Sherwood Plaza Kmart (2011/2061)
Springfield, IL
Woodriver Plaza Wal-Mart (2007/2037)
Woodriver, IL
INDIANA
Clifty Crossing Wal-Mart (2009/2039)
Columbus, IN Jay C Foods (2009/2034)
Miller Mall, Gary, IN Kmart (1998/2048)
Broadway Center Kmart (2011/2061)
Merrillville, IN
Flatrock Village Wal-Mart (2008/2038)
Rushville, IN
Kmart Valparaiso, IN Kmart (2011/2050)
Cherry Tree Plaza Wal-Mart (2008/2038)
Washington, IN Jay C Foods (2008/2033)
KANSAS
Arkansas City, KS (A)
Emporia, KS Big Lots (2002/2007)
Food Bonanza Food Bonanza (2002/2029)
Garden City, KS
Great Bend, KS (A)
Orscheln Farm Supply Orscheln Farm Supply
Hayes, KS (2004/2014)
Food 4 Less Food 4 Less (2001/2026)
Independence, KS
Pine Ridge Plaza
Lawrence, KS Kmart (2011/2061)
Southwind Theater,
Lawrence, KS Hollywood Theaters (2017/2027)
Standard Supply Standard Supply (2003/2013)
Liberal, KS
Kmart Salina, KS Kmart (2011/2061)
Kmart Topeka, KS Kmart (2011/2049)
South City Center Kmart (2011/2061)
Wichita, KS
MARYLAND
Kmart Forestville, MD Kmart (2011/2061)
</TABLE>
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<TABLE>
<CAPTION>
OWNERSHIP YEAR GROSS
INTEREST DEVELOPED LEASABLE PERCENT
(EXPIRATION OR LAND AREA AREA (GLA) LEASED
PROPERTY INCL. OPTIONS) REDEVELOPED (ACRES) (SQ. FT.) OF GLA
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MICHIGAN
Orchard-14 Fee 1973 11.49 139,670 94%
Farmington Hills, MI
Clinton Pointe Shopping Center Fee 1992 11.72 135,330 100%
Clinton Township, MI
The Shops at Fairlane Meadows Fee 1987 17.73 137,508 98%
Dearborn, MI
MISSOURI
Kmart Cape Girardeau, MO Fee 1974 5.68 79,856 100%
Kmart Jefferson City, MO Fee 1973 9.76 118,798 100%
Prairie View Plaza Ground Lease (2050) 1975 3.24 104,490 95%
Kansas City, MO
Levitz Furniture Fee 1977 14.89 117,255 98%
Manchester, MO
Kmart Plaza Fee 1978 7.41 98,878 100%
Springfield, MO
OHIO
Shannon Station Fee 1989 20.20 145,607 97%
Van Wert, OH
WISCONSIN
Kmart Plaza Fee 1979 8.90 88,608 100%
Ft. Atkinson, WI
Kmart Green Bay, WI Fee 1974 11.59 118,988 100%
Country Fair Shopping Ctr. Fee 1974 10.50 152,165 93%
Hales Corners, WI
Kmart Janesville, WI Fee 1968 13.78 104,000 100%
Kmart Plaza Fee 1973 9.95 119,726 100%
Kenosha, WI
Westland Plaza Fee 1978 12.40 122,534 99%
Madison, WI
Kmart Madison, WI Fee 1968 12.53 106,058 100%
Northway Mall Ground Lease (2022) 1978 21.63 288,245 95%
Marshfield, WI
Kmart Milwaukee, WI Fee 1971 11.23 117,791 100%
Kmart Oshkosh, WI Fee 1968 10.00 104,000 100%
Kmart Stevens Point, WI Fee 1972 8.00 109,197 100%
---------
TOTAL 5,652,676
=========
<CAPTION>
Anchor Tenants
(lease expiration/
Property option expiration)
==========================================================================
<S> <C>
MICHIGAN
Orchard-14 Kmart (2011/2061)
Farmington Hills, MI
Clinton Pointe Shopping Center Office Max (2007/2017)
Clinton Township, MI Sports Authority (2017/2067)
Target (C)
The Shops at Fairlane Meadows Best Buy (2009/2024)
Dearborn, MI Kids "R" Us (2003/2018)
Target (C)
Mervyn's (C)
MISSOURI
Kmart Cape Girardeau, MO Kmart (2011/2061)
Kmart Jefferson City, MO Kmart (2011/2061)
Prairie View Plaza Kmart (2011/2050)
Kansas City, MO
Levitz Furniture Levitz Furniture (2004/2056)
Manchester, MO
Kmart Plaza Kmart (2011/2061)
Springfield, MO
OHIO
Shannon Station Wal-Mart (2009/2039)
Van Wert, OH Roundy's (2010/2030)
WISCONSIN
Kmart Plaza Kmart (2004/2054)
Ft. Atkinson, WI
Kmart Green Bay, WI Kmart (1999/2049)
Country Fair Shopping Ctr. Kmart (2011/2061)
Hales Corners, WI
Kmart Janesville, WI Kmart (2003/2038)
Kmart Plaza Kmart (2011/2061)
Kenosha, WI
Westland Plaza Kmart (2002/2053)
Madison, WI
Kmart Madison, WI Kmart (2002/2022)
Northway Mall Kmart (2011/2022)
Marshfield, WI J.C.Penney (1999/2019)
Younkers (2004/2019)
Kmart Milwaukee, WI Kmart (2011/2061)
Kmart Oshkosh, WI Kmart (2003/2038)
Kmart Stevens Point, WI Kmart (2011/2061)
TOTAL
</TABLE>
(A) The leases on these stores were terminated effective November 1, 1995 as
part of an agreement with Kmart and these properties are currently vacant.
(B) These properties are being redeveloped into multiplex theater complexes
under agreements with Cinemark USA. See Item 7- "Management Discussion and
Analysis of Operations-Liquidity and Capital Resources" for further discussion.
(C) These stores and the underlying pads are owned directly by the tenants.
Item 3. Legal Proceedings
In the ordinary course of business, the Company is involved in routine
litigation. However, there are no material legal proceedings presently pending
against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange under the
symbol "MAL". As of February 27, 1998 the Company had approximately 164
stockholders of record. The following table sets forth, for the periods
indicated, the high and low sales price as reported on the New York Stock
Exchange, the dividends declared and paid by the Company per common share for
each such period, and the income tax treatment of such distributions:
<TABLE>
<CAPTION>
Ordinary Return
Taxable of
1996 High Low Dividends Dividend Capital
---- ---- --- --------- -------- -------
<S> <C> <C> <C> <C> <C>
First Quarter $ 14.50 $ 11.375 $ 0.425 20.6% 79.4%
Second Quarter $ 15.50 $ 13.625 0.425 20.6 79.4
Third Quarter $ 14.875 $ 13.875 0.425 20.6 79.4
Fourth Quarter $ 16.375 $ 13.875 0.425 20.6 79.4
----------
$ 1.70 20.6% 79.4%
========== =========== =======
1997
----
First Quarter $ 17.125 $ 15.875 $ 0.425 -- % 100.0%
Second Quarter $ 18.375 $ 16.375 0.425 100.0
Third Quarter $ 18.00 $ 16.875 0.425 100.0
Fourth Quarter $ 19.5625 $ 17.1875 0.425 100.0
---------- -------
-- -- $ 1.70 -- % 100.0%
========== ========== =======
</TABLE>
The Company intends to pay regular quarterly dividends of $0.425 per share,
which is equivalent to an annual distribution of $1.70 per share. Such
distributions may also include a return of capital. The Company intends to
maintain such dividend unless actual results of operations, economic conditions
or other factors differ from the assumptions used in arriving at its dividend
rate. All distributions are made by the Company at the discretion of the Board
of Directors and depend on cash available for distribution, the Company's
financial condition and such other factors as the Board of Directors deems
relevant.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company and its
predecessor, Malan (Predecessor), as defined herein, on a historical basis.
Malan (Predecessor) is not a legal entity but rather a combination of the
principal real estate properties of a partnership, Bricktown Square Associates
("BTS"), and the real estate management operations of an affiliated
S-Corporation, Malan Construction Company ("MCC"), which managed the operations
of BTS. Because of the commonality of ownership and management, the financial
results of operations of MCC and BTS are presented on a combined basis. On June
24, 1994, MCC completed its IPO and began operating as a real estate investment
trust under the name of Malan Realty Investors, Inc. The following data should
be read in conjunction with the consolidated financial statements and notes
thereto included elsewhere in the Form 10-K.
The selected financial data of the Company for the year ended December 31, 1994
consists of the operations of Malan (Predecessor) for the period beginning
January 1 through June 23, 1994 combined with the operations of Malan Realty
Investors, Inc. from June 24 through December 31, 1994. The selected financial
data of Malan Realty Investors, Inc. includes the effects of the Offerings and
the Company's subsequent acquisitions. The selected financial data presented as
of and for the period ended December 31, 1993 is derived from the combined
financial statements of Malan (Predecessor).
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SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
MALAN
THE COMPANY (PREDECESSOR)
---------------------------------------- ---------- ------------
1997 1996 1995 1994 1993
---------------------------------------- ---------- ------------
OPERATING DATA
<S> <C> <C> <C> <C> <C>
Revenues
Rental income $ 24,092 $ 23,836 $ 22,100 $ 11,029 $ 3,268
Percentage and overage rents 1,177 1,164 963 573 21
Recoveries from tenants 9,271 9,340 8,662 4,577 1,698
--------- --------- --------- --------- ---------
Total rental revenues 34,540 34,340 31,725 16,179 4,987
Management and leasing fees 47 48 50 899 1,705
Interest and other income 396 575 472 299 86
--------- --------- --------- --------- ---------
Total revenues 34,983 34,963 32,247 17,377 6,778
Operating expenses
Property operating and maintenance 2,867 2,769 1,961 823 285
Other operating expenses 1,493 1,481 1,216 841 778
Real estate taxes 7,891 7,715 7,511 4,251 1,447
General and administrative 1,545 1,664 1,463 1,488 818
Depreciation and amortization 5,068 4,920 4,597 2,125 682
--------- --------- --------- --------- ---------
Total operating expenses 18,864 18,549 16,748 9,528 4,010
--------- --------- --------- --------- ---------
Operating income 16,119 16,414 15,499 7,849 2,768
Interest expense 15,576 15,815 13,749 6,477 3,130
--------- --------- --------- --------- ---------
Income (loss) before
minority interest in partnership 543 599 1,750 1,372 (362)
Minority interest in partnership 151 274
--------- --------- --------- --------- ---------
Net income (loss) $ 543 $ 599 $ 1,750 $ 1,523 ($ 88)
========= ========= ========= ========= =========
CASH FLOW DATA
Cash flows provided by operating activities $ 5,149 $ 7,117 $ 8,541 $ 9,369 $ 1,920
Cash flows provided by (used for) investing activities (8,216) (2,162) (33,337) (144,307) 23
Cash flows provided by (used for) financing activities (2,182) (7,084) 22,142 145,589 (1,698)
--------- --------- --------- --------- ---------
Net Increse (decrease) in cash and cash equivalents ($ 5,249) ($ 2,129) ($ 2,654) $ 10,651 $ 245
========= ========= ========= ========= =========
OTHER DATA
Funds From Operations(1) $ 7,231 $ 7,100 $ 7,171 $ 3,757 $ 390
========= ========= ========= ========= =========
Basic earnings per share $ 0.15 $ 0.17 $ 0.49 $ 0.72
========= ========= ========= =========
Weighted average basic shares 3,546 3,464 3,547 2,114
========= ========= ========= =========
Diluted earnings per share(2) $ 0.15 $ 0.17 $ 0.49 $ 0.72
========= ========= ========= =========
Weighted average diluted shares 3,591 3,475 3,547 2,114
========= ========= ========= =========
Cash distributions declared per basic common share $ 1.70 $ 1.70 $ 1.70 $ 0.85
========= ========= ========= =========
Total gross leasable area at period end(3) 5,653 5,707 5,695 5,407 294
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION> MALAN
THE COMPANY (PREDECESSOR)
------------------------------------------------------- ------------
DECEMBER 31, DECEMBER 31,
------------------------------------------------------- ------------
1997 1996 1995 1994 1993
---------- ---------- ---------- --------- ------------
BALANCE SHEET DATA
<S> <C> <C> <C> <C> <C>
Real estate, before accumulated depreciation $ 215,785 $ 207,590 $ 206,085 $ 174,173 $ 30,617
Total assets 216,138 217,852 223,360 192,184 31,960
Mortgage indebtedness 88,585 83,643 83,734 43,123 35,843
Convertible debentures 56,680 61,285 61,285 63,795
Convertible notes 27,000 27,000 27,000 27,000
Minority interest in partnership (3,261)
Shareholders' equity (deficit) 33,942 34,993 41,243 48,091 (5,162)
</TABLE>
- ----------------------
(1) Management considers Fund From Operations ("FFO") to be an appropriate
measure of performance of an equity real estate investment trust. The
Company calculates FFO as net income or (loss) excluding gains and losses
from sales of property, further adjusted for certain non-cash items
including depreciation and amortization of deferred financing costs
included in interest expense. It is the opinion of management that
reduction for or inclusion of these items is not meaningful in evaluating
income-producing real estate which, in general, has historically not
depreciated. FFO does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and
is not necessarily indicative of cash available to fund cash needs,
including distributions. FFO should not be considered as an alternative to
net income as an indicator of the Company's operating performance or as an
alternative to cash flow as a measure of liquidity or the ability to pay
distributions but rather as a supplemental tool to be used in conjunction
with these factors in analyzing the Company's overall performance. The
Company is aware that there are variations between companies in the REIT
industry as to how FFO is calculated. See "Funds From Operations" in Item
7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(2) In accordance with Statement of Financial Accounting Standards, No. 128,
"Earnings per Share", conversion of all of the debt securities would be
antidilutive and as such are not included in the weighted average diluted
shares reported above.
(3) Malan (Predecessor) gross leaseable area includes only Bricktown Square.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the
"Selected Financial Data" and the Company's consolidated financial statements
and notes thereto appearing elsewhere in this Form 10-K.
RESULTS OF OPERATIONS
Comparison of Year Ended December 31, 1997 to Year Ended December 31, 1996
Total revenue increased approximately $20,000 which is attributable to
increases in minimum and percentage rents of approximately $269,000 offset by
decreases in recoveries from tenants of approximately $69,000 and interest and
other income of $180,000. The increases in rents are primarily attributable to
additional revenues from the acquisition of the Southwind Theater in Lawrence,
Kansas and to the re-leasing and retenanting of two vacant former Kmart
buildings in late 1996 offset by revenues lost due to the termination of Kmart's
lease at North Aurora, Illinois. Increases in percentage rents of approximately
$13,000 are attributable to increases in sales for Kmart and Wal-Mart, the
Company's two largest tenants, offset by a decrease resulting from the loss of a
nonrecurring percentage rent of approximately $80,000 received from a tenant in
1996. The decrease in interest and other income resulted primarily from
brokerage commissions and lease termination income earned in 1996 as well as
decreased levels of investable cash resulting from the utilization of $1.25
million of cash reserves to satisfy the repayment of the balance on a mortgage
collateralized by The Shops at Fairlane Meadows, ("Fairlane Meadows") in
Dearborn, Michigan. The resulting decrease in interest income is partially
offset by a decrease in interest expense on the mortgage.
Total operating expenses increased approximately $315,000. Increases in
property operating and maintenance, real estate taxes and depreciation and
amortization were approximately $98,000, $176,000 and $148,000, respectively.
The increase in property operating and maintenance was primarily due to
increases in parking lot repairs and snowplowing. Real estate taxes increased
primarily due to increased assessments at Fairlane Meadows and other centers
offset by reductions obtained through successful appeals of tax assessments at
certain centers. Depreciation and amortization increased primarily due to
depreciation on capitalized roof and parking lot expenditures. General and
administrative expenses decreased approximately $119,000, primarily due to lower
payroll costs of $48,000 and a decrease in the cost of directors and officers
insurance of $41,000.
Interest expense, including related amortization of deferred financing
costs, decreased approximately $239,000. The decrease is due primarily to
conversions of $4.605 million aggregate principal amount of the Company's 9.5%
subordinated convertible debentures into shares of common stock during 1997. The
debenture conversions accounted for a net decrease in
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interest expense of approximately $201,000. The refinancing of a $12.45 million
mortgage utilized for the acquisition of Fairlane Meadows with an $11.2 million
loan with Daiwa Finance Corporation accounted for a decrease in interest expense
of approximately $69,000. An increase in amortization of deferred financing
costs of approximately $40,000, related primarily to a $25 million line of
credit obtained from Greenwich Capital Markets, Inc. in November 1997, offset
the overall decrease from 1996.
Overall, net income decreased $56,000 primarily as a result of
increases in non-cash expenses such as depreciation and amortization of
approximately $148,000 and amortization of deferred financing costs of $40,000
and operating expenses which could not be recovered from tenants, offset by a
decrease in interest expense resulting from conversions of debentures into
common stock.
Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995
Results of operations from rental properties increased from 1995 to
1996 primarily due to the Company's acquisitions of Clinton Pointe Shopping
Center ("Clinton Pointe") located in Clinton Township, Michigan, purchased on
June 5, 1995, and Fairlane Meadows, purchased on September 15, 1995.
Accordingly, results of operations for the year ended December 31, 1995 include
the results of Clinton Pointe and Fairlane Meadows since their respective
acquisition dates only.
Total revenue increased approximately $2.716 million, which is
attributable to increases in minimum and percentage rents and recoveries from
tenants of approximately $2.615 million and interest and other income of
$103,000. The increases in rents and recoveries from tenants are primarily
attributable to the addition of revenues from Clinton Pointe and Fairlane
Meadows of approximately $2.722 million, increases in percentage rents of
approximately $201,000 and increased recoveries from tenants due to additional
recoverable property operating expenses discussed below, offset by revenues lost
of approximately $718,000 due to lease terminations by Kmart and Builders Square
which took effect in the latter part of 1995. Percentage rents increased
primarily due to increased sales at the Company's largest tenants, Kmart and
Wal-Mart, and a nonrecurring percentage rent payment of approximately $80,000
received from a tenant at Bricktown Square in Chicago, Illinois, partially
offset by percentage rents lost from tenants, such as Dillons in Wichita,
Kansas, who are no longer operating in their spaces. The increase in interest
and other income resulted primarily from brokerage commissions and lease
termination income earned in 1996 as well as investment earnings due to
increased levels of investable cash resulting from the buildup of cash reserves
that are required under the Company's REMIC financing.
Total operating expenses increased approximately $1.801 million.
Increases in property operating and maintenance, other operating expenses, real
estate taxes and depreciation and amortization were approximately $808,000,
$265,000, $204,000 and $323,000, respectively. Increases resulting from the
acquisitions of Clinton Pointe and Fairlane Meadows accounted for approximately
$527,000, $12,000, $382,000 and $367,000, respectively, which were partially
offset due to lower tax assessments on some properties as a result of appeals
and lower
12
<PAGE> 13
amortization of leasing costs in 1996. Additional repairs and maintenance
performed at some of the properties also contributed to the increase in property
operating and maintenance. General and administrative expenses increased
approximately $201,000, primarily due to increases in payroll and state income
and franchise taxes as well as professional and other fees related to the
administration of the Company's REMIC financing.
Interest expense, including related amortization of deferred financing
costs, increased approximately $2.066 million. The increase is due primarily to
increased debt levels from 1995 offset by interest rate reductions and decreases
attributable to conversions of $2.510 million aggregate principal amount of the
Company's 9.5% subordinated convertible debentures into shares of common stock,
which occurred during 1995. The debenture conversions accounted for a net
decrease in interest expense of approximately $112,000. The conversion of the
Company's acquisition line of credit to the Securitized Mortgage Loan at more
favorable rates, coupled with additional borrowings thereunder accounted for an
increase of approximately $705,000, while interest on a $12.45 million mortgage
utilized for the acquisition of Fairlane Meadows increased approximately
$717,000. Increase in amortization of deferred financing costs of approximately
$756,000, related primarily to the Securitized Mortgage Loan and the Fairlane
Meadows mortgage, comprised the balance of the increase from 1995.
Overall, net income decreased $1.151 million primarily as a result of
increases in non-cash expenses such as depreciation and amortization of
approximately $323,000 and amortization of deferred financing costs of $756,000.
Year 2000 Date Conversion
Certain computer systems that have time-sensitive programs may not
properly recognize the year 2000 which could result in major system failures or
miscalculations. The Company has performed an inquiry of its major software
vendors as to the likelihood of such a problem existing in the software products
which the Company utilizes. Based on such inquiry, the Company does not believe
that a year 2000 problem exists within its system or that any such problem that
may arise would have a material impact on the Company's operations. The Company
has not assessed the impact of any year 2000 problem within outside parties such
as vendors or tenants.
Funds From Operations
Management considers Fund From Operations ("FFO") to be an appropriate
measure of performance of an equity real estate investment trust. The Company
calculates FFO as net income or (loss) excluding gains and losses from sales of
property, further adjusted for certain non-cash items including depreciation and
amortization and amortization of deferred financing costs included in interest
expense. It is the opinion of management that reduction for or inclusion of
these items is not meaningful in evaluating income-producing real estate which,
in general, has historically not depreciated. FFO does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles and is not necessarily indicative of cash available to
fund cash needs, including distributions. FFO should not be considered as an
alternative to net income as an indicator of the Company's operating
13
<PAGE> 14
performance or as an alternative to cash flow as a measure of liquidity or the
ability to pay distributions but rather as a supplemental tool to be used in
conjunction with these factors in analyzing the Company's overall performance.
The Company is aware that there are variations between companies in the
REIT industry as to how FFO is calculated. In 1995, the National Association of
Real Estate Investment Trusts (NAREIT) issued an opinion paper (the "White
Paper") clarifying the definitions of certain components of FFO. The primary
differences between the method in which the Company reports FFO and the White
Paper definition is in the treatment of amortization of deferred financing costs
and certain depreciation expense.
The following table shows the components that comprise the Company's
FFO for each of the three years ended December 31, 1997. Prior periods have been
restated to comform with the 1997 presentation.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Net income $ 543 $ 599 $1,750
Depreciation and Amortization:
Depreciation of buildings and improvements 4,845 4,766 4,333
Amortization of tenant allowances and
improvements 97 46 65
Amortization of leasing costs 96 56 163
------ ------ ------
"White Paper" FFO 5,581 5,467 6,311
Depreciation of furniture, equipment and
leasehold improvements 30 52 36
Amortization of deferred financing costs
included in interest expense:
Mortgages 1,271 1,228 461
Convertible debt 349 353 363
------ ------ ------
Funds From Operations $7,231 $7,100 $7,171
====== ====== ======
ADDITIONAL INFORMATION:
Weighted average shares outstanding:
Basic 3,546 3,464 3,547
====== ====== ======
Shares issuable upon debt conversions 5,113 5,193 5,303
====== ====== ======
Convertible debt interest, excluding
amortization of deferred financing costs $7,916 $8,117 $8,223
====== ====== ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company is authorized to repurchase up to 755,000 shares of its
Common Stock under a plan approved by its Board of Directors in January 1995.
Since inception of the plan, the
14
<PAGE> 15
Company has repurchased 468,000 shares at a cost of approximately $6.168 million
or an average cost of $13.18 per share. It is unlikely that management will
repurchase additional shares at its current market level.
The Company has a $63 million loan (the "Securitized Mortgage Loan")
outstanding which is administered under a real estate mortgage investment
conduit (REMIC). Payments of interest only are due monthly through the maturity
date of August 10, 2002. Certificates issued by the REMIC trust carry ratings
from "AAA" to "A" by both Fitch Investors Services, Inc. and Duff & Phelps
Credit Rating Co. Under the loan agreement, the Company is also required to fund
certain reserves on a monthly basis and request disbursement of funds as certain
requirements are met. The Capital Improvements/Replacement Reserve requires an
annual deposit (funded monthly) equal to $0.20 per qualifying square foot as
defined in the loan agreement or approximately $575,000 per year. The Basic
Carrying Cost Reserve which is utilized to pay real estate taxes, ground lease
payments and insurance payments related to the properties which collateralize
the loan requires a monthly deposit equal to one-twelfth of the estimated annual
cost of these expenses which is estimated to be approximately $1.3 million in
1998.
An additional provision in the agreement provides that in the event
that the long-term debt rating of either of the two major tenants of the
properties, Kmart or Wal-Mart, is downgraded to 'BB+' or lower, the Company will
be required to maintain an additional amount in the Basic Carrying Cost Reserve
equal to 1/4 of the applicable real estate tax obligation borne by those
tenants. In January 1996, the long-term debt rating of Kmart was lowered to "BB"
and, accordingly, the Company was required to make an additional deposit to the
Basic Carrying Cost account of $561,000.
In connection with the Securitized Mortgage Loan, the Company entered
into two interest rate cap agreements which effectively fix the overall rate of
interest on the loan at 7.57% through February 10, 2002; thereafter, the
interest rate on $42 million of the mortgage loans converts to a variable rate
which is capped at 8.75% through the end of the term. While the Company has not
yet decided how it will fund the repayment of the Securitized Mortgage Loan upon
maturity, possible sources include additional public offerings of equity and/or
debt, refinancing with conventional fixed rate debt instruments or the issuance
of additional secured or unsecured debt obligations.
In September 1995, the Company reached an agreement with its largest
tenant, Kmart, regarding several stores within its portfolio. Under the
agreement, the Company received a cash payment on October 31, 1995 totaling
approximately $2.56 million as consideration for the termination of leases on
five stores previously closed by Kmart. In addition, the agreement i.) provides
that the Company assume leases at three locations that were subleased by Kmart;
ii.) amends certain lease provisions on four other properties leased by Kmart;
and iii.) allows the Company to develop outlots at seven Kmart properties and
retain all revenue generated from
15
<PAGE> 16
these outlots. The cash payment has been recorded as deferred income and is
being amortized as income on a straight-line basis over a six-year period which
represents the weighted average remaining base term of the leases involved.
Revenue recognized under the agreement was $428,000 during each of 1997 and 1996
and $71,000 during 1995.
The Company has re-leased two of the five closed stores on terms which
approximate the annual revenue received under the previous leases with Kmart,
and intends to re-lease the remaining three stores. The Company has also leased
two of the outlots and intends to develop and lease the remaining outlots. It is
possible that the Company may be unable to re-lease the remaining stores or
develop and lease the outlots within the next several years. Such loss of
revenue may have an affect on the Company's future cash flows and results of
operations.
In order to fund its commitments and other potential uses of cash
discussed below, the Company obtained a $25 million secured line of credit (the
"Greenwich Capital Line") provided by Greenwich Capital Markets, Inc., a
division of National Westminister Bank, Plc. in November 1997. The loan is
secured by separate cross-collateralized and cross-defaulted mortgages or deeds
of trust on 16 properties owned by a wholly owned subsidiary, Malan Revolver,
Inc. The line of credit has a two-year term, which may be extended for a period
of one year and can be expanded up to $50 million for additional acquisitions.
The facility carries an interest rate of London Interbank Offering Rate
("LIBOR") plus 150 basis points. Payments of interest only are due monthly. At
December 31, 1997, $20.69 million was available for borrowing under the facility
and $4.7 million was outstanding.
In January 1997 the Company refinanced certain bank debt with an $11.2
million loan with Daiwa Finance Corporation ("Daiwa"). The Daiwa loan is
collateralized by Fairlane Meadows and contained an earn-out provision whereby
the property could be revalued and the loan increased if the revised valuation
supported such an increase. In December 1997, pursuant to the earn-out
provision, the Company received an additional $1.67 million from Daiwa and the
loan was increased to $12.796 million. Current terms of the loan call for
monthly payments totaling $96,000 consisting of interest at the rate of 8.18%
per annum and principal amortized over a 30 year life. Real estate tax payments
and an annual replacement reserve of $32,000 are required to be escrowed
monthly. The loan is due in full on February 1, 2007, at which time a balloon
payment of approximately $11.4 million will be due.
The Company has a line of credit with First Chicago NBD totaling $1.5
million. The line is collateralized by the Company's interest in Orchard-14
Shopping Center in Farmington Hills, Michigan and is subject to certain other
restrictions as to its use. The line originally matured on January 23, 1998 but
has been extended to March 23, 1998 for the purpose of providing time to
complete a reappraisal of the property to increase the available loan amount.
Payments of interest only at either the bank's prime rate, or LIBOR plus 200
basis points under certain conditions, are due monthly until maturity. As of
December 31, 1997 there was no outstanding balance on the line.
16
<PAGE> 17
In November 1997, the Company acquired a 42,000 square foot, 12-plex
theater complex in Lawrence, Kansas under a sale and leaseback agreement with an
existing tenant. Total cost of the theater was approximately $4.2 million which
was funded out of proceeds from the Greenwich Capital Line. The lease is for a
twenty-year term at a base rent of $587,000 per year increasing to $629,000
after ten years and requires payment of all real estate taxes and operating
expenses by the tenant.
In July 1997, the Company signed an agreement with Cinemark USA
("Cinemark") to construct a 60,000 square foot, 17-plex theater complex on its
property in North Aurora, Illinois. Once completed, the Company will provide a
construction allowance to Cinemark of $65 per square foot or approximately $3.9
million. Cinemark will subsequently ground lease the property from the Company
for a base term of twenty years with annual rent of approximately $746,000, plus
reimbursement of real estate taxes and operating costs. The site had previously
been leased to Kmart under an agreement which expired March 31, 1997 that had
provided approximately $39,000 and $126,000 in net cash flow during calendar
years 1997 and 1996, respectively. Construction of the theater began in October
1997 and is anticipated to be completed in May 1998. Total costs of the
development to the Company are estimated to be approximately $4.3 million and
are anticipated to be funded out of proceeds from the Greenwich Capital Line.
On December 1, 1995, the Company's lease with Builders Square at its
Melrose Park, Illinois property was terminated. On an annual basis, revenues
from this lease were approximately $650,000. In 1997 and 1996, the net decrease
in revenues from 1995 resulting from the termination were approximately $537,000
and $347,000, respectively. The Company has entered into a separate agreement
with Cinemark to construct a 58,000 square foot, 10-plex theater complex on the
property. Construction was originally anticipated to begin in the second quarter
1997 and to be completed in the first quarter 1998, however the project
commencement date was delayed until February 1998 and completion is now
anticipated to take place in November 1998. Once completed, the Company will
provide a construction allowance of $65 per square foot to Cinemark who will
then ground lease the property for a term of twenty years with annual rent of
approximately $950,000 plus reimbursement of real estate taxes and operating
costs. Total costs of the development are estimated to be approximately $4.2
million and are anticipated to be funded out of proceeds from the Greenwich
Capital Line.
The Company has outstanding as of December 31, 1997 and 1996 $56.680
million and $61.285 million, respectively, in Convertible Debentures (the
"Debentures") and $27 million in Convertible Notes (the "Notes"). The Debentures
are 10-year unsecured general obligations of the Company due July 15, 2004, have
a coupon rate of interest of 9.5% per annum, payable semiannually and carry a
rating of B3 from Moody's Investors Services, Inc. The Debentures are
convertible, at anytime after issuance and prior to maturity into shares of
Common Stock at the conversion price of $17 per share subject to adjustment
under certain conditions. The Debentures are not redeemable by the Company prior
to July 15, 2001, except for certain reasons intended to protect the Company's
status as a REIT. During 1997, $4.605 million aggregate principal of Debentures
were converted into 270,878 shares of Common Stock.
17
<PAGE> 18
The Notes are nine-year general obligations due July 15, 2003 secured
by a first mortgage on the Bricktown Square Shopping Center and bear interest at
the rate of 8.5% per annum, payable semiannually and are convertible into shares
of Common Stock at any time after June 24, 2002 at a conversion price of $17 per
share. Prior to this date, the holder may also demand conversion of limited
quantities of the Notes subject to certain timing restrictions. None of the
Notes have been converted to date.
The Company is currently redeveloping its existing retail center in
Lawrence, Kansas. In addition to expansion and improvement of the existing Kmart
store, the Company intends to add approximately 150,000 square feet of new
retail space. Total cost of the redevelopment project to the Company is
anticipated to be approximately $9 million including land costs. In order to
facilitate the additional space, the Company purchased approximately 9 acres of
land in November 1997 for $2.9 million which was funded out of proceeds from the
Greenwich Capital Line.
In February 1998, the Company acquired the Westland Shopping Center in
Westland, Michigan for $7.925 million. Terms of the agreement included
assumption of a $5.9 million, 8.02% mortgage with Wells Fargo Bank and a cash
payment of $2.025 million, which was funded out of proceeds from the Greenwich
Capital Line. The mortgage calls for monthly payments of interest and principal
amortized over a 30-year life and is due in full in November 2007. Net operating
income from the 85,000 square foot center, which has Dick's Sporting Goods and
Med-Max, Inc. as its anchor tenants, is anticipated to be approximately $893,000
annually.
The Company has been informed by Kmart that they will not renew their
lease at the Company's Gary, Indiana shopping center which expires on September
30, 1998. Annual revenues under this lease are approximately $257,000. Kmart
closed this store in 1995 and subsequently sublet the building to a non-retail
user. The Company is currently negotiating with the sublessee to either re-lease
the building or acquire the entire property and is also marketing the property
in an attempt to obtain other potential tenants and/or purchasers. It is
possible that the Company may be unable to lease or sell the property or that
revenues generated from any lease or sale may be less than that currently
received from Kmart. If such events occur, future cash flows may be impacted.
The Company incurs capital expenditures in the ordinary course of
business in order to maintain its properties. Such capital expenditures
typically include roof, parking lot and other structural repairs, some of which
are reimbursed by tenants. In 1997, the Company spent approximately $1 million
for capital expenditures funded primarily out of the Capital
Improvement/Replacement Reserve required for the Company's Securitized Mortgage
Loan financing and partially from operating cash flows. The Company anticipates
spending approximately $1.1 million for capital expenditures in 1998, also to be
funded from similar sources.
18
<PAGE> 19
Occasionally it is necessary for the Company to provide inducements
such as building allowances or space improvements and/or to pay leasing
commissions to outside brokers in order to procure new tenants or renegotiate
expiring leases with current tenants. The total cost of these expenditures in
1997 was approximately $501,000. These expenditures are generally funded by
operating cash flows and increased revenues resulting from such expenditures. In
1998, the Company anticipates spending approximately $242,000 on such
expenditures.
The Company has entered into the following commitments as of December
31, 1997:
Anticipated
Approximate Funding
Amount Date
------ ----
(in thousands)
Payment of tenant construction
allowance on 17-plex theater
complex - North Aurora, IL $ 3,835 July 1998
Replacement of roof on one retail
building 209 May 1998
Redevelopment of existing retail March 1998 -
property - Lawrence, KS 2,500(1) October 1998
Payment of tenant construction
allowance on 10-plex theater complex-
Melrose Park, IL 3,773 November 1998
-------
Total $10,317 March 1998 -
======= November 1998
(1) Contracts awarded as of December 31, 1997
In addition to these commitments and other potential uses of cash
discussed above, several other new developments and redevelopments are being
contemplated by the Company and may be completed within the next year. It is
anticipated that the additional revenue generated by these projects, as well as
the Company's existing equity in each, will create sufficient value so that each
project will fully fund itself using property specific financing and long-term
loans. In addition, as of December 31, 1997 the Company had approximately $16
million available on the Greenwich Capital Line for further acquisitions,
redevelopments and working capital.
The Company anticipates that its cash flow from operations will
generally be sufficient to
19
<PAGE> 20
fund its cash needs for payment of expenses, capital expenditures (other than
acquisitions and redevelopments) and to maintain the Company's current
distribution policy. The Company currently has available borrowing of up to $1.5
million on the First Chicago NBD line of credit for temporary working capital
needs and it is anticipated that the Company will extend this line beyond it
current expiration date at an increased amount. The Company intends to enter
into other secured and unsecured financing agreements in the future as the need
arises.
The Company's major tenant, Kmart, accounted for approximately 39.0% of
its gross revenue and 39.4% of its base minimum rent in 1997. Since its IPO, the
Company has substantially reduced its exposure to Kmart through acquisitions and
redevelopments of properties, lease termination agreements with Kmart and the
assumption of certain Kmart sublease agreements. At the IPO, Kmart accounted for
approximately 60.1% of the Company's annualized base minimum rents.
Each of the above statements regarding future revenues or expenses may
be a "forward looking statement" within the meaning of the Securities Exchange
Act of 1934. Such statements are subject to important factors that could cause
actual results to differ materially from those in the forward looking statement,
including the factors set forth in the Management's Discussion and Analysis of
Financial Condition and Results of Operations.
INFLATION
The Company's long-term leases contain provisions to mitigate the
adverse impact of inflation on its results from operations. Such provisions
include clauses entitling the Company to receive (i) scheduled base rent
increases and (ii) percentage rents based upon tenants' gross sales, which
generally increase as prices rise. In addition, many of the Company's non-anchor
leases are for terms of less than ten years, which permits the Company to seek
increases in rents upon re-rental at then current market rates if rents provided
in the expiring leases are below then existing market rates. Most of the
Company's leases require tenants to pay a share of operating expenses, including
common area maintenance, real estate taxes, insurance and utilities, thereby
reducing the Company's exposure to increases in costs and operating expenses
resulting from inflation.
20
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Independent Auditors' Report 22
Consolidated Balance Sheets as of December 31, 1997 and 1996 23
Consolidated Statements of Operations for Each of the Three Years 24
in the Period Ended December 31, 1997
Consolidated Statements of Shareholders' Equity for Each of the Three
Years in the Period Ended December 31, 1997 25
Consolidated Statements of Cash Flows for Each of the Three
Years in the Period Ended December 31, 1997 26
Notes to Consolidated Financial Statements 27
Consolidated Financial Statement Schedule III - Real Estate and Accumulated
Depreciation 41
</TABLE>
Schedules other than those listed above are omitted because they are not
applicable, not required, or the information required to be set forth therein is
included in the consolidated financial statements or the notes thereto.
21
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Malan Realty Investors, Inc.
We have audited the consolidated financial statements and the
consolidated financial statement schedule listed at Item 8 of Malan Realty
Investors, Inc. and Subsidiaries (the "Company"). These financial statements and
the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of December
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. Also in our opinion, such consolidated
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Detroit, Michigan
January 30, 1998
22
<PAGE> 23
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
--------- ----------
<S> <C> <C>
ASSETS:
Real Estate (Note 2):
Land $ 22,302 $ 18,296
Buildings and improvements 193,483 189,294
--------- ---------
Total 215,785 207,590
Less: accumulated depreciation (15,817) (10,907)
--------- ---------
Total 199,968 196,683
Other Assets:
Accounts receivable (net of allowance
of $78 and $96 at December 31, 1997 and 1996) 1,608 1,332
Deferred financing and other 10,705 10,752
Cash and cash equivalents 1,717 6,966
Escrow deposits (Note 2) 2,140 2,119
--------- ---------
Total Assets $ 216,138 $ 217,852
========= =========
LIABILITIES:
Mortgages (Note 2) $ 88,585 $ 83,643
Convertible debentures (Note 2) 56,680 61,285
Convertible notes (Note 2) 27,000 27,000
Deferred income (Note 9) 2,102 2,493
Accrued distributions payable 1,620 1,472
Accounts payable and other 845 1,535
Accrued property taxes 1,184 1,157
Accrued interest payable 4,180 4,274
--------- ---------
Total liabilities 182,196 182,859
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY (Notes 3, 4 AND 8)
Common stock ($.01 par value, 30 million
shares authorized, 3,737,936 and
3,463,684 shares issued and outstanding as of
December 31, 1997 and 1996) 37 35
Additional paid in capital 50,485 45,960
Accumulated distributions in excess
of net income (16,580) (11,002)
--------- ---------
Total shareholders' equity 33,942 34,993
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 216,138 $ 217,852
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23
<PAGE> 24
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
---------- ---------- ----------
REVENUES
<S> <C> <C> <C>
Minimum rent (Note 5) $ 24,092 $ 23,836 $ 22,100
Percentage and overage rents 1,177 1,164 963
Recoveries from tenants 9,271 9,340 8,662
Interest and other income 443 623 522
---------- ---------- ----------
TOTAL REVENUES 34,983 34,963 32,247
---------- ---------- ----------
EXPENSES
Property operating and maintenance 2,867 2,769 1,961
Other operating expenses 1,493 1,481 1,216
Real estate taxes 7,891 7,715 7,511
General and administrative 1,545 1,664 1,463
Depreciation and amortization 5,068 4,920 4,597
---------- ---------- ----------
TOTAL OPERATING EXPENSES 18,864 18,549 16,748
---------- ---------- ----------
OPERATING INCOME 16,119 16,414 15,499
INTEREST EXPENSE 15,576 15,815 13,749
---------- ---------- ----------
NET INCOME $ 543 $ 599 $ 1,750
========== ========== ==========
BASIC EARNINGS PER SHARE (Note 13) $ 0.15 $ 0.17 $ 0.49
========== ========== ==========
Weighted average common shares outstanding 3,545,759 3,464,323 3,546,883
========== ========== ==========
DILUTED EARNINGS PER SHARE (Note 13) $ 0.15 $ 0.17 $ 0.49
========== ========== ==========
Weighted average common and dilutive
shares outstanding 3,590,985 3,475,095 3,546,883
========== ========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
24
<PAGE> 25
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED DEFERRED
DISTRIBUTIONS IN COMPENSATION TOTAL
PAR ADDITIONAL EXCESS OF -INCENTIVE SHAREHOLDERS'
VALUE PAID-IN CAPITAL NET INCOME SHARES EQUITY
------------ ------------------ ------------------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $38 $49,682 ($1,444) ($185) $48,091
Amortization of deferred
compensation-incentive
shares (Note 3) 125 125
Conversion of debt securities 2 2,398 2,400
Common shares repurchased (4) (5,096) (5,100)
Distributions - $1.70 per share (6,023) (6,023)
Net income 1,750 1,750
----------- ----------------- ------------------ ----------------- --------------
BALANCE, DECEMBER 31, 1995 36 46,984 (5,717) (60) 41,243
Amortization of deferred
compensation-incentive
shares (Note 3) 60 60
Common shares repurchased (1) (1,096) (1,097)
Directors compensation paid in stock 48 48
Stock options exercised 24 24
Distributions - $1.70 per share (5,884) (5,884)
Net income 599 599
----------- ----------------- ------------------ ----------------- --------------
BALANCE, DECEMBER 31, 1996 35 45,960 (11,002) 34,993
Conversion of debt securities 2 4,469 4,471
Directors compensation paid in stock 48 48
Stock options exercised 8 8
Distributions - $1.70 per share (6,121) (6,121)
Net income 543 543
------------ ------------------ ------------------- ----------------- --------------
BALANCE, DECEMBER 31, 1997 $37 $50,485 ($16,580) $33,942
============ ================== =================== ================= ==============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
25
<PAGE> 26
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 543 $ 599 $ 1,750
-------- -------- --------
Adjustments to reconcile net income to net cash flows provided by operating
activities:
Depreciation and amortization 5,068 4,920 4,597
Amortization of deferred financing costs 1,620 1,581 824
Amortization of deferred compensation expense 60 125
Directors compensation issued in stock 48 48
Change in operating assets and liabilities that provided (used) cash:
Accounts receivable and other (982) (961) 1,225
Accounts payable, deferred income and other
accrued liabilities (1,148) 870 20
-------- -------- --------
Total adjustments 4,606 6,518 6,791
-------- -------- --------
NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES 5,149 7,117 8,541
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate developed, acquired or improved (8,195) (1,505) (31,868)
Additions to leasehold improvements and equipment (8)
Deposits to escrow (17,274) (17,642) (5,876)
Disbursements from escrow 17,253 16,985 4,415
-------- -------- --------
NET CASH FLOWS USED FOR
INVESTING ACTIVITIES (8,216) (2,162) (33,337)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Draws on lines of credit 6,200 15,500
Repayment of lines of credit (1,500) (50,250)
Net proceeds from REMIC offering 55,751
Principal repayments on mortgages (1,428) (91) (88)
Net proceeds from mortgages 1,670 12,450
Distributions to shareholders (5,973) (5,921) (6,121)
Debt issuance costs (1,159)
Proceeds from stock options exercised 8 24
Repurchases of common stock (1,096) (5,100)
-------- -------- --------
NET CASH FLOWS PROVIDED BY (USED FOR)
FINANCING ACTIVITIES (2,182) (7,084) 22,142
-------- -------- --------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (5,249) (2,129) (2,654)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 6,966 9,095 11,749
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,717 $ 6,966 $ 9,095
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION- CASH PAID FOR
INTEREST DURING THE YEAR $ 14,058 $ 14,139 $ 13,104
======== ======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
26
<PAGE> 27
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
General - The Company is engaged in the ownership, management, leasing,
acquisition, development and redevelopment of shopping centers and entertainment
facilities and leases space to tenants pursuant to lease agreements. The lease
agreements provide for terms ranging from one to 25 years and, in some cases,
for annual rentals which are subject to upward adjustment based on operating
expense levels and sales volume.
Basis of Combination and Principles of Consolidation - The accompanying
consolidated financial statements include the activity of the Company and its
wholly owned subsidiaries, Malan Mortgagor, Inc., Malan Meadows, Inc. and Malan
Revolver, Inc. All significant intercompany balances and transactions have been
eliminated.
Reclassifications - Certain reclassifications have been made to prior years
financial statements in order to conform with the current year presentation.
Real Estate is stated at cost less accumulated depreciation and amortization.
Depreciation and amortization are provided on a straight line basis over the
estimated useful lives of the assets as follows:
Buildings ................................................... 40 Years
Land and Building Improvements............................... 10-40 Years
Maintenance and repairs are charged to expense as incurred. Renovations
which improve or extend the life of the asset are capitalized.
Deferred Financing and Other consists primarily of deferred financing costs and
lease procurement costs. Deferred financing costs at December 31, 1997 and 1996
of $12,764,000 and $11,738,000, respectively, are amortized on a straight line
basis over the terms of the applicable debt agreements. Accumulated amortization
of deferred financing costs at December 31, 1997 and 1996 was $4,147,000
27
<PAGE> 28
and $2,527,000, respectively, and amortization expense for 1997, 1996 and 1995
was $1,620,000,$1,581,000 and $824,000, respectively, and are included in
interest expense in the Consolidated Statement of Operations.
Lease procurement costs of $1,605,000 and $1,176,000 at December 31,
1997 and 1996, respectively, consist of leasing costs, tenant allowances and
tenant improvements and are amortized on a straight line basis over the terms of
the applicable tenant lease. Accumulated amortization of lease procurement costs
at December 31, 1997 and 1996 was $273,000 and $150,000, respectively, and
amortization expense for 1997, 1996 and 1995 was $193,000, $102,000, and
$199,000, respectively.
Revenue Recognition - Minimum rents are recognized on the straight line method
over the terms of the leases. Percentage rents are recognized as earned. The
leases also typically provide for tenant reimbursement of common area
maintenance and other operating expenses which are included in the accompanying
Consolidated Statements of Operations as recoveries from tenants.
Income received on lease terminations is deferred and recognized on a
straight line basis over the remaining term of the leases involved. Deferred
income related to such terminations was approximately $1,674,000 and $2,187,000
at December 31, 1997 and 1996, respectively, and approximately $577,000,
$428,000 and $71,000 was recognized as rental income for the years ended
December 31, 1997, 1996 and 1995, respectively. Payments received under normal
lease clauses which provide for the acceleration of the lease expiration date
upon receipt of such payment are recognized as income when received.
Income Taxes - The Company has elected to be taxed as a real estate investment
trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code").
As a REIT, the Company generally will not be subject to federal income taxation
at the corporate level to the extent it distributes annually at least 95% of its
real estate investment trust taxable income, as defined in the Code, to its
stockholders and satisfies certain other requirements. Accordingly, no provision
has been made for federal income taxes in the accompanying financial statements.
Earnings per common share - The Company adopted Statement of Financial
Accounting Standards (SFAS) No.128, "Earnings per Share," for the year ended
December 31, 1997. SFAS No. 128 replaces the presentation of primary earnings
per share ("EPS") and fully diluted EPS with a presentation of basic EPS and
diluted EPS, respectively. Basic EPS excludes potential share dilution and is
computed by dividing earnings available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution of securities that could share in the earnings
but does not include shares issuable upon conversion of securities that would
have an antidilutive effect on earnings per share. All prior-period EPS data
have been restated. The adoption of this new accounting standard does not have a
material effect on the Company's reported EPS amounts.
Distributions of $1.70 per common share were declared for each of the years
ended December 31,
28
<PAGE> 29
1997, 1996 and 1995 of which $1.70, $1.34 and $.46, respectively, represent a
return of capital for federal income tax purposes.
Cash and cash equivalents consist of deposits in banks and certificates of
deposit with maturities of three months or less at the date of purchase.
Long-lived assets and long-lived assets to be disposed of - The Company accounts
for long-lived assets and long-lived assets to be disposed of in accordance with
SFAS No. 121. This statement establishes accounting standards for the impairment
of long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used, and long-lived assets and certain identifiable
intangibles to be disposed of. The Company's assets are periodically reviewed
throughout the year for impairments in value and in management's opinion no
impairments have occurred requiring writedowns during the years ended December
31, 1997, 1996 and 1995.
Management estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities 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.
2. MORTGAGES, DEBENTURES AND NOTES
The Company has a $63 million term mortgage loan (the "Securitized
Mortgage Loan") utilizing a real estate mortgage investment conduit (REMIC). The
loan is secured by separate cross-collateralized and cross-defaulted mortgages
or deeds of trust on 25 properties owned by a wholly owned subsidiary, Malan
Mortgagor, Inc., and matures on August 10, 2002. Payments of interest only are
due monthly. Through the use of interest rate caps and floor agreements, the
effective interest rate is fixed at 7.57% through February 10, 2002; thereafter,
the interest rate on $42 million of the mortgage loans converts to a variable
rate based on certain requirements.
As part of the Securitized Mortgage Loan, the Company must continue to
fund certain up-front reserves on an ongoing basis and request disbursement of
funds as certain requirements are met. The Capital Improvements/Replacement
Reserve requires an annual deposit (funded monthly) equal to $0.20 per
qualifying square foot as defined in the agreement or approximately $575,000 per
year. The Basic Carrying Cost Reserve which is utilized to pay certain real
estate taxes, ground lease payments and insurance payments related to the
properties of Malan Mortgagor, Inc. requires a monthly deposit equal to
one-twelfth of the estimated annual cost of these expenses or approximately $1.3
million per annum.
An additional provision in the agreement provides that in the event
that the long-term debt rating of either of the two major tenants of the
collateralized properties, Kmart or Wal-Mart, is downgraded to 'BB+' or lower,
the Company is required to maintain an additional amount in the Basic
29
<PAGE> 30
Carrying Cost Reserve equal to 1/4 of the applicable real estate tax obligation
borne by those tenants. In January 1996, the long-term debt rating of Kmart was
lowered to 'BB' and accordingly, the Company was required to make an additional
deposit to the Basic Carrying Cost account of $561,000.
In November 1997, the Company obtained a $25 million secured line of
credit provided by Greenwich Capital Markets, Inc., a division of National
Westminister Bank, Plc. The loan is secured by separate cross-collateralized and
cross-defaulted mortgages or deeds of trust on 16 properties owned by a wholly
owned subsidiary, Malan Revolver, Inc. The line of credit has a two-year term,
which may be extended for a period of one year and can be expanded up to $50
million for additional acquisitions. The facility carries an interest rate of
London Interbank Offering Rate ("LIBOR") plus 150 basis points. Payments of
interest only are due monthly. At December 31, 1997, $20.69 million was
available for borrowing under the facility and $4.7 million was outstanding on
the line of credit.
In January 1997, the Company refinanced certain bank debt with an $11.2
million loan with Daiwa Finance Corporation ("Daiwa"). The Daiwa loan is
collateralized by the Company's interest in The Shops at Fairlane Meadows
("Fairlane Meadows") in Dearborn, Michigan and contained an earn-out provision
whereby the property could be revalued and the loan increased if the revised
valuation supported such an increase. In December 1997, pursuant to the earn-out
provision, the Company received an additional $1.67 million from Daiwa and the
loan was increased to $12.796 million. Current terms of the loan call for
monthly payments totaling $96,000 consisting of interest at the rate of 8.18%
per annum and principal amortized over a 30-year life. Real estate tax payments
and an annual replacement reserve of $32,000 are required to be escrowed
monthly. The loan is due in full on February 1, 2007, at which time a balloon
payment of approximately $11.4 million will be due. As part of the loan
agreement with Daiwa, the Company transferred its interest in Fairlane Meadows
to a wholly owned subsidiary, Malan Meadows, Inc. in January 1997.
The Company has a line of credit with First Chicago NBD totaling $1.5
million. The line is collateralized by the Company's interest in Orchard-14
Shopping Center in Farmington Hills, Michigan and is subject to certain other
restrictions as to its use. The line originally matured on January 23, 1998 but
has been extended to March 23, 1998 for the purpose of providing time to
complete a reappraisal of the property to increase the available loan amount.
Payments of interest only at either the bank's prime rate, or LIBOR plus 200
basis points under certain conditions, are due monthly until maturity. As of
December 31, 1997 there is no outstanding balance on the line.
The Company has outstanding as of December 31, 1997 and 1996 $56.680
million and $61.285 million, respectively, in Convertible Debentures (the
"Debentures") and $27 million in Convertible Notes (the "Notes"). The Debentures
are 10-year unsecured general obligations of the Company due July 15, 2004, have
a coupon rate of interest of 9.5% per annum, payable semiannually and carry a
rating of B3 from Moody's Investors Services, Inc. The Debentures are
convertible, at anytime after issuance and prior to maturity into shares of
Common Stock at the conversion price of $17 per share subject to adjustment
under certain conditions. The Debentures are not redeemable by the Company prior
to July 15, 2001, except for certain reasons intended to protect the Company's
status as a REIT. During 1997, $4.605 million aggregate principal of Debentures
were converted into 270,878 shares of Common Stock.
The Notes are nine-year general obligations due July 15, 2003 secured
by a first mortgage on Bricktown Square in Chicago, Illinois and bear interest
at the rate of 8.5% per annum, payable semiannually and are convertible into
shares of Common Stock at any time after June 24, 2002 at a
30
<PAGE> 31
conversion price of $17 per share. Prior to this date, the holder may also
demand conversion of limited quantities of the Notes subject to certain timing
restrictions.
Net settlement costs paid under interest rate cap agreements are
recorded on an accrual basis and recognized as an adjustment to interest
expense.
Several of the above debt agreements contain restrictive financial
covenants, all of which the Company was in compliance with as of December 31,
1997.
The following table sets forth certain information regarding the
Company's debt outstanding as of December 31, 1997 and 1996.
<TABLE>
<CAPTION>
BALANCE
INTEREST MATURITY DECEMBER 31,
COLLATERAL RATE DATE 1997 1996
---------- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Mortgages
Greenwich Capital 16 Retail LIBOR + November $ 4,700 $ --
Line of Credit Properties 150 Basis 1999
UDAG Loan Bricktown 5% March 8,097 8,193
Square increasing 2023
to 9%
Securitized Mortgage Loan 25 Retail 7.57% (1) August 63,000 63,000
Properties 2002
Daiwa Finance Corp. The Shops at 8.18% February 12,788 12,450
Fairlane 2007
Meadows
------- -------
Total Mortgages $88,585 $83,643
======= =======
Convertible Debentures 9.5% July $56,680 $61,285
2004 ======= =======
Convertible Notes Bricktown July
Square 8.5% 2003 $27,000 $27,000
======= =======
</TABLE>
(1) Overall blended rate. The interest rate on four different tranches are
either fixed or capped through the use of an interest rate cap and floor.
31
<PAGE> 32
Approximate scheduled principal payments for the years subsequent to December
31, 1997 are as follows (in thousands):
1998........................................... $ 193
1999 .......................................... 4,908
2000 .......................................... 222
2001 .......................................... 238
2002 .......................................... 63,255
2003 and thereafter ........................... 103,449
--------
Total ................................ $172,265
========
3. INCENTIVE SHARES
Upon completion of its initial public offering, the Company's president
and chief executive officer donated 23,700 shares of Common Stock to be
distributed in varying amounts to substantially all of the Company's employees,
subject to certain forfeiture restrictions. The donation was recorded at its
fair market value as additional paid in capital and deferred compensation
expense. Compensation expense recognized during 1996 and 1995 was $60,000 and
$125,000, respectively. On June 18, 1996 all forfeiture restrictions lapsed and
the unforfeited shares became the unrestricted property of each recipient.
4. WARRANTS AND STOCK OPTION AND COMPENSATION PLANS
Warrants - In connection with its initial public offering, the Company
issued warrants to National Westminister Bank Plc, New York branch, an affiliate
of one of the underwriters, for the purchase of 353,000 shares of common stock.
The warrants are exercisable for a period of four years commencing June 17, 1995
at a price of $20.40 per share. No warrants have been exercised.
Employee Option Plan - The Company has a stock option plan (the
"Employee Option Plan") to enable its employees to participate in the ownership
of the Company. Under the Employee Option Plan, executive officers and employees
of the Company may be granted options to acquire shares of Common Stock of the
Company ("Options"). The Employee Option Plan is administered by the
compensation committee of the Board of Directors (the "Board"), which is
authorized to select the executive officers and other employees to whom Options
are to be granted. No member of the compensation committee is eligible to
participate in the Employee Option Plan. The aggregate number of shares of
Common Stock that may be issued upon the exercise of all Options is 400,000
shares.
The exercise price of each Option granted is equal to the aggregate
fair market value of the underlying shares on the date of grant. With the
exception of those granted on the date of the Company's initial public offering,
which vested over a three-year period at the rate of 33 1/3% per year, Options
vest over a five-year period at the rate of 20% per year, beginning on the first
anniversary of the date of grant and are exercisable until the tenth anniversary
of the date of grant.
Directors Option Plan - In 1995, the Company adopted the 1995 Stock
Option Plan for Non- employee Directors of the Company (the "Directors Option
Plan"). Under the Directors Option Plan, each non-employee Director of the
Company received an option to purchase 1,500 shares of Common Stock of the
Company following the 1995 Annual Meeting of the Board. Following each Annual
Meeting of the Board thereafter, each non-employee Director will automatically
be granted an option to purchase 1,000 shares of Common Stock.
32
<PAGE> 33
All Options granted under the Directors Option Plan will have an exercise price
equal to the fair market value of the underlying shares on the date of the
grant. Each Option granted will vest immediately upon grant but will not become
exercisable by the Director until six months following the date of grant.
Options granted to a Director will remain exercisable until the tenth
anniversary of the date of grant or, if earlier, until one year after the
Director ceases to be a member of the Board for any reason. The aggregate number
of shares that may be issued under the Directors Option Plan is 80,000 shares.
The following table summarizes the activity for the Company's Stock Option
Plans:
<TABLE>
<CAPTION>
Employee Option Plan Directors Option Plan
----------------------------------------- ------------------------------------------
Shares Exercise Weighted Shares Exercise Weighted
Subject Price Avg. Subject Price Avg.
to Option Per Share Exercise Price to Option Per Share Exercise Price
--------- --------- -------------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1995 148,500 $17.00 $17.00
Options Granted 1995 101,500 $13.375 $13.375 6,000 $14.50 $ 14.50
------- ------
Balance,
December 31, 1995 250,000 $15.528 6,000 $ 14.50
Options Granted 1996 54,000 $14.375- $14.449 4,000 $14.375 $ 14.375
$15.375
Options Exercised 1996 (1,708) $14.375 $ 14.375
------- -------
Balance, $13.375- $14.375-
December 31, 1996 304,000 $17.00 $15.383 8,292 $14.50 $ 14.465
Options Granted 1997 4,000 $17.125 $ 17.125
Options Exercised 1997 ( 634) $13.375 $13.375 ------
--------
Balance
December 31, 1997 303,366 $13.375- $15.383 12,292 $14.375- $ 15.331
======= ======
$17.00 $17.125
Options Exercisable
at December 31, 1997 199,266 16.135 12,292 $ 15.331
======= ====== ====== ========
</TABLE>
In accordance with the Statement of Financial Accounting Standard No.
123, Accounting for Stock-Based Compensation, the Company has elected to
continue to report compensation by applying the requirements of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and
therefore has recorded no charge to income for stock options. There would have
been no effect on the Company's proforma net income and earnings per share for
1997 and 1996 had the Company recognized compensation expense using the
Black-Scholes option pricing model utilizing the
33
<PAGE> 34
following values and weighted-average assumptions:
1997 1996
---- ----
Option value ........................... $0.54 $0.03
Dividend yield ......................... 9.9% 11.8%
Expected volatility .................... 17% 10%
Risk-free interest rate ................ 6% 6%
Expected lives (in years) .............. 10 10
The outstanding stock options at December 31, 1997 have a weighted
average contractual life of 7.97 years.
Stock Compensation Plan - In order to provide an opportunity for non-employee
Directors to increase their ownership, the Company adopted in May 1995, the 1995
Stock Compensation Plan for Non-employee Directors (the "Stock Compensation
Plan"). Under the Stock Compensation Plan, each non-employee Director may make
an election by June 30 of each year to receive all or a portion of the
Director's compensation for the following calendar year in the form of Common
Stock of the Company in lieu of cash. Once made, the election is irrevocable for
the following year's compensation.
The number of shares of Common Stock to be paid to a Director instead
of cash compensation will be determined based on the closing price of the Common
Stock on the New York Stock Exchange on the day before the compensation is
earned by the Director (i.e., the day before a Board meeting). The plan became
effective January 1, 1996. A maximum of 100,000 shares may be issued under the
Stock Compensation Plan. During 1997 and 1996, a total of 2,740 and 3,272
shares, respectively, were issued under the plan reflecting compensation of
$48,000 in each year.
5. COMMITMENTS AND CONTINGENCIES
Revenues derived from the Company's major tenant, Kmart, amounted to
39.0%, 38.2% and 46.4% of consolidated revenues arising from lease agreements
for the years ended December 31, 1997, 1996 and 1995, respectively. Amounts
receivable from the major tenant were $56,000 and $47,000 at December 31, 1997
and 1996, respectively.
Approximate future minimum rent under operating leases for the years
subsequent to December 31, 1997, assuming no new or renegotiated leases or
option extensions, are as follows (in thousands):
1998........................................... $ 23,792
1999 .......................................... 22,539
2000 .......................................... 20,599
2001 .......................................... 19,381
2002 .......................................... 17,247
2003 and thereafter ........................... 104,009
--------
Total ................................ $207,567
========
34
<PAGE> 35
Approximate future minimum rental payments under the terms of all
non-cancelable operating leases in which the Company is the lessee, principally
for ground leases and office rent, subsequent to December 31, 1997, are as
follows (in thousands):
1998...................................... $ 503
1999 ..................................... 472
2000 ..................................... 442
2001 ..................................... 388
2002 ..................................... 270
2003 and thereafter ...................... 8,134
-------
Total............................ $10,209
=======
Rent expense for operating leases for the years ended December 31, 1997, 1996
and 1995 was $498,000 $457,000 and $481,000, respectively.
The Company has entered into the following commitments as of December
31, 1997:
<TABLE>
<CAPTION>
Anticipated
Approximate Funding
Amount Date
-------------- ---------------
(in thousands)
<S> <C> <C>
Payment of tenant construction
allowance on 17-plex theater
complex - North Aurora, IL $3,835 July 1998
Replacement of roof on one retail
building 209 May 1998
Redevelopment of existing retail
property - Lawrence, KS 2,500(1) March 1998 -
October 1998
Payment of tenant construction
allowance on 10-plex theater complex-
Melrose Park, IL 3,773 November 1998
--------
Total $ 10,317 March 1998 -
======== November 1998
</TABLE>
(1) Contracts awarded as of December 31, 1997
The Company, as an owner of real estate, is subject to various
environmental laws. Compliance by the Company with existing laws has not had a
material adverse financial effect during the three-year period ended December
31, 1997, nor does management believe it will have a material impact in the
future. However, management cannot predict the impact of new or changed laws or
regulations on its current properties or properties that it may acquire.
35
<PAGE> 36
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value was determined using
available market information and appropriate valuation methodologies. This
disclosure is made as required by SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments".
Cash and Cash Equivalents - The carrying amount for cash and cash equivalents
approximates fair value due to the short maturity of these instruments.
Interest Rate Hedging Instruments - The Company entered into interest rate
agreements to reduce its exposure to changes in the cost of the floating rate
portion of its Securitized Mortgage Loan.
As of December 31, 1997, the following interest rate cap agreements were
outstanding:
Notional Frequency
Amount LIBOR of Rate
(in thousands) Cap Rate Resets Term
------------- --------- ------- ----
$ 42,000 6.67% Monthly July 1995 to February 2002
42,000 8.75% Monthly February 2002 to August 2002
The Company is exposed to credit risk in the event of nonperformance by
the counterparties to its interest rate cap agreements, but has no off-balance
sheet risk of loss. The Company anticipates that its counterparties will fully
perform their obligations under the agreements.
The carrying value of the interest rate caps as of December 31, 1997
and 1996 was $1,310,000 and $1,595,000, respectively, and the fair value was
$890,000 and $1,200,000, respectively.
Mortgages - The fair value of the mortgages is based on the present value of
contractual cash flows and is as follows at December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------------
Carrying Estimated Fair Carrying Estimated Fair
Amount Value Amount Value
-------- --------------- -------- --------------
<S> <C> <C> <C> <C>
UDAG Loan $ 8,097 $ 4,529 $ 8,193 $ 4,455
Fairlane Meadows Mortgage 12,788 12,788 12,450 12,450
Greenwich Capital 4,700 4,700 -- --
Line of Credit
Securitized
Mortgage Loan 63,000 63,000 63,000 63,000
------- -------- -------- -------
TOTAL $88,585 $85,017 $83,643 $79,905
======= ======= ======== =======
</TABLE>
36
<PAGE> 37
Convertible Debentures and Convertible Notes - The fair value of the Convertible
Debentures is based on the traded value at the close of business at year end.
The carrying value of the Convertible Debentures as of December 31, 1997 and
1996 is $56.680 and $61.285 million, respectively. The estimated fair value
based upon the traded value at the close of business on December 31, 1997 and
1996 was $60.081 million and $60.672 million, respectively. Management believes
that the carrying value of the Convertible Notes as of December 31, 1997 and
1996 approximates the fair value.
The fair value estimates presented herein are based on information
available to management as of December 31, 1997 and 1996. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such financial instruments have not been comprehensively revalued
for purposes of these financial statements since that date, and current
estimates of fair value may differ significantly from the amounts presented
herein.
7. SIGNIFICANT NONCASH TRANSACTIONS
Significant noncash transactions for the three years ended December 31,
1997 are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Conversion of debentures into 270,878 in 1997
and 147,646 in 1995 shares of common stock,
net of unamortized costs $4,471 $2,400
Distributions declared not yet paid $1,620 $1,472 $1,509
</TABLE>
8. STOCK REPURCHASE PLAN
In January 1995, the Company's Board of Directors approved a plan to
repurchase up to 755,000 shares of the Company's Common Stock. Under the plan,
any purchases of Common Stock are to be made in the open market or in privately
negotiated transactions subject to SEC rules and regulations regarding such
transactions. During 1996 and 1995, the Company repurchased 91,500 and 376,500
shares, respectively, at an average cost of $11.98 and $13.47, respectively. No
shares were repurchased during the year ended December 31, 1997.
9. DEFERRED INCOME
In September 1995, the Company entered into an agreement with its
largest tenant, Kmart, regarding several stores within its portfolio. Under the
agreement, the Company received a cash payment on October 31, 1995 totaling
approximately $2.56 million as consideration for the termination of leases on
five stores previously closed by Kmart. In addition, the agreement i.) provides
that the Company assume leases at three locations that were subleased by Kmart;
ii.)
37
<PAGE> 38
amends certain lease provisions on four other properties leased by Kmart; and
iii.) allows the Company to develop outlots at seven Kmart properties and retain
all revenue generated from these outlots. The cash payment has been recorded as
deferred income and is being amortized as income on a straight-line basis over a
six-year period which represents the weighted average remaining base term of the
leases involved.
The Company has re-leased two of the closed stores at terms which
approximate the annual revenue received under the previous leases with Kmart and
intends to re-lease the remaining three stores. The Company has also leased two
of the outlots. Management intends to develop and lease the remaining outlots
discussed above. It is possible that the Company may be unable to re-lease the
remaining stores or develop and lease the outlots within the next several years.
Such loss of revenue may have an impact on the Company's future cash flows and
results of operations.
10. PROPERTY ACQUISITIONS
During the three years ended December 31, 1997, the Company acquired
the following properties:
<TABLE>
<CAPTION>
Gross
Acquisition Leasable
Date Property Locations Area Cost
- ----------- -------------- -------------- --------- ------------
(in thousands)
<S> <C> <C> <C> <C>
3/1/95 Expansion of Washington, IN 21,295 $ 1,625
Existing Wal-Mart
Store
6/4/95 Clinton Pointe Clinton Twp., MI 135,330 12,262
Shopping Center
9/16/95 The Shops at
Fairlane Meadows Dearborn, MI 137,508 16,617
11/24/97 Southwind Theater Lawrence, KS 42,497 4,207
------- ------
Totals 336,630 $34,711
======= ========
</TABLE>
11. PRO FORMA INFORMATION
The following unaudited table of pro forma information has been
presented as if the acquisitions of Clinton Pointe Shopping Center and The Shops
at Fairlane Meadows had occurred on January 1, 1995. In management's opinion,
all adjustments necessary to reflect the acquisitions of properties have been
made.
The pro forma information is not necessarily indicative of what the actual
results of operations of the Company would have been had such transactions
actually occurred as of January 1, 1995, nor do
38
<PAGE> 39
they purport to represent the results of the operations of the Company for
future periods (in thousands except per share data).
1995
----
Total revenues ..................... $ 35,118
Net income ......................... $ 1,270
Net income per share ............... $ 0.36
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the periods indicated are as
follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
Basic Diluted
Earnings Earnings
1997 Revenues Net income (loss) per share per share
- ---- --------- ----------------- --------- ---------
<S> <C> <C> <C> <C>
March 31 .......... $ 8,887 $ (7) $ - $ -
June 30 ........... 8,528 71 0.02 0.02
September 30 ...... 8,787 213 0.06 0.06
December 31 ....... 8,781 266 0.07 0.07
------- ------- -------- --------
TOTAL ............. $34,983 $ 543 $ 0.15 $ 0.15
======= ======= ======== ========
1996
- ----
March 31 ............ $ 8,919 $ 87 $ 0.03 $ 0.03
June 30 ............. 8,702 120 0.03 0.03
September 30 ........ 8,868 220 0.06 0.06
December 31 ......... 8,474 172 0.05 0.05
------- ------- -------- --------
TOTAL ............... $34,963 $ 599 $ 0.17 $ 0.17
======= ======= ======== ========
</TABLE>
39
<PAGE> 40
13. EARNINGS PER SHARE
Earnings per share ("EPS") data were computed as follows (in thousands except
per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Income $ 543 $ 599 $ 1,750
======= ======= =======
Basic EPS:
Weighted-average shares
outstanding 3,546 3,464 3,547
======= ======= =======
Basic earnings per share $ 0.15 $ 0.17 $ 0.49
======= ======= =======
Diluted EPS:
Weighted-average shares
outstanding 3,546 3,464 3,547
Shares issued upon exercise of dilutive
options 312 160 --
Shares purchased with proceeds of options (267) (149) --
------- -------- -------
Shares applicable to diluted earnings 3,591 3,475 3,547
======= ======= =======
Diluted earnings per share $ 0.15 $ 0.17 $ 0.49
======= ======= =======
</TABLE>
Diluted EPS reflects the potential dilution of securities that could
share in the earnings but does not include shares issuable upon conversion of
securities that would have an antidilutive effect on earnings per share.
14. SUBSEQUENT EVENTS
In January 1998, the Company entered into an agreement to acquire
Westland Shopping Center in Westland, MI for $7.925 million. Terms of the
acquisition include a cash payment of $2.025 million which is anticipated to be
funded out of the Company's line of credit with Greenwich Capital Markets, Inc.
and the assumption of a $5.9 million mortgage with Wells Fargo Bank. The
mortgage calls for monthly payments of interest at the rate of 8.02% per annum
and principal amortized over 30 years and is due in full November 1, 2007.
Subsequent to December 31, 1997 $946,000 aggregate principal of
Debentures were converted into 55,644 shares of common stock.
40
<PAGE> 41
MALAN REALTY INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
COST CAPITALIZED (SOLD)
SUBSEQUENT TO
INITIAL COST TO COMPANY ACQUISITION
----------------------- -----------------------
Buildings & Buildings &
STATE/TYPE ( # of properties) ENCUMBRANCES Land Improvements Land Improvements
- ---------------------------------------- ------------ -------- ------------ ------- --------------
<S> <C> <C> <C> <C> <C>
CALIFORNIA:
Free Standing Retail Properties (1) * $ 634 $ 5,704
ILLINOIS:
Community Shopping Centers (3) $ 35,097 4,073 36,654 $ 1,163
Free Standing Retail Properties (10) * 1,772 24,694 ($14) 386
INDIANA:
Community Shopping Centers (5) * 2,210 20,794 1,918
Free Standing Retail Properties (1) * 2,241 19
KANSAS:
Community Shopping Centers (3) * 757 8,477 2,902 230
Free Standing Retail Properties (8) * 731 6,578 258
Entertainment Facility (1) 1,118 3,090
MARYLAND:
Free Standing Retail Properties (1) * 282 2,534 177
MICHIGAN:
Community Shopping Centers (3) 12,788 3,501 31,505 244
MISSOURI:
Community Shopping Centers (4) * 969 11,764 500
Free Standing Retail Properties (1) * 85 768
OHIO:
Community Shopping Centers (1) * 694 6,240 30
WISCONSIN
Community Shopping Centers (7) * 2,045 21,535 540
Free Standing Retail Properties (4) * 543 4,885 555
------- -------- --------- ------- --------
$47,885 $ 19,414 $ 187,463 $ 2,888 $ 6,020
======= ======== ========= ======= ========
</TABLE>
* Certain properties are included as collateral for $63 million Securitized
Mortgage Loan and $25 million line of credit
The changes in total real estate for the three years ended December 31, 1997
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Balance at Beginning of Year $ 207,590 $206,085 $174,173
Acquisitions 7,110 30,504
Improvements 1,099 1,505 1,408
Dispositions (14)
--------- -------- --------
Balance at end of year $ 215,785 $207,590 $206,085
========= ======== ========
<CAPTION>
The changes in accumulated depreciation for the three years ended
December 31, 1997 are as follows:
1997 1996 1995
--------- -------- --------
<S> <S> <S> <S>
Balance at Beginning of Year $ 10,907 $ 6,114 $ 1,762
Depreciation for year 4,910 4,793 4,352
--------- -------- --------
Balance at end of year $ 15,817 $ 10,907 $ 6,114
========= ======== ========
</TABLE>
41
<PAGE> 42
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF PERIOD
------------------------------------------------
Buildings & Accumulated
STATE/TYPE ( # of properties) Land Improvements Total Depreciation
- ---------------------------------------- ------- ------------ -------- ----------------
<S> <S> <C> <C> <C>
CALIFORNIA:
Free Standing Retail Properties (1) $ 634 $ 5,704 $ 6,338 $ 501
ILLINOIS:
Community Shopping Centers (3) 4,073 37,817 41,890 3,258
Free Standing Retail Properties (10) 1,758 25,080 26,838 2,221
INDIANA:
Community Shopping Centers (5) 2,210 22,712 24,922 1,822
Free Standing Retail Properties (1) 2,260 2,260 203
KANSAS:
Community Shopping Centers (3) 3,659 8,707 12,366 748
Free Standing Retail Properties (8) 731 6,836 7,567 617
Entertainment Facility (1) 1,118 3,090 4,208
MARYLAND:
Free Standing Retail Properties (1) 282 2,711 2,993 235
MICHIGAN:
Community Shopping Centers (3) 3,501 31,749 35,250 2,104
MISSOURI:
Community Shopping Centers (4) 969 12,264 13,233 1,087
Free Standing Retail Properties (1) 85 768 853 68
OHIO:
Community Shopping Centers (1) 694 6,270 6,964 485
WISCONSIN
Community Shopping Centers (7) 2,045 22,075 24,120 1,984
Free Standing Retail Properties (4) 543 5,440 5,983 484
------- ----------- -------- ----------
$22,302 $ 193,483 $215,785 $ 15,817
======= =========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Life on Which
Depreciation in Latest
Date of Date Income Statement
STATE/TYPE ( # of properties) Construction Acquired is Computed
- ---------------------------------------- ------------ ------------ ----------------------
<S> <C> <C> <C>
CALIFORNIA:
Free Standing Retail Properties (1) 1980 6/94 40 YEARS
ILLINOIS:
Community Shopping Centers (3) 1975 - 1989 6/94 - 11/94 40 YEARS
Free Standing Retail Properties (10) 1967 - 1977 6/94 40 YEARS
INDIANA:
Community Shopping Centers (5) 1973 - 1989 6/94 - 11/94 40 YEARS
Free Standing Retail Properties (1) 1974 6/94 40 YEARS
KANSAS:
Community Shopping Centers (3) 1974 - 1976 6/94 40 YEARS
Free Standing Retail Properties (8) 1976 - 1978 6/94 40 YEARS
Entertainment Facility (1) 1997 11/97 40 YEARS
MARYLAND:
Free Standing Retail Properties (1) 1979 6/94 40 YEARS
MICHIGAN:
Community Shopping Centers (3) 1970 - 1987 6/94 - 9/95 40 YEARS
MISSOURI:
Community Shopping Centers (4) 1973 - 1978 6/94 40 YEARS
Free Standing Retail Properties (1) 1974 6/94 40 YEARS
OHIO:
Community Shopping Centers (1) 1989 11/94 40 YEARS
WISCONSIN
Community Shopping Centers (7) 1960 - 1979 6/94 40 YEARS
Free Standing Retail Properties (4) 1968 - 1976 6/94 40 YEARS
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
42
<PAGE> 43
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this Item 10 is incorporated herein by
reference to the information included under the captions "Election of Directors"
and "Management - Directors and Executive Officers" in the Company's definitive
Proxy Statement for the 1998 Annual Meeting of Stockholders (the "Proxy
Statement")
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item 11 is incorporated herein by
reference to the information included in the Proxy Statement under the caption
"Management - Compensation of Executive Officers" and "- Compensation of
Directors".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item 12 is incorporated herein by
reference to the information included under the caption "Security Ownership of
Certain Beneficial Owners and Management Owners and Management" in the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
A. The following documents are filed as part of this report:
(a)(1) Consolidated Financial Statements:
See Index to Consolidated Financial Statements and
Supplementary Data on page 21 of this Annual Report on Form
10-K.
(a)(2) Consolidated Financial Statement Schedule:
See Index to Consolidated Financial Statements and
Supplementary Data on page 21 of this Annual Report on Form
10-K.
(a)(3) Exhibits:
The following exhibits listed on the attached Exhibit Index
are included as part of this Annual Report on Form 10-K as
required by Item 601 of Regulation S-K:
(b) Reports on Form 8-K:
During the three-month period ending December 31, 1997, there
were no reports on Form 8-K filed.
43
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MALAN REALTY INVESTORS, INC.
By:/s/ Anthony S. Gramer
---------------------
Anthony S. Gramer Date: March 9, 1998
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/Anthony S. Gramer Chief Executive Officer, March 9, 1998
- ------------------------
Anthony S. Gramer President and Director
/s/Elliott J. Broderick Chief Accounting Officer March 9, 1998
- ------------------------
Elliott J. Broderick
* Director March 9, 1998
- ------------------------
Robert D. Kemp, Jr.
* Director March 9, 1998
- ------------------------
William McBride III
* Director March 9, 1998
- ------------------------
William F. Pickard
* Director March 9, 1998
- ------------------------
Richard T. Walsh
*by:/s/Anthony S. Gramer
- ------------------------
Anthony S. Gramer, as attorney-in-fact
</TABLE>
44
<PAGE> 45
MALAN REALTY INVESTORS, INC.
FORM 10-K
EXHIBIT INDEX
EXHIBIT
NUMBER
3(a) - Amended and Restated Articles of Incorporation of Malan
Realty Investors, Inc. (incorporated herein by reference to
Exhibit 3(a) filed with the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994 (the "1994 Second
Quarter Form 10-Q")).
3(b) - By-Laws of Malan Realty Investors, Inc. (incorporated herein
by reference to Exhibit 3(b) filed with the 1994 Second
Quarter Form 10-Q).
4(a) - Indenture, dated as of June 24, 1994, between Malan Realty
Investors, Inc. and The Bank of New York, as Trustee, with
respect to the 9 1/2% Convertible Subordinated Debentures due
2004 (incorporated herein by reference to Exhibit 4(a) filed
with the 1994 Second Quarter Form 10-Q.)
4(b) - Indenture, dated as of June 24, 1994, between Malan Realty
Investors, Inc. and IBJ Schroeder, as Trustee, with respect to
the 8 1/2% Secured Convertible Notes due 2003 (incorporated
herein by reference to Exhibit 4(b) filed with the 1994 Second
Quarter Form 10-Q).
*10(a) - The Malan Realty Investors, Inc. 1994 Stock Option Plan
(incorporated herein by reference to Exhibit 10(a) filed with
the 1994 Second Quarter Form 10-Q).
*10(b) - Employment Agreement, dated as of June 25, 1994, between the
Company and Anthony S. Gramer (incorporated herein by
reference to Exhibit 10(b) filed with the 1994 Second Quarter
Form 10-Q).
10(c) - Note Purchase Agreement, dated as of June 24, 1994, between
Malan Realty Investors, Inc. and Merrill Lynch Global
Allocation Fund, Inc. (incorporated herein by reference to
Exhibit 10(e) filed with the 1994 Second Quarter Form 10-Q).
10(d) - Warrant Agreement, dated as of June 17, 1994, between Malan
Realty Investors, Inc. and National Westminster Bank Plc, New
York Branch (incorporated herein by reference to Exhibit 10(f)
filed with the 1994 Second Quarter Form 10-Q).
10(e) - Mortgage, Security Agreement, Assignment of Rents and
Financing Statement, dated as of June 24, 1994, made by Malan
Realty Investors, Inc. to IBJ Schroeder Bank & Trust Company,
as modified by First Modification of Mortgage, Security
Agreement, Assignment of Rents and Financing Statement, dated
as of August 1, 1994 (incorporated herein by reference to
Exhibit 10(g) filed with the 1994 Second Quarter Form 10-Q).
10(f) - Registration Rights Agreement, dated as of June 24, 1994,
between the Company and Merrill Lynch Global Allocation Fund,
Inc. (incorporated herein by reference to Exhibit 10(h) filed
with the 1994 Second Quarter Form 10-Q).
*10(g) - Malan Realty Investors, Inc. 1995 Stock Option Plan for
Non-Employee Directors (incorporated herein by reference to
Exhibit 10(p) filed with the 1994 Form 10-K).
*10(h) - Malan Realty Investors, Inc. 1995 Stock Compensation Plan
for Non-Employee Directors (incorporated herein by reference
to Exhibit 10(q) filed with the 1994 Form 10-K).
45
<PAGE> 46
10(i) - Purchase and Sale Agreement, dated as of April 13, 1995,
between the Company and Clinton Pointe Joint Venture
(incorporated herein by reference to Exhibit 10(s) filed with
the 1995 First Quarter Form 10-Q).
10(j) - Agreement of Sale and Purchase, dated as of July 18, 1995,
among TG-Ford Associates and Ford Motor Land Development
Corporation, collectively, and Malan Realty Investors, Inc.
(incorporated herein by reference to Exhibit 10(x) filed with
the 1995 Second Quarter Form 10-Q).
10(k) - $63,000,000 Amended and Restated Credit Agreement, dated as
of August 16, 1995, between Malan Realty Investors, Inc. and
National Westminster Bank Plc, New York Branch (incorporated
herein by reference to Exhibit 10(y) filed with the Company's
Amended Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1995 (the "1995 Third Quarter Form 10-Q/A")).
10(l) - $63,000,000 Malan Mortgage Securities Trust 1995-A, Trust
and Servicing Agreement, dated as of August 16, 1995, by and
among Malan Depositor, Inc., as Depositor, Banker's Trust
Company, as Servicer, and Marine Midland Bank, as Trustee
(incorporated herein by reference to Exhibit 10(z) filed with
the 1995 Third Quarter Form 10-Q/A).
*10(m) - First Amendment to Employment Agreement, dated as of August
15, 1997 between the Company and Anthony S. Gramer
*10(n) - Change in Control Agreement, dated as of August 15, 1997
between the Company and Michael K. Kaline
*10(o) - Change in Control Agreement, dated as of August 15, 1997
between the Company and Elliott Broderick
10(p) - Revolving Loan Agreement among Malan Revolver, Inc., as
Company, Malan Realty Investors, Inc. as Parent and Greenwich
Capital Markets, Inc. As Lender dated as of November 24, 1997
10(q) - Agreement For Purchase of Real Estate between Brandon
Associates Westland, L.L.C., "Seller" and Malan Realty
Investors, Inc., "Buyer" dated as of January 29, 1998
21 Subsidiaries
23(A) - Consent of Deloitte & Touche LLP
24 Powers of Attorney
27 Financial Data Schedule
* A management contract or compensatory plan or arrangement required to be filed
pursuant to Item 14(c) of Form 10-K.
46
<PAGE> 1
Exhibit 10(m)
FIRST AMENDMENT TO
MALAN REALTY INVESTORS, INC.
EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is
entered into on the 15th day of August, 1997, by and between MALAN REALTY
INVESTORS, INC. (the "Company"), a Michigan corporation with its principal place
of business at 30200 Telegraph Road, Bingham Farms, Michigan, and ANTHONY S.
GRAMER ("Executive"), President and Chief Executive Officer of the Company.
RECITALS
WHEREAS, the Company and Executive entered into a certain Employment
Agreement, dated June 25, 1994 (hereinafter referred to as the "Employment
Agreement"); and
WHEREAS, the Company and Executive desire to amend the Employment
Agreement to provide certain additional benefits in consideration of Executive's
continued employment with the Company;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
1. A new paragraph 17 is added to the Employment Agreement as
follows:
17. Change In Control.
(a) In the event a Change in Control of the Company (as
defined below) occurs during Executive's "term of employment" (as defined in
paragraph 2 of the Employment Agreement), Executive shall be entitled to
receive, and the Company shall be obligated to pay an amount equal to One
Million and 00/100ths Dollars ($1,000,000.00) in a lump sum payment. Such
payment shall be made within five (5) business days following the Change in
Control. Payment provided under this paragraph 17 shall be in addition to any
salary and compensation paid or payable by the Company or an entity affiliated
with the Company and shall not be contingent upon Executive's termination of
employment following a Change in Control. The payment provided under this
paragraph 17 shall be subject to applicable federal and state withholding.
<PAGE> 2
(b) The payment provided under this paragraph 17 shall be
reduced by any payments to which Executive may be entitled under paragraph 4 of
the Employment Agreement regarding a termination of employment.
(c) Upon a Change in Control, Executive shall be entitled to
receive, at the Company's expense, health insurance coverage for his lifetime.
Executive's health insurance shall be provided under the Company's group health
plan, or at the Company's option, Executive shall receive other health insurance
which provides comparable benefits to those provided under the Company's group
health plan as of the date of the Change in Control. The above referenced
Company-paid health insurance shall be available to Executive, his spouse, and
his dependents who were covered under the Company's group health plan as of the
date of the Change in Control. Health insurance coverage for Executive's
dependents shall continue until the date such dependents would no longer have
been eligible for coverage under the Company's group health plan (determined in
accordance with the terms of the group health plan in effect as of the date of
the Change in Control).
(d) For purposes of this paragraph 17, a "Change in Control" shall be
deemed to have occurred if:
(i) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended)
becomes a beneficial owner of (or otherwise has the authority
to vote), directly or indirectly, shares representing twenty
percent (20%) or more of the total voting power of all of the
Company's then outstanding shares of common stock, unless
through a transaction arranged by or consummated with the
prior approval of the Board of Directors; or
(ii) during any two consecutive years, individuals, who at the
beginning of such period constitute the Board of Directors,
cease for any reason to constitute at least a majority of the
Board of Directors, unless the election, or the nomination for
election by the shareholders of the Company, of each new
Director was approved by a vote of at least a majority of the
Directors who were Directors at the beginning of the period.
2. A new paragraph 18 is added to the Employment Agreement as
<PAGE> 3
follows:
18. Continued Health Benefits Upon Termination Of Employment.
In the event Executive's employment is terminated for any
reason other than cause (as defined in paragraph 4) or a voluntary termination
of employment, Executive shall be entitled to receive, at the Company's expense,
health insurance coverage for his lifetime. Executive's health insurance shall
be provided under the Company's group health plan, or at the Company's option,
Executive shall receive other health insurance which provides comparable
benefits to those provided under the Company's group health plan as of the date
of Executive's termination of employment. The above referenced Company-paid
health insurance shall be available to Executive, his spouse, and his dependents
who were covered under the Company's group health plan as of the date of
Executive's termination of employment. Health insurance coverage for Executive's
dependents shall continue until the date such dependents would no longer have
been eligible for coverage under the Company's group health plan (determined in
accordance with the terms of the group health plan in effect as of the date of
Executive's termination of employment).
3. Except as amended hereby, the Employment Agreement shall remain in
full force and effect.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment to Employment Agreement or have caused this Amendment to be duly
executed on their behalf, as of the day and year first above written.
MALAN REALTY INVESTORS, INC.
By: _________________________
_________________________
Its:_________________________
_________________________
_________________________
_________________________
Executive
4
<PAGE> 1
EXHIBIT 10(n)
August 15, 1997
Mr. Michael K. Kaline
Malan Realty Investors, Inc.
30200 Telegraph Road
Suite 105
Bingham Farms, MI 48025
Re: Payments upon a Change in Control
Dear Mike:
The purpose of this letter (the "Letter Agreement") is to provide you
with certain benefits in the event of a Change in Control (as defined below) in
consideration of your past services and the services you will render to Malan
Realty Investors, Inc. (the "Company") in the future.
In the event a Change in Control of the Company occurs while you are
employed by the Company, you shall be entitled to receive, and the Company shall
be obligated to pay, an amount equal to Five Hundred Thousand Dollars ($500,000)
in a lump sum payment. Such payment shall be made within five (5) business days
following the Change in Control. Payment provided hereunder shall be in addition
to any salary and compensation paid or payable by the Company or an entity
affiliated with the Company and shall not be contingent upon your termination of
employment following a Change in Control. Payment provided under this Letter
Agreement shall be subject to applicable federal and state withholding.
Upon a Change in Control, you shall be entitled to receive, at the
Company's expense, and continuing until your death, health insurance coverage
under the Company's group health plan or alternative health insurance which
provides comparable benefits to those provided under the Company's group health
plan as of the date of the Change in Control. The above referenced Company-paid
health insurance shall be available to you, your spouse, and your dependents who
were covered under the Company's group health plan as of the date of the Change
in Control. Health insurance coverage for your dependents shall continue until
the date such dependents would no longer have been eligible for coverage under
the Company's group health plan (determined in accordance with the terms of the
group health plan in effect as of the date of the Change in Control).
For purposes of this Letter Agreement, a "Change in Control" shall be
deemed to have occurred if:
(i) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended)
becomes a beneficial owner of
<PAGE> 2
Michael K. Kaline
August 15, 1997
Page 2
(or otherwise has the authority to vote), directly or
indirectly, shares representing twenty percent (20%) or more
of the total voting power of all of the Company's then
outstanding shares of common stock, unless through a
transaction arranged by or consummated with the prior approval
of the Board of Directors; or
(ii) during any two consecutive years, individuals, who at the
beginning of such period constitute the Board of Directors,
cease for any reason to constitute at least a majority of the
Board of Directors, unless the election, or the nomination for
election by the shareholders of the Company, of each new
Director was approved by a vote of at least a majority of the
Directors who were Directors at the beginning of the period.
If the foregoing correctly sets forth our agreement, please sign where
indicated below.
MALAN REALTY INVESTORS, INC.
By:
-------------------------
Its:
------------------------
The foregoing is hereby acknowledged, confirmed and agreed to this _____ day of
____________________________, 1997.
- ----------------------------
Michael K. Kaline
<PAGE> 1
Exhibit 10(o)
August 15, 1997
Mr. Elliott Broderick
Malan Realty Investors, Inc.
30200 Telegraph Road
Suite 105
Bingham Farms, MI 48025
Re: Payments upon a Change in Control
Dear Elliott:
The purpose of this letter (the "Letter Agreement") is to provide you
with certain benefits in the event of a Change in Control (as defined below) in
consideration of your past services and the services you will render to Malan
Realty Investors, Inc. (the "Company") in the future.
In the event a Change in Control of the Company occurs while you are
employed by the Company, you shall be entitled to receive, and the Company shall
be obligated to pay, an amount equal to Two Hundred Fifty Thousand Dollars
($250,000) in a lump sum payment. Such payment shall be made within five (5)
business days following the Change in Control. Payment provided hereunder shall
be in addition to any salary and compensation paid or payable by the Company or
an entity affiliated with the Company and shall not be contingent upon your
termination of employment following a Change in Control. Payment provided under
this Letter Agreement shall be subject to applicable federal and state
withholding.
Upon a Change in Control, you shall be entitled to receive, at the
Company's expense, and continuing until your death, health insurance coverage
under the Company's group health plan or alternative health insurance which
provides comparable benefits to those provided under the Company's group health
plan as of the date of the Change in Control. The above referenced Company-paid
health insurance shall be available to you, your spouse, and your dependents who
were covered under the Company's group health plan as of the date of the Change
in Control. Health insurance coverage for your dependents shall continue until
the date such
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dependents would no longer have been eligible for coverage under the Company's
group health plan (determined in accordance with the terms of the group health
plan in effect as of the date of the Change in Control).
For purposes of this Letter Agreement, a "Change in Control" shall be
deemed to have occurred if:
(i) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended)
becomes a beneficial owner of (or otherwise has the authority
to vote), directly or indirectly, shares representing twenty
percent (20%) or more of the total voting power of all of the
Company's then outstanding shares of common stock, unless
through a transaction arranged by or consummated with the
prior approval of the Board of Directors; or
(ii) during any two consecutive years, individuals, who at the
beginning of such period constitute the Board of Directors,
cease for any reason to constitute at least a majority of the
Board of Directors, unless the election, or the nomination for
election by the shareholders of the Company, of each new
Director was approved by a vote of at least a majority of the
Directors who were Directors at the beginning of the period.
If the foregoing correctly sets forth our agreement, please sign where
indicated below.
MALAN REALTY INVESTORS, INC.
By:________________________
______________________
Its:_______________________
______________________
The foregoing is hereby acknowledged,
confirmed and agreed to this _____ day
of ____________________________, 1997.
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Elliott Broderick
August 15, 1997
Page 3
_____________________________________________________
Elliott Broderick
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Exhibit 10(p)
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- --------------------------------------------------------------------------------
REVOLVING LOAN AGREEMENT
dated as of November 24, 1997
among
MALAN REVOLVER, INC.,
as Company
MALAN REALTY INVESTORS, INC.,
as Parent
and
GREENWICH CAPITAL MARKETS, INC.,
as Lender
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- --------------------------------------------------------------------------------
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REVOLVING LOAN AGREEMENT
THIS REVOLVING LOAN AGREEMENT, dated as of November __, 1997,
among MALAN REVOLVER, INC., a Michigan corporation, as Compan y, MALAN REALTY
INVESTORS, INC., as Parent, and GREENWICH CAPITAL MARKETS, INC., a Delaware
corporation, as Lender.
WHEREAS, the Company is a special purpose, wholly-owned
Subsidiary of Parent; and
WHEREAS, the Parent expects to derive substantial benefits
from the Lender making the Loans and the Facility available to the Company upon
the terms set forth herein, the Parent has agreed to join with the Company in
the execution and delivery of this Agreement and the other Loan Documents.
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrower and
Lender hereby agree as follows:
ARTICLE 2
DEFINITIONS
SECTION 1.1 Definitions. The following terms, as used herein,
have the following meanings:
"Acquisition Cost" means, with respect to each Real Property
Asset that becomes an Additional Collateral Property, the sum of the purchase
price (exclu sive of the portion of the purchase price attributable to items
customarily appor tioned) paid by Company in acquiring such property, plus
reasonable related transac tion costs (including, without limitation, attorneys'
fees and expenses, brokerage commissions paid to unrelated third parties, title
insurance premiums and survey costs), plus costs and expenses of Borrower
incurred in connection with Borrower's delivery of the items required by Section
3.2 and 3.3 of this Agreement.
"Additional Collateral Fee" has the meaning set forth in
Section 2.8(d).
"Additional Collateral Property" means each Real Property
Asset that (i) is an Approved Property and (ii) is made a Collateral Property
pursuant to Sections 3.2 and 3.3 hereof .
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"Adjusted London Interbank Offered Rate" has the meaning set
forth in Section 2.7(b).
"Advance" has the meaning set forth in Section 1.3.
"Adversely Affected Property" shall have the meaning set forth
in Section 2.12(a).
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. An Affiliate of a Person includes,
without limitation, (i) any officer or director of such Person and (ii) any
record or beneficial owner of more than 10% of any class of ownership interests
of such Person. For purposes of this definition "control" of any Person means
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of ownership interests, by contract or
otherwise, and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Aggregate Debt Service" means, for any period, the amount
deter mined by applying a twenty-five year mortgage amortization schedule to the
Loans outstanding as of the last day of each fiscal quarter, using an annual
interest rate equal to the Treasury Rate plus 1.50%, determined on an annualized
basis.
"Aggregate Net Cash Flow" means, for any period, the aggregate
of all Net Operating Income from all Collateral Properties minus (i) an implied
manage ment fee of 3% of the annual gross revenues from all Collateral
Properties and (ii) a deemed reserve for on-going capital expenditures of $0.20/
sq. ft of all Collateral Properties.
"Agreement" means this Revolving Loan Agreement, as it may be
amended, supplemented or otherwise modified from time to time.
"Allocated Loan Amount" means (i) with respect to each
Original Collateral Property, the Allocated Loan Amount for such Original
Collateral Property set forth on Schedule 1 hereof, (ii) with respect to any
Additional Collateral Property, an amount equal to 75% of the value of the
applicable Real Property Asset, such value to be determined by Lender, in its
sole and absolute discretion, for such Additional Collateral Property at the
time that such Additional Collateral Property is approved by Lender pursuant to
the terms hereof, (iii)
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with respect to a Substitute Property, an amount equal to the lesser of 75% of
the value of such Substitute Property (as determined by Lender in its sole
discretion) or 75% of the Allocated Loan Amount of the Collateral Property for
which it was substituted and (iv) with respect to any Collateral Property which
has been released from the Facility pursuant to the provisions of Section 3.6
hereof for which no Substitute Property has been provided, the Allocated Loan
Amount shall be reduced to "0".
"Applicable Lending Office" means, with respect to Lender, (i)
in the case of its Base Rate Loans, its Domestic Lending Office and (ii) in the
case of its Euro-Dollar Loans, its Euro-Dollar Lending Office.
"Appraisal" means an MAI appraisal meeting the standards of
FIRREA conducted by an independent appraiser, licensed to do business in the
state in which the applicable Collateral Property is located and reasonably
acceptable to Lender.
"Appraised Value" of any Real Property Asset means the value
thereof as indicated on the most recent Appraisal therefor delivered to the
Lender.
"Approved Property" has the meaning set forth Section 3.2(c).
"Approved Purposes" has the meaning set forth Section 2.2.
"Assignee" has the meaning set forth in Section 9.6(c).
"Assignment of Rents and Leases" means the Assignment of Rents
and Leases, dated as of the date hereof, between Company, as assignor, and the
Lender, as assignee, as it may be amended, supplemented or otherwise modified
from time to time.
"Assignment of Leases Modification" has the meaning set forth
in Section 7.5(b).
"Award" has the meaning set forth in the Mortgage.
"Bankruptcy Default" means a Default by Borrower pursuant to
Section 6.1(e) or (f) hereof.
"Base Rate" means, for any day, a rate per annum equal to the
higher of (i) the Prime Rate for such
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day and (ii) the sum of 2.50% plus the Federal Funds Rate for such day.
"Base Rate Loan" means a Loan which bears interest at the Base
Rate pursuant to the applicable Notice of Advance or Notice of Interest Rate
Election or the provisions of Article VIII.
"Benefit Arrangement" means at any time an employee benefit
plan within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Borrower" means each of the Company and Parent, jointly and
severally.
"Borrowing Base" shall mean the aggregate Allocated Loan
Amounts, as of any date of determination, of all Collateral Properties, as such
amount shall be decreased in connection with each Property Release by an amount
equal to 125% of the Allocated Loan Amount for the related Release Property;
provided, however, that the Borrower may, on written notice to the Lender given
at the time of the first two (2) requests for a Property Release, elect that the
Borrowing Base be reduced by an amount equal to 110% of the Allocated Loan
Amount for the Release Property in question.
"Business Day" means a day that is both a Domestic Business
Day and a Euro-Dollar Business Day.
"Capital Expenditure Projection" has the meaning set forth in
Section 5.20.
"Capital Expenditures" means expenditures (whether paid in
cash or accrued as a liability) of the Company in respect of a Collateral
Property which are capitalized on the balance sheet of the Company in conformity
with GAAP.
"Casualty Event" has the meaning set forth in Section 10 of
the Mortgage.
"Closing Date" means, collectively, the Initial Closing Date
and each Property Closing Date.
"Collateral" means all property and interests in property,
whether now owned or hereafter acquired, in or upon which a Lien has been or is
purported or intended
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to have been granted to the Lender under the Loan Documents.
"Collateral Property" means, individually and collectively,
each Original Collateral Property, each Additional Collateral Property and each
Substitute Collateral Property. The phrase "a Collateral Property" or "any
Collateral Property" or "each Collateral Property" or any term of like import
means any one of such properties. The phrase "the Collateral Property" means all
such properties or any one of such properties as the context may indicate.
"Collateral Property Mandatory Prepayment" has the meaning set
forth in Section 2.12(a).
"Combined Debt" means the sum of the Debt of Parent and its
Consolidated Subsidiaries, excluding the outstanding principal amount of the
Convertible Debentures and the Convertible Notes.
"Combined Debt Service" means the sum of regularly scheduled
payments of principal and interest of Parent and its Consolidated Subsidiaries
paid during such period, including participating interest expense after
excluding (i) bal loon payments of principal and extraordinary interest
payments, (ii) amortization of deferred costs associated with new financings or
refinancings of existing Debt and (iii) debt service attributable to the
Convertible Notes and the Convertible Debentures.
"Combined Equity Value" means the book value of the assets of
Parent and its Consolidated Subsidiaries (determined in accordance with GAAP)
plus the amount of convertible debt held by Parent as of the date hereof.
"Commitment" means an amount up to $50,000,000.
"Commitment Fee" has the meaning set forth in Section 2.8(b).
"Compliance Evidence" means evidence that the applicable
Collateral Property is (i) in compliance with applicable zoning laws and
regulations (acceptable evidence being (x) a zoning endorsement for the
appropriate use included in the Title Policy, or (y) a letter from the
applicable zoning authority in form and substance reasonably satisfactory to
Lender, or (z) an opinion of Borrower's zoning counsel in form and substance
reasonably satisfactory to Lender in its sole discretion), (ii) in compliance
with applicable building codes (acceptable evidence being a certificate of
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occupancy issued by the applicable building authority or a letter of "no
violation" from the applicable building authority), and (iii) in compliance with
applicable fire safety codes and requirements (acceptable evidence being a
letter from the applicable fire department or building department of "no
violation").
"Condemnation Event" has the meaning set forth in Section 12
of the Mortgage.
"Condemnation Prepayment Amount" has the meaning set forth in
Section 2.12(d).
"Consolidated" means consolidated, in accordance with GAAP.
"Contingent Obligation" as to any Person means, without
duplication, (i) any contingent obligation of such Person required to be shown
on such Person's balance sheet in accordance with GAAP, and (ii) any obligation
required to be disclosed in the footnotes to such Person's financial statements
in accordance with GAAP, guaranteeing partially or in whole any non-recourse
Debt, lease, dividend or other obligation, exclusive of contractual indemnities
(including, without limitation, any indemnity or price-adjustment provision
relating to the purchase or sale of securities or other assets) and guarantees
of non-monetary obligations (other than guarantees of completion) which have not
yet been called on or quantified, of such Person or of any other Person. The
amount of any Contingent Obligation described in clause (ii) shall be deemed to
be (a) with respect to a guaranty of interest or interest and principal, or
operating income guaranty, the sum of all payments re quired to be made
thereunder (which in the case of an operating income guaranty shall be deemed to
be equal to the debt service for the note secured thereby), calculated at the
interest rate applicable to such Debt, through (i) in the case of an interest or
interest and principal guaranty, the stated date of maturity of the obligation
(and commencing on the date interest could first be payable thereunder), or (ii)
in the case of an operating income guaranty, the date through which such
guaranty will remain in effect, and (b) with respect to all guarantees not
covered by the preceding clause (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such guaranty
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof (assuming such Person is required to perform
thereunder) as recorded on the balance sheet and on the footnotes to the most
recent
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financial statements of the Company and Parent required to be delivered pursuant
to the terms of this Agreement.
"Convertible Debentures" means the $64,000,000 aggregate
principal amount of 9.5% Convertible Subordinated Debentures of the Parent, due
2004.
"Convertible Notes" means the $27,000,000 aggregate principal
amount of 8.5% Convertible Subordinated Secured Notes of the Parent, due 2003.
"Conversion Date" means the date that the Loans are converted
into a Term Loan pursuant to the provisions of Article 7 hereof.
"Conversion Notice" has the meaning set forth in Section 7.1.
"Conversion Option" has the meaning set forth in Section 7.1.
"Cure" has the meaning set forth in Section 6.1(c).
"Cure Period" has the meaning set forth in Section 6.1(c).
"Debt" as applied to any Person, means, at any time, without
duplication, (a) all indebtedness, obligations or other liabilities of such
Person (whether consolidated or representing the proportionate interest in any
other Person) (i) for borrowed money (including construction loans) or evidenced
by debt securi ties, debentures, acceptances, notes or other similar
instruments, and any accrued interest, fees and charges relating thereto, (ii)
under profit payment agreements or in respect of obligations to redeem,
repurchase or exchange any securities of such Person or to pay dividends in
respect of any stock, (iii) with respect to letters of credit issued for such
Person's account, (iv) to pay the deferred purchase price of property or
services, except accounts payable and accrued expenses arising in the ordinary
course of business, (v) in respect of capital leases, (vi) which are Contingent
Obligations or (vii) under warranties and indemnities; (b) all indebtedness,
obligations or other liabilities of such Person or others secured by a Lien on
any property of such Person, whether or not such indebtedness, obligations or
liabilities are assumed by such Person, all as of such time; (c) all
indebtedness, obligations or other liabilities of such Person in respect of
interest rate contracts and foreign exchange contracts, net of liabilities owed
to such
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Person by the counterparties thereon; (d) all preferred stock subject (upon the
occurrence of any contingency or otherwise) to mandatory redemption at any time
on or before the Revolver Termination Date, assuming the exercise of all
extension options applicable thereto under Sections 2.1(c) and 7.6 hereof; and
(e) all Contingent Obligations with respect to any of the foregoing.
"Default" means any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.
"Default Rate" means the Base Rate plus three percent (3%) per
annum.
"Domestic Business Day" means any day except a Saturday,
Sunday or other day on which commercial banks in New York City are authorized by
law to close.
"Domestic Lending Office" means Lender's office located at
Greenwich, Connecticut, or such other office as Lender may hereafter designate
as its Domestic Lending Office by notice to Borrower.
"Due Diligence Package" has the meaning set forth in Section
3.2.
"Effective Date" means the date this Agreement becomes
effective in accordance with Section 9.9.
"Environmental Claim" means, with respect to any Person, any
written notice, claim, demand or similar communication by any other Person
alleging potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damage, property damages,
personal injuries, fines or penalties arising out of, based on or resulting from
(i) the presence, or release into the environment, of any Hazardous Substances
at any location, whether or not owned by such Person or (ii) circumstances
forming the basis of any violation, or alleged violation, of any Environmental
Law, in each case as to which there is a reasonable possibility of an adverse
determination with respect thereto and which, if adversely determined, could
have a Material Adverse Effect.
"Environmental Indemnity" means the Environmental Indemnity,
dated as of the Initial Closing Date, made, jointly and severally, by Borrower.
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"Environmental Laws" means any and all federal, state, local
and foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental restrictions relating to
the environment, the effect of the environment on human health or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Substances or
wastes into the environment including, without limitation, ambient air, surface
water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, Hazardous Substances or wastes or the
clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, or any successor statute.
"ERISA Group" means Parent, the Company and all members of a
controlled group of corporations and all trades or businesses (whether or not
incor porated) under common control which, together with Parent or the Company
are treated as a single employer under Section 414 of the Internal Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on
which commercial banks are open for international business (including dealings
in dollar deposits) in London.
"Euro-Dollar Lending Office" means Lender's office, branch or
affiliate located at Greenwich, Connecticut or such other office, branch or
affiliate of Lender as it may hereafter designate as its Euro-Dollar Lending
Office by notice to Borrower.
"Euro-Dollar Loan" means a Loan which bears interest at a rate
calculated by reference to the LIBO Rate pursuant to the applicable Notice of
Advance or Notice of Interest Rate Election.
"Euro-Dollar Margin" has the meaning set forth in Section
2.7(b).
"Euro-Dollar Reference Bank" has the meaning set forth in
Section 2.7(b).
"Euro-Dollar Reserve Percentage" has the meaning set forth in
Section 2.7(b).
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"Event of Default" has the meaning set forth in Section 6.1.
"Exchange Act" means the Securities and Exchange Act of 1934,
as amended.
"Exit Fee" has the meaning set forth in Section 2.8.
"Facility" means the revolving credit facility established
pursuant to this Agreement.
"Facility DSC Test" has the meaning set forth in Section
5.7(c).
"Facility Mandatory Prepayment" has the meaning set forth in
Section 2.12(b).
"Fair Market Value of the Collateral Properties" means the
annual Aggregate Net Cash Flow divided by a capitalization rate of ten percent
(10%).
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Domestic
Business Day next suc ceeding such day; provided that (i) if such day is not a
Domestic Business Day, the Federal Funds Rate for such day shall be such rate on
such transactions on the next preceding Domestic Business Day as so published on
the next succeeding Domestic Business Day, and (ii) if no such rate is so
published on such next succeeding Domestic Business Day, the Federal Funds Rate
for such day shall be the average rate quoted to Lender on such day on such
transactions.
"Financing Statements" has the meaning set forth in Section
3.1.
"GAAP" means generally accepted accounting principles,
consistently applied, subject to the provisions of Section 1.2 hereof.
"GCFP" has the meaning set forth in Section 9.6(f).
"Ground Lease" means a lease having a remaining term of no
less than 20 years, between the Company and a Person permitting the Company to
occupy a Collateral Property, together with all amendments, supplements,
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consolidations, replacements, extensions, renewals and other modifications of
such lease now or hereafter entered into in accordance with the provisions
thereof.
"Hazardous Substances" means any toxic, radioactive, caustic
or otherwise hazardous substance, including petroleum, its derivatives,
by-products and other hydrocarbons, asbestos or any substance having any
constituent elements displaying any of the foregoing characteristics.
"Indemnitee" has the meaning set forth in Section 9.3(b).
"Independent Director" means a person who both (i) is not and
for the prior five years has not been a shareholder, partner, officer, employee
or significant creditor of the Company or Parent or any Affiliate thereof, and
(ii) is not a member of the immediate family of any shareholder, officer,
director, employee or significant creditor of the Company or Parent or any
Affiliate thereof.
"Initial Closing" means the closing of this Agreement on the
date hereof, whereby the Lender agreed to lend Borrower up to $25,000,000
pursuant to the terms and conditions of this Agreement.
"Initial Closing Date" means November 24, 1997.
"Initial Spread Quote Period" shall have the meaning set forth
in Section 7.3(f).
"Interest Payment Date" shall mean, for all Loans, the first
Business Day of each calendar month.
"Interest Period" means:
(1) with respect to each Euro-Dollar Advance, the period
commencing (x) on the date of such Advance specified in the applicable Notice of
Advance or (y) on the date specified in the applicable Notice of Interest Rate
Election, and ending in either case 1, 3 or 6 months thereafter, as Borrower may
elect in the applicable notice; provided that:
(a) any Interest Period which would otherwise end on a
day which is not a Euro-Dollar Business Day shall be extended to the
next succeeding Euro-Dollar Business Day unless such Euro-Dollar
Business Day falls in another calendar month, in
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which case such Interest Period shall end on the next preceding
Euro-Dollar Business Day;
(b) any Interest Period which begins on the last
Euro-Dollar Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the
end of such Interest Period) shall, subject to clause (c) below, end on
the last Euro-Dollar Business Day of the appropriate calendar month;
and
(c) if any Interest Period includes a date on which a
payment of principal of the Loans is required to be made under Section
2.10 or Section 2.12 but does not end on such date, then (i) the
principal amount (if any) of each Euro-Dollar Loan required to be
repaid on such date shall have an Interest Period ending on such date
and (ii) the remainder (if any) of each such Euro-Dollar Loan shall
have an Interest Period determined as set forth above,
(2) with respect to each Base Rate Advance, the period
commencing on the date of such Advance and ending on (i) the first day of the
next succeeding Euro-Dollar Interest Period (or, if no Euro-Dollar Interest
Periods are then in effect, the next succeeding Euro-Dollar Business Day), and
(ii) in the event that the circumstances described in clause (a) or (b) of
Section 8.1 or in Section 8.2 shall exist and be continuing on the date of such
Advance, the date that is 30 days after the date of the Base Rate Advance or any
subsequent period of 30 days, in each case commencing on the last day of the
preceding Interest Period; provided that:
(1) any Interest Period (other than an Interest Period
determined pursuant to clause (b)(i) below) which would otherwise end
on a day which is not a Euro-Dollar Business Day shall be extended to
the next succeeding Euro-Dollar Business Day; and
(2) if any Interest Period includes a date on which a
payment of principal of the Loans is required to be made under Section
2.10 or Section 2.12 but does not end on such date, then (i) the
principal amount (if any) of each Base Rate Loan required to be repaid
on such date shall have an Interest Period ending on such date and (ii)
the remainder (if any) of each such Base Rate Loan shall have an
Interest Period determined as set forth above.
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"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, or any successor statute.
"Investment" means any investment in any Person, whether by
means of share purchase, capital contribution, loan, time deposit or otherwise.
"Lease" means a lease, sublease, license, concession agreement
or occupancy agreement permitting a Person to occupy all or any portion of any
Collateral Property.
"Lender" means Greenwich Capital Markets, Inc., and its
successors and assigns.
"LIBO Base Rate" has the meaning set fort in Section 2.7(b).
"Lien" means, with respect to any asset, any mortgage, lien
(except for liens for real estate taxes and assessments not yet due and
payable), pledge, charge, security interest or encumbrance of any kind, or any
other type of preferential arrangement that has the practical effect of creating
a security interest, in respect of such asset. For the purposes of this
Agreement, the Company shall be deemed to own subject to a Lien any asset which
it has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such asset.
"Loan" means a Base Rate Loan or a Euro-Dollar Loan and
"Loans" means Base Rate Loans or Euro-Dollar Loans or any combination of the
foregoing.
"Loan Documents" means this Agreement, the Note, each Notice
of Advance, each Notice of Interest Rate Election, the Environmental Indemnity,
the Mortgage, the Assignment of Rents and Leases, the SNDA/Estoppel Indemnity,
the Undertaking and the Manager's Consent and Subordination Agreement.
"Locked Rate" shall have the meaning set forth in Section 7.3.
"Mandatory Prepayment" means the prepayment of any Loans as
required pursuant to Section 2.12 hereof.
"Major Tenant" means, with respect to any Collateral Property
or Real Property Asset, (i) Kmart Corporation (or any successor thereto) and
(ii) any other
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tenant under a Lease at such property occupying no less than 10,000 rentable
square feet of the improvements located thereon.
"Manager's Consent and Subordination Agreement" means the
Manager's Consent and Subordination Agreement executed by the Company, Lender
and Property Manager.
"Material Adverse Effect" means a material adverse effect on
(i) the business, operations, properties, assets or financial condition of the
Company or (ii) the value or utility of any Collateral Property, or (iii) the
ability of the Company or Parent to perform or observe their respective
obligations under the Loan Documents.
"Material Debt" means Debt (other than the Note) of Parent or
any Consolidated Subsidiary of Parent, arising in one or more related or
unrelated transactions, in an aggregate principal amount exceeding $2,000,000.
"Material Plan" means at any time a Plan or Plans having
aggregate Unfunded Liabilities in excess of $5,000,000.
"Maximum Commitment" means $50,000,000.
"Mortgage" means the Indenture of Mortgage, Deed of Trust,
Deed to Secure Debt, Security Agreement, Financing Statement, Fixture Filing and
As signment of Rents and Leases, dated as of the date hereof, by the Company as
mortgagor and grantor, to and for the benefit of the Lender as mortgagee and
benefi ciary, and, if applicable, the Trustee thereunder, as it may be amended,
supple mented, spread or otherwise modified from time to time, that encumbers
Borrower's interest in each of the Collateral Properties on a joint and several
basis to the full extent of the obligations of Borrower hereunder and under the
other Loan Documents.
"Mortgage Modification" has the meaning set forth in Section
7.5(b).
"Multiemployer Plan" means at any time an employee pension
benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any
member of the ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions,
including for these purposes any Person which ceased to be a member of the ERISA
Group during such five year period.
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"Net Income" means, with respect to any Person, net income as
determined in accordance with GAAP.
"Net Operating Income" means, when used with respect to each
Collateral Property, for any trailing twelve month period, the cash rents,
receipts and other cash revenues received or paid to or for the benefit of the
Company in the ordinary course therefrom (other than pre-paid rents and revenues
and security deposits except to the extent applied in satisfaction of tenants'
obligations for rent), including proceeds of rental interruption insurance,
minus all expenses paid or ac crued related to the ownership, operation or
maintenance of such property, including but not limited to taxes, assessments
and the like, insurance, utilities, property management fees, payroll costs,
maintenance, repair and landscaping expenses, marketing expenses, and general
and administrative expenses (including an appropriate allocation for marketing
and other expenses incurred in connection with such property). With respect to
Real Property Assets owned less than one year by the Company, Parent or any
Consolidated Subsidiary of Parent, Net Operating Income shall be calculated by
reference to the trailing twelve month period as set forth above, if reasonably
possible, or, if not reasonably possible, by annualizing such amounts based upon
the actual amounts generated during the previous fiscal quarter of the
Company's, Parent's or such Consolidated Subsidiary's ownership of such Real
Property Asset (or, in the case of the proposed Collateral Property located in
Lawrence, Kansas, a period of at least one (1) calendar month).
"Note" means the promissory note of the Company and Parent,
substantially in the form of Exhibit A hereto, evidencing the joint and several
obligation of the Company and Parent to repay the Loans.
"Notice of Advance" has the meaning set forth in Section 2.3.
"Notice of Interest Rate Election" has the meaning set forth
in Section 2.6.
"Obligations" means all obligations, liabilities and
indebtedness of every nature of the Borrower from time to time owing to the
Lender under or in connection with this Agreement or any other Loan Document.
"Officer's Certificate" means a certificate signed by the
president or vice president or chief financial officer of the Company and of
Parent.
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"Original Collateral Property" means the parcels of real
property set forth on Schedule 1 attached hereto and by this reference made a
part hereof, together with all improvements thereon and interests therein, now
owned or leased by the Company upon which a Lien has been or is purported to be
granted to Lender under the Mortgage.
"Origination Fee" has the meaning set forth in Section 2.8(a).
"Other Taxes" has the meaning set forth in Section 8.4(b).
"Outstanding Balance" shall mean, from time to time, the
principal amount of all Loans then outstanding hereunder, together with any
accrued but unpaid interest thereon.
"Parent" means Malan Realty Investors, Inc., a Michigan
corporation.
"Participant" has the meaning set forth in Section 9.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Permitted Exceptions" has the meaning set forth in the
Mortgage.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan
(other than a Multiemployer Plan) which is covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Internal
Revenue Code and either (i) is maintained, or contributed to, by any member of
the ERISA Group for employees of any member of the ERISA Group or (ii) has at
any time within the pre ceding five years been maintained, or contributed to, by
any Person which was at such time a member of the ERISA Group for employees of
any Person which was at such time a member of the ERISA Group.
"Prepayment Fee" has the meaning set forth in Section 7.3(g).
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<PAGE> 18
"Prime Rate" means the rate of interest which the Lender
announces from time to time to be its prime lending rate, as in effect from time
to time. The Prime Rate is a reference rate and does not necessarily represent
the lowest or best rate actually charged to any customer. The Lender may make
commercial loans or other loans at rates of interest at, above or below the
Prime Rate.
"Property Closing Date" has the meaning set forth in Section
3.3.
"Property Management Contract" means the management agreement
between Property Manager and the Company, reasonably acceptable to the Lender.
"Property Manager" means Malan Realty Investors, Inc., in its
capacity as property manager under the Property Management Contract and any
successor Property Manager appointed or approved by the Lender in its sole
discretion.
"Property Release" has the meaning set forth in Section 3.6.
"Purchase and Sale Agreement" shall mean the agreement (and
all amendments, supplements and side letters and agreements related thereto)
between an unrelated third party seller, as seller, and the Company, as
purchaser, whereby the Company has agreed to purchase an Additional Collateral
Property from such seller; such agreement shall contain all the material terms,
covenants and conditions of such acquisition, including, but not limited to the
purchase price.
"Quarterly Cash Flow" means, with respect to the Parent for
the most recent fiscal quarterly period then ended, the sum of (i) Net Income
for such period of the Parent and its Consolidated Subsidiaries, (ii) to the
extent previously deducted to determine Net Income, interest expense on Debt of
the Parent and its Consolidated Subsidiaries, and (iii) to the extent previously
deducted to determine Net Income, depreciation and scheduled amortization
payments of the Parent and its Consolidated Subsidiaries (excluding balloon
payments of principal).
"Rate Lock Fee" has the meaning set forth in Section 2.8(e).
"Rating Agency" means one or more nationally recognized,
statistical rating agency or rating agencies
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<PAGE> 19
selected by Lender in its sole reasonable discretion that from time to time rate
(or are reasonably believed by Lender to rate) the securities issued in
connection with a Securitization of which the Term Loan is included.
"Rating Agency Requirements" means the requirements of the
Rating Agency.
"Real Property Assets" means as of any time, the real property
assets owned or leased by the Company or proposed to be acquired or leased by
the Company pursuant to a Purchase and Sale Agreement.
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"Release Date" has the meaning set forth in Section 3.6(a).
"Release Prepayment" has the meaning set forth in Section
2.12.
"Release Price" has the meaning set forth in Section 3.6(h).
"Release Property" has the meaning set forth in Section 3.6.
"Request to Extend" has the meaning set forth in Section
2.1(c).
"Requirements" has the meaning set forth in the Mortgage.
"Restoration" has the meaning set forth in the Mortgage.
"Retail Property" means a Real Property Asset which is
improved by improvements which are primarily used as a store or a combination of
stores (including a shopping center or shopping mall), a theater (or a
combination of theaters) and/or a restaurant that are open to the public
generally for the sale of products, the display of motion pictures and/or as a
restaurant.
"Revolver Termination Date" means the second anniversary of
the Initial Closing Date hereof, or, in the event that the Revolver Termination
Date is extended pursuant to Section 2.1(c) hereof, the third anniversary of the
Initial Closing Date; or, if the Revolver Termination Date is extended by Lender
pursuant to
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Section 7.6 hereof, the date established by Lender; provided that, if any such
day is not a Euro-Dollar Business Day, the next succeeding Euro-Dollar Business
Day unless such Euro-Dollar Business Day falls in another calendar month, in
which case the Revolver Termination Date shall be the next preceding Euro-Dollar
Business Day.
"Revolving Period" means the period from and including the
Initial Closing Date to but excluding the Revolver Termination Date.
"SEC" means the Securities and Exchange Commission.
"Security Documents" has the meaning set forth in Section 3.3.
"Securitization" means a transaction pursuant to which the
Term Note, together with other notes of various obligors, if applicable, are
assigned to a trustee and securities secured thereby or evidencing ownership
interests therein are issued.
"Senior Debt Service Coverage Test" has the meaning set forth
in Section 5.7(b).
"Single Purpose Entity" means a Person, other than an
individual or a general partnership, which is formed or organized for the
purpose of directly holding an ownership or leasehold interest in a Collateral
Property or Properties and the financing and leasing thereof and does not engage
in any business unrelated thereto, does not have any material assets other than
those related to its interest in such Collateral Property or Properties or Debt
other than as permitted by the Loan Documents, has and maintains its own
separate books and records, maintains cus tomary formalities with regard to its
existence and has its own accounts (other than operating accounts maintained by
the Property Manager which are separate and apart from any other Person) and
holds itself out as being a Person, separate and apart from any other Person. In
the event a Single Purpose Entity is a corporation, it must maintain at all
times an Independent Director; in the event that a Single Purpose Entity is a
limited partnership, its general partner shall be a Single Purpose Entity; in
the event a Single Purpose Entity is a limited liability company, its sole
managing member shall be a corporation that is a Single Purpose Entity.
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"SNDA/Estoppel Indemnity" has the meaning set forth in Section
3.1(a)(xxv).
"Solvency Certificate" means that certain certificate from
Borrower to Lender in the form attached hereto as Exhibit B.
"Solvent" means that (i) the sum of the assets of such Person,
both at a fair valuation and at present fair saleable value, will exceed its
liabilities, including contingent liabilities, (ii) such Person will have
sufficient capital with which to conduct its business as presently conducted and
as proposed to be conducted and (iii) such Person has not incurred Debts beyond
its ability to pay such Debts as they mature.
"State" means, with respect to any Collateral Property, the
state or commonwealth in which such Collateral Property or any part thereof is
located.
"Subsidiary" of a Person means any corporation, limited
liability company, general or limited partnership, or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned or controlled by such Person, one
or more of the other subsidiaries of such Person or any combination thereof.
"Survey" means a current "as-built" survey (prepared in
accordance with the ALTA appropriate specifications) for each Collateral
Property, bearing a certificate substantially in the form of Exhibit C annexed
hereto dated a date not earlier than 10 business days prior to the applicable
Closing Date or the Conversion Date, as applicable, by a land surveyor duly
licensed in the State in which such Coll ateral Property is located, and
acceptable to the Title Company for purposes of having the Title Company insure
over all matters of survey in the Title Policy.
"Temporary Cash Investment" means any Investment in (i) direct
obligations of the United States or any agency thereof, or obligations
guaranteed by the United States or any agency thereof, (ii) commercial paper
rated at least A-1 by Standard & Poor's Rating Services or P-1 by Moody's
Investors Service, Inc., (iii) demand and time deposits with, including
certificates of deposit issued by, any office located in the United States of
any bank or trust company which is organized under the laws of the United
States or any state thereof
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and has capital, surplus and undivided profits aggregating at least
$1,000,000,000 or (iv) repurchase agreements with respect to securities
described in clause (i) above entered into with an office of a bank or trust
company meeting the criteria specified in clause (iii) above, provided in each
case described in clauses (i) - (iv) above that such investment matures within
one year from the date of acquisition thereof by Borrower, or (v) money market
funds that invest primarily in Investments of the kind described in clauses (i)
- - (iv) above.
"Term Loan" has the meaning set forth in Section 7.1.
"Term Loan Amount" has the meaning set forth in Section
7.3(a).
"Term Loan Closing" means, in connection with the exercise of
the Conversion Option, the closing of the Term Loan.
"Term Loan Documents" means the Term Note, Mortgage
Modification, Assignment of Leases Modification, and any other documents and
agreements (including, without limitation, cash collateral agreements) required
by Lender in connection with the Conversion Option.
"Term Loan Interest Rate" shall have the meaning set forth in
Section 7.3.
"Term Loan Property" has the meaning set forth in Section 7.1.
"Term Note" means the note substantially in the form of
Exhibit D annexed hereto, executed and delivered by the Company in connection
with the Term Loan Closing in the Term Loan Amount.
"Third Party Sale" has the meaning set forth in Section 3.6
hereof.
"Title Company" means Commonwealth Land Title Insurance
Company or any other nationally recognized title insurance company licensed to
do business in the State where the relevant Collateral Property is located and
reasonably acceptable to Lender and the Rating Agency, if applicable.
"Title Policy" means an ALTA loan title insurance policy (or
policies, if necessary) issued by the Title Company, covering the Collateral
Properties, in an amount not less than 125% of the aggregate Allocated
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Loan Amounts and including such affirmative endorsements as Lender shall
reasonably request with respect to any Collateral Property), and insuring, as of
the time and date that the Mortgage is recorded against the Collateral
Properties, that fee (or if applicable, ground leasehold) title to the
Collateral Properties is vested in the Company and that the lien of such
Mortgage is a valid first priority Lien on each Collateral Property, subject
only to the Permitted Exceptions and such other Liens and exceptions as shall be
acceptable to the Lender in its sole discretion and containing such endorsements
as the Lender may reasonably request.
"Total Available Commitment" means, at any time of
determination, the lesser of (i) the Maximum Commitment and (ii) the Borrowing
Base (as it may be increased or decreased from time to time pursuant to the
terms of this Agreement).
"Treasury Rate" means, as of any date, a rate equal to the
annual yield to maturity on the U.S. Treasury Constant Maturity Series with a
ten-year maturity, as such yield is reported in Federal Reserve Statistical
Release H.15 -- Selected Interest Rates, published most recently prior to the
date the applicable Treasury Rate is being determined. Such yield shall be
determined by straight line linear interpolation between the yields reported in
Release H.15, if necessary. In the event Release H.15 is no longer published,
Lender shall select, in its reasonable discretion, an alternate basis for the
determination of Treasury yield for U.S. Treasury Constant Maturity Series with
ten-year maturities.
"Undertaking" has the meaning set forth in Section 3.1(a)
(xxvi).
"Unfunded Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (i) the value of all benefit liabilities
under such Plan, determined on a plan termination basis using the assumptions
prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the
fair market value of all Plan assets allocable to such liabilities under Title
IV of ERISA (excluding any accrued but unpaid contributions), all determined as
of the then most recent valuation date for such Plan, but only to the extent
that such excess represents a potential liability of a member of the ERISA Group
to the PBGC or any other Person under Title IV of ERISA.
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"United States" means the United States of America, including
the States and the District of Columbia, but excluding its territories and
possessions.
SECTION 1.2 Accounting Terms and Determinations. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with generally accepted accounting principles as in effect from time
to time, applied on a basis consistent (except for changes concurred in by
Borrower's independent public accountants) with the most recent consolidated
financial statements of Parent and its Subsidiaries delivered to the Lender.
SECTION 1.3 Types of Advances. The term "Advance" denotes the
aggregation of Loans of Lender to be made to Borrower pursuant to Article II on
the same date and for the same Interest Period(s). Advances are classified for
purposes of this Agreement by reference to the pricing of Loans comprising such
Advance (e.g., a "Euro-Dollar Advance" is an Advance comprised of Euro-Dollar
Loans).
ARTICLE 2
THE CREDITS
SECTION 2.1 Commitments to Lend.
(1) During Revolving Period. During the Revolving Period,
Lender agrees, on the terms and conditions set forth in this Agreement, to make
Loans to Borrower pursuant to this Section from time to time in amounts such
that the aggregate principal amount of Loans by Lender at any one time
outstanding shall not exceed the amount of the Total Available Commitment. Each
Advance under this subsection (a) shall be in an aggregate principal amount of
$500,000 or any larger multiple of $50,000 (except that any such Advance may be
in the aggregate amount then available under the Facility). Within the foregoing
limits, Borrower may borrow under this subsection (a), prepay Loans to the
extent permitted by Section 2.11, and reborrow at any time during the Revolving
Period under this subsection (a).
(2) Borrowing Base. As of the Initial Closing Date, the
Borrowing Base shall be the sum of the Allocated Loan Amounts of the Original
Collateral
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Properties; provided, however, that in the case of the Original Collateral
Property located in Valparaiso, Indiana, the Borrower shall not be entitled to
any Advances in respect of the Allocated Loan Amount for such Original
Collateral Property until such time as the Borrower shall have delivered to the
Lender the items set forth with respect to such Original Collateral Property in
the Undertaking. Borrower may increase the amount of the Borrowing Base, up to
the maximum amount of $50,000,000, by providing Lender with Additional
Collateral Properties in accordance with and subject to the terms and conditions
of Section 3.2 and Section 3.3 hereof. The Borrowing Base shall be reduced in
connection with any Property Release by an amount equal to 125% of the Allocated
Loan Amount for the related Release Property; provided, however, that the
Borrower may, on written notice to the Lender given at the time of the first two
(2) requests for a Property Release, elect that the Borrowing Base be reduced by
an amount equal to 110% of the Allocated Loan Amount for the Release Property in
question.
(3) Extension of Revolver Termination Date. Borrower may
request a one-year extension of the Revolver Termination Date by the delivery to
Lender of an irrevocable written request therefor not more than fifty-nine (59)
and not less than thirty (30) days prior to such Revolver Termination Date (a
"Request to Extend"). Lender shall have the right, upon receipt of the Request
To Extend, to approve or disapprove the extension of the Revolver Termination
Date in Lender's sole and absolute discretion. Provided that Lender approves the
extension of the Revolver Termination Date and provided further that no Event of
Default or Bankruptcy Default has occurred and is then continuing both on the
date Borrower delivers the Request to Extend and on the Revolver Termination
Date (prior to extension), the Revolver Termination Date shall be extended for
one year.
SECTION 2.2 Use of Proceeds of Loans. The proceeds of the
Loans hereunder may be used for the following purposes (the "Approved
Purposes"): (i) the Acquisition Costs of any Retail Property (including a
Collateral Property); (ii) the development of any Retail Property (including any
Collateral Property); and (iii) general working capital needs of the Borrower
with respect to the any Retail Property (including any Collateral Property).
SECTION 2.3 Notice of Advance. Borrower shall give the Lender
notice (a "Notice of Advance") not later than 12:00 noon (New York City time) on
(x) the
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Domestic Business Day before each Base Rate Advance (if available pursuant to
the terms hereof) and (y) the third Euro-Dollar Business Day before each
EuroDollar Advance, specifying:
(1) the date of such Advance, which shall be a Domestic
Business Day in the case of a Base Rate Advance or a Euro-Dollar Business Day in
the case of a Euro-Dollar Advance,
(2) the aggregate amount of such Advance,
(3) whether the Loans comprising such Advance are to be
initially Base Rate Loans or Euro-Dollar Loans; provided, however, that Borrower
shall only be entitled to elect Base Rate Loans in the event that (i) such
Advance is to be made by Lender on a date other than the first day of a
Euro-Dollar Interest Period applicable to an existing Euro-Dollar Loan, (ii)
such Advance is to be made by Lender on a date other than a Euro-Dollar Business
Day, or (iii) the circumstances described in clause (a) or (b) of Section 8.1 or
in Section 8.2 shall exist and be continuing on either the date of the Notice of
Advance or the date of the Advance,
(4) if such Advance is a Euro-Dollar Loan, the initial
Interest Period applicable thereto, and
(5) the Approved Purpose (in reasonable detail) for which such
Advance shall be used.
SECTION 2.4 Funding of Loans. Unless Lender determines that
any applicable condition specified in Article III has not been satisfied and so
notifies Borrower, the Lender will make such Advance available to Borrower in
immediately available funds to or at the direction of Borrower not later than
1:00 p.m. (New York City time).
SECTION 2.5 Note.
(1) The Loans of Lender shall be evidenced by a single Note
payable to the order of Lender for the account of its Applicable Lending Office
in an amount equal to the aggregate unpaid principal amount of Lender's Loans.
(2) Lender may, by notice to Borrower, request that its Loans
of a particular type be evidenced by a separate Note in an amount equal to the
aggregate unpaid principal amount of such Loans. Each such Note shall be in
substantially the form of Exhibit A hereto
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<PAGE> 27
with appropriate modifications to reflect the fact that it evidences solely
Loans of the relevant type. Each reference in this Agreement to the "Note" shall
be deemed to refer to and include any or all of such Notes, as the context may
require.
(3) Lender may record the date, amount and type of each Loan
made by it and the date and amount of each payment of principal made by Borrower
with respect thereto, and may, if Lender so elects in connection with any
transfer or enforcement of its Note, endorse on the schedule forming a part
thereof appropriate notations to evidence the foregoing information with respect
to each such Loan then outstanding; provided that the failure of Lender to make
any such recordation or en dorsement shall not affect the obligations of
Borrower hereunder or under the Note. Lender is hereby irrevocably authorized by
Borrower to so endorse its Note and to attach to and make a part of its Note a
continuation of any such schedule as and when required. Upon written request,
Lender shall provide Borrower with copies of any of the foregoing endorsements,
attachments and schedules to the Note.
SECTION 2.6 Method of Electing Interest Rates. The Loans
included in each Advance shall bear interest initially at the type of rate
specified by Borrower in the applicable Notice of Advance; provided, however,
that Borrower shall only be entitled to elect Base Rate Advances in the event
that (i) such Advance is to be made by Lender on a date other than the first day
of a Euro-Dollar Interest Period applicable to an existing Euro-Dollar Loan,
(ii) such Advance is to be made by Lender on a date other than a Euro-Dollar
Business Day, or (iii) the circumstances described in clause (a) or (b) of
Section 8.1 or in Section 8.2 shall exist and be continuing on either the date
of the Notice of Advance or the date of the Advance. Thereafter, Borrower may
from time to time elect to change or continue the type of interest rate borne by
all the Loans comprised in such Advance (subject in each case to the provisions
of Article VIII), as follows:
(1) if such Loans are Base Rate Loans, Borrower shall
convert such Loans to Euro-Dollar Loans as of the first day of the next
succeeding Euro-Dollar Interest Period applicable to an existing
Euro-Dollar Loan (or, if no Euro-Dollar Interest Periods are in effect
and such Advance is made on a day other than a Euro-Dollar Business
Day, the next succeeding Euro-Dollar Business Day);
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(2) if such Loans are Euro-Dollar Loans, Borrower may
elect to continue such Loans as Euro-Dollar Loans for an additional
Interest Period, in each case effective on the last day of the then
current Interest Period applicable to such Loans.
Each such election shall be made by delivering a notice (a "Notice of Interest
Rate Election") to the Lender at least three Euro-Dollar Business Days before
the conver sion or continuation selected in such notice is to be effective. In
the event Borrower fails to timely deliver a Notice of Interest Rate Election
with respect to any Loan or Loans, provided no Event of Default has occurred and
is then continuing, such Loan or Loans shall be continued as the same type of
Loan for the same Interest Period as then in effect.
(2) Each Notice of Interest Rate Election shall specify:
(1) the Advance to which such notice applies;
(2) the date on which the conversion or continuation
selected in such notice is to be effective, which shall comply with the
applicable clause of subsection (a) above;
(3) if the Loans comprising such Advance are to be
converted, the new type of Loans and the duration of the next Interest
Period applicable thereto; and
(4) if such Loans are to be continued as Euro-Dollar
Loans for an additional Interest Period, the duration of such
additional Interest Period,
and shall be accompanied by an Officer's Certificate reasonably satisfactory to
the Lender showing the calculation of Total Available Commitment as of the
commence ment of such Interest Period.
Each Interest Period specified in a Notice of Interest Rate
Election shall comply with the provisions of the definition of Interest Period.
SECTION 2.7 Interest Rates.
(1) Each Base Rate Loan shall bear interest on the outstanding
principal amount thereof, for each day from the date such Loan is made until it
becomes due or the date of conversion to a Euro-Dollar Loan, at a rate
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<PAGE> 29
per annum equal to the Base Rate for such day. Such interest shall be payable
for each Interest Period monthly, in arrears, on each Interest Payment Date or,
with respect to the principal amount of any Base Rate Loan converted to a
Euro-Dollar Loan, on each date a Base Rate Loan is so converted. Any overdue
principal of or interest on any Base Rate Loan shall bear interest, payable on
demand, for each day until paid at a rate per annum equal to the Default Rate.
(2) Each Euro-Dollar Loan shall bear interest on the
outstanding principal amount thereof, for each day during each Interest Period
applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar
Margin plus the Adjusted London Interbank Offered Rate applicable to such
Interest Period. Such interest shall be payable for each Interest Period
monthly, in arrears, on each Interest Payment Date.
"Euro-Dollar Margin" means 1.50%.
"LIBO Base Rate" means, for any Advance or Loan, as
applicable, with respect to each day during each Interest Period pertaining to
such Advance of Loan, the rate per annum equal to the rate appearing at page
3750 of the Telerate Screen as one month, three month or six month LIBOR (as
such period is selected by Borrower) on the first day of such Interest Period,
and if such rate shall not be quoted, the rate per annum at which the Lender is
offered Dollar deposits at or about 11:00 a.m., New York City time, on such date
by prime banks (collectively, the "Euro-Dollar Reference Banks") in the
interbank eurodollar market where the eurodollar and foreign currency exchange
operations in respect of Advances or Loans are then being conducted for delivery
on such day for a period of one month, three months or six months, as such
period is selected by Borrower, and in an amount comparable to the Advances or
Loans to be outstanding on such day.
The "Adjusted London Interbank Offered Rate" shall mean with
respect to each day during each Interest Period pertaining to an Advance or a
Loan, as the case may be, a rate per annum determined by Lender in accordance
with the following formula (rounded upwards to the nearest 1/100th of one
percent), which rate as determined by Lender shall be conclusive absent manifest
error by the Lender:
LIBO Base Rate
-----------------------------
1.00 - Euro-Dollar Reserve Percentage
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"Euro-Dollar Reserve Percentage" means for any Interest Period
for any Advance or Loan, as the case may be, the aggregate (without duplication)
of the rates (expressed as a decimal fraction) of reserve requirements in effect
on such day or during such Interest Period, as applicable (including without
limitation, basic, supplemental, marginal and emergency reserves under any
regulations of the Board of Governors of the Federal Reserve System (or any
successor) or other governmental agency having jurisdiction with respect
thereto) dealing with reserve requirements prescribed for eurocurrency funding
(currently referred to as "Eurocurrency Liabilities" in Regulation D of such
Board or in respect of any other category of liabilities which includes deposits
by reference to which the interest rate on Euro-Dollar Loans is determined or
any category of extensions of credit or other assets which includes loans by a
non-United States office of Lender to United States residents) maintained by a
member bank of the Federal Reserve System or such governmental agency. The
Adjusted London Interbank Offered Rate shall be adjusted automatically on and as
of the effective date of any change in the EuroDollar Reserve Percentage.
(3) Any overdue principal of or interest on any Euro-Dollar
Loan shall bear interest, payable on demand, for each day from and including the
date payment thereof was due to but excluding the date of actual payment, at a
rate per annum equal to the sum of 3% plus the higher of (i) the sum of the
Euro-Dollar Margin plus the Adjusted London Interbank Offered Rate applicable to
such Loan at the date such payment was due and (ii) the Euro-Dollar Margin plus
the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of
1%) by dividing (x) the average (rounded upward, if necessary, to the next
higher 1/16 of 1%) of the respective rates per annum at which one day (or, if
such amount due remains unpaid more than three Euro-Dollar Business Days, then
for such other period of time not longer than one month as the Lender may
select) deposits in dollars in an amount ap proximately equal to such overdue
payment due to the Euro-Dollar Reference Banks are offered to the Euro-Dollar
Reference Banks in the London interbank market for the applicable period
determined as provided above by (y) 1.0 minus the Euro-Dollar Reserve Percentage
(or, if the circumstances described in clause (a) or (b) of Section 8.1 or in
Section 8.2 shall exist and be continuing, at a rate per annum equal to the
Default Rate for such day).
(4) The Lender shall determine each interest rate applicable
to the Loans hereunder. The Lender shall give prompt notice to Borrower of each
rate of interest
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so determined, and its determination thereof shall be conclusive in the absence
of manifest error.
SECTION 2.8 Fees.
(1) Origination Fee. Borrower shall pay to Lender a
non-refundable origination fee (the "Origination Fee") equal to 1.0% of the
Borrowing Base as of the Initial Closing Date, but in no event less than
$230,000.00, which shall be payable on the Initial Closing Date.
(2) Undrawn Commitment Fee. During the Revolving Period,
Borrower shall pay to the Lender a commitment fee (the "Commitment Fee") at the
rate of 0.375% per annum on the daily average amount by which the Total
Available Commitment exceeds the aggregate outstanding principal amount of the
Loans. The Commitment Fee shall accrue from and including the Initial Closing
Date to but ex cluding the Revolver Termination Date (or such earlier date that
the Facility terminates in its entirety) and shall be payable, in arrears, on
each Interest Payment Date during or with respect to the Revolving Period.
Lender will endeavor to deliver to Borrower no less than one (1) Domestic
Business Day prior to the payment date of such Commitment Fee a calculation of
the amount of such Commitment Fee, however Lender's failure to deliver such
calculation shall in no way relieve Borrower's obligation to pay such Commitment
Fee.
(3) Exit Fee. In connection with any prepayment of the entire
amount of the Loans then outstanding and a related termination of the Facility
occurring at any time (i) during the six (6) month period prior to the Revolver
Termination Date or (ii) within ninety (90) days after delivery of any Request
to Extend, Borrower shall pay to Lender a non-refundable exit fee (the "Exit
Fee") equal to 1.0% of the quotient obtained by dividing (x) the sum of the
average principal amount of Loans outstanding each month during the Revolving
Period, as determined each month by Lender, by (y) the number of full calendar
months comprising the Revolving Period, after giving effect to the early
termination thereof by the Borrower, but in no event less than $125,000. The
Exit Fee shall not be payable in connection with any prepayment made by Borrower
after the Conversion Date.
(4) Additional Collateral Fee. On each Property Closing Date
(other than a Closing Date relating to a Substitute Property), Borrower shall
pay to the Lender a non-refundable additional Collateral Property
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fee (the "Additional Collateral Fee") in the amount of 1.0% of the Allocated
Loan Amount for such Additional Collateral Property; provided, however, that for
so long as the Borrowing Base shall be greater than $25,000,000 (without regard
to the Allocated Loan Amount for such Additional Collateral Property), the
Additional Collateral Fee shall be an amount equal to 0.75% of the Allocated
Loan Amount for such Additional Collateral Property.
(5) Rate Lock Fee. In connection with the Conversion Option,
Borrower may pay to Lender, any time prior to the Conversion Date, a rate lock
fee (the "Rate Lock Fee") to be quoted by Lender at the time Lender delivers the
Conversion Notice and obtain a lock, for the remainder of the Initial Spread
Quote Period, of the Term Loan Interest Rate for the Term Note.
SECTION 2.9 Intentionally Deleted.
SECTION 2.10 Maturity. The Facility shall terminate on the Re
volver Termination Date and any Loans then outstanding (together with accrued
interest thereon) shall mature and be due and payable on such date.
SECTION 2.11 Optional Prepayments.
(1) Borrower may, upon at least one (1) Domestic Business
Days' notice to the Lender, prepay any Base Rate Advance in whole at any time or
from time to time in part in amounts aggregating $250,000 or any larger multiple
of $50,000, by paying the principal amount to be prepaid together with accrued
interest thereon to the date of prepayment, but without any premium (except the
Exit Fee, if applicable) or penalty.
(2) Borrower may, upon at least three Euro-Dollar Business
Days' notice to the Lender prepay any Euro-Dollar Advance in whole on the last
day of any Interest Period applicable to such Advance in amounts aggregating
$250,000 or any larger multiple of $50,000, by paying the principal amount to be
prepaid together with accrued interest thereon to the date of prepayment and any
costs associated with such prepayment pursuant to Section 2.14 hereof, but
otherwise without any premium (except the Exit Fee, if applicable) or penalty.
(3) Borrower may in connection with a Property Release
pursuant to Section 3.6 requiring the payment of a Release Price and upon not
less than ten (10) Domestic Business Days notice to Lender, prepay on any
Business Day any Base Rate Advance or Euro-Dollar
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Advance in whole or in part in an amount equal to the applicable Release Price
by paying the Release Price for such Collateral Property together with accrued
interest thereon to the date of prepayment, and any costs asso ciated with such
prepayment pursuant to Section 2.14 and Section 3.6 hereof, but otherwise
without any premium (except the Exit Fee, if applicable) or penalty.
(4) Unless the Facility shall be terminated in connection with
a prepayment, all amounts prepaid pursuant to this Section 2.11 may be
reborrowed, subject to Borrower's compliance with all conditions to Advances set
forth herein.
SECTION 2.12 Mandatory Prepayments
(1) Within ten (10) Domestic Business Days after Lender
notifies Borrower that Lender believes, in its reasonable discretion, that an
event or events have occurred or facts have arisen with respect to any
Collateral Property which will likely cause or have caused a Material Adverse
Effect with respect to such Collateral Property (an "Adversely Affected
Property"), including, without limitation, facts disclosed in any estoppel
certificate which Borrower was unable to deliver at the Initial Closing,
Borrower shall be obligated to propose a Substitute Collateral Property to
replace such Adversely Affected Property as a Collateral Property hereunder.
Such proposal shall be made by Borrower in accordance with the terms of Section
3.2 hereof. In the event that Borrower fails to propose a Substitute Collateral
Property that is satisfactory to Lender in its reasonable discretion, the
Adversely Affected Property will be released from the Facility pursuant to
Section 3.6 hereof and Borrower will be required to prepay (a "Collateral
Property Mandatory Prepayment"), the Loans in an amount necessary to reduce the
Outstanding Balance to an amount equal to the Total Available Commitment taking
into account that the release of such Adversely Affected Property shall result
in a reduction in the Borrowing Base in an amount equal to 125% (or, in the
event that the Adversely Affected Property shall be one of the first two (2)
Release Properties, 110%) of the Allocated Loan Amount of such Adversely
Affected Property.
(2) Within 10 Domestic Business Days after Borrower has failed
to satisfy the Facility DSC Test, Borrower shall prepay the Loans (a "Facility
Mandatory Prepayment") in an amount necessary to cause the Borrower to be in
compliance with the Facility DSC Test.
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(3) In the event that any Collateral Property is released
pursuant to Section 3.6 hereof and upon such Release the Outstanding Balance
would exceed the Total Available Commitment, Borrower shall prepay the Loans (a
"Release Prepayment") to the extent necessary to reduce the Outstanding Balance
to the amount of the Total Available Commitment.
(4) Any Mandatory Prepayment shall be in an amount equal to
the required prepayment set forth in clauses (a) through (c) above, plus accrued
interest thereon to the date of the such prepayment, plus any costs associated
with such Mandatory Prepayment pursuant to Section 2.14.
SECTION 2.13 General Provisions as to Payments. Borrower shall
make each payment of principal of, and interest on, the Loans and of fees
hereunder, not later than 12:00 Noon (New York City time) on the date when due,
in Federal or other funds immediately available in New York City, to the Lender
at the address for Lender set forth below its name on the signature page hereof.
Whenever any pay ment of principal of, or interest on, the Base Rate Loans or of
fees shall be due on a day which is not a Domestic Business Day, the date for
payment thereof shall be extended to the next succeeding Domestic Business Day.
Whenever any payment of principal of, or interest on, the Euro-Dollar Loans
shall be due on a day which is not a Euro-Dollar Business Day, the date for
payment thereof shall be extended to the next succeeding Euro-Dollar Business
Day unless such Euro-Dollar Business Day falls in another calendar month, in
which case the date for payment thereof shall be the next preceding Euro-Dollar
Business Day. If the date for any payment of principal is extended by operation
of law or otherwise, interest thereon shall be payable for such extended time.
SECTION 2.14 Funding Losses. If Borrower makes any payment of
principal with respect to any Euro-Dollar Loan or any Euro-Dollar Loan is
converted to a Base Rate Loan (pursuant to Article VIII hereof) on any day other
than the last day of an Interest Period applicable thereto or if Borrower fails
to borrow or prepay any Euro-Dollar Loans after notice has been given to Lender
in accordance with Section 2.3, 2.11 or 2.12, Borrower shall reimburse Lender
within 15 days after demand for any resulting loss or expense incurred by it (or
by an existing or prospective Participant in the related Loan) including,
without limitation, any loss incurred in obtaining, liquidating or employing
deposits from third parties, but excluding loss of margin for the period after
any such payment or conversion or failure to
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borrow or prepay; provided that Lender shall have delivered to Borrower a
certificate as to the amount of such loss or expense, which certificate shall be
prima facie evidence of the matters certified therein.
SECTION 2.15 Computation of Interest and Fees. Interest based
on the Prime Rate hereunder shall be computed on the basis of a year of 365 days
(or 366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day if and only if such payment is made in accordance with the provisions of the
first sentence of Section 2.13).
ARTICLE 3
CONDITIONS
SECTION 3.1 Closings.
(1) Conditions Precedent to Effectiveness of Agreement. The
Initial Closing as contemplated hereunder shall occur upon receipt by the Lender
of the fol lowing documents, each dated as of the Initial Closing Date (or dated
as otherwise provided below) or a date otherwise satisfactory to the Lender and
in each case satisfactory in form and substance to the Lender in its reasonable
judgment:
(1) a duly executed Note for the account of Lender,
complying with the provisions of Section 2.5;
(2) the Mortgage, covering each Original Collateral
Property, duly executed and acknowledged by the Company (Collateral
Properties located in States having a tax payable in connection with
recording a mort gage, will be encumbered by the Mortgage limited to
125% of the Allocated Loan Amount of such Collateral Property;
Collateral Properties located in States having no or nominal mortgage
recording taxes will be encumbered by the Mortgage securing the face
amount of the Note; in any event the Mortgage will encumber each
Collateral Property on a joint and several basis to the full extent of
the obligations of Borrower hereunder and under the other Loan
Documents);
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(3) the Assignment of Rents and Leases, covering each
Original Collateral Property, duly executed and acknowledged by the
Company;
(4) the Environmental Indemnity, duly executed by the
Company and Parent;
(5) a Manager's Consent and Subordination in connection
with such Collateral Property, duly executed by each of the Property
Manager and the Company;
(6) UCC-1 financing statements (each, a "Financing
Statement") executed by the Company, as debtor, naming the Lender, as
secured party, in form appropriate for filing in the appropriate
jurisdictions as is necessary to create perfected security interests in
all of the Collateral with respect to the Collateral Properties, with
respect to which security interests are governed by the UCC;
(7) satisfactory reports of UCC filing, tax lien, and
judgment searches conducted by a search firm acceptable to the Lender
with respect to each Collateral Property, the Company and Parent, such
searches to be conducted in each of the locations specified by the
Lender;
(8) certificates of insurance with respect to each
Collateral Property demonstrating the coverage required by the Mortgage
and issued by insurance companies meeting Rating Agency Requirements;
(9) with respect to each Collateral Property, a
Survey;
(10) with respect to each Collateral Property, a market
study in form and substance acceptable to Lender;
(11) with respect to each Collateral Property, a "Phase
I" environmental report in form and substance satisfactory to Lender in
all re spects;
(12) with respect to each Collateral Property, an
engineer's report, in form and substance satisfactory to Lender in all
respects;
(13) with respect to each Collateral Property,
Compliance Evidence;
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(14) with respect to each Collateral Property, (a)
property level operating statements and historical cash flows for 1996
through August 1997, certified by an authorized officer of Borrower,
(b) a certified current rent roll, (c) a budget for Capital
Expenditures for calendar years 1998 and 1999, and (d) cash flow
projections for a two-year period;
(15) the certificate to be provided by Borrower
pursuant to Section 5.1(c);
(16) an opinion of Miro, Weiner & Kramer, counsel for
the Company and Parent, with respect to such matters as Lender shall
require, including, without limitation, opinions with respect to the
due formation and authority of the Company and Parent, the due and
valid execution and delivery of the Loan Documents, and the
enforceability of the Loan Documents;
(17) an opinion or opinions of Miro, Weiner & Kramer,
counsel for the Company and Parent, (a) to the effect that if the
Company or its sole shareholder were a debtor under the bankruptcy laws
of the United States, a court would not have valid legal grounds to
cause the Company or its sole shareholder to be substantively
consolidated with any other Person and (b) covering such additional
matters as the Lender may reasonably require;
(18) an opinion of local counsel in each
jurisdiction in which each Collateral Property is located in the form
of Exhibit E, satisfactory to the Lender;
(19) all documents the Lender may reasonably request
relating to the existence and qualification to do business of the
Company and Parent, the corporate authority for and the validity of
this Agreement, the Note and the other Loan Documents, or relating to
any Collateral, and any other matters relevant in connection with any
Loan Document, all in form and substance satisfactory to the Lender;
(20) copies of all Leases with respect to each
Collateral Property accompanied by an Officer's Certificate that such
Leases are true, correct and complete in all material respects;
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(21) estoppel certificates in form and substance
satisfactory to Lender from (a) each Major Tenant at each Collateral
Property in the form attached hereto as Exhibit F, (b) each ground
lessor at any Collateral Property which is held pursuant to a Ground
Lease, and (c) each party to any reciprocal easement agreement or
similar property operating agreement with respect to any Collateral
Property, provided that, to the extent that the Borrower, using its
best efforts, shall be unable to obtain any such estoppel certificate,
the Borrower shall (y) furnish Lender with such representations,
warranties and indemnifications as the Lender may determine to be
appropriate in its sole discretion in light of the absence of such
estoppel certificate and (z) continue to use its best efforts to obtain
and deliver promptly to the Lender an estoppel certificate in form and
substance reasonably satisfactory to the Lender covering the matters
for which an estoppel certificate was unavailable at the Initial
Closing and, in the event that Borrower shall so deliver such an
estoppel certificate, Borrower shall be released from the
representations, warranties and/or indemnifications given by it at the
Initial Closing with respect to the matters covered thereby;
(22) a subordination, non-disturbance and attornment
agreement substantially in the form of Exhibit G from each Major
Tenant;
(23) the payment by Borrower of any mortgage
recording tax and recording fees;
(24) written instructions to the Title Company
authorizing the recordation of the Mortgage, Assignment of Rents and
Leases, Financing Statements and other recorded documents;
(25) a SNDA/Estoppel Indemnity Agreement, duly
executed by the Company and the Parent (the "SNDA/Estoppel Indemnity");
and
(26) an undertaking, duly executed by the Company and
the Parent, with respect to certain items identified therein (the
"Undertaking").
The Lender shall promptly notify Borrower of the Initial Closing Date, and such
notice shall be conclusive and binding on all parties hereto.
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SECTION 3.2 Addition of Additional Collateral Properties and
Substitute Collateral Properties.
(1) Borrower may elect to submit additional Real Property
Assets to Lender for inclusion as "Additional Collateral Properties" or
"Substitute Collateral Properties" hereunder in accordance with this Section
3.2.
(2) Borrower shall submit to Lender the following materials
(the "Due Diligence Package") relating to each Real Property Asset to be added
to the Collateral Properties as an Additional Collateral Property. The Due
Diligence Package shall include with respect to such Real Property Asset each of
the items described in Section 3.1 (vii) - (xxii), a proposed capital
expenditure schedule in the form of Schedule 5.20 hereto with respect to the two
(2) year period following the proposed acquisition and, if such Real Property
Asset is not then owned by the Company, a duly executed copy of the Purchase and
Sale Agreement for such Real Property Asset accompanied by an Officer's
Certificate that such copy is a true, correct and complete copy of such Purchase
and Sale Agreement and any other agreements relating to the Company's
acquisition of such Real Property Asset and that it fairly states the terms and
conditions of such acquisition. In addition, if such Real Property Asset is
leased by the Company (rather than owned (or to be acquired) in fee), the
Company shall deliver to Lender a copy of the ground lease for such Real
Property Asset (together with all amendments and modifications thereto),
certified pursuant to an Officer's Certificate to be true, correct and complete,
and estoppel certificates from the ground lessor of such Real Property Asset, in
form and substance reasonably satisfactory to Lender. The Company shall permit
the Lender at all reasonable times and upon reasonable prior notice to make an
inspection of such Real Property Asset, subject to the rights of the seller
thereof or any tenants thereof. Real Property Assets submitted for inclusion
must (i) be owned (or leased) by the Company and (ii) be subject to no Lien
(other than Permitted Exceptions).
(3) All Real Property Assets to be added to the Collateral
Properties shall be approved or disapproved by Lender in its sole and absolute
discretion (provided that Lender shall not unreasonably withhold or delay its
approval of Substitute Collateral Properties) within 30 days after Lender's
receipt of the applicable Due Diligence Package and, in the event that Lender
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approves the Real Property Asset submitted by Borrower as an Additional
Collateral Property or a Substitute Collateral Property (each such property, an
"Approved Property"), Lender shall also notify Borrower of the Allocated Loan
Amount (determined by Lender in its sole and absolute discretion) for such
Additional Collateral Property or Substitute Collateral Property, as the case
may be. Within 10 days after receiving such notification, Borrower shall notify
Lender of Borrower's election to include such Approved Property as an Additional
Collateral Property or Substitute Collateral Property, as applicable, hereunder.
SECTION 3.3 Additional Property Closings.
(1) In the event that Borrower notifies Lender that Borrower
elects to include any Approved Property as an Additional Collateral Property or
a Substitute Collateral Property hereunder, then Borrower shall cause
appropriate counterparts of the Mortgage, the Assignment of Leases, the
Environmental Indemnity and the Fi nancing Statements (collectively, the
"Security Documents") (which are to be recorded and/or filed) to be recorded
and/or filed in the appropriate offices, as secu rity for the Loans, at
Borrower's sole cost and expense in order to spread the Lien of the Security
Documents to include any Additional Collateral Property or Substitute Collateral
Property (the date of each such recordation being hereinafter referred to as a
"Property Closing Date"). Lender shall execute and deliver, at Borrower's sole
cost and expense, appropriate releases of the Collateral Property for which a
substitution is being made.
(2) Upon (and as a condition to) each such addition, Borrower
shall cause to be delivered to the Lender, at Borrower's sole cost and expense:
(i) amendments, modifications and/or additional endorsements to the Title Policy
requested by Lender reflecting the addition of the Additional Collateral
Property or Substitute Collateral Property, as the case may be, (ii) such legal
opinions (including, without limitation, opinions of local counsel) as Lender
may reasonably require with respect to the addition of the Additional Collateral
Property or Substitute Collateral Property, as the case may be, (iii) updates to
Schedule 4.14 and Schedule 5.20 hereof, if applicable, (iv) such further
instruments and documents as the Lender or the Title Company shall reasonably
request to carry out the creation and perfection of the Liens and security
interests contemplated by the Security Documents, (v) any
mortgage recording tax and recording fees in connection with the
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recordations and filings, and (vi) with respect to the addition of any
Additional Collateral Property, the applicable Additional Collateral Fee.
SECTION 3.4 Additional Closing Conditions.
Notwithstanding anything to the contrary herein contained:
(1) each applicable Closing Date shall occur, if at
all, no less than 60 days prior to the Revolver Termination Date; and
(2) subject to the limitation set forth in Section 9.3
hereof, on each Closing Date, Borrower shall pay the accrued reasonable
fees and expenses of counsel of the Lender.
SECTION 3.5 Conditions to Advances. The obligation of Lender
to make a Loan on the occasion of any Advance is subject to the satisfaction of
the following conditions:
(1) receipt by the Lender of a Notice of Advance as required
by Section 2.3;
(2) the fact that, immediately after such Advance, the Company
and Parent shall satisfy the financial covenants contained in Section 5.7;
(3) the fact that, immediately after such Advance, the
aggregate outstanding principal amount of the Loans will not exceed the amount
of the Total Available Commitment;
(4) the fact that, immediately before and after such Advance,
no Bankruptcy Default or Event of Default shall have occurred and be continuing;
(5) the fact that the representations and warranties of the
Company and Parent contained in this Agreement and any other Loan Document shall
be true and correct in all material respects on and as of the date of such
Advance;
(6) there shall not be more than ten (10) Euro-Dollar Loans
outstanding at any time;
(7) no Advance shall be less than $500,000;
(8) Title Company shall be prepared to issue (and upon the
funding of such Advance shall issue) any
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"date downs" or other endorsements necessary to insure that the Lien of the
Mortgage will remain a first priority Lien with respect to such Advance;
(9) Borrower shall have delivered a Solvency Certificate; and
(10) to the best of Borrower's knowledge, nothing shall have
occurred or failed to have occurred having a Material Adverse Effect.
Each Advance hereunder shall be deemed to be a representation
and warranty by Borrower on the date of such Advance as to the facts specified
in clauses (b), (c), and (f) through (g) of this Section and shall be deemed to
constitute a ratification and confirmation that the representations and
warranties made by the Company and Parent pursuant to Article IV hereof are true
and correct as of the date of such Advance.
SECTION 3.6 Release of Collateral Property. The Lender
acknowledges that the Company may (i) sell, transfer and convey to any Person
who is not an Affiliate of Borrower (each a "Third Party Sale"), all of the
Company's right, title and interest in and to any Real Property Asset
constituting a Collateral Property from time to time or (ii) be required
pursuant to Section 10 or 12 of the Mortgage to obtain a release of a Collateral
Property as the result of a Casualty Event or Condemnation Event and, in
connection therewith, may request a release from the Lien of the Mortgage (each
a "Property Release" and the Collateral Property which is the subject of the
Property Release being a "Release Property"), and the Lender agrees to provide
the Company with any releases and reconveyances from the Lien of the Mortgage
(provided, that such release and termination or reassignment shall be without
recourse to the Lender and without any representation or warranty), subject in
each case to the satisfaction by Borrower, as applicable, of the following
conditions:
(1) in connection with a Third Party Sale, the Company shall
notify the Lender in writing of the impending sale of any Collateral Property
and of the identity of the proposed purchaser not less than 60 days prior to the
date of such impending sale (such date, being the "Release Date"), which
notification shall serve as an irrevocable request to the Lender to release such
Collateral Property from the Lien of the Mortgage;
(2) in connection with a Casualty Event which, pursuant to the
provisions of Section 11 of the
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Mortgage, Lender has elected not to permit a Restoration, the Company shall be
required to obtain the release of the Collateral Property affected by such
Casualty Event no less than 30 days after Lender has notified the Company that
it has elected not to permit a Restoration (such date also being a "Release
Date");
(3) in connection with a Condemnation Event which, pursuant to
the provisions of Section 12 of the Mortgage, Lender has elected not to permit a
Restoration, the Company shall be required to obtain the release of the
Collateral Property affected by such Condemnation Event simultaneously with the
payment of the Award relating thereto (whether or not such Award is sufficient
to pay the applicable Release Price) (such date also being a "Release Date");
(4) in connection with an Adversely Affected Property, the
Company shall be required to obtain a release of such Adversely Affected
Property within ten (10) Domestic Business Days after Lender delivers Borrower
written notice thereof pursuant to Section 2.12(a) hereof (such date also being
a "Release Date");
(5) Except in connection with a release pursuant to clause (d)
above, no Bankruptcy Default or Event of Default hereunder shall have occurred
and be continuing nor shall any material default beyond any notice and cure
periods have occurred and be continuing under any Loan Document at the time of
such request or release;
(6) no less than five (5) Domestic Business Days prior to the
Release Date, Borrower shall deliver to Lender such financial statements
together with an Officer's Certificate that will demonstrate that immediately
after the Release Date, (i) the Company and Parent shall continue to satisfy the
financial covenants set forth in Section 5.7 hereof and (ii) the Outstanding
Balance shall not exceed the Total Available Commitment;
(7) Borrower shall pay all expenses and fees (including
reasonable attorneys' fees and disbursements) incurred by the Lender in
connection with any re lease;
(8) The Borrowing Base shall be reduced by an amount equal to
125% of the Allocated Loan Amount for the Release Property in question, unless
the Borrower shall request that the Borrowing Base be reduced by an amount equal
to 110% of the Allocated Loan Amount for the Release Property in question, which
request may be made by the Borrower in connection with the first two (2)
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Property Releases. In the event that, as a result of such reduction in the
Borrowing Base, the Outstanding Balance exceeds the Total Available Commitment,
Borrower shall prepay the Loans in an amount necessary to reduce the Outstanding
Balance to an amount equal to or less than the Total Available Commitment taking
into account the reduction in the Borrowing Base (the "Release Price") and shall
reimburse Lender for any costs incurred in connection with Section 2.14 hereof;
(9) Borrower, at its sole cost and expense, shall have
delivered to Lender one or more endorsements to the Title Policy, insuring that,
after giving effect to such release, (x) the Liens created by the Mortgage on
the remaining Collateral Properties (including any Substitute Collateral
Property) are first priority Liens subject only to the Permitted Exceptions and
(y) the Title Policy is in full force and effect and unaffected by such release;
and
(10) Borrower shall deliver an Officer's Certificate
certifying that the representations and warranties contained in Article IV
hereof are true and correct as of such Release Date.
Upon or after Borrower's satisfaction of the release conditions set forth above,
Lender shall release its security interest in the Mortgage and other Security
Documents with respect to such Release Property.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
SECTION 4.1 Corporate Existence and Power.
(1) Borrower is a corporation duly incorporated, validly
existing and in good standing under the laws of Michigan, and has all corporate
powers and all material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted.
(2) Parent is a corporation duly incorporated, validly
existing and in good standing under the laws of Michigan, and has all corporate
powers and all material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted.
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(3) The Property Manager is a corporation duly incorporated,
validly existing and in good standing under the laws of Michigan, and has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted.
(4) The Borrower's principal place of business is and at all
times during the previous five (5) years has been in Birmingham, Michigan.
Except as set forth below with respect to Parent, the Borrower is not
conducting, and at no time since June 24, 1994 has the Borrower conducted,
business under any assumed or fictitious names. Parent has reserved "Malan
Construction Company", "Malan Management Company", and "Malan Companies" as
assumed names in the State of Michigan, but since June 24, 1994, has not held
itself out as doing business under such names in any State in which a Collateral
Property is located. Except for the Loan Documents, there is no financing
statement, security agreement, chattel mortgage or other document filed or
recorded in any public office, whether in the name of Borrower or under any
fictitious or assumed name adopted or used by Borrower, that purports to cover
the Collateral Properties or any portion thereof.
SECTION 4.2 Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by the Company, Parent,
and the Property Manager of each Loan Document to which it is or will be a party
are within such Person's corporate powers, limited liability company powers or
partnership powers, as applicable, have been duly authorized by all necessary
corporate action, limited liability company action or partnership action, as
applicable, require no action by or in respect of, or filing with, any
governmental body, agency or official (except as may be required and hereinafter
obtained by the Borrower in connection with any future development of or
construction upon a Collateral Property) and, to the best of its knowledge after
due and diligent inquiry, do not contravene, or constitute a default under, any
provision of applicable law or regula tion, or of the certificate of
incorporation or by-laws or the certificate of limited partnership or limited
partnership agreement or the articles of formation or operating agreement, as
applicable, of such Person or of any agreement, judgment, injunction, order,
decree or other instrument binding upon such Person or any of its Subsidiaries,
or result in the creation or imposition of any Lien on any asset (including the
Collateral) of such Person or any of its Subsidiaries, except as contemplated
by the Loan Documents.
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SECTION 4.3 Binding Effect. Each Loan Document constitutes, or
when duly executed and delivered will constitute, with respect to the Company,
Parent and the Property Manager which is or will be a party thereto, a legal,
valid and binding obligation of such Person.
SECTION 4.4 Financial Information.
(1) The unaudited balance sheet of the Company as of September
30, 1997 and the related unaudited statement of earnings and statement of cash
flows for the three months then ended, a copy of which has been delivered to
Lender, fairly present, in conformity with generally accepted accounting
principles, the financial position of the Company as of such date and its
results of operations and cash flows for such three month period.
(2) Since September 30, 1997, there has been no event which
could reasonably be expected to have a Material Adverse Effect.
SECTION 4.5 Litigation. There is no action, suit or proceeding
pending against, or to the knowledge of the Company or Parent threatened against
or affecting, the Company or Parent or any Subsidiaries of Parent before any
court or arbitrator or any governmental body or agency in which there is a
reasonable possibility of an adverse decision which could have a Material
Adverse Effect.
SECTION 4.6 Compliance with ERISA. Each member of the ERISA
Group has fulfilled its obligations under the minimum funding standards of ERISA
and the Internal Revenue Code with respect to each Plan and is in compliance in
all material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Internal Revenue Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA.
SECTION 4.7 Environmental Matters. To the Borrower's best
knowledge after due and diligent inquiry,
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and except as indicated in the environmental reports delivered to the Lender
pursuant to Section 3.1(a)(xi):
(1) each of the Company, Parent and the Property
Manager (x) is in compliance with all applicable Environmental Laws,
except to the extent non-compliance would not have a Material Adverse
Effect, (y) has all material permits, licenses, approvals, rulings,
variances, exemptions or other authorizations under applicable
Environmental Laws to operate each Collateral Property as presently
conducted or as reasonably anticipated to be conducted, (z) has
received no written communication, from a governmental authority,
alleging that the Company, the Parent or the Property Manager is not in
full compliance with all Environmental Laws, and there are no events or
circumstances that may reasonably be anticipated to prevent or
interfere with such full compliance in the future, except to the extent
non-compliance would not have a Material Adverse Effect;
(2) there is no Environmental Claim pending or
threatened in writing against the Company, the Parent or the Property
Manager;
(3) there are no past or present actions, activities,
circumstances, conditions, events or incidents including, without
limitation, the release, emission, discharge or disposal of any
Hazardous Substances, that could form the basis of any Environmental
Claim against the Company, the Parent or the Property Manager; and
(4) without in any way limiting the generality of the
foregoing, (A) there are no sites on any Collateral Property in which
the Company, the Parent or the Property Manager has stored, disposed or
arranged for the disposal of any Hazardous Substances, except for the
routine storage of materials which are stored, used, sold or held in
inventory in the ordinary course of the operation, maintenance and
repair of the businesses upon a Collateral Property in strict
compliance with applicable Environmental Laws, (B) there are no
underground storage tanks located on any Collateral Property, (C)
there is no asbestos contained in or forming a part of any improvement
on any Collateral Property, and (D) no polychlorinated biphenyls (PCBs)
are used or stored on any Collateral Property.
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SECTION 4.8 Taxes. The Company and Parent have each filed or
obtained an unexpired extension to file all United States Federal income tax
returns and all other material tax returns which are required to be filed by
them and have paid all taxes due pursuant to such returns or pursuant to any
assessment received by the Company or Parent, except, with respect to Parent
only, if such assessment is being contested by Parent in good faith by
appropriate proceedings and adequate reserves have been established with
respect thereto. The charges, accruals and reserves on the books of the Company
and Parent in respect of taxes or other governmental charges are, in the opinion
of the Company and Parent, adequate.
SECTION 4.9 Subsidiaries.
(1) Each of Parent's corporate Subsidiaries is a corporation
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, each of Parent's partnership Subsidiaries is a
general partnership duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, and each such entity has all
corporate or partnership powers, as applicable, and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
(2) The Company has and will create no Subsidiaries.
SECTION 4.10 Not an Investment Company. Neither the Company
nor Parent is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
SECTION 4.11 Full Disclosure. All information heretofore
furnished by the Company or Parent to the Lender for purposes of or in
connection with this Agreement or any transaction contemplated hereby is, and
all such information hereafter furnished by the Company or Parent to the Lender
will be, true and accurate, taken as a whole, in all material respects on the
date as of which such information is stated or certified. To the best of the
Borrower' knowledge after due and diligent inquiry, there are no facts which
materially and adversely affect the business, operations, properties, assets or
financial condition of the Company or Parent, or the value of any Collateral
Property, or the ability of the Company or Parent to perform its obligations
under any Loan Document which have not been disclosed in writing to the Lender.
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SECTION 4.12 Single Purpose Entity. The Company is a Single
Purpose Entity.
SECTION 4.13 Relationship of the Company to Parent. The
Company is a wholly-owned Subsidiary of Parent.
SECTION 4.14 Contracts. Except as indicated on Schedule 4.14,
there are no material leasing, asset management, property management or advisory
contracts in connection with any Collateral Property other than the Property
Management Contract. All contracts in connection with the operation of any Coll
ateral Property are (i) to Borrower's knowledge, market rate contracts with
third parties on customary terms for similar contracts and (ii) in each case
(except for contracts set forth on Schedule 4.14) terminable by the Company on
no more than 30 days' prior written notice.
SECTION 4.15 Solvent. The Company and Parent are each Solvent.
SECTION 4.16 No Plan Assets. The Company's assets are not
deemed to be "plan assets" within the meaning of Section 2510.3-101 of the
Regulations of the Department of Labor.
SECTION 4.17 Debt. The Company has no Debt outstanding other
than Debt permitted under Section 5.9.
Borrower shall also be deemed to represent and warrant that as
of the first day of each Interest Period of each Advance (x) the aggregate
outstanding principal amount of the Loans does not exceed the amount of the
Total Available Commitments, (y) no Event of Default or Bankruptcy Default has
occurred and is continuing and (z) the representations and warranties of the
Company and Parent contained in this Agreement and any other Loan Document are
true in all material re spects on and as of such day.
ARTICLE 5
COVENANTS
Borrower hereby agrees that, so long as Lender has any
Commitment hereunder or any amount payable under the Note or hereunder remains
unpaid:
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SECTION 5.1 Information. Borrower will deliver to Lender:
(1) as soon as available and in any event within 105 days
after the end of each fiscal year of the Company, a balance sheet of the Company
and a schedule detailing the capitalized cost, accumulated depreciation and net
book value of each Collateral Property as of the date thereof, along with a
statement of Net Operating Income for the Company for the three months and
twelve months then ended setting forth in reasonable detail the Net Operating
Income of each Collateral Property and the component parts thereof for the
period all certified (subject to normal year-end or audit adjustments) as to
fairness of presentation, compliance with generally accepted accounting
principles and consistency by an authorized officer of the Company;
(2) as soon as available and in any event within 50 days after
the end of the first three quarters of each fiscal year of the Company, a
balance sheet of the Company and a schedule detailing the capitalized cost,
accumulated depreciation and net book value of each Collateral Property as of
the date thereof, along with a statement of Net Operating Income for the Company
for the three months and twelve months then ended setting forth in reasonable
detail the Net Operating Income of each Collateral Property and the component
parts thereof for the period, all certified (subject to normal year-end or audit
adjustments) as to fairness of presentation, compliance with generally accepted
accounting principles and consistency by an authorized officer of the Company;
(3) on or prior to each Closing Date, an Officer's Certificate
setting forth in reasonable detail the calculations required to establish
whether the Company and Parent were in compliance with the requirements of
Section 5.7 on the last day of the preceding quarter, no later than the fiftieth
(50th) day after the end of every fiscal quarter following the Initial Closing
Date and no later than the one hundred and fifth (105th) day after the end of
every fiscal year following the Initial Closing Date, an Officer's Certificate
showing (A) the calculation of Aggregate Net Cash Flow for the Collateral
Properties, each for the twelve-month period ending on the last day of the
preceding quarter, (B) the calculation of Quarterly Cash Flow for the fiscal
quarter then ended, and (C) setting forth in reasonable detail the calculations
required to establish whether the Company and Parent were in compliance with the
requirements of Section 5.7 on the last day of the preceding quarter and/or
year, as applicable;
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(4) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, an Officer's Certificate
stating, to the best of such Officer's knowledge, after due inquiry, whether any
Default exists on the date of such certificate and, if any Default then exists,
setting forth the details thereof and the action which Borrower is taking or
proposes to take with respect thereto;
(5) as soon as available and in any event within 105 days
after the end of each fiscal year of the Borrower thereafter, a combined
statement of gross revenues, direct operating expenses, Quarterly Cash Flow,
Combined Equity Value, Combined Debt Service and Aggregate Net Operating Income
of the Collateral Properties for such fiscal year, which statement shall (A) set
forth the Facility DSC Test for each such year and in comparative form, the
figures for gross income, direct operating expenses and Aggregate Net Operating
Income for the previous fiscal year, (B) set forth the Senior Debt Service
Coverage Test for such year and in comparative form, the figures for Quarterly
Cash Flow and the component parts thereof for the previous fiscal year, (C) be
prepared in reasonable detail, (D) state that such consolidated statement
presents fairly the gross revenues, direct operating expenses, Quarterly Cash
Flow, Combined Equity Value, Combined Debt Service and Aggregate Net Operating
Income as of the end of such fiscal year in accordance with GAAP, and (E) be
accompanied by a Officer's Certificate signed by the chief financial officer of
the Company and the Parent stating that the information set forth therein is
true, correct and complete in all material respects and fairly represents the
subject matter thereof;
(6) within five days after any executive officer of the
Company or Parent (including without limitation, any president, vice president
or chief financial officer) obtains knowledge of any Default, if such Default is
then continuing, an Officer's Certificate setting forth the details thereof and
the action which Borrower is taking or proposes to take with respect thereto;
(7) within five days after any executive officer of the
Company or Parent (including without limitation, any president, vice president
or chief financial officer) obtains knowledge of any Environmental Claim against
the Company, Parent or the Property Manager or a Contamination Event occurring
at any Collateral Property, an Officer's Certificate setting forth the
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details thereof and the action which such Person is taking or proposes to take
with respect thereto;
(8) within five days after any executive officer of the
Company or Parent (including without limitation, any president, vice president
or chief financial officer) obtains knowledge of any Casualty Event or
Condemnation Event occurring at any Collateral Property or any event occurring
at any Collateral Property which could reasonably result in an Adversely
Effected Property, an Officer's Certificate setting forth the details thereof
and the action which such Person is taking or proposes to take with respect
thereto and;
(9) as soon as available and in any event within the five (5)
Domestic Business Days after the delivery date required by the Exchange Act, the
Borrower shall deliver to the Lender copies of its annual and quarterly reports
and such other information, documents and other reports which the Borrower is
required to file with the SEC pursuant to Sections 13 or 15(d) of the Exchange
Act. The Borrower shall promptly provide the Lender with a reasonably detailed
explanation of the reasons for any failure by the Borrower to file any such
annual or quarterly reports with the SEC within the time periods required under
the Exchange Act or for the need to lawfully extend the time periods in which to
file same, which such explanations shall include a reasonably detailed report as
to the status of all items required to complete such filings;
(10) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as defined in
Section 4043 of ERISA) with respect to any Plan which might constitute grounds
for a termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
report able event, a copy of the notice of such reportable event given or
required to be given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA or notice that any Multiemployer
Plan is in reorganization, is insolvent or has been terminated, a copy of such
notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent
to terminate, impose liability (other than for premiums under Section 4007 of
ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of
such notice; (iv) applies for a waiver of the minimum funding standard under
Section 412 of the Internal Revenue Code, a copy of such application; (v) gives
notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy
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of such notice and other information filed with the PBGC; (vi) gives notice of
withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such
notice; or (vii) fails to make any payment or contribution to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement or makes any
amendment to any Plan or Benefit Arrangement which has resulted or could result
in the imposition of a Lien or the posting of a bond or other security, an
Officer's Certificate setting forth details as to such occurrence and action, if
any, which Borrower or applicable member of the ERISA Group is required or
proposes to take;
(11) simultaneously with the delivery of the items set forth
in Section 5.1(a) and (b), Borrower will furnish to the Lender operating
information with respect to each Collateral Property as follows:
(1) year to date operating statements (including income
and expenses);
(2) paid invoices or other evidence reasonably
satisfactory to Lender of the compliance by the Company with its
obligations under Section 5.20 in respect of capital expenditures;
(3) rent roll for the previous calendar month then
ended; and
(4) an Officer's Certificate certifying that each of
the above is true, correct and complete in all material respects and
accurately reflects the financial condition of such Collateral
Property; and
(5) from time to time such additional information
regarding the financial position or business of the Company and the
Collateral Properties as the Lender may reasonably request.
SECTION 5.2 Payment of Obligations. Borrower will pay and
discharge at or before maturity, all of its respective material obligations and
liabilities, including, without limitation, any obligation pursuant to any
agreement by which it or any of its properties may be bound and any tax
liabilities, impositions, as sessments, and public charges of every character,
except where the same may be contested in good faith by appropriate proceedings,
and will maintain in accordance with generally accepted accounting principles,
appropriate reserves for the accrual of any of the same.
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SECTION 5.3 Maintenance of Property; Insurance; Appraisals.
(1) The Company will keep all property necessary in its
business (including but not limited to, the Collateral Properties) in good order
and condition, ordinary wear and tear excepted.
(2) The Company will comply, as applicable, with all insurance
requirements set forth in the Mortgage. The Company will deliver to the Lender
(i) within ten days of Lender's request, full information as to the insurance
carried, (ii) within five days of receipt of notice from any insurer, a copy of
any notice of cancellation or material change in coverage from that existing on
the date of this Agreement and (iii) forthwith, notice of any cancellation or
nonrenewal of coverage by the Company.
(3) If a monetary Event of Default shall occur and be
continuing, within thirty (30) days after the occurrence thereof, the Lender
shall have the right, at Borrower's sole cost and expense, to commission an
Appraisal of all or some of the Collateral Properties (in Lender's sole
discretion).
(4) The Lender shall also have the right, at Borrower's sole
cost and expense, to commission an Appraisal of all or some of the Collateral
Properties (in Lender's sole discretion) if such Appraisal is required by law or
any governmental authority having jurisdiction over Lender.
SECTION 5.4 Conduct of Business and Maintenance of Existence.
The Company will continue to engage in business of the same general type as now
conducted by the Company and will preserve, renew and keep in full force and
effect its corporate existence and its rights, privileges and franchises
necessary or desirable in the normal conduct of business.
SECTION 5.5 Compliance with Laws. The Company will comply in
all material respects with all applicable laws, ordinances, rules, regulations,
and requirements of governmental authorities (including, without limitation,
Environmental Laws, land use laws, all zoning and building codes with respect to
the Collateral Property and ERISA and the rules and regulations thereunder).
SECTION 5.6 Inspection of Property, Books and Records. The
Company will keep proper books of
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record and account in which full, true and correct entries shall be made of all
dealings and transactions in relation to its business and activities and will
permit representatives of Lender to visit and inspect any of the Collateral
Properties (subject to the rights of tenants under their respective Leases), to
examine and make abstracts from any of their respective books and records and to
discuss its affairs, finances and accounts with its officers, employees and
independent public accountants, all at such reasonable times, upon reasonable
prior notice and as often as may reasonably be desired by Lender.
SECTION 5.7 Financial Covenants.
(1) Measured as of the last day of each fiscal quarter,
Combined Debt shall not exceed 65% of Combined Equity Value.
(2) Measured as of the last day of each fiscal quarter and as
of the date of the addition or release of any Collateral Property, Parent shall
maintain a ratio of Quarterly Cash Flow for such quarter to Combined Debt
Service for such quarter of no less than 2.0 to 1.0 (the "Senior Debt Service
Coverage Test").
(3) Measured as of the last day of each fiscal quarter and as
of the date of the addition or release of any Collateral Property, on a trailing
twelve month basis, with respect to all of the Collateral Properties in the
aggregate, the ratio of Aggregate Net Cash Flow to Aggregate Debt Service, will
not be less than 1.50 to 1.0 (the "Facility DSC Test"); provided, however, that
Borrower shall have ninety days to restore compliance with the Facility DSC Test
so long as such ratio is not less than 1.30 to 1.00 during such 90 day cure
period.
(4) Measured as of the Initial Closing Date, the last day of
each fiscal quarter, and as of the date of the addition or release of any
Collateral Property, the ratio of the Outstanding Balance to the Fair Market
Value of the Collateral Properties shall not, as of any date of determination,
exceed 75%.
SECTION 5.8 Investments. The Company will not make or acquire
any Investment in any Person other than Temporary Cash Investments.
SECTION 5.9 Debt. Other than the Loans, the Company will not
incur any additional Debt other than
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Debt for trade payables incurred in the ordinary course of business.
SECTION 5.10 Consolidations, Mergers and Sales of Assets.
(1) The Company will not consolidate or merge with or into any
other Person or except as expressly permitted under Section 17(b) of the
Mortgage, sell, lease or otherwise transfer, directly or indirectly, all or any
substantial part of its assets, taken as a whole, to any other Person.
(2) The Parent will not sell, lease or otherwise dispose of
all or a substantial part of its properties or assets to any other Person or
merge or consolidate with any other Person unless no less than ten (10) Domestic
Business Days prior to the effective date of such merger or consolidation, a
senior financial officer of the Parent shall have delivered to the Lender an
Officer's Certificate certifying, to Lender's reasonable satisfaction, that the
merger or consolidation shall not and cannot reasonably be anticipated to (w)
result in an Event of Default, (x) have a Material Adverse Effect, (y) adversely
affect the ability of the Borrower to repay the Loans and (z) adversely affect
the ability of the Borrower to comply with the financial covenants contained
herein. Notwithstanding the foregoing, the Parent may not merge or consolidate
with any other Person if (u) in connection with such merger or consolidation, it
is intended that the surviving Person shall not remain a publicly traded
corporation, or (v) a substantial portion of the assets of the surviving Person
shall include hotels, restaurants, casinos or other entertainment complexes.
SECTION 5.11 Use of Proceeds. The proceeds of the Loans made
under this Agreement will be used by Borrower solely for the Approved Purposes.
None of such proceeds will be used, directly or indirectly, for the purpose,
whether immediate, incidental or ultimate, of buying or carrying any "margin
stock" within the meaning of Regulation U.
SECTION 5.12 No Change in Organizational Documents. The
Company will not permit its articles of incorporation, by-laws or other
organizational documents to be amended, modified or rescinded in any material
respect without the prior written consent of the Lender, which consent shall not
be unreasonably withheld or delayed.
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SECTION 5.13 Affiliate Transactions. The Company will not
enter into any transaction with or make any payment to any Affiliates other than
the Property Management Contract. During the occurrence and continuation of a
Bankruptcy Default or an Event of Default, the Property Manager shall
subordinate the payment of its management fee payable under the Property
Management Contract to the repayment of the Obligations and no management fees
shall be payable until such Bankruptcy Default or Event of Default is cured or
the Obligations are paid in full.
SECTION 5.14 Contracts. The Company will not modify the
Property Management Contract in any manner that (i) increases fees payable
thereunder, (ii) adversely affects the Company's termination rights or (iii)
reduces the duties of the Property Manager.
SECTION 5.15 No Plan Assets. The Company's assets will at no
time constitute "plan assets" within the meaning of Section 2510.3-101 of the
Regulations of the Department of Labor.
SECTION 5.16 Environmental Matters.
(1) At its sole cost and expense, the Company will comply with
and with respect to any and all activities relating to the Collateral Property,
will cause the Property Manager and will use best efforts to cause all tenants
of each Collateral Property to comply with, all Environmental Laws, except to
the extent non-compliance would not have a Material Adverse Effect. Without
limiting the generality of the foregoing, the Company will not, and will cause
the Property Manager and each tenant of each Collateral Property not to, use,
store, discharge, install or transport on any Collateral Property, or permit to
be used, stored, discharged, installed or transported on any Collateral
Property, any Hazardous Substances other than Hazardous Substances of such types
and in such quantities as are customarily used or stored in or at comparable,
prudently-managed properties similar to the Collateral Properties.
(2) The Company will deliver to Lender within ten (10) days
after receipt thereof (i) any written notice of other communication from any
governmental authority concerning any actual, alleged, suspected or threatened
violation of or liability under any Environmental Law with respect to any
Collateral Property or (ii) any written notice of other communication concerning
any actual, alleged, suspected or threatened Environmental Claim at any
Collateral
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Property. In addition, the Company will notify Lender within ten (10) days after
receiving actual knowledge that any representation contained herein or in the
Mortgage with respect to any Hazardous Substance at any Collateral Property is
no longer materially accurate.
(3) The Company will promptly commence the environmental work
described in Schedule 5.16 hereto, diligently pursue such work to completion and
promptly deliver to the Lender notice of initiation as well as notice of
completion of such work.
SECTION 5.17 Additional Liens. Except as may be permitted
under Mortgage, the Company will not allow or permit any Liens (other than the
Liens evidenced by the Loan Documents and Permitted Exceptions) to encumber its
assets.
SECTION 5.18 Single Purpose Entity. The Company shall maintain
its status as a Single Purpose Entity.
SECTION 5.19 Ground Leases. The Company shall not permit any
material default to occur under any Ground Lease. The Company will notify Lender
of any notice of default received by the Company or upon obtaining actual
knowledge of a potential default pursuant to any of the Ground Leases within
thirty (30) days of receipt of such notice (but in no event less than five (5)
Business Days prior to the expiration of the grace period under the applicable
Ground Lease). With respect to the Ground Lease for the Collateral Property
located in Valparaiso, Indiana, the Company hereby covenants and agrees that for
so long as any of Obligations shall be outstanding and such premises shall not
have been released as a Collateral Property hereunder pursuant to Section 3.6
hereof, the Company shall duly and timely exercise, as soon as the same are
exercisable, all renewal and/or extension options provided for in such Ground
Lease so that the term thereof shall continue in full force and effect and shall
not be subject to expiration prior to the then maximum available term. When
exercising each such renewal and/or extension option, the Company shall
simultaneously with such exercise provide a copy of the same to the Lender. In
the event that the Company shall fail to so exercise any such renewal
and/or extension option and such failure shall continue for five (5) days after
written notice from Lender (or such lesser time as may be available in order to
avoid the expiration of the term of such Ground Lease), then Lender may exercise
such renewal and/or extension option in the name and on behalf of the Company
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and the Company hereby irrevocable designates and appoints the Lender as the
Company's attorney-in-fact, coupled with an interest, for such purpose.
SECTION 5.20 Capital Expenditures and Major Repairs. The
Company covenants and agrees with the Lender that, until the Revolver
Termination Date, the Company shall budget for and expend in respect of
commercially reasonable Capital Expenditures at each Collateral Property an
amount corresponding to the amount set forth in Schedule 5.20 for each
Collateral Property (the "Capital Expenditure Projection"); provided, however,
that the Company shall be allowed to deviate from the Capital Expenditure
Projection for each Collateral Property for an adverse variance of (a) no more
than ten (10%) percent for any Collateral Property during calendar year 1998 and
(b) no more than twenty (20%) percent for any Collateral Property during
calendar year 1999. In the event that the Company shall fail to so budget,
perform and pay for such Capital Expenditures at each Collateral Property in
accordance with the Capital Expenditure Projection relating thereto, subject to
the permitted variances therefrom, and shall fail to demonstrate to the Lender's
satisfaction a reasonable basis for such failure, then the Company shall at the
Lender's election deposit with the Lender or its designee in respect of each
Collateral Property an amount equal to $0.20 per rentable square foot per
calendar year (prorated in the event that the Initial Closing Date, Property
Closing Date and Revolver Termination Date for any given Collateral Property
shall be other than the first or last day of a calendar year), with such amounts
to be held and disbursed by Lender or its designee pursuant to the provisions of
Section 9 of the Mortgage.
ARTICLE 6
DEFAULTS
SECTION 6.1 Events of Default. If one or more of the following
events ("Events of Default") shall have occurred and be continuing:
(1) Borrower shall fail to pay when due any principal on any
Loan, or shall fail to pay any interest due on any Loan for three (3) Domestic
Business Days after the due date therefor, or shall fail to pay for five (5)
Business Days after written notice thereof has been given to Borrower by the
Lender, any fees or any other amount payable hereunder;
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(2) Borrower shall fail to observe or perform any covenant
contained in Sections 5.7-5.15 (inclusive), or Section 5.18 or any covenant or
requirement of Article VII;
(3) Borrower shall fail to observe or perform any covenant
contained in Section 5.16 or Section 5.17 (inclusive) for ten (10) days after
Borrower shall have knowledge thereof; or Borrower shall fail to comply with any
provision of Section 5.1 hereof within ten (10) days of Lender's request
therefor; or Borrower shall fail to observe or perform any other covenant or
agreement contained in this Agreement (other than those covered by clause (a) or
(b) above) or Borrower shall fail to per form any covenant or agreement
contained in any other Loan Document to which it is a party for 30 days (or such
shorter period as may be provided for therein) after written notice thereof has
been given to Borrower by the Lender; provided, however, that, in the event a
Default hereunder arises due to a breach of the covenant contained in Section
5.16, which breach is caused by non-compliance with Environmental Laws affecting
a Collateral Property (the "Contaminated Property") due solely to the action or
inaction of one or more un-related third parties, then Borrower shall have up to
sixty (60) days to (i) cure such breach (the "Cure Period") and (ii) provide the
Lender with a report of an environmental consultant, acceptable to the Lender,
which report demonstrates to the satisfaction of the Lender that such breach has
been cured and that the Contaminated Property is in compliance with applicable
Environmental Laws (satisfaction of (i) and (ii) collectively a "Cure"). During
such Cure Period, the Aggregate Net Cash Flow shall automatically be reduced by
the Net Operating Income attributable to such Contaminated Property and Borrower
shall, within ten (10) Business Days of the beginning of the Cure Period, prepay
any amounts required to be prepaid pursuant to Section 2.12(b) hereof. In the
event the breach of Section 5.16 shall have been Cured prior to the end of the
Cure Period, the calculation of the Aggregate Net Cash Flow shall again include
Net Operating Cash Flow from such Collateral Property. In the event the breach
of Section 5.16 shall not have been Cured by the end of the Cure Period, and the
Contaminated Property shall not have been released pursuant to Section 3.3, then
such breach shall constitute an Event of Default hereunder;
(4) any representation, warranty, certification or statement
made by the Company or Parent in any Loan Document or in any certificate,
financial statement or other document delivered pursuant to any Loan Document
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shall prove to have been incorrect in any material respect when made (or deemed
made);
(5) the Company or Parent shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(6) an involuntary case or other proceeding shall be commenced
against the Company or Parent seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 90 days; or an order for
relief shall be entered against the Company or Parent under the federal
bankruptcy laws as now or hereafter in effect;
(7) any member of the ERISA Group shall fail to pay when due
an amount or amounts aggregating in excess of $5,000,000 which it shall have
become liable to pay under Title IV of ERISA; or notice of intent to terminate a
Material Plan shall be filed under Title IV of ERISA by any member of the ERISA
Group, any plan administrator or any combination of the foregoing; or the PBGC
shall institute proceedings under Title IV of ERISA to terminate, to impose
liability (other than for premiums under Section 4007 of ERISA) in respect of,
or to cause a trustee to be appointed to administer any Material Plan; or a
condition shall exist by reason of which the PBGC would be entitled to obtain a
decree adjudicating that any Material Plan must be terminated; or there shall
occur a complete or partial withdrawal from, or a default, within the meaning of
Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans
which could cause one or more members of the ERISA Group to incur a current
payment obligation in excess of $5,000,000;
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(8) a judgment or order for the payment of money in excess of
$500,000 shall be rendered against the Company and such judgment or order shall
continue unsatisfied and unstayed for a period of 30 days;
(9) the Company is no longer wholly owned by Parent or (ii)
the Property Manager is no longer Parent, an Affiliate of Parent or a Person
satisfactory to Lender in its sole discretion or is no longer controlled by
Parent or a Person satisfactory to Lender in its sole discretion;
(10) [Intentionally Deleted];
(11) any Loan Document shall for any reason cease to be in
full force and effect, or shall cease to give the Lender the Liens, and the
material rights, powers and privileges purported to be created thereby
including, without limitation, a first perfected security interest in, and Lien
on, all of the Collateral in accordance with the terms thereof, prior to all
other Liens and such circumstance shall continue for in excess of ten (10)
Domestic Business Days after written notice from Lender;
(12) cancellation of any material insurance policy in
violation of the terms of this Agreement or the Mortgage unless substantially
similar coverage is effected within three (3) Domestic Business Days of such
cancellation;
(13) the Parent or any of its Consolidated Subsidiaries
defaults in any material respect under any loan document with respect to
Material Debt and such default shall result in or permit the holder of such
Material Debt to accelerate the maturity thereof; or Parent, the Company or any
Consolidated Subsidiary of Parent fails to make any payment with respect to any
Debt of such entity with a face amount of $500,000 or more;
(14) if the Company shall be in default beyond any applicable
notice or cure periods pursuant to the terms of any of the Ground Leases, unless
the Company procures the release of the applicable Collateral Property from the
terms hereof within ten (10) Domestic Business Days of such default in
accordance with Section 3.6 hereof, or unless such default shall have been
waived or not declared by the landlord under any of the Ground Leases, or if the
leasehold estate created by any of the Ground Leases shall be surrendered or any
of the Ground Leases shall be terminated or cancelled for any reason or under
any circumstance whatsoever, or if any of the
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terms, covenants or conditions of any of the Ground Leases shall be waived,
modified, changed, supplemented, altered or amended in such a way as to
materially and adversely affect the Company's rights thereunder without the
consent of Lender, except that if the Company purchases the landlord's fee
simple interest in the real property subject to any of the Ground Leases and
mortgages the same to Lender, such purchase and any subsequent termination or
cancellation of such Ground Lease, by operation of law or otherwise, shall not
constitute a default hereun der, and, if the Company fails to take any action
under such Ground Lease because the Company is contesting in good faith the
actions of the landlord under such Ground Lease and the Company causes any cure
periods to be held in suspension pending the resolution of such contest, such
action shall not constitute a default hereunder for so long as such cure periods
are held in suspension, but if, at any time any Collateral Property or any
portion thereof shall be in danger of being forfeited or lost, the Company shall
take any necessary action under such Ground Lease to pre vent such forfeiture or
loss and failure to take such action to so prevent such forfei ture or loss
shall be a default hereunder; or
(15) if the Company receives any notice of default pursuant to
any of the Ground Leases and does not within thirty (30) Days of receipt of such
notice (but in no event less than five (5) Business Days prior to the expiration
of the grace period under the applicable Ground Lease) give notice to Lender,
unless the Company procures the release of the applicable Collateral Property
from the terms hereof within ten (10) Domestic Business Days of such default in
accordance with Section 3.6 hereof;
Then, and in every such event set forth above, the Lender may, in its sole
discretion, (i) by notice to Borrower terminate the Facility and it shall
thereupon terminate, and/or (ii) by notice to Borrower declare the Note
(together with accrued interest thereon) to be, and the Note shall thereupon
become, immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by Borrower; provided
that in the case of any of the Bankruptcy Default, without any notice to
Borrower or any other act by the Lender, the Facility shall thereupon terminate
and the Note (together with accrued interest thereon) shall become immediately
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by Borrower.
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ARTICLE 7
CONVERSION OPTION
SECTION 7.1 Conversion into Term Loan. In order further to
secure the repayment of the Loans under this Facility, Lender shall have the
option (a "Conversion Option"), at any time during the period commencing on the
ninetieth (90th) day prior to the Revolver Termination Date and ending on the
sixtieth (60th) day prior to the Revolver Termination Date to notify Borrower
(such notice being a "Conversion Notice") that, within the thirty (30) day
period following the delivery of the Conversion Notice, it intends to convert
the Loans into a term mortgage loan (the "Term Loan" and upon conversion, each
Collateral Property shall be a "Term Loan Property") upon the terms and
conditions set forth in this Article.
SECTION 7.2 Conversion Notice.
(1) In the event that the Allocated Loan Amounts of the
Collateral Properties are not sufficient to allow Lender, in its sole reasonable
discretion, to sell the Term Loan in a Securitization for the amount necessary
to repay all obligations of Borrower under this Facility, the Company shall
mortgage, grant or otherwise pledge additional Real Property Assets as security
for the Term Loan (such additional Real Property Assets also being deemed "Term
Loan Properties" hereunder).
(2) Within five days following its receipt of the Conversion
Notice, Borrower shall deliver to Lender a copy of the most recent trailing
twelve month financial statements for each proposed Term Loan Property in a
form sufficient such that Lender can determine the sufficiency of such
properties as collateral for the Term Loan, together with an Officer's
Certificate certifying that such financial statements are true, correct and
complete in all material respects and fairly represent the financial condition
of the proposed Term Loan Properties.
SECTION 7.3 Terms of the Term Loan.
(1) Within twenty (20) days after delivery of the Conversion
Notice, Lender shall notify Borrower in writing of the principal amount of the
proposed Term Loan (the "Term Loan Amount") which shall be determined by Lender
in its sole and absolute discretion;
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(2) The Term Loan shall be evidenced by a Term Note and
secured by, among other things, a Mortgage and/or Mortgage Modification, each
made by the Company that shall cross-default and cross-collateralize the Term
Loan Properties;
(3) No substitutions or releases of Collateral Properties
shall be permitted under the Term Loan except in connection with casualty,
condemnation or contamination events, in Lender's sole discretion;
(4) The Term Note shall mature on a date that no less than
five (5) years after the Conversion Date;
(5) The Term Note shall amortize principal based upon an
amortization schedule of not greater than 25 years;
(6) The Term Note shall accrue interest at an interest rate
which shall be set on the Conversion Date, based upon the spread over an index
to be determined by Lender, in its sole discretion, at such time but based upon
an index then being used by Lender for loans such as the Term Loan having
similar loan to value ratios, securing assets such as the Term Loan Properties
and intended to be sold by Lender into a Securitization (such interest rate
being the "Term Loan Interest Rate"). Not withstanding the foregoing, Borrower
shall have the option at any time prior to the Conversion Date, by payment of a
non-refundable Rate Lock Fee, to lock the Term Loan Interest Rate for the
balance of the period prior to the Conversion Date (such rate being the "Locked
Rate"), provided such period is not greater than forty-five days (such period
being the "Initial Spread Quote Period"). In the event the Conver sion Date has
not occurred by the end of the Initial Spread Quote Period for whatever reason,
the Locked Rate shall expire and Borrower shall have the option of either paying
a new Rate Lock Fee to receive a revised Locked Rate, based on then prevailing
Index and spread for an additional 30 day period or setting the Term Loan
Interest Rate at the Conversion Date;
(7) The Company shall be permitted to prepay the Term Loan in
whole and not in part upon the payment of a yield maintenance fee to be
determined by Lender prior to the Conversion Date (the "Prepayment Fee"),
together with all accrued and unpaid interest through such prepayment date and
individual Term Mortgage Properties may be released from the Term Loan based
upon a prepayment of 125% of the Term Loan Amount previously
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allocated to such Term Mortgage Property plus the Prepayment Fee, together with
all accrued and unpaid interest through the such prepayment date.
Notwithstanding the foregoing, there shall be no Prepayment Fee payable by the
Company during the period commencing six months prior to the stated maturity
date of the Term Loan; and
(8) The Term Loan shall be secured by the Term Loan Properties
but shall be otherwise non-recourse to the Company, except for customary
exceptions from such limited liability. Parent shall have no direct obligation
for the repayment of the Term Loan.
SECTION 7.4 Establishment of Reserves. Lender, in its
reasonable discretion, based upon the then prevailing Rating Agency standards,
may require the Company to establish reasonable reserves for real estate taxes,
insurance, capital expenditures, deferred maintenance, environmental remediation
and tenant improvements, leasing commissions, tenant "rollovers" in connection
with the Term Loan. Such reserves shall be held by Lender or an agent selected
by Lender, under its sole dominion and control, with the first such installments
being due at the Conversion Date.
SECTION 7.5 Condition Precedent to Conversion.
(1) No less than 20 Domestic Business Days prior to the
Conversion Date, Lender shall have received and approved, in its sole
discretion, each of the following (to the extent not theretofore delivered to
Lender pursuant to the terms hereof or waived by Lender in its sole and absolute
discretion):
(1) satisfactory updates of engineering reports and
Phase I environmental reports, operating agreements, and management
contracts with respect to each proposed Term Loan Property;
(2) satisfactory reports of UCC filing, tax lien, and
judgment searches conducted by a search firm acceptable to the Lender
with respect to the Term Loan Property and the Company, such searches
to be conducted in each of the locations specified by the Lender;
(3) UCC-1 financing statements executed by the Company,
as debtor, naming the Lender, as secured party, to be filed in the
appropriate jurisdictions as is necessary to create perfected securi-
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ty interests in all of the collateral with respect to the Term Loan
Properties, with respect to which security interests are governed by
the UCC;
(4) certificates of insurance with respect to each
Term Loan Property demonstrating the coverage required by the Mortgage
(as such may be modified based upon Rating Agency Requirements) and
issued by insur ance companies meeting Rating Agency Requirements;
(5) with respect to each Term Loan Property, a Survey,
recertified to Lender as of date no earlier than 60 days prior to the
Conversion Date;
(6) with respect to each Term Loan Property, in
Lender's reasonable discretion, (i) if required by any Rating Agency or
if required by law or any governmental authority having jurisdiction
over Lender, an Appraisal setting forth an Appraised Value equal to no
less than the Allocated Loan Amount for such Term Loan Property and
aggregated Appraised Values for all Term Loan Properties of no less
than 75% of the proposed Term Loan Amount or (ii) in the event an
Appraisal is either not required by a Rating Agency or required by law
or any governmental agency, a market study of each Term Loan Property
in form and substance reasonably satisfactory to Lender in all
respects;
(7) with respect to each Term Loan Property,
Compliance Evidence;
(8) with respect to each Term Loan Property, such
financial information (including property operating statements and
capital expenditure budgets), rent rolls and other items requested by
Lender or required by any Rating Agency, each accompanied by an
Officer's Certificate certifying that each is true, correct and
complete in all material respects and fairly represents the financial
condition of such Term Loan Property and each satisfactory to the
Lender in all respects;
(9) such opinions of counsel as are customary in
secured real estate financings and rated Securitizations (including,
but not limited to, 10b-5, non-consolidation, true sale and other
bankruptcy related opinions), all in such forms as shall be acceptable
to the Rating Agency in its sole discretion;
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(10) all documents the Lender may reasonably request
relating to the existence and qualification to do business of the
Company, the corporate authority for and the validity of the Term Note
and the other Term Loan Documents, or relating to any collateral, and
any other matters relevant in connection with any Term Loan Document,
all in form and substance satisfactory to the Lender;
(11) copies of all Leases with respect to each Term
Loan Property (acceptable to Lender in all respects) accompanied by an
Officer's Certificate that each such Lease is true, correct and
complete in all material respects; and
(12) estoppel certificates from each Major Tenant,
ground lessor and reciprocal easement agreement party at the Term Loan
Properties substantially in the form attached hereto as Exhibit F
satisfactory to Lender, provided that, to the extent that the Company,
using its best efforts, shall be unable to obtain any such estoppel
certificate, the Borrower shall (y) furnish Lender with such
representations, warranties and indemnifications as the Lender may
determine to be appropriate in its sole discretion in light of the
absence of such estoppel certificate and (z) continue to use its best
efforts to obtain and deliver promptly to the Lender an estoppel
certificate in form and substance reasonably satisfactory to the Lender
and the Rating Agency covering the matters for which an estoppel
certificate was unavailable on the Conversion Date and, in event that
Borrower shall so deliver such an estoppel certificate, Borrower shall
be released from the representations, warranties and/or
indemnifications given by it on the Conversion Date with respect to the
matters covered thereby.
(2) On the Conversion Date:
(1) each proposed Term Loan Property shall be released
from the Facility and the terms and conditions of this Agreement;
(2) the Company shall execute and/or deliver each of
the following documents:
(1) a Term Note;
(2) such modifications to the Mortgage as may be
required (i) by the Rating Agencies,
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(ii) to reflect the substitution of the Note with the Term
Note, (iii) to indicate the Term Loan Amount; (iv) to satisfy
any Requirements and (v) by Lender (a "Mortgage
Modification");
(3) such modifications to the Assignment of Rents
and Leases as may be required (i) by the Rating Agencies, (ii)
to reflect the substitution of the Note with the Term Note,
(iii) to indicate the Term Loan Amount, (iv) to satisfy any
Requirements, (v) to reflect any modifications to the
Mortgage, and (vi) by Lender (the "Assignment of Leases
Modification");
(4) if required by the Rating Agency, a cash
collateral agreement encumbering the cash flow from the Term
Loan Properties;
(5) the Title Policy;
(6) a Solvency Certificate; and
(7) such other documents as Lender may reasonably
request;
(3) the Company shall pay any mortgage recording tax
and recording fees in connection with such any increase in the Term
Loan Amount over the Allocated Loan Amount of the Term Loan Properties
and the recordation of any Term Loan Documents;
(4) the Company and Parent shall each confirm to
Lender that all representations and warranties of the Company and
Parent contained in the Loan Documents are true and correct in all
material respects as of the Conversion Date; and
(5) the Company shall deliver to Lender such other
documents requested by Lender.
(3) In connection with the Lender's exercise of the Conversion
Option, Borrower agrees to execute and deliver all documents and to otherwise
cooperate as Lender believes is reasonably necessary to consummate a Rating
Agency-rated Securitization in such amounts that will repay the Obligations.
SECTION 7.6 Extension of Revolver Termination Date. Lender
shall have the option, in its sole discretion (but subject to the approval of
any Assignees and Participants) to waive the Conversion
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Option and elect, in lieu thereof, to extend the Revolver Termination Date for
any period reasonably acceptable to the Borrower and Lender, it being agreed
that any period of not less than six (6) months nor more than one (1) year is
acceptable.
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.1 Basis for Determining Interest Rate Inadequate or
Unfair. If on or prior to the first day of any Interest Period for any
Euro-Dollar Advance:
(1) the Lender is advised by the Reference Bank that deposits
in dollars (in the applicable amounts) are not being offered to the Reference
Bank in the relevant market for such Interest Period, or
(2) Lender believes that the Adjusted London Interbank Rate as
determined by the Lender will not adequately and fairly reflect the cost to
Lender of funding for its Euro-Dollar Loans for such Interest Period,
the Lender shall forthwith give notice thereof to Borrower, whereupon until the
Lender notifies Borrower that the circumstances giving rise to such suspension
no longer exist, (i) the obligations of the Lender to make Euro-Dollar Loans, as
the case may be, or to convert outstanding Loans into Euro-Dollar Loans shall be
suspended and (ii) each outstanding Euro-Dollar Loan shall be converted into a
Base Rate Loan on the last day of the then current Interest Period applicable
thereto. Unless Borrower notifies the Lender at least two Domestic Business Days
before the date of any Euro-Dollar Advance for which a Notice of Advance has
previously been given that it elects not to borrow on such date, such Advance
shall instead be made as a Base Rate Advance.
SECTION 8.2 Illegality. If, on or after the date of this
Agreement, 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 Lender (or its Euro-Dollar Lending Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency shall make it unlawful or impossible for
Lender (or its Euro-Dollar Lending Office) to make, maintain or
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fund its Euro-Dollar Loans, the Lender shall forthwith give notice thereof to
Borrower, whereupon until Lender notifies Borrower that the circumstances giving
rise to such suspension no longer exist, the obligation of Lender to make
Euro-Dollar Loans, or to convert outstanding Loans into Euro-Dollar Loans, shall
be suspended. If such notice is given, each Euro-Dollar Loan of Lender then
outstanding shall be converted to a Base Rate Loan either (a) on the last day of
the then current Interest Period applicable to such Euro-Dollar Loan if Lender
may lawfully continue to maintain and fund such Loan to such day or (b)
immediately if Lender shall determine that it may not lawfully continue to
maintain and fund such Loan to such day.
SECTION 8.3 Increased Cost and Reduced Return.
(1) If, on or 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 Lender with any
request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency shall impose, modify or deem
applicable any reserve (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System, but excluding
with respect to any Euro-Dollar Loan any such requirement included in an
applicable Euro-Dollar Reserve Percentage), special deposit, insurance
assessment or similar requirement against assets of, deposits with or for the
account of, or credit extended by, Lender or shall impose on Lender or the
London interbank market any other condition affecting its Euro-Dollar Loans, the
Note or its obligation to make Euro-Dollar Loans, and the result of any of the
foregoing is to increase the cost to Lender of making or maintaining any
Euro-Dollar Loan, or to reduce the amount of any sum received or receivable by
the Lender under this Agreement or under its Note with respect thereto, by an
amount deemed by Lender to be material, then, within 15 days after demand by
Lender, and provided Lender is generally exercising rights similar to those set
forth in this Section 8.3 (a) against other borrowers similarly situated to
Borrower, Borrower shall pay to Lender such additional amount or amounts as will
compensate Lender for such increased cost or reduction.
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(2) If Lender shall have determined that, after the date
hereof, the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change in any such 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 any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on capital of Lender as a consequence of Lender's obligations hereunder to a
level below that which Lender could have achieved but for such adoption, change,
request or directive (taking into consideration its policies with respect to
capital adequacy) by an amount deemed by Lender to be material, then from time
to time, within 15 days after demand by Lender, and provided Lender is generally
exercising rights similar to those set forth in this Section 8.3(b) against
other borrowers similarly situated to Borrower, Borrower shall pay to Lender
such additional amount or amounts as will compensate Lender for such reduction.
(3) Lender will promptly notify Borrower of any event of which
it has knowledge, occurring after the date hereof, which will entitle Lender to
compen sation pursuant to this Section and will designate a different Applicable
Lending Office if such designation will avoid the need for, or reduce the amount
of, such compensation and will not, in the judgment of Lender, be otherwise
disadvantageous to Lender. A certificate of Lender claiming compensation under
this Section and set ting forth the additional amount or amounts to be paid to
it hereunder shall be prima facie evidence of the matters certified therein. In
determining such amount, Lender may use any reasonable averaging and attribution
methods.
SECTION 8.4 Taxes.
(1) Any and all payments by Borrower to or for the account of
Lender hereunder or under the Note 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 subdi vision thereof and taxes imposed on its income,
and franchise or similar taxes imposed on it, by the jurisdiction of Lender's
Applicable Lending Office or any
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political subdivision thereof (all such non-excluded taxes, duties, levies,
imposts, deductions, charges, withholdings and liabilities being hereinafter
referred to as "Taxes"). If Borrower shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder or under the Note to the
Lender, (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 8.4) the Lender (as the case may be) receives an
amount equal to the sum it would have received had no such deductions been made,
(ii) Borrower shall make such deductions, (iii) Borrower shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law and (iv) Borrower shall furnish to the Lender, at
its address referred to in Section 9.1, the original or a certified copy of a
receipt evidencing payment thereof.
(2) In addition, Borrower agrees to pay any present or future
stamp or documentary taxes and any other excise or property taxes, or charges or
similar levies, including without limitation documentary, intangibles,
recording, mortgage recording and transfer taxes, which arise from any extension
of credit hereunder, any payment made hereunder or under any Note or from the
execution or delivery or performance of, or the exercise of remedies under, or
otherwise with respect to, this Agreement or any other Loan Document
(hereinafter referred to as "Other Taxes").
(3) Borrower agrees to indemnify the Lender for the full
amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this Section 8.4) paid by the Lender and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto. This
indemnification shall be made within 15 days from the date the Lender (as the
case may be) makes demand therefor.
SECTION 8.5 Base Rate Loans Substituted for Affected Fixed
Rate Loans. If (i) the obligation of the Lender to make or maintain Euro-Dollar
Loans has been suspended pursuant to Section 8.2 or (ii) the Lender has demanded
compensation under Section 8.3 or 8.4 with respect to its Euro-Dollar Loans and
Borrower shall, by at least five Euro-Dollar Business Days' prior notice to the
Lender, have elected that the provisions of this Section shall apply to the
Lender, then, unless and until the Lender notifies Borrower that the
circumstances
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giving rise to such suspension or demand for compensation no longer exist:
(1) all Loans which would otherwise be made by Lender as (or
continued as or converted into) Euro-Dollar Loans shall be Base Rate Loans, and
(2) after each of its Euro-Dollar Loans has been repaid (or
converted into a Base Rate Loan), all payments of principal which would
otherwise be applied to repay such Euro-Dollar Loans shall be applied to repay
its Base Rate Loans instead.
If Lender notifies Borrower that the circumstances giving rise
to such notice no longer apply, the principal amount of each such Base Rate Loan
shall be converted into a Euro-Dollar Loan.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including bank wire,
facsimile transmission or similar writing) and shall be given to such party: in
the case of the Company, Parent or the Lender, at its address or facsimile
number set forth on the signature pages hereof. Each such notice, request or
other communication shall be effective (i) if given by facsimile, when such
facsimile is transmitted to the facsimile number specified in this Section and
the appropriate answer back is received, (ii) if given by mail, 72 hours after
such communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (iii) if given by any other means, when delivered at
the address specified in this Section; provided that notices to the Lender under
Article II or Article VIII shall not be effective until received.
SECTION 9.2 No Waivers. No failure or delay by the Lender in
exercising any right or remedy hereunder or under the Note, and no course of
dealing with respect thereto, shall operate as a waiver thereof nor shall any
single or partial exercise of any right or remedy hereunder or under the Note or
under any other Loan Document preclude any other or further exercise thereof or
the exercise of any other right or remedy. The rights and remedies provided
herein, under the Note or in any other Loan Document are cumulative and may be
exercised inde-
73
<PAGE> 75
pendently or concurrently and are not exclusive of any other rights or remedies
provided by law.
SECTION 9.3 Expenses; Indemnification.
(1) Borrower shall pay (i) all out-of-pocket expenses of the
Lender, including reasonable fees and disbursements of special counsel and local
counsel for the Lender, in connection with the preparation and administration of
this Agreement and each other Loan Document (provided that (i) Lender's
out-of-pocket expenses, exclusive of fees and disbursements of counsel, shall
not exceed $10,000 and (ii) the fees of Lender's outside counsel (exclusive of
disbursements) for which Borrower shall be responsible for payment shall not, in
connection with the Initial Closing only, exceed $112,500), any waiver or
consent hereunder or thereunder or any amendment hereof or thereof or any
Default or alleged Default hereunder, (ii) all appraisal fees, recording and
filing fees, taxes, brokerage fees and commissions, abstract fees, title
insurance premiums and fees, Uniform Commercial Code and other search fees,
escrow fees, environmental report fees, engineering report fees, and all other
costs and expenses of every character incurred in connection with the
preparation, execution, delivery, filing, recordation or performance of any Loan
Document and (iii) if an Event of Default occurs, all out-of-pocket expenses
incurred by the Lender, including fees and disbursements of counsel, in
connection with such Event of Default, and collection, bankruptcy, insolvency
and other enforcement proceedings resulting therefrom.
(2) the Company and Parent each jointly and severally agrees
to indemnify the Lender, its respective affiliates and the respective directors,
officers, agents and employees of the foregoing (each an "Indemnitee") and hold
each Indem nitee harmless from and against any and all liabilities, losses,
damages, costs and expenses of any kind, including, without limitation, the
reasonable fees and dis bursements of counsel, which may be incurred by such
Indemnitee in connection with any investigative, administrative or judicial
proceeding (whether or not such Indemnitee shall be designated a party thereto)
brought or threatened relating to or arising out of (i) this Agreement or any
Loan Document or any actual or proposed use of proceeds of Loans hereunder, (ii)
any violation by the Company, Parent or the Property Manager of any applicable
Environmental Law or other law, (iii) any Environmental Claim or other claim
arising out of the management, use, control, ownership or operation of property
or assets by the Company, Parent or the Property Manager, including, without
limitation, all on-site and
74
<PAGE> 76
off-site activities involving Hazardous Substances, (iv) the breach of any
representation, warranty or covenant set forth herein or in any Loan Document,
(v) the grant to the Lender of any Lien on any property or assets of the
Company, or (vi) the exercise by the Lender of its rights and remedies
(including, without limitation, foreclosure) under any agreement creating any
such Lien, provided that no Indemnitee shall have the right to be indemnified
hereunder for such Indemnitee's own gross negligence or willful misconduct as
determined by a court of competent jurisdiction.
SECTION 9.4 Set-Offs. The Company and Parent each agrees, to
the fullest extent it may effectively do so under applicable law, that Lender or
any holder of a participation in the Note may, after the occurrence of an Event
of Default hereunder exercise rights of set-off or counterclaim and other rights
with respect to such participation as fully as if such holder of a participation
were a direct creditor of Borrower in the amount of such participation.
SECTION 9.5 Amendments and Waivers. Except as expressly
provided in any other Loan Document, any provision of this Agreement or the Note
or any other Loan Document may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed by Borrower and the Lender.
SECTION 9.6 Successors and Assigns.
(1) The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, except that Borrower may not assign or otherwise transfer any of its
rights under this Agreement without the prior written consent of Lender.
(2) Lender may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment on
any or all of its Loans at no cost to Borrower. In the event of any such grant
by the Lender of a participating interest to a Participant, whether or not upon
notice to Borrower, Lender shall remain responsible for the performance of its
obligations hereunder, and Borrower shall continue to deal solely and directly
with the Lender in connection with this Agreement. Any agreement pursuant to
which Lender may grant such a participating interest shall provide that Lender
shall retain the sole right and responsibility to enforce the obligations of
Borrower hereunder including, without limitation, the right to
75
<PAGE> 77
approve any amendment, modification or waiver of any provision of this
Agreement. Borrower agrees that each Participant shall, to the extent provided
in its participation agreement, be entitled to the benefits of Article
VIII with respect to its participating interest. An assignment or other transfer
which is not permitted by subsection (c) or (d) below shall be given effect for
purposes of this Agreement only to the extent of a participating interest
granted in accordance with this subsection (b).
(3) Lender may at any time assign to one or more banks or
other institutions (each an "Assignee") all, or a proportionate part of all, of
its rights and obligations under this Agreement and the Note and the other Loan
Documents (provided that each such assignment shall be in a minimum amount of
$5,000,000), and such Assignee shall assume such rights and obligations subject
to, provided that no Default or Event of Default shall have occurred and be then
continuing, the consent of Borrower, which in each case shall not be
unreasonably withheld; provided that if an Assignee is an affiliate of Lender,
no such consent shall be required and provided further that if the assignor is
not Greenwich Capital Markets, Inc., the consent of Greenwich Capital Markets,
Inc. shall also be required. Upon execution and delivery of such instrument and
payment by such Assignee to Lender of an amount equal to the purchase price
agreed between Lender and such Assignee, such Assignee shall be a party to this
Agreement and shall have all the rights and obligations of Lender with a
Commitment as set forth in such instrument of assumption, and Lender shall be
released from its obligations hereunder to a corresponding extent, and no
further consent or action by any party shall be required. Upon the consummation
of any assignment pursuant to this subsection (c), the Lender and Borrower shall
make appropriate arrangements so that, if required, a new Note is issued to the
Assignee.
(4) Lender may at any time assign all or any portion of its
rights under this Agreement and its Note to a Federal Reserve Bank.
(5) No Assignee, Participant or other transferee of Lender's
rights shall be entitled to receive any greater payment under Section 8.3 or 8.4
than Lender would have been entitled to receive with respect to the rights
transferred, unless such transfer is made with Borrower's prior written consent
(provided no Default shall have occurred and be continuing).
76
<PAGE> 78
(6) Notwithstanding anything to the contrary contained herein,
Lender shall at any time, without the consent of Borrower, have the right to
enter into one or more purchase and financing arrangements with Greenwich
Capital Financial Products ("GCFP") with respect to the Advances, the Loans,
and/or the rights and obligations of Lender pursuant to this Agreement and the
other Loan Documents and in such capacity (i) GCFP shall have all rights to
enforce the rights of Lender under this Agreement and the other Loan Documents
as if specifically a party thereto, and (ii) to the extent GCFP agrees to
purchase Advances or Loans directly from Lender or make Loans directly to the
Borrower, the parties agree to (A) to look only to GCFP to satisfy any
obligations of Lender under this Agreement or the other Loan Documents and (B)
deal directly with GCFP is connection with such Advances or Loans. The parties
agree to cooperate with each other to execute such documents and instruments and
make such filings, at Lender's sole cost and expense, as shall be necessary to
carry out the intent of the foregoing.
(7) Lender reserves that right at any time to retain a
servicer to act as its agent under the Facility with such powers as are
specifically delegated to such servicer by Lender including, without limitation,
any and all interactions with the Borrower in the place of Lender, the
collection and remittance of payments, the maintenance of tax and insurance
escrows, the general administration of the Facility, and any and all decisions
with respect to the Collateral Properties.
SECTION 9.7 Joint and Several Liability. The obligations of
the Borrower hereunder and under the Note shall be and are the joint and several
obligations of the Company and Parent; notwithstanding the foregoing, to the
extent that the "Borrower" hereunder is entitled to exercise rights or deliver
notices, such rights and deliveries may be made by either the Company or the
Parent and Lender shall be entitled to rely on the authority of either such
party without further notice or acknowledgment from the other.
SECTION 9.8 Governing Law; Submission to Jurisdiction. This
Agreement and the Note shall be governed by and construed in accordance with the
laws of the State of New York. The Company and Parent and Lender each hereby
submits to the nonexclusive jurisdiction of the United States District Court for
the Southern District of New York and of any New York State court sitting in New
York City for purposes of all legal proceedings arising out of or relating to
this Agreement or the transactions contemplated hereby. The Company and
77
<PAGE> 79
Parent and Lender each irrevocably waives, to the fullest extent permitted by
law, any objection which it may now or hereafter have to the laying of the venue
of any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient forum.
SECTION 9.9 Counterparts; Integration; Effectiveness. This
Agreement may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Agreement constitutes the entire agreement and
understanding among the parties hereto and supersedes any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof. This Agreement shall become effective upon receipt by the Lender of
counterparts hereof signed by each of the parties hereto (or, in the case of any
party as to which an executed counterpart shall not have been received, receipt
by the Lender in form satisfactory to it of facsimile or other written
confirmation from such party of execution of a counterpart hereof by such
party).
SECTION 9.10 WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND
PARENT AND LENDER HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 9.11 Survival. All indemnities set forth herein shall
survive the execution and delivery of this Agreement and the other Loan
Documents and the making and repayment of the Loans and the termination of the
Commitment hereunder.
SECTION 9.12 Further Assurances. At any time or from time to
time upon the request of the Lender, the Company and Parent will, at their own
ex pense, promptly execute, acknowledge, and deliver such further documents and
do such other acts and things as shall be necessary or advisable, in the
Lender's discre tion, in order to effect fully the purposes of this Agreement or
any of the other Loan Documents. Borrower will pay all fees and expenses
(including reasonable attorneys fees) incurred by the Lender in connection
therewith.
SECTION 9.13 Confidentiality; Disclosure of Information. Each
party hereto shall treat the transactions contemplated hereby and all financial
and other information furnished to it about the Lender, the Company, the Parent
or any of the Collateral Property, as
78
<PAGE> 80
applicable, as confidential; provided, however, that such confidential
information may be disclosed (a) as required by law or pursuant to generally
accepted accounting procedures, (b) to officers, directors, employees, agents,
partners, attorneys, accountants, engineers and other consultants of the parties
hereto who need to know such information, provided such Persons are instructed
to treat such information confidentially, or (c) by Lender to any Participant or
Assignee or any prospective transferee (provided such prospective transferee
agrees to treat such information confidentially), which disclosure to
prospective transferees may include any and all information which has been
delivered to Lender by Borrower pursuant to this Agreement or the other Loan
Documents. Notwithstanding the fore going, this Section 9.12 shall not apply to
Lender so long as any Default hereunder or under any other Loan Documents shall
have occurred and be continuing and, in any such event, Lender shall be entitled
to disclose any information furnished to it in connection with this Agreement as
it deems necessary or appropriate in its sole and absolute discretion.
SECTION 9.14 Legal Rate. It being the intention of Lender and
Borrower to comply with the laws of the State of New York with regard to the
rate of interest charged hereunder, it is agreed that, notwithstanding any
provision to the contrary in this Agreement, the Note, the Mortgage, or any of
the other Loan Document, no such provision, including without limitation any
provision of this Agreement or the Note providing for the payment of interest or
other charges, shall require the payment or permit the collection of any amount
("Excess Interest") in excess of the maximum amount of interest permitted by law
to be charged for the use or detention, or the forbearance in the collection, of
all or any portion of the indebtedness evidenced by the Note. If any Excess
Interest is provided for, or is adjudicated to be provided for, in this
Agreement, the Note, the Mortgage, or any of the other Loan Documents, then in
such event:
(1) the provisions of this paragraph shall govern;
(2) Borrower shall not be obligated to pay any Excess
Interest;
(3) any Excess Interest that Lender may have received
hereunder shall, at the option of Lender, be (x) applied as a credit against the
unpaid principal balance then due under the Note, accrued and unpaid interest
thereon not to exceed the maximum amount permitted by
79
<PAGE> 81
law, or both, (y) refunded to the payor thereof or (z) any combination of the
foregoing;
(4) the applicable interest rate or rates provided for herein
shall be automatically subject to reduction to the maximum lawful rate allowed
to be contracted for in writing under the applicable usury laws of the State of
New York and this Agreement, the Note, the Mortgage and the other Loan Documents
shall be deemed to have been, and shall be, reformed and modified to reflect
such reduction in such interest rate or rates; and
(5) Borrower shall not have any action or remedy against
Lender for any damages whatsoever or any defense to enforcement of this
Agreement, the Note, the Mortgage or any other Loan Document arising out of the
payment or collection of any Excess Interest.
80
<PAGE> 82
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
COMPANY: MALAN REVOLVER, INC.
By:_________________________
Name: Elliott J. Broderick
Title: Chief Accounting
Officer
30200 Telegraph Road, Suite 105
Birmingham, Michigan 48025
Attention: Elliott J. Broderick
Fax Number: (248) 644-7880
PARENT: MALAN REALTY INVESTORS, INC.
By:_________________________
Name: Elliott J. Broderick
Title: Chief Accounting
Officer
30200 Telegraph Road, Suite 105
Birmingham, Michigan 48025
Attention: Elliott J. Broderick
Fax Number: (248) 644-7880
LENDER: GREENWICH CAPITAL MARKETS, INC.
By:_________________________
Name: Douglas P. Harmon
Title: Senior Vice President
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: Douglas P. Harmon
Fax Number: (203) 629-8363
<PAGE> 83
EXHIBITS:
A - Form of Note
B - Form of Solvency Certificate
C - Form of Survey Certificate
D - Form of Term Note
E - Form of Local Counsel Opinion
F - Form of Tenant Estoppel Certificate
G - Form of Subordination, Non-Disturbance and Attornment Agreement
SCHEDULES:
SCHEDULE 1- ORIGINAL COLLATERAL PROPERTIES AND ALLOCATED
LOAN AMOUNTS
SCHEDULE 4.14 - LIST OF MATERIAL CONTRACTS
SCHEDULE 5.16 - ENVIRONMENTAL WORK
SCHEDULE 5.20 - CAPITAL EXPENDITURES SCHEDULE
vi
<PAGE> 84
EXHIBIT A
NOTE
up to $50,000,000.
New York, New York
________ ___, 1997
For value received, MALAN REVOLVER, INC. (the "Company") and MALAN
REALTY INVESTORS, INC. ("Parent and, collectively with the Company, "Maker"),
each jointly and severally promises to pay to the order of GREENWICH CAPITAL
MARKETS, INC. ("Lender"), for the account of its Applicable Lending Office, the
unpaid principal amount of each Loan made by the Lender to Maker pursuant to the
Agreement referred to below on the Revolver Termination Date provided for in the
Agreement. The Maker promises to pay interest on the unpaid principal amount of
each such Loan on the dates and at the rate or rates provided for in the
Agreement. All such payments of principal and interest shall be made in lawful
money of the United States in Federal or other immediately available funds at
the office of _________________.
All Loans made by the Lender, the respective types and maturities
thereof and all repayments of the principal thereof shall be recorded by the
Lender and, if the Lender so elects in connection with any transfer or
enforcement hereof, appropriate notations to evidence the foregoing information
with respect to each such Loan then outstanding may be endorsed by the Lender on
the schedule attached hereto, or on a continuation of such schedule attached to
and made a part hereof; provided that the failure of the Lender to make any such
recordation or endorsement shall not affect the obligations of the Maker
hereunder or under the Agreement.
A-1
<PAGE> 85
This note is the Note referred to in the Revolving Loan Agreement,
dated as of____ __, 1997, among the Maker, and Greenwich Capital Markets, Inc.,
as Lender (as the same may be amended from time to time, the "Agreement"). Terms
defined in the Agreement are used herein with the same meanings. Reference is
made to the Agreement for provisions for the prepayment hereof and the
acceleration of the maturity hereof. This Note is secured by the Mortgage and
certain other Loan Documents. The Maker waives presentment, demand, protest and
notice of protest and non-payment of this Note.
This Note shall be governed by, and construed in accordance with, the
laws of the State of New York, without reference to conflict of laws principals.
PARENT:
WITNESS: MALAN REALTY INVESTORS, INC.
By:_____________________ Name:
Title:
COMPANY:
WITNESS: MALAN REVOLVER, INC.
By:_____________________ Name:
Title:
A-2
<PAGE> 86
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
--------------------------------------------------------
Amount of
Amount of Type of Principal Maturity Notation
Date Loan Loan Repaid Date Made By
- --------------------------------------------------------------------
- --------------------------------------------------------------------
- --------------------------------------------------------------------
- --------------------------------------------------------------------
- --------------------------------------------------------------------
- --------------------------------------------------------------------
- --------------------------------------------------------------------
- --------------------------------------------------------------------
- --------------------------------------------------------------------
- --------------------------------------------------------------------
- --------------------------------------------------------------------
- --------------------------------------------------------------------
- --------------------------------------------------------------------
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A-3
<PAGE> 87
EXHIBIT B
FORM OF SOLVENCY CERTIFICATE
<PAGE> 88
EXHIBIT C
FORM OF SURVEY INSTRUCTIONS AND CERTIFICATE
<PAGE> 89
EXHIBIT D
FORM OF TERM NOTE
<PAGE> 90
EXHIBIT E
FORM OF LOCAL COUNSEL OPINIONS
<PAGE> 91
EXHIBIT F
FORM OF MAJOR TENANT ESTOPPEL CERTIFICATE
<PAGE> 92
EXHIBIT G
FORM OF SUBORDINATION, NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
<PAGE> 93
SCHEDULE 1
ORIGINAL COLLATERAL PROPERTIES AND ALLOCATED LOAN AMOUNTS
<PAGE> 94
SCHEDULE 4.14
LIST OF MATERIAL CONTRACTS
<PAGE> 95
SCHEDULE 5.16
ENVIRONMENTAL WORK
<PAGE> 96
SCHEDULE 5.20
CAP EX SCHEDULE
<PAGE> 97
TABLE OF CONTENTS
-----------------
Page
ARTICLE I DEFINITIONS
SECTION 1.1 Definitions....................................................1
SECTION 1.2 Accounting Terms and Determinations...........................20
SECTION 1.3 Types of Advances.............................................20
ARTICLE II THE CREDITS
SECTION 2.1 Commitments to Lend...........................................21
SECTION 2.2 Use of Proceeds of Loans......................................22
SECTION 2.3 Notice of Advance.............................................22
SECTION 2.4 Funding of Loans..............................................22
SECTION 2.5 Note .........................................................23
SECTION 2.6 Method of Electing Interest Rates.............................23
SECTION 2.7 Interest Rates................................................24
SECTION 2.8 Fees .........................................................26
SECTION 2.9 Intentionally Deleted.........................................27
SECTION 2.10 Maturity......................................................27
SECTION 2.11 Optional Prepayments..........................................28
SECTION 2.13 General Provisions as to Payments.............................29
SECTION 2.14 Funding Losses................................................29
SECTION 2.15 Computation of Interest and Fees..............................30
ARTICLE III CONDITIONS
SECTION 3.1 Closings......................................................30
SECTION 3.2 Addition of Additional Collateral Properties
and Substitute Collateral Properties........................33
SECTION 3.3 Additional Property Closings. ................................34
SECTION 3.4 Additional Closing Conditions.................................35
SECTION 3.5 Conditions to Advances........................................35
SECTION 3.6 Release of Collateral Property................................36
ARTICLE IV REPRESENTATIONS AND WARRANTIES
SECTION 4.1 Corporate Existence and Power.................................38
SECTION 4.2 Corporate and Governmental Authorization;
No Contravention............................................39
SECTION 4.3 Binding Effect................................................39
SECTION 4.4 Financial Information.........................................39
SECTION 4.5 Litigation....................................................40
SECTION 4.6 Compliance with ERISA.........................................40
SECTION 4.7 Environmental Matters.........................................40
SECTION 4.8 Taxes.........................................................41
SECTION 4.9 Subsidiaries..................................................41
SECTION 4.10 Not an Investment Company....................................42
SECTION 4.11 Full Disclosure..............................................42
i
<PAGE> 98
SECTION 4.12 Single Purpose Entity........................................42
SECTION 4.13 Relationship of the Company to Parent........................42
SECTION 4.14 Contracts....................................................42
SECTION 4.15 Solvent......................................................42
SECTION 4.16 No Plan Assets...............................................42
SECTION 4.17 Debt.........................................................42
ARTICLE V COVENANTS
SECTION 5.1 Information...................................................43
SECTION 5.2 Payment of Obligations........................................46
SECTION 5.3 Maintenance of Property; Insurance; Appraisals................46
SECTION 5.4 Conduct of Business and Maintenance of Existence..............47
SECTION 5.5 Compliance with Laws..........................................47
SECTION 5.6 Inspection of Property, Books and Records.....................47
SECTION 5.7 Financial Covenants...........................................47
SECTION 5.8 Investments...................................................48
SECTION 5.9 Debt .........................................................48
SECTION 5.10 Consolidations, Mergers and Sales of Assets..................48
SECTION 5.11 Use of Proceeds..............................................48
SECTION 5.12 No Change in Organizational Documents........................49
SECTION 5.13 Affiliate Transactions.......................................49
SECTION 5.14 Contracts....................................................49
SECTION 5.15 No Plan Assets...............................................49
SECTION 5.16 Environmental Matters........................................49
SECTION 5.17 Additional Liens.............................................50
SECTION 5.18 Single Purpose Entity........................................50
SECTION 5.19 Ground Leases................................................50
SECTION 5.20 Capital Expenditures and Major Repairs.......................50
ARTICLE VI DEFAULTS
SECTION 6.1 Events of Default.............................................51
ARTICLE VII CONVERSION OPTION
SECTION 7.1 Conversion into Term Loan.....................................55
SECTION 7.2 Conversion Notice.............................................55
SECTION 7.3 Terms of the Term Loan........................................55
SECTION 7.4 Establishment of Reserves.....................................57
SECTION 7.5 Condition Precedent to Conversion.............................57
SECTION 7.6 Extension of Revolver Termination Date........................60
ARTICLE VIII CHANGE IN CIRCUMSTANCES
SECTION 8.1 Basis for Determining Interest Rate Inadequate or Unfair......60
SECTION 8.2 Illegality....................................................61
SECTION 8.3 Increased Cost and Reduced Return.............................61
SECTION 8.4 Taxes.........................................................62
SECTION 8.5 Base Rate Loans Substituted for Affected Fixed Rate Loans.....63
ARTICLE IX MISCELLANEOUS
ii
<PAGE> 99
SECTION 9.1 Notices.......................................................64
SECTION 9.2 No Waivers....................................................64
SECTION 9.3 Expenses; Indemnification.....................................64
SECTION 9.4 Set-Offs......................................................65
SECTION 9.5 Amendments and Waivers........................................65
SECTION 9.6 Successors and Assigns........................................65
SECTION 9.7 Joint and Several Liability...................................67
SECTION 9.8 Governing Law; Submission to Jurisdiction.....................67
SECTION 9.9 Counterparts; Integration; Effectiveness......................68
SECTION 9.10 WAIVER OF JURY TRIAL.........................................68
SECTION 9.11 Survival.....................................................68
SECTION 9.12 Further Assurances...........................................68
SECTION 9.13 Confidentiality; Disclosure of Information...................68
SECTION 9.14 Legal Rate...................................................69
iii
<PAGE> 1
EXHIBIT 10(q)
AGREEMENT FOR PURCHASE OF REAL ESTATE
between
BRANDON ASSOCIATES WESTLAND L.L.C.
a Michigan limited liability company
"Seller"
and
MALAN REALTY INVESTORS, INC.,
a Michigan corporation
"Buyer"
DATE: JANUARY 29 , 1998
-----------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. Purchase and Sale.................................2
2. Purchase Price....................................2
3. Condition of Title................................3
4. Evidence of Title.................................4
5. Title Objections..................................5
6. Representations and Covenants of Seller...........6
7. Right Of Entry...................................10
8. Waiver of Conditions by Buyer....................11
9. Estoppel Certificates............................11
10. Place and Time of Closing........................11
11. Closing Documents................................11
12. Default..........................................13
13. No Assumption of Liabilities.....................13
14. Real Estate Brokerage Commission.................14
15. Possession.......................................14
16. Taxes, Prorated Items and Closing Costs..........14
17. Casualty.........................................16
18. Condemnation.....................................17
19. Use of Words.....................................17
20. Notice...........................................17
21. Governing Law....................................18
22. Entire Agreement.................................19
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
23. Survival of Terms................................19
24. Binding Effect...................................19
25. Counterparts.....................................19
SIGNATURE PAGE............................................20
EXHIBITS:
A. Real Estate
B. Personal Property
C. Licenses and Permits
D. Rent Roll
E. Contracts
F. Estoppel Certificate
</TABLE>
(ii)
<PAGE> 4
AGREEMENT FOR PURCHASE OF REAL ESTATE
THIS AGREEMENT FOR PURCHASE OF REAL ESTATE (the "Agreement"), is hereby
entered into by and between BRANDON ASSOCIATES WESTLAND L.L.C., a Michigan
limited liability company, whose address is 27777 Franklin Road, Suite 950,
Southfield, Michigan 48034 ("Seller"), to MALAN REALTY INVESTORS, INC., a
Michigan corporation, whose address is 30200 Telegraph Road, Suite 105,
Birmingham, Michigan 48025-4503 ("Buyer"), and is based upon the following:
A. Seller is the owner of the following property (collectively,
the "Property"):
(i) That certain parcel of land located on Central Parkway in
the City of Westland, Wayne County, Michigan, as is more
particularly described on Exhibit A, attached hereto and made
a part hereof, together with a shopping center containing
approximately 85,000 net rentable square feet located thereon,
and all other buildings, fixtures and structures thereon and
all improvements, riparian rights, rights of way, roadways,
easements, rights, privileges, and appurtenances thereto
(collectively, the "Real Estate");
(ii) All of the personal property described on Exhibit B,
attached hereto and made a part hereof, and all other
equipment, machinery, furniture and other personal property
owned by Seller and located on or about the Real Estate and
used or useable solely in connection with the Real Estate
(collectively, the "Personal Property");
(iii) All of the licenses, permits, approvals, and consents
described on Exhibit C, attached hereto and made a part hereof
(collectively, the "Licenses and Permits");
(iv) All of the leases, licenses, and occupancy agreements
(collectively, the "Leases") of the Real Estate with the
tenants (the "Tenants") listed in the rent roll (the "Rent
Roll"), attached hereto and made a part hereof as Exhibit D;
and
(v) All of the interest of the Seller and/or the owner of the
Real Estate in all management agreements, service contracts,
and other agreements described on Exhibit E, attached hereto
and made a part hereof (collectively, the "Contracts").
B. Seller and Buyer desire to enter into this Agreement for the
purchase and sale of the Property.
<PAGE> 5
NOW, THEREFORE, in consideration of the mutual covenants, promises and
agreements and subject to the terms and conditions contained herein, the parties
hereto hereby agree as follows:
1. Purchase and Sale. In consideration of the execution of this
Agreement, Seller hereby agrees to sell, and Buyer hereby agrees to purchase,
the Property upon the terms and conditions hereinafter set forth.
2. Purchase Price. The purchase price for the Property shall be the sum
of Seven Million Nine Hundred Twenty-Five Thousand Dollars ($7,925,000)
("Purchase Price"), payable
as follows:
(a) Within two (2) business days after Seller's execution of
the Agreement, Buyer shall deliver to Philip R. Seaver Title Company,
as Agent for First American Title Insurance Company (the "Title
Company") the sum of Twenty-Five Thousand Dollars ($25,000.00) (which
shall hereinafter be deemed to be the "Deposit"). If the transaction
contemplated hereby is consummated, the Deposit shall be applied
towards the cash portion of the Purchase Price to be paid by Buyer to
Seller at closing.
(b) At the closing, Buyer shall take title to the Real
Property subject to the existing indebtedness (the "Mortgage") owed to
Wells Fargo Bank, N.A. (the "Mortgagee"), and shall assume all of
Seller's obligations under the Mortgage and other documents executed
and delivered in connection therewith (collectively, the "Loan
Documents"). At closing, Buyer shall pay the Purchase Price, after
deduction of the unpaid balance of the Mortgage, to Seller.
(c) The amount to be paid by Buyer to Seller pursuant to
subparagraph (b) above, subject to other closing adjustments and
prorations as provided herein, shall be paid by Buyer to Seller at
closing by means of, at Buyer's option, federal wire funds transfer,
bank check, certified check, or cashier's check.
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<PAGE> 6
3. Condition of Title. Seller shall convey to Buyer, subject to the
conditions of Paragraphs 4 and 5, good and marketable title to all of the
Property free and clear of all liens, conditions, easements, restrictions,
mortgages, security interests, leases, exceptions, or other encumbrances
whatsoever, other than the liens, security interests and terms and conditions of
the Loan Documents; provided, however Seller may convey the Real Estate by means
of a Covenant Deed subject to (collectively, the "Permitted Exceptions"):
(a) The Leases, the rights of tenants under the Leases and
Mortgage and the other Loan Documents;
(b) Such easements and restrictions of record that do not
interfere with the continued use and development of the Real Estate by
Buyer as a retail shopping center (the determination of which shall be
made by Buyer, in its sole discretion, following its receipt of the
survey, title commitment and other documents described in paragraph 4
below);
(c) Such taxes and assessments as may be a lien upon the Real
Estate but not due and payable as of the Closing Date, and taxes and
assessments which may be assessed or accrue subsequent to the Closing
Date;
(d) Such other exceptions listed on the commitment described
in Paragraph 4 hereof and not timely objected to by Buyer; and
(e) Current zoning ordinances.
Title to the Real Estate shall be insured in the aforesaid condition, at
closing, by the Title Company. Seller shall provide the Title Company with such
information and shall execute such documents as may be reasonably required in
order for the Title Company to provide Buyer with an "insured closing" through
the date of recordation of the Covenant Deed referenced in paragraph 11 below.
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<PAGE> 7
4. Evidence of Title. (a) As evidence of title to the Real Estate,
Buyer shall obtain within fifteen (15) days after the date hereof (and deliver a
copy thereof to Seller), a complete commitment for a policy of title insurance
issued by the Title Company in the amount of the Purchase Price, guaranteeing
title in the condition required herein and bearing a date later than the date
hereof, together with an ALTA 3.1 zoning endorsement stating that the current
use of the Real Estate complies with all applicable zoning laws and ordinances.
Copies of all documents and other items listed as encumbrances or exceptions on
such title commitment shall also be delivered to Buyer and Seller with the
commitment. At closing a final policy of title insurance (or a "marked-up
commitment" having the effect of) insuring title to the Real Estate in the
condition required hereunder in the name of Buyer, with the foregoing
endorsement and with the so-called "standard exceptions" deleted, shall be
delivered by the Title Company to Buyer at the sole expense of Seller. Buyer
shall pay the cost of the ALTA 3.1 zoning endorsement.
(b) Within twenty (20) days after the date hereof, Seller shall obtain
and deliver to Buyer a survey of the Real Estate prepared by a surveyor or civil
engineer licensed as such by the State of Michigan showing (i) the boundaries of
the Real Estate, (ii) the square feet of land contained in the Real Estate,
(iii) all improvements located on the Real Estate, (iv) which portion of the
Real Estate, if any, is located within a 100 year flood plain, (v) the driveways
and parking areas currently located on the Real Estate and (vi) a metes and
bounds legal description of the Real Estate. Such survey shall include a
certification as to the matters contained thereon to Buyer and the Title
Company.
(c) Seller acknowledges that Buyer will cause a Uniform Commercial Code
("UCC") search to be performed prior to closing with respect to the Property,
Seller and any individuals constituting Seller.
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<PAGE> 8
5. Title Objections. If, within fifteen (15) days from the date that
the commitment of title insurance is furnished to Buyer, objection to the title
is made by Buyer that the title is not in the condition required hereunder,
Seller shall have fifteen (15) days from the date it is notified in writing of
the particular defects claimed to cure such defects to Buyer's satisfaction, and
if Seller is unable or unwilling to cure such defects within the aforesaid
fifteen (15) day period, Buyer shall have the right, at its option, to (i) waive
the defects and proceed with the closing of this transaction, (ii) terminate
this Agreement and receive an immediate refund of the Deposit in which event
neither party hereto shall have any further liability or obligation hereunder,
or (iii) remove any existing encumbrances upon the Property (excluding any
existing indebtedness secured by the Mortgage, but including any construction
liens for work performed at the Real Estate prior to the Closing Date and any
other encumbrances the cost of which to discharge does not exceed Fifty Thousand
Dollars [$50,000.00]) which Seller is required to remove under this Agreement by
payment out of the cash payment portion of the Purchase Price, at the time of
consummation of the sale, of such sums as are required to discharge such
encumbrances or, if Buyer elects, such encumbrances can be assumed with
abatement of the Purchase Price. If Seller cures such defects to the
satisfaction of Buyer within the time specified above, Buyer agrees to complete
the transaction contemplated hereunder on the later of the Closing Date and the
date thirty (30) days after Seller notifies Buyer in writing that it has cured
such defects, subject, however, to any and all other conditions of closing set
forth in this Agreement.
6. Representations of Seller. Seller hereby represents to Buyer, except
as otherwise disclosed to Buyer in writing, that:
(a) Seller has not entered into (and will not enter into) any
agreements, oral or written, which would limit or restrict Seller's
right to execute this Agreement or perform its obligations hereunder
or, other than the Leases, prevent possession by
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<PAGE> 9
Buyer of all or any part of the Property (subject to the rights of
persons under the Leases and the rights of beneficiaries under
easements and other instruments of record affecting the Real Estate),
and Seller is subject to no decree or judgment of any court that would
be so limiting or restrictive;
(b) Seller has no actual knowledge of any application or
proceeding pending in any governmental agency or office which may
change the current zoning of the Real Estate;
(c) From and after the date hereof, Seller shall not (i)
further burden or encumber the Property in any manner whatsoever
(whether by mortgage, security interest, lien, easement, restriction,
lease, or otherwise), (ii) increase the amount of the Mortgage, or
(iii) modify, amend, or change any of the material terms and conditions
of the Mortgage, the Leases, the Contracts or the Permitted Exceptions,
without in each case the prior written consent of Buyer;
(d) The Real Estate shall be operated by Seller from the date
hereof through the Closing Date in substantially the same manner in
which the Real Estate is currently operated;
(e) Seller shall not perform, nor cause its contractors to
perform, any work on the Real Estate in the one hundred twenty (120)
day period prior to the Closing Date which would create in any party a
right to a lien against the Real Estate, or if any such work has taken
or will take place, that all parties engaged by Seller or its
contractor involved in such work have been or will be paid in full by
Seller, and Seller has received or will receive appropriate waivers of
lien from all of such parties and shall provide title insurance over
such claims;
(f) Seller is a duly organized and validly existing limited
liability company under Michigan law. Seller has the full right and
power to sell, transfer and convey the
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<PAGE> 10
Property to Buyer and this Agreement and all instruments executed or to
be executed in connection herewith are, or when executed will be, valid
and enforceable against Seller in accordance with its and their
respective terms and conditions;
(g) To Seller's knowledge, there are no threatened or pending
condemnation, zoning or any other proceedings or litigation with
respect to the Property, and Seller has not received any written notice
from any governmental authority that it has determined or threatens to
determine that there are any violations of any statutes, ordinances or
regulations relating to the Property;
(h) Seller has received no written notice that there are
claims, demands, damages, actions, causes of action or claims of third
parties which would be a charge or encumbrance against the Property
other than claims which would be satisfied on or before Closing;
(i) Except for the Permitted Exceptions, the Contracts, the
Licenses and Permits, and the Leases, there are no leases, agreements,
management contracts, license agreements, service agreements,
contracts, or arrangements, oral or written, relating to or affecting
the Property which will be binding on the Property (or Buyer solely in
its capacity as the new owner thereof on or after Closing);
(j) To the best of Seller's knowledge, (i) no Hazardous
Substance (as hereinafter defined) has been generated, treated, stored
(except in accordance with law), disposed of, released, or otherwise
deposited in, under or on, or is located in, under or on, the Real
Estate by or on behalf of Seller, and (ii) nor has (a) any activity
been undertaken on the Real Estate which would cause the Real Estate or
any portion thereof to become a hazardous waste treatment, storage or
disposal facility within the meaning of the Resource Conservation and
Recovery Act, 42 U.S.C. ss.6901 et seq., as amended ("RCRA"), or (b)
there been a release or threatened release of any
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<PAGE> 11
Hazardous Substance in, on, at or from the Real Estate. As used herein,
(x) the term "Law" means any applicable federal, state, or local law,
rule, regulation, statute, code, ordinance or order, (y) the term
"Hazardous Substance" means asbestos, polychlorinated biphenyls,
petroleum, petroleum products, radon gas and any other material, waste,
vapor or substance which is now or hereafter identified as a hazardous
or toxic material, waste, vapor, or substance under any Law, and (z)
the terms "release" and "threatened release" shall have the meaning
ascribed to such terms in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. ss.9601 et seq., as
amended ("CERCLA");
(k) The Leases (true and correct copies of which have been
delivered to Buyer) constitute all of the leases which currently
encumber the Real Estate;
(l) Except to the extent otherwise set forth in an estoppel
certificate to be delivered to Buyer, the Rent Roll attached hereto and
made a part hereof as Exhibit D is true, correct, and complete in all
material respects as of the date made;
(m) To Seller's knowledge, (i) none of the parties to the
Permitted Exceptions, the Contracts, or the Leases is in default of any
of its obligations thereunder and (ii) Seller is not in default of any
of its obligations thereunder;
(n) Seller has not received any rent, fees, or other charges
due under any of the Leases in advance of the current month's rent,
fees or charges; and
(o) Seller does not employ any employees, whether at the
Real Estate or otherwise.
Each and every representation shall be true as of the date of this
Agreement. Seller hereby agrees to execute for Buyer a reaffirmation restating
and updating through closing the above representations (the "Representations"),
and acknowledging that the same shall survive the closing of the transaction
contemplated hereunder for a period of one (1) year after the
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<PAGE> 12
closing. Seller acknowledges that Buyer is relying on the Representations of
Seller in entering into this Agreement and that the Representations of Seller
are a material inducement to Buyer entering into this Agreement and proceeding
with the transaction contemplated hereunder.
7. Right Of Entry. Buyer and its agents and/or representatives shall
have the right to enter upon the Real Estate and the buildings located thereon
at all reasonable times for the purposes of inspecting the same, examining all
books and records of the business conducted thereon and making such soil tests,
surveys, environmental studies or tests, feasibility studies, architectural and
engineering studies, and such other tests and investigations as Buyer may desire
for the period beginning on the date hereof and continuing until February 13,
1998 (the "Inspection Period"). In connection with such activities, Buyer shall
exercise due care to see that existing occupants are not inconvenienced. All
such tests shall be at Buyer's sole expense, and Buyer shall restore the
Property to substantially the same condition as existed before such tests
occurred, including, without limitation, the repair of any damage caused as a
result of the performance of any such tests. Seller hereby agrees to cooperate
with Buyer in connection with the foregoing, and to make available to Buyer any
surveys, plans, contracts, agreements, permits, certificates, licenses, and
other documents, information and data in Seller's possession relative to the
Property and the operation thereof. In addition, within ten (10) days after the
date hereof, Seller shall deliver to Buyer true, correct, and complete copies of
the Leases, the Contracts, all documents with the holder of the Mortgage and all
environmental reports and studies relating to the Property in Seller's
possession. On or before the last day of the Inspection Period, Buyer shall
notify Seller of its election to proceed with the consummation of this
transaction. In the event Buyer elects to proceed and so advises Seller, the
parties shall proceed to Closing. If the Buyer elects not to proceed or fails to
make any election prior to the last day of the Inspection Period, then this
Agreement shall thereupon terminate and, except for Buyer's liability under this
Paragraph 7, the parties shall be released
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<PAGE> 13
from any further liability hereunder, except that the Deposit shall be returned
to the Buyer by the Title Company.
Notwithstanding anything contained herein to the contrary (a) prior to
entering upon the Property and at all times prior to the expiration of this
Agreement, Buyer shall maintain with respect to each such entry public liability
insurance in an amount not less than $2,000,000.00 with Seller named as an
additional insured, (b) Buyer agrees to indemnify, defend and hold Seller
harmless for all liability, claims, damages, and/or expenses (including, without
limitation, reasonable attorneys' fees) incurred by Seller as a result of
Buyer's exercise of the inspection rights granted under this Paragraph, (c)
Buyer shall deliver to Seller, at no cost to Seller, copies of all reports,
studies and test results obtained or prepared by or on behalf of Buyer from
third parties in connection with the Property, and (d) Buyer shall receive
Seller's prior approval before conducting any such physical tests or studies
upon the Property, which approval shall not be withheld so long as the proposed
tests and/or studies will be conducted so as not to interfere with Seller's use
of the Property or the rights of any tenants. Buyer's obligation under this
Paragraph shall survive the expiration or termination of this Agreement or the
closing or sale of the Property to Buyer.
Acknowledging the prior use of the Property and Buyer's opportunity to
inspect the Property, Buyer agrees to purchase the Property on an "AS IS" basis.
Buyer acknowledges and agrees that except as expressly set forth in this
Agreement, that neither Seller nor its agents, contractors or representatives
have made any representations, warranties, promises, covenants, agreements or
guarantees of any kind or character whatsoever whether express or implied, oral
or written, past, present or future, of, as, to, concerning or with respect to
the Property. Without limiting the generality of the foregoing, Buyer
voluntarily and knowingly waives any contribution rights or claims which Buyer
may have against Seller in the event Buyer incurs liability to any party
(including any Federal, State or Local Governmental
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<PAGE> 14
Authority) arising out of the existence, removal or remediation of
any hazardous substances on or under the Property, unless the existence of same
shall have been known to Seller and Seller failed to disclose same to Buyer.
8. Waiver of Conditions by Buyer. Buyer reserves the right, at its sole
option, to at any time waive any condition precedent to the closing of this
transaction as set forth in this Agreement. Any such waiver must be in writing
and be signed by Buyer.
9. Estoppel Certificates. Intentionally Deleted.
10. Place and Time of Closing. If title can be conveyed in the
condition required hereunder, and if all of the conditions precedent to the
closing are either satisfied or waived, the closing of this transaction shall
take place a mutually convenient time and place on a date designated by Buyer by
at least three (3) days' notice to Seller and acceptable to Seller, but not
later than March 2, 1998 (the "Closing Date"), or otherwise mutually agreed upon
by the parties.
11. Closing Documents. At the closing, the following documents will be
executed and delivered:
(a) A Covenant Deed, from Seller to Buyer, covering the
Real Estate, in recordable form;
(b) A Bill of Sale, from Seller to Buyer with a general
warranty of title, with respect to all of the Personal Property;
(c) Certificates of title for all vehicles or other
certificated personal property constituting the Personal Property, if
any, duly transferring title thereto from Seller to Buyer in the
condition required hereunder to Buyer;
(d) An Assignment and Assumption of Leases in a form
acceptable to both parties;
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<PAGE> 15
(e) An assignment and assumption of all Licenses and Permits
in form and substance acceptable to both parties;
(f) An Assignment and Assumption of Contracts in a form
acceptable to both parties;
(g) Originals or certified copies of all (i) the Leases, (ii)
Licenses and Permits, (iii) Contracts, (iv) documents relating to the
Mortgage, (v) all lease files, keys, transferable warranties and
guaranties, building plans, blue prints, surveys, drawings, and other
information or material relating to the Property in Seller's possession
and (vi) books and records regarding the income, expenses, assets, and
liabilities of the Property for the years during which Seller owned the
Property;
(h) A Closing Statement with all notices of assessments, if
any, attached; (i) Letters signed by Seller addressed to all parties to
the Leases advising such parties of the sale of the Property and
directing such parties to make all future payment thereunder to Buyer;
(j) An updated Rent Roll of the Property, certified by Seller
to be true, correct and complete in all material respects as of the day
prior to Closing;
(k) The title insurance policy described in paragraph 4 above;
(l) The reaffirmation described in paragraph 6 above;
(m) A non-foreign affidavit pursuant to Section 1445 of the
Internal Revenue Code of 1986, as amended (the "Code"); and
(n) Any and all other documentation reasonably required by the
Title Company to issue title to close the transaction contemplated
hereunder and to cause the title policy described in paragraph 4 above
to be issued and delivered to Buyer.
12. Default. In the event of default by Buyer hereunder, Seller may
declare a forfeiture hereunder and the Deposit shall immediately be delivered by
the Title Company to
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<PAGE> 16
Seller, as liquidated damages, the same to be Seller's sole and exclusive
remedy. In the event of default by Seller hereunder, Buyer may, at its option,
demand, and be entitled to as its sole and exclusive remedy, an immediate refund
of the Deposit, in full termination of this Agreement, or seek specific
performance.
13. No Assumption of Liabilities. Except with respect to the Leases and
the Contracts and any other obligation or risk to be assumed by Buyer pursuant
to the express or implied terms of this Agreement, Buyer shall not assume any
obligations, liabilities, claims, demands, judgments, causes of action,
indebtedness or accounts payable of Seller of any kind, nature or description
whatsoever, whether the same are accrued, absolute or contingent, known or
unknown, direct or indirect.
14. Real Estate Brokerage Commission. Seller shall be responsible for
the brokerage commission due to Source Real Estate & Investment Company (the
"Broker") with respect to the consummation of this transaction. Each party
agrees to defend, indemnify and hold harmless the other from and against any
claim for broker's or finder's fees or commissions made by any person (other
than the Broker) claiming to have dealt with them.
15. Possession. Seller shall deliver and Buyer shall accept possession
of the Property on the Closing Date, subject to the rights of no other persons
whatsoever, except rights of persons under the Leases and the rights of
beneficiaries under easements and other instruments recorded affecting the Real
Estate. The Real Estate shall be vacated by Seller on or before the Closing
Date.
16. Taxes, Prorated Items and Closing Costs. (a) For purposes of the
prorations and adjustments described in this paragraph 16, Buyer shall be deemed
to own the Property on the Closing Date and, accordingly, be charged with all
expenses and receive all income accruing on or with respect to the Closing Date.
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<PAGE> 17
(b) All taxes and assessments, including all unpaid assessments and all
assessments payable in installments, which have become a lien upon the Property
as of the date of closing or which have been confirmed by any public authority
at the date of closing and which are due and payable, shall be paid in full by
Seller. Current taxes, to the extent not reimbursed to Seller by Tenants, shall
be prorated and adjusted as of the Closing Date in accordance with the due date
basis of the municipality or taxing unit in which the Property is located.
(c) All fees charged by the Title Company in connection with the
holding of the Deposit in escrow, if any, shall be shared equally by Seller and
Buyer.
(d) The state and county transfer taxes that will be payable upon the
transfer of title from Seller to Buyer shall be Seller's obligation.
(e) Buyer and Seller shall be responsible for their own attorney's fees
incurred in connection with the preparation and negotiation of this Agreement
and the transaction contemplated hereby.
(f) All rent, fees, charges and other income due under the Leases, and
any and all other income, profits, or revenue accruing to Seller or the Property
with respect to the Property for the month, or other applicable period, prior to
the Closing Date, (the "Income"), and received by Seller on or before the
Closing Date, shall be prorated as of the Closing Date. Accordingly, at closing
Buyer shall receive a credit equal to the amount of all Income received by
Seller with respect to the period on and after the Closing Date. Any Income due
and owing or accruing prior to the Closing Date but not received by Seller as of
the Closing Date shall not be prorated or adjusted, but rather such Income shall
periodically be prorated and adjusted as of the Closing Date by Buyer if and
when Buyer receives such Income. Buyer agrees to use its good faith efforts to
collect all such Income. After closing, Seller shall not have the right
to pursue, collect or seek any Income from any of Seller's tenants. If, however,
Seller receives any such Income, Seller and Buyer shall promptly pro rate same
(without reference to the costs
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<PAGE> 18
of collection) in accordance with this Agreement. In addition to the foregoing,
if any Tenant at the Real Estate is paying percentage rent at the time of
closing or at any time within one year thereafter, and if a portion of the sales
on which such percentage rent is based were generated prior to the Closing Date,
then for each such Tenant, the percentage rent paid by such Tenant shall be
prorated and adjusted when such percentage rent is received by Buyer with Buyer
being entitled to an amount equal to such percentage rent multiplied by a
fraction, the numerator of which is the number of days the Buyer owned the
Property during the period in which such percentage rent is measured and the
denominator of which is 365.
(g) All costs and expenses of Seller or the Property with respect to
the Property, to the extent not reimbursed by Tenants (the "Expenses"), shall be
prorated as of the Closing Date. To the extent the Expenses can accurately be
prorated on the Closing Date, such Expenses shall be prorated at closing. To the
extent such Expenses cannot accurately be prorated on the Closing Date (e.g.,
utility charges), such Expenses shall be prorated and adjusted by Buyer as of
the Closing Date when the actual bills covering the period in which the Closing
Date occurs are received by Buyer. Seller shall pay its share of such Expenses
promptly upon receipt of a statement from Buyer. Buyer shall have the right to
offset against any Income due Seller Seller's share of such Expenses.
(h) Not later than one (1) year after the Closing Date, Buyer shall
submit to Seller a final statement regarding the proration of Income and
Expenses as of the Closing Date, together with a check in the amount of any sum
due to Seller. In the event such final Closing Statement discloses that money is
due to Buyer from Seller, then Seller shall pay same to Buyer within thirty (30)
days after receipt of such final Statement.
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<PAGE> 19
17. Casualty. Seller shall give Buyer prompt written notice of any fire
or other casualty affecting the Property, which notice shall include a
description thereof in reasonable detail, Seller's reasonable estimate of the
cost of repair, and a description of any affect thereof upon any existing
tenancies. If such reasonable estimate is less than $100,000 and no tenant of
the Property occupying more than 5,000 square feet of space terminates its lease
as a result of such casualty, then the transaction contemplated hereunder shall
proceed in accordance with the terms hereof and Seller shall, at closing, assign
any insurance proceeds received by Seller in connection therewith. If, however,
such reasonable estimate is $100,000 or greater, or any tenant occupying 5,000
or more square feet of space at the Property terminates its lease(s) as a result
of such casualty, then Buyer shall, at its option, either (i) terminate this
Agreement by written notice thereof to Seller within fifteen (15) days after
Buyer's receipt of Seller's notice of such casualty, in which case the Deposit
shall be returned to Buyer and neither party shall have any further obligation
hereunder or (ii) proceed with the transaction contemplated hereunder and
receive from Seller at closing an assignment of all insurance proceeds relating
to such damage or destruction together with a credit from Seller in the amount
of the deductible under Seller's casualty insurance policy.
18. Condemnation. If any condemnation or eminent domain proceeding is
commenced or threatened against the Property, Seller shall, promptly after
obtaining knowledge thereof, give Buyer written notice thereof in reasonable
detail. In such event, Buyer shall, at its option, either (i) terminate this
Agreement by written notice thereof to Seller within fifteen (15) days after
Buyer's receipt of Seller's notice of such proceeding if such taking is of a
material portion of the Real Estate, in which case the Deposit shall be returned
to Buyer and neither party shall have any further obligation hereunder or (ii)
proceed with the transaction contemplated hereunder and receive from Seller at
closing an assignment of all awards and damages relating to such proceedings.
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<PAGE> 20
19. Use of Words. The pronouns and relative words herein used shall be
read interchangeably in masculine, feminine or neuter, singular or plural, as
the respective case may be.
20. Notice. Any notice, request or certificate required or permitted to
be delivered hereunder shall be given in writing and shall be deemed to have
been delivered (i) when delivered personally, (ii) two (2) business days after
being deposited in the United States mail, by certified mail, return receipt
requested, postage pre-paid, and properly addressed, or (iii) one business day
after being sent by a reputable overnight delivery service (e.g. Federal
Express). For the purposes hereof, the addresses of the parties, until further
notice, shall be as follows:
Seller: Brandon Associates Westland L.L.C.
27777 Franklin Road
Suite 950
Southfield, Michigan 48034
With a copy to: Howard N. Luckoff
Dykema Gossett PLLC
1577 North Woodward Avenue
Suite 200
Bloomfield Hills, Michigan 48304
Buyer: Malan Realty Investors, Inc.
30200 Telegraph Road
Suite 105
Birmingham, Michigan 48025-4503
With a copy to: Laurence E. Winokur, Esq.
Miro Weiner & Kramer, P.C.
500 North Woodward Avenue, Suite 100
P.O. Box 908
Bloomfield Hills, Michigan 48303-0908
21. Governing Law. This Agreement shall be interpreted under and
governed by the laws of the State of Michigan.
- 17 -
<PAGE> 21
22. Entire Agreement. This Agreement may be changed or modified only by
the written agreement of all of the parties hereto, and the same constitutes the
entire agreement between the parties hereto relating to the subject matter
hereof. All prior agreements or undertakings, including, without limitation, any
letter of intent, and all negotiations are hereby merged herein.
23. Survival of Terms. The terms and conditions of this Agreement, to
the extent that the same are unfulfilled at the time of the closing of the
subject transaction, and all indemnification obligations, representations and
warranties contained herein (and all obligations relative thereto), shall
survive the closing to the extent set forth in this Agreement and shall not be
merged or terminated upon the closing of the subject transaction.
24. Binding Effect. The terms and conditions of this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, representatives, successors and assigns.
25. Counterparts. This Agreement may be executed in counterparts, each
of which shall constitute an original although not fully executed, but all of
which when taken together, shall constitute but one agreement. The signature
page(s) of any counterpart may be detached from a counterpart without impairing
the legal effect of the signature(s) thereon and attached to any other
counterpart identical thereto except for the signature page(s) attached to it.
26. Mortgagee Approval. Notwithstanding anything to the contrary
contained in this Agreement, Seller's obligations under this Agreement are
contingent upon Seller obtaining, prior to the Closing, at no cost or expense to
Seller other than as set forth in Section 4 of Exhibit A to Promissory Note
Secured by Mortgage date October 10, 1997, from Seller to Wells Fargo Bank
National Association ("Wells Fargo"), the consent of Wells Fargo to the sale
of the Property to Buyer and the unconditional release by Wells Fargo of Seller,
Shellye Korash, Individually and as Trustee u/t/a/d/ 6/12/96, as Amended and
Restated and Deborah Korash,
- 18 -
<PAGE> 22
individually and as Trustee, u/t/a/d/ 5/27/92 of all of their liability under
the Limited Guaranty dated October 10, 1997, given by each of them and all of
the other Loan Documents. Further, notwithstanding anything to the contrary
contained in this Agreement, Buyer's obligations under this Agreement are
contingent upon Buyer obtaining, prior to the Closing, at no cost or expense to
Buyer, (a) such changes and modifications in the Loan Documents (other than
changes to any of the economic terms) which are necessary in Buyer's sole
discretion, (b) estoppel certificates from the mortgagee and the owner of the
adjacent property which is subject to that certain Cross Easement Agreement for
ingress and egress and parking which is recorded in Liber 22852, Page 275 et
seq., Wayne County Records with respect to the Property, the forms of which
shall be subject to Buyer's reasonable approval, and (c) estoppel certificates
in the form attached as Exhibit "F" or the form required to be given pursuant to
its Lease to Buyer from all of the tenants under the Leases.
27. Time of Essence. Time is of the essence in the performance of the
terms of this Agreement.
28. Assignment. Buyer may not assign or transfer all or any portion of
its rights or obligations under this Agreement without Seller's prior written
consent, except for a wholly-owned subsidiary or other affiliate of Buyer.
- 19 -
<PAGE> 23
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement as
of the date first above written.
WITNESSES: BRANDON ASSOCIATES WESTLAND L.L.C.,
A MICHIGAN LIMITED LIABILITY COMPANY
By:
- ---------------------------- --------------------------------
Shellye Korash, Trustee u/t/a/d/
6/12/96, as Amended and Restated,
Member
- ---------------------------- "Seller"
MALAN REALTY INVESTORS, INC.,
A MICHIGAN CORPORATION
By:
- ---------------------------- -----------------------------
Michael Kaline
Its: Vice President
"Buyer"
- ----------------------------
- 20 -
<PAGE> 24
EXHIBIT "B"
NONE
- 21 -
<PAGE> 25
EXHIBIT "C"
NONE
- 22 -
<PAGE> 26
EXHIBIT "D"
- 23 -
<PAGE> 27
EXHIBIT "E"
NONE
- 24 -
<PAGE> 28
EXHIBIT "F"
Tenant's Trade Name: __________________________ Loan No. 850688
ESTOPPEL AGREEMENT
This ESTOPPEL AGREEMENT ("Agreement") is made as of the date set forth
below, by ("Tenant"), based upon the following facts and understandings of
Tenant:
RECITALS
A. BRANDON ASSOCIATES WESTLAND L.L.C., a Michigan limited liability
company ("Owner") is or is about to become the owner of the land and
improvements commonly known as Westland Shopping Center ("Property") and the
owner of the landlord's interest in the lease identified in Recital B below
("Lease").
B. Tenant is the owner of the tenant's interest in that lease dated
_____________________, which has been amended by instruments dated
__________________ and which was originally executed by Brandon Associates, a
Michigan co-partnership, as landlord, and by Tenant. (Said lease and the
referenced amendment(s) thereto are collectively referred to herein as the
"Lease").
C. Owner, has entered into an agreement with MALAN REALTY INVESTORS,
INC. ("Malan") to sell the property to Malan.
D. As a condition to purchasing the property, Malan has required that
Tenant furnish certain assurances to Malan as set forth below.
THEREFORE, as a material inducement to Lender to make the Loan, Tenant
warrants and represents to, and agrees with, Lender as follows:
1. ESTOPPEL. Tenant warrants and represents to Lender, as of
the date hereof, that:
1.1 Lease Effective. The Lease has been duly executed and
delivered by Tenant and, subject to the terms and conditions thereof, the Lease
is in full force and effect, the obligations of Tenant thereunder are valid and
binding, and there have been no modifications or additions to the Lease, written
or oral, other than those, if any, which are referenced above in Recital B.
1.2 No Default. To the best of Tenant's knowledge: (a) there
exists no breach, default, or event or condition which, with the giving of
notice or the passage of time or both, would constitute a breach or default
under the Lease either by Tenant or Owner; and (b) Tenant has no existing
claims, defenses or offsets against rental due or to become due under the Lease.
Page - 1 - of 2 Pages
<PAGE> 29
1.3 Entire Agreement. The Lease constitutes the entire
agreement between Owner and Tenant with respect to the Property, and Tenant
claims no rights of any kind whatsoever with respect to the Property, other than
as set forth in the Lease.
1.4 Minimum Rent. The annual minimum rent under the Lease is
$________, subject to any escalation, percentage rent and/or common area
maintenance charges provided in the Lease. The "Base Year" for any escalation is
19___.
1.5 No Deposits or Prepaid Rent. No deposits or prepayments of
rent have been made in connection with the Lease, except as follows:
(if none, write "None").
1.6 No Other Assignment. Tenant has received no notice,
and is not otherwise aware of, any other assignment of the landlord's interest
in the Lease.
1.7 No Purchase Option or Refusal Rights. Tenant does not have
any option or preferential right to purchase all or any part of the Property,
except as follows:
(if none, write "None").
2. HEIRS, SUCCESSORS AND ASSIGNS. The covenants herein shall be binding
upon, and inure to the benefit of, the heirs, successors and assigns of the
parties hereto. Whenever necessary or appropriate to give logical meaning to a
provision of this Agreement, the term "Owner" shall be deemed to mean the then
current owner of the Property and the landlord's interest in the Lease.
IN WITNESS WHEREOF, Tenant has executed this instrument as of the _____
day of _______________, 19___.
"Tenant"
By:
--------------------------------
Its:
-------------------------------
Page - 2 - of 2 Pages
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF MALAN REALTY INVESTORS, INC.
MALAN DEPOSITOR, INC.
MALAN MORTGAGOR, INC.
MALAN MEADOWS, INC.
MALAN REVOLVER, INC.
<PAGE> 1
Exhibit 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-94124 on Form S-8 and 33-94116 on Form S-3 of Malan Realty Investors, Inc. of
our report dated January 30, 1998, appearing in this Annual Report on Form 10-K
of Malan Realty Investors, Inc. for the year ended December 31, 1997
Deloitte & Touche LLP
Detroit, Michigan
March 6, 1998
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, a Director of Malan Realty Investors, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Anthony
S. Gramer and Elliott J. Broderick, with full power of substitution, as his true
and lawful attorney and agent to execute in his name and on his behalf, as a
Director of the Company, the Company's Annual Report on Form 10-K, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended. Each such attorney
or agent shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 9th day of February, 1998.
/s/Robert D. Kemp, Jr.
----------------------
Robert D. Kemp, Jr.
<PAGE> 2
POWER OF ATTORNEY
The undersigned, a Director of Malan Realty Investors, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Anthony
S. Gramer and Elliott J. Broderick, with full power of substitution, as his true
and lawful attorney and agent to execute in his name and on his behalf, as a
Director of the Company, the Company's Annual Report on Form 10-K, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended. Each such attorney
or agent shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 9th day of February, 1998.
/s/William McBride III
-----------------------
William McBride III
<PAGE> 3
POWER OF ATTORNEY
The undersigned, a Director of Malan Realty Investors, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Anthony
S. Gramer and Elliott J. Broderick, with full power of substitution, as his true
and lawful attorney and agent to execute in his name and on his behalf, as a
Director of the Company, the Company's Annual Report on Form 10-K, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended. Each such attorney
or agent shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 9th day of February, 1998.
/s/ William F. Pickard
----------------------
William F. Pickard
<PAGE> 4
POWER OF ATTORNEY
The undersigned, a Director of Malan Realty Investors, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Anthony
S. Gramer and Elliott J. Broderick, with full power of substitution, as his true
and lawful attorney and agent to execute in his name and on his behalf, as a
Director of the Company, the Company's Annual Report on Form 10-K, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended. Each such attorney
or agent shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 13th day of February, 1998.
/s/Richard T. Walsh
-------------------
Richard T. Walsh
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