-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RK7QpKfPgnZQscHWgX0O0DFZzNSkZLxv0VRSYnn6TwAQRjtoS5mPaOxT2qSKGAoV A7Gkuj2Qo8BjQcZmJPA2vQ== /in/edgar/work/20000605/0000912057-00-027280/0000912057-00-027280.txt : 20000919 0000912057-00-027280.hdr.sgml : 20000919 ACCESSION NUMBER: 0000912057-00-027280 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000605 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EQK REALTY INVESTORS I CENTRAL INDEX KEY: 0000755926 STANDARD INDUSTRIAL CLASSIFICATION: [6798 ] IRS NUMBER: 232320360 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08815 FILM NUMBER: 648980 BUSINESS ADDRESS: STREET 1: 5775 PEACHTREE DUNWOODY RD STE 200D CITY: ATLANTA STATE: GA ZIP: 30342 BUSINESS PHONE: 4043036100 MAIL ADDRESS: STREET 1: 1401 WALNUT STREET STREET 2: C/O KLEHR HARRISON HARVEY BRANZBURG & EL CITY: PHILADELPHIA STATE: PA ZIP: 19102 10-K 1 a10-k.txt FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission File No. 1-8815 EQK REALTY INVESTORS I ---------------------- (Exact name of Registrant as specified in its Charter) MASSACHUSETTS 23-2320360 - ---------------------------------------- ------------------------------------- (State or other jurisdiction (I.R.S.Employer Identification No.) of incorporation or organization) 2810 Spring Road, Suite 106, Atlanta, GA 30339 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (770) 433-9400 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ------------------------------------ ----------------------------------------- Shares of Beneficial Interest OTC Bulletin Board System Securities registered pursuant to Section 12(g) of the Act: None Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. / / Indicate by checkmark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / The aggregate market value of Shares of Beneficial Interest held by non-affiliates of the Registrant, based on the closing price of the Shares on May 19, 2000 on the OTC Bulletin Board System of $.04 per share, is $385,057. As of May 19, 2000, 9,632,212 Shares of Beneficial Interest were outstanding. Officers and Trustees of the Trust (and certain of their family members) are treated as affiliates for the purposes of this computation, with no admission being made that such people or entities are actually affiliates. DOCUMENTS INCORPORATED BY REFERENCE. TABLE OF CONTENTS
Page Part I Item 1. Business 1 Item 2. Properties 8 Item 3. Legal Proceedings 13 Item 4. Submission of Matters to a Vote of Security Holders 14 Part II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 15 Item 6. Selected Financial Data 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 19 Item 8. Financial Statements and Supplementary Data 19 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 19 Part III Item 10. Directors and Executive Officers of the Registrant 19 Item 11. Executive Compensation 22 Item 12. Security Ownership of Certain Beneficial Owners and Management 23 Item 13. Certain Relationships and Related Transactions 24 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 25
i PART I ITEM 1. BUSINESS. GENERAL DEVELOPMENT OF BUSINESS EQK Realty Investors I, a Massachusetts business trust (the "Trust"), was formed pursuant to an Amended and Restated Declaration of Trust dated February 27, 1985, as amended on March 5, 1986 (the "Declaration of Trust"). On December 14, 1999, the Trust filed a voluntary petition in the United States Bankruptcy Court for the Middle District of Pennsylvania (the "Bankruptcy Court") because the Trust was unable to repay certain mortgage indebtedness upon the December 15, 1999 expiration date of forbearance and extension agreements with its lenders. The Trust is now operating as a "debtor-in-possession" pursuant to Chapter 11 of the U.S. Bankruptcy Code. On April 10, 2000, the Trust and the Mortgage Note Lender (as hereinafter defined) filed a Joint Plan of Reorganization in the Bankruptcy Court. See "Item 3-Legal Proceedings." Newleaf Corporation (the "Advisor") became the advisor to the Trust pursuant to an Advisory Agreement dated January 18, 2000. Gregory Greenfield & Associates, Ltd. ("Greenfield") served as advisor for the period December 13, 1999 to January 18, 2000, and Lend Lease Portfolio Management, Inc. ("Lend Lease") and its predecessor companies served as the Trust's advisor from the Trust's inception to December 13, 1999. Jones Lang LaSalle Americas, Inc. and its predecessor companies (the "Property Manager") currently serves, and has served since June 1, 1990, as the property manager for the Trust's sole remaining real estate asset, Harrisburg East Mall (the "Mall"). The principal executive offices of the Trust and the Advisor are located at 2810 Spring Road, Suite 106, Atlanta, Georgia, 30339, and their telephone number is (770) 433-9400. The Trust has adopted a fiscal and taxable year ending December 31. The Trust has transacted its affairs so as to qualify as, and has elected to be treated as, a real estate investment trust under applicable provisions of the Internal Revenue Code. Under the Internal Revenue Code, a real estate investment trust that meets applicable requirements is not subject to Federal income tax on that portion of its taxable income that is distributed to its shareholders. The Trust consummated the public offering of its Shares of Beneficial Interest (the "Shares") on March 12, 1985. The net proceeds to the Trust from such offering, net of underwriting discount, amounted to $170,856,000 before deducting offering expenses of $1,062,000. Certain of those proceeds aggregating $167,032,000 were expended to acquire certain properties on March 13, 1985 (which were comprised of the Mall as described below under "Narrative Description of Business," as well as two properties subsequently sold: Castleton Park or "Castleton," an office park in Indianapolis, Indiana, which was sold in transactions in 1991 and 1995, and Peachtree Dunwoody Pavilion, or "Peachtree," an office complex in Atlanta, Georgia, which was sold in transactions in 1992 and 1993). As discussed more completely hereinafter under "Harrisburg East Mall Disposition Plan" and "Mortgage Debt," Management intends, subject to Bankruptcy Court approval, to dispose of its remaining real estate investment, the Mall, in connection with its bankruptcy proceedings. 1 The Declaration of Trust provided for the Trust's existence and a maximum holding period for its real estate investments of 14 years. The Declaration of Trust further provided that this 14 year term may be extended by up to two years upon the recommendation of the Trustees and the affirmative vote of a majority of its shareholders. Recognizing that the disposition of the Mall would not be completed prior to the initial March 5, 1999 maturity date of the Trust's term, the Board of Trustees recommended a two year extension of the Trust's life through March 5, 2001. This recommendation was approved by the shareholders at a Special Meeting of Shareholders held on February 23, 1999. Trading in the Trust's Shares on the New York Stock Exchange ("NYSE") terminated on May 4, 1998, as the Trust did not meet the NYSE's continued listing criteria. The Trust's Shares are currently traded on the OTC Bulletin Board System. PROPOSED MERGER WITH AMERICAN REALTY TRUST Effective December 23, 1997, the Trust entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which an affiliate of American Realty Trust, Inc. ("ART") agreed to merge with and into the Trust (the "Merger"), with the Trust being the surviving entity. The Merger Agreement contemplated, among other things, an additional 20-year extension of the life of the Trust. The Merger Agreement was amended on August 25, 1998 and further amended on April 22, 1999 and June 4, 1999, (the "Revised Merger Agreement") to provide for, among other matters, the right of the Trust to sell the Mall and distribute proceeds of such sale to the Trust's shareholders prior to completing the Merger and a corresponding reduction in the Merger consideration to be paid to the Trust's shareholders. The Revised Merger Agreement was approved by the Trust's shareholders on August 3, 1999. The Revised Merger Agreement provided for Merger consideration to be comprised entirely of ART Series F Cumulative Convertible Preferred Stock with a par value of $2.00 per share and a liquidation value of $10.00 per share ("ART Preferred Shares"). The Revised Merger Agreement provided for the Merger to be effected by (i) ART's acquisition of 4,376,056 Shares held by four of the Trust's shareholders (the "Selling Shareholders") and (ii) ART's receipt of 673,976 shares newly issued by the Trust, the combined effect of which would give ART an approximate 49% interest in the Trust. The Selling Shareholders would receive for each Share sold 0.030 of an ART Preferred Share with a corresponding liquidation value of $0.30 per Share sold. The remaining shareholders would be entitled to retain their Shares at the time of the Merger, but would be compensated for the dilution in their percentage ownership interest through the receipt of 0.014 of an ART Preferred Share with a corresponding liquidation value of $0.14 per Share held. In addition, ART intended (but was not legally obligated) to acquire the remaining Shares from such other shareholders at some time after the third anniversary of the consummation of the Merger for not less than 0.0486 of an ART Preferred Share with a liquidation value of $0.486 for each Share tendered. According to the terms of the Revised Merger Agreement, upon completion of the sale of the Mall and receipt of shareholder approval, the Merger would be completed. Immediately prior to the closing of the Merger, ART would convey one of its properties to the Trust. The total consideration paid by the Trust to ART for this property would be a $1,250,000 non-recourse five-year promissory note and the assumption of approximately $1,500,000 of existing debt. 2 ART had agreed to permit the Trust to continue to solicit or respond to offers from third parties to acquire or merge with the Trust. In the event the Trust accepted an offer from a party other than ART and elected not to proceed with the Merger, the Trust generally would be obligated to pay ART a break-up fee of $200,000 plus its share of transaction expenses (collectively, the "Break-Up Consideration"). Because the Merger was not completed by December 15, 1998, the Revised Merger Agreement became terminable by either ART or the Trust. The Revised Merger Agreement also provided for termination by the Trust if: (i) the Trust secured a more favorable offer from another party, subject to the payment of the Break-Up Consideration; or (ii) the Revised Merger Agreement in any way impaired or delayed the sale of the Mall, or was likely to result in a material reduction in proceeds. In view of the Trust's bankruptcy filing, the Trust will not be able to consummate the Merger in accordance with the terms of the Revised Merger Agreement nor to make any distributions to its shareholders without Bankruptcy Court approval. Although management has had continuing discussions with representatives of ART on terms and conditions of a transaction with ART and/or its affiliates, no assurances can be provided that a new agreement will be reached or, if reached, would be approved by the Bankruptcy Court. See "Item 3-Legal Proceedings." HARRISBURG EAST MALL DISPOSITION PLAN Management commenced marketing and sales activities relating to the Mall during the second quarter of 1998, which included the retention of an outside broker. Since the commencement of sales activities, changing conditions in the capital markets have had an adverse effect on the market for real estate, and especially on the market for regional shopping malls. This unfavorable environment has been characterized by a reduction in available sources of financing for real estate transactions, an increase in the cost of capital, and by a reduction in purchasing interest on the part of many traditional buyers, including many of the public real estate investment trusts. As a consequence, the Trust was unable to consummate a sale of the Mall prior to the December 15, 1999 expiration date of forbearance and extension agreements with its lenders. Subsequent to the filing of the bankruptcy petition, the Trust, with approval of the Bankruptcy Court, entered into an agreement dated February 17, 2000 with the previously retained outside broker to market the Mall for sale. Subject to Bankruptcy Court approval, Management plans to sell the Mall under the auspices of the Bankruptcy Court in the second or third quarter of 2000. In connection therewith, the Trust entered into a Purchase and Sale Agreement dated effective as of May 16, 2000, with Uni-Invest (U.S.A.) Partnership, L.P. ("Uni-Invest") to sell the Mall for a purchase price of $46,500,000. Uni-Invest has deposited $250,000 of earnest money with an escrow agent, and if Uni-Invest elects not to terminate the Purchase and Sale Agreement within two days following the expiration of a thirty day inspection period, then the initial $250,000 deposit becomes non-forfeitable, and Uni-Invest must deposit an additional $750,000 with the escrow agent. The Purchase and Sale Agreement is subject to Bankruptcy Court approval and is subject to higher and better offers at an auction of the Mall which the Trust intends to conduct on July 18, 2000, under the auspices of, and subject to the approval of, the Bankruptcy Court. In the event that Uni-Invest should not be the successful bidder at the auction, the Purchase and Sale Agreement provides for 3 Uni-Invest to receive a refund of the earnest money and an expense reimbursement of $300,000. MORTGAGE DEBT Since December 15, 1992, the Trust has had in place a "Mortgage Note" with The Prudential Insurance Company of America ("Mortgage Note Lender"), which had an initial balance of $75,689,000 and an original maturity date of December 15, 1995. The interest rates on the Mortgage Note averaged 9.79% over its initial three-year term. However, the Mortgage Note required monthly payments of interest only at the rate of 8.54% per annum. The additional interest charges were accrued and added to principal over this initial term of the Mortgage Note. Absent any prepayments of debt arising from property dispositions, the amount of principal due on the original maturity date of December 15, 1995 would have been $78,928,000. In December 1995, the Trust used net proceeds from the sale of Castleton to retire a portion of the Mortgage Note. The remaining principal balance of the Mortgage Note following such partial pay down as of December 15, 1995, was $44,125,000. In connection with the December 15, 1992 debt financings, the Trust issued 1,675,000 previously repurchased Shares to Lend Lease for consideration of $6,700,000, or $4.00 per Share. The Trust currently has available for re-issuance an additional 423,343 Shares previously repurchased. Any issuance of Shares in excess of the Shares previously repurchased would require Bankruptcy Court approval and possibly shareholder approval. Under the terms of the Mortgage Note, the Mortgage Note Lender received warrants to purchase 367,868 Shares of the Trust for $.0001 per Share. On March 19, 1998, the Mortgage Note Lender exercised its warrants for 367,868 Shares at $.0001 per Share. Such Shares were issued to the Mortgage Note Lender on May 7, 1998 which brought the total number of issued and outstanding Shares of the Trust to 9,632,212. The Trust also has had a term loan (the "Term Loan") with PNC Bank N.A. ("Term Loan Lender") in place since December 15, 1992, initially bearing interest at 8.33% per annum and requiring payments at the same annual rate of 8.54% as was required under the Mortgage Note. The Term Loan is collateralized by a subordinate lien on the Mall. The payments made in excess of the interest rate were applied to the principal balance of the Term Loan such that the original principal balance of $2,859,000 would have been reduced over its three year term to $2,839,000, absent any prepayments arising from property dispositions. In December 1995, the Trust used proceeds from the sale of Castleton to retire a portion of the Term Loan. The remaining principal balance of the Term Loan following such pay down was $1,587,000 as of December 15, 1995. The Mortgage Note Lender and Term Loan Lender agreed to extend the maturity date of these loans twice: first, for a period of one year through December 15, 1996; and second, for a period of 18 months through June 15, 1998. The Mortgage Note remains collateralized by a first mortgage lien on the Mall, an assignment of leases and rents, and certain restricted cash balances. The Term Loan remains collateralized by a subordinate lien on the Mall. Following the June 15, 1998 scheduled maturity date, the Mortgage Note Lender granted three six-month forbearance arrangements (through December 15, 1998, then through June 15, 1999, 4 and then through December 15, 1999) wherein it agreed not to exercise remedies for non-payment of the outstanding principal balance. The Term Loan Lender also granted three six-month extensions of its maturity dates so as to coincide with such forbearance periods. The forbearance and extension arrangements were conditioned upon, among other things, the Trust continuing to make timely debt service payments in monthly amounts equal to those amounts stipulated in the December 1996 debt extension agreements. The expiration date of these final forbearance and extension arrangements was December 15, 1999. Inasmuch as the Trust was unable to obtain from its lenders additional forbearance and extension arrangements on economically acceptable terms, the Trust filed a voluntary bankruptcy petition on December 14, 1999. The Mortgage Note was amended effective December 16, 1996 to provide for monthly payments of interest only accruing at the rate of 8.88% per annum or approximately $324,000 per month. This interest rate reflects an increase from the 8.54% interest rate in effect during the initial extension period (December 16, 1995 to December 15, 1996). The Term Loan reflects the same pay rate of 8.88%, effective December 16, 1996, that is applicable to the Mortgage Note, but accrues interest at a rate that re-sets periodically. The accrual rate is computed at the Trust's discretion at either 2 5/8% above the Euro-Rate 1-1/8% above the Prime Rate, as such terms are defined in the Term Loan documents. The accrual rate currently in effect is 8.90%. The excess of the interest accrued over the interest paid is included in the principal balance of the Term Loan. The Mortgage Note Lender has asserted that it is entitled to be paid interest at the default rate (which is 5.04% in excess of the above 8.88% stated rate) for all periods following June 15, 1998, due to the Trust's failure to pay the Mortgage Note on the December 15, 1999, expiration date of the forbearance agreement. The Term Loan Lender may assert that it is likewise entitled to default rate interest at 5.00% in excess of the stated Term Loan rate from the December 15, 1999, extended maturity date of the Term Loan. Accordingly, the Trust has recorded accrued and unpaid interest in its financial statements at December 31, 1999, at amounts which include the accrual of default rate interest for such periods. The Trust has been advised that it may have defenses to the Mortgage Note Lender's claim for default rate interest for all periods prior to December 15, 1999. There can, however, be no assurance that any such defenses would be successful. In consideration for the extension of the maturity date of the Mortgage Note through June 15, 1998, the Trust paid an up-front application fee of $165,000 and agreed to pay a back-end fee of $272,900, plus interest thereon at the contract rate of 8.88% at maturity. On June 15, 1998, the Trust paid the back-end fee plus interest in the aggregate amount of $309,200 to the Mortgage Note Lender. In consideration for the extension of the maturity date of the Term Loan, the Trust paid an extension fee of $23,800 in 1997, and paid additional loan fees of $88,100 to the Term Loan Lender on June 15, 1998. In consideration for the extension of the forbearance agreement relating to the Mortgage Note through June 15, 1999 and December 15, 1999, the Trust paid extension fees of $25,000 for each extension. In consideration for the extension of the maturity date of the Term Loan through June 15, 1999 and December 15, 1999, the Trust paid extension fees of $8,000 and $15,700, respectively. OTHER MATTERS The funding of the Trust's operations, debt service payments, and its normal working 5 capital needs currently are being provided pursuant to orders of the Bankruptcy Court which authorize Trust borrowings under a post-petition secured loan by its lenders, or alternatively, authorize the Trust to use cash collateral. This funding is based on budgets attached to the orders which permit the Trust to operate the Mall and to make certain capital expenditures in the ordinary course of business required to maintain or enhance the value of the Mall, including tenant allowances associated with leasing activity. The Declaration of Trust prohibits the Trust's aggregate borrowings from exceeding 75% of its total asset value, as defined. NARRATIVE DESCRIPTION OF BUSINESS As stated above, the Trust has completed the disposition of two of its three real estate investments. The office buildings comprising Peachtree were sold in three separate transactions in 1992 and 1993. Two of the office buildings at Castleton were sold in 1991. The remaining office buildings at Castleton were sold in 1995. The Trust's remaining real estate investment is a regional mall located in Harrisburg, Pennsylvania. As discussed above, Management is pursuing the disposition of the Mall, subject to the approval of the Bankruptcy Court. The Trust anticipates making certain capital expenditures in the ordinary course of business in order to maintain or enhance the value of the Mall, as approved by the Bankruptcy Court. HARRISBURG EAST MALL LOCATION AND AREA OVERVIEW. The Mall is located in Dauphin County, Pennsylvania, near the intersection of Paxton Street (U.S. Route 322) and Interstate 83. The property is adjacent to Pennsylvania Route 441, approximately five miles from the Pennsylvania Turnpike and three miles from the central business district of Harrisburg. Access to the site from Interstate 83, the major north-south traffic corridor serving Harrisburg, is provided by the Paxton Street interchange. Access from the Pennsylvania Turnpike, the major east-west traffic corridor serving Harrisburg, is provided by the Interstate 283 interchange. TENANTS. At December 31, 1999, the Mall had 80 in-line mall and outparcel tenants (excluding anchor store tenants) occupying approximately 272,000 square feet of gross leasable area, representing an occupancy rate of approximately 81%. Other than the anchor store spaces, which are occupied by JC Penney, Hecht's and Lord & Taylor, only Toys 'R' Us, which occupies approximately 45,950 square feet of space as the anchor tenant in the Mall's outparcel building, occupies more than five percent of the gross leasable area of the Mall. Other than The Limited Inc., which operates seven stores at the Mall and which contributed 13.7% of the Mall's 1999 rental revenues, no other tenants, or group of affiliated tenants, contribute more than 10% to the Mall's total rental revenues. ANCHOR DEPARTMENT STORES. The Mall has three anchor department stores: JC Penney and two divisions of May Department Stores Co. ("May Company"), Hecht's and Lord & Taylor. Hecht's replaced Hess' in October 1995. Lord & Taylor opened on March 10, 1997, replacing John Wanamaker, which had closed in October 1995 following Woodward & Lothrop's (the owner of John Wanamaker) sale of certain department stores in its retail chain to May Company pursuant to an August 1995 bankruptcy court auction. 6 COMPETITION. The following table provides selected information with respect to the Mall's primary competitors. Each of these properties is located within eight miles of the Mall.
Gross Leasable Anchor Shopping Center Type of Center Area (Sq. Ft.) Stores - --------------- -------------- --------------- ------- Colonial Park Mall Enclosed one- 765,000 Sears level regional mall Bon-Ton Boscov's Capital City Mall Enclosed one- 722,000 Sears level regional mall Hecht's JC Penney Camp Hill Shopping Enclosed one- 506,000 Boscov's Center level mall Montgomery Ward Giant (Grocery Store) Union Square Power Center 309,000 Dunham's Sports Office Max Gabriel Bros. Weis Chuck E. Cheese's Colonial Commons Power Center 433,000 Giant (Grocery Store) Service Merchandise Montgomery Ward AMC Theater RX Place Point Shopping Center Power Center 277,000 U.S. Factory Outlet Burlington Coat Factory Lone Star Steakhouse
COMPETITION ANALYSIS. The boundaries of the trade area for the Mall are influenced by the existence of natural boundaries, competing developments, and demographic characteristics. The Susquehanna River splits the Mall's market in two, creating the East and West shores. The Mall is located in Dauphin County in the East shore area. Its primary trade area consists of all of Dauphin County, while the secondary trade area includes sections of Lebanon and Lancaster counties on the East shore and sections of Perry and Cumberland counties on the West shore. Primary competition for the Mall consists of the three regional centers identified in the table above located in the Harrisburg trade area: Colonial Park Mall, Capital City Mall, and Camp Hill Shopping Center. Colonial Park Mall, which opened in 1960, is located approximately five miles north of the 7 Mall in the primary trade area. It contains 765,000 square feet of gross leasable area, 90 mall stores, and is anchored by Bon-Ton, Sears, and Boscov's. This center was renovated and expanded with a food court and some specialty shops during 1990. In addition, new skylights and some exterior redesign have enhanced Colonial Park's appeal. Colonial Park continues to be the Mall's primary competitor due to the strength of Boscov's and its in-line tenant mix, which is comparable to that found at the Mall. The occupancy percentage for this property is approximately 94%. Capital City Mall, located ten miles to the west of the Mall's secondary trade area, contains approximately 722,000 square feet of gross leasable area and 94 mall stores. This center opened in 1974 and is anchored by Hecht's, JC Penney, and Sears. The center was first renovated in 1986 and a second renovation, completed in May 1998, included new flooring, plantings, seating, skylights, and a food court area. This current occupancy of this center is approximately 98%. Camp Hill Shopping Center, a former community center, was originally constructed in 1958 and completely enclosed and renovated in 1986. This center is located approximately ten miles west of the Mall in the secondary trade area, and contains approximately 506,000 square feet of gross leasable area and 70 mall stores. The center is anchored by Boscov's, Montgomery Ward, and Giant Grocery Store. The current occupancy is approximately 65%. ITEM 2. PROPERTIES. HARRISBURG EAST MALL GENERAL. The Mall is a two-level enclosed regional shopping mall located approximately three miles from the central business district of Harrisburg, Pennsylvania, the state capitol. It contains approximately 836,000 gross leasable square feet and is anchored by three major department stores: JC Penney, Hecht's, and Lord & Taylor. The Mall is located on a site of approximately 64 acres with paved surface parking for approximately 4,933 automobiles (5.9 spaces per 1,000 gross leasable square feet). The total building area of the Mall is allocated as shown in the table below.
Gross % of Number of Leasable Total Store Spaces Area Building Occupancy at December 31, 1999 (Sq.Ft.) Area December 31, 1999 ------------------ --------- ----------- ------------------ Gross leasable area Anchor Stores 3 498,948 50.8% 100.0% Mall Stores 106 284,650 29.0 79.5 Free-standing building 3 52,345 5.3 87.8 ------- ------- ---- ------ Total gross leasable area 112 835,943 85.1 92.2% ------ ------- ---- ====== Common area 146,371 14.9 ------- ---- Total building area 982,314 100.0% ======= =====
8 OCCUPANCY DATA AND AVERAGE EFFECTIVE ANNUAL RENT. Information regarding occupancy rates and average effective annual rent for the Mall, including anchor and outparcel tenants, is set forth below:
1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Occupancy Rate (a) 92.2% 93.6% 92.8% 93.7% 73.6% ===== ===== ===== ===== ===== Rent (b) $5,211,956 $5,146,957 $5,005,603 $4,902,122 $5,110,162 Total Percentage Rent 244,847 272,421 122,298 179,474 269,558 ------- ------- ------- ------- ------- Total Annual Effective Rent 5,456,803 $5,419,378 $5,127,901 $5,081,596 $5,379,720 Average Annual Rent Per Square Foot: (c) Mall Anchor Tenants $1.30 $1.30 $1.29 $1.37 $1.32 Outparcel Stores $8.12 $8.12 $7.38 $7.44 $6.91 Mall Tenants $17.92 $18.44 $18.18 $17.08 $16.46 All Tenants $6.70 $6.91 $6.58 $6.26 $6.44
- ------------------ (a) Occupancy rate at December 31, 1995 reflects vacancy of the former John Wanamaker anchor space. Excluding the effect of the vacancy, the occupancy rate on a pro forma basis at December 31, 1995 was 95.8%. On May 13, 1996, the Trust and May Company executed a lease agreement that provided for the opening of a Lord & Taylor department store. The December 31, 1996 occupancy rate includes the contractual occupancy of Lord & Taylor, which opened for business on March 10, 1997. (b) Total minimum annual rent represents actual tenant rental income for each calendar year, and does not include non-cash adjustments for stipulated rent increases in accordance with Generally Accepted Accounting Principles. (c) Anchor and outparcel rent per square foot data is based on actual leased square footage during each calendar year presented. Mall tenant rent per square foot data is based on leased square footage at December 31 of each year presented. 9 LEASE EXPIRATIONS. The lease expiration schedule for Mall (non-anchor) and outparcel stores as of December 31, 1999 is shown below:
Percentage 1999 of 1999 Number Gross Minimum Minimum of Leases Leased Annual Annual Expiring(1) Area (Sq.Ft.) Rent Rent ---------- ------------- ------- ----------- Month to month 2 5,730 $ 102,630 2.0% 2000 10 21,268 524,266 10.0% 2001 13 27,806 584,741 11.2% 2002 7 6,143 129,279 2.5% 2003 13 30,541 684,433 13.1% 2004 4 7,914 209,970 4.0% 2005 9 75,987 692,613 13.3% 2006 6 24,874 467,420 9.0% 2007 4 7,361 135,693 2.6% 2008 7 11,787 198,703 3.8% 2009 and thereafter 5 52,774 489,478 9.4% ------ ---------- ---------- --------- TOTAL 80 272,185 $4,219,226 80.9% ======= ======== ========== =========
- ---------------- (1) Assumes no renewal options will be exercised, and therefore presents the earliest point of termination of the leases. 10 ANCHOR TENANTS. The following chart presents tenants that occupy more than 10% of the Mall's rentable square footage, along with certain provisions contained in their leases:
Leased Area Rent Lease Tenant (Sq. Ft.) Per Annum Expiration Date Renewal Options (1) - ------ ---------------- --------- --------------- ------------------- Hecht's 187,280 $200,000 1/31/2007 3-10 Year Options J.C. Penney 153,770 $300,000 3/31/2001 (2) 6-5 Year Options Lord & Taylor 157,898 $150,000 10/31/2005 3-10 Year Options
- ---------------- (1) Hecht's and Lord & Taylor leases have operating covenants that require them to continue to remain open and operate through December 2004 and October 2005, respectively. J.C. Penney's operating covenant has expired. (2) The J.C. Penney lease requires J.C. Penney to give the Trust notice by March 31, 2000, if it elects to exercise the option contained in its lease to renew for a five-year term commencing April 1, 2001. J.C. Penney has requested a six-month extension of time to September 30, 2000, to exercise such renewal option, and the Trust has granted such extension. DEBT. As discussed under Item 1 - Business, the Mortgage Note and Term Loan facilities provided for an original maturity of December 15, 1995. The Trust's Mortgage Note Lender and Term Loan Lender agreed to extend the maturity date of these loans twice; first, for a period of one year through December 15, 1996, and second, for a period of 18 months through June 15, 1998. Following the June 15, 1998 scheduled maturity date, the Mortgage Note Lender granted three six-month forbearance arrangements (through, respectively, December 15, 1998, June 15, 1999, and December 15, 1999). The Term Loan Lender also granted three extensions of its maturity dates so as to coincide with the forbearance periods. The expiration date of the Trust's final forbearance and extension arrangements was December 15, 1999. Inasmuch as the Trust was unable to obtain from its lenders additional forbearance and extension arrangements on economically acceptable terms, the Trust filed a voluntary bankruptcy petition on December 14, 1999. 11 The following table sets forth certain information regarding the Trust's outstanding mortgage debt.
Annual Principal at Pay December 31, Annual Debt Loan Rate 1999 Service ---- ---- --------- ----------- (Amounts in thousands) Mortgage Note 8.88%(1) $43,794 $3,888 Term Loan 8.88%(2) 1,580 141
- --------------------------- (1) The Mortgage Note requires monthly interest only payments of $324,000, at an annual stated interest rate of 8.88%. The Mortgage Note Lender has asserted that it is entitled to be paid default rate interest from June 15, 1998 at a rate which is 5.04% in excess of the stated rate. (2) The Term Loan provides for the accrual interest rate to be re-set periodically, and is computed at the Trust's discretion at either 2 5/8% above the Euro-Rate (as defined) or 1 1/8% above the Prime Rate, as such terms are defined in the Term Loan documents. The stated annual accrual interest rate in effect as of March 15, 2000 was 8.90 %. The principal balance of the Term Loan is increased for the excess of the interest accrued over the interest paid at the annual pay rate of 8.88%. The Term Loan Lender may assert that it is entitled to be paid default rate interest at 5.00% in excess of the stated Term Loan rate from the December 15, 1999, extended maturity date of the Term Loan. DEPRECIATION. The Trust depreciates its assets for Federal income tax purposes under the Accelerated Cost Recovery System and the Modified Accelerated Cost Recovery System. The income tax basis and related accumulated depreciation amounts of its assets as of December 31, 1998, are as follows: Buildings: Gross Federal Income Tax Basis $50,527,000 Accumulated Depreciation $17,028,000 Depreciation Method Straight Line Depreciable Life 40 Years Land Improvements: Gross Federal Income Tax Basis $ 3,020,000 Accumulated Depreciation $ 318,000 Depreciation Method Straight Line Depreciable Life 40 Years Personal Property: Gross Federal Income Tax Basis $ 185,000 Accumulated Depreciation $ 128,000 Depreciation Method Straight Line* Depreciable Life 10 Years*
- ----------- *Except for automobiles which are depreciated over a range of 3 to 7 years using the double declining balance method. 12 REAL ESTATE TAXES. Real estate taxes are levied for county, township, and school tax purposes. County and township taxes are payable March 31, and school taxes are payable on August 31. The Trust paid $1,006,508 in real estate taxes in 1999. The millage rate for 1999 was 29.38. Through an appeal with Dauphin County, the assessed value of the Mall was lowered in 1998. The decrease in tax expense associated with the lower assessed value was reflected in the 1999 real estate tax invoices. Real estate taxes are substantially reimbursed by the Mall's tenants through real estate tax recovery billings. PHYSICAL IMPROVEMENTS. Since acquiring the Mall in 1985, the Trust has undertaken several physical improvement programs. In 1987, the Trust converted approximately 51,400 square feet of space in the basement of the former Hess's department store space into Mall tenant space, at which time it was leased to Toys ' R' Us. During 1988, a new food court with approximately 13,000 square feet of gross leasable area was added. In 1991, the Trust completed the conversion of 47,960 square feet of space previously occupied by JC Penney into approximately 31,500 square feet of new leasable area which has been leased at substantially higher rates. In conjunction with the JC Penney conversion, the remaining area of the JC Penney store was remodeled. In addition, the terms of the amended JC Penney lease required the Trust to renovate the common areas and the exterior facade of the Mall. This renovation was completed in 1993 at a cost of approximately $4,000,000. The renovation project included a complete refurbishment of the Mall's interior common area, including new floors, finishes, and lighting throughout. Upon the expansion of Hecht's into the basement space previously occupied by Toys 'R' Us in 1995 (approximately 51,400 square feet), the Trust renovated the Mall's out-parcel building (approximately 52,000 square feet) to accommodate the relocation of Toys 'R' Us at a cost of approximately $3,440,000. In addition to the expansion of the anchor tenant space, Hecht's performed an interior renovation of its new department store space. Lord & Taylor opened in March 1997 in the former John Wanamaker anchor tenant space. May Company (Lord & Taylor's parent company) undertook and completed a major renovation of this anchor store location. The Trust believes that May Company spent approximately $10,000,000 on renovations and improvements. ITEM 3. LEGAL PROCEEDINGS. As discussed in Item 1 hereof, the Trust filed a voluntary petition in the United States Bankruptcy Court for the Middle District of Pennsylvania on December 14, 1999 because the Trust was unable to repay certain mortgage indebtedness upon the December 15, 1999 expiration date of forbearance and extension agreements with its lenders. The Trust is now operating as a "debtor-in-possession" pursuant to Chapter 11 of the U.S. Bankruptcy Code. On April 10, 2000, the Trust and the Mortgage Note Lender filed a Joint Plan of Reorganization (the "Plan") in the Bankruptcy Court. The Plan provides for the allowance of a secured claim of the Mortgage Note Lender in the amount of approximately $47,478,000 plus legal fees, which amount includes accrued and unpaid interest at the default rate from June 15, 1998 to the bankruptcy petition date in the approximate amount of $3,360,000. The Plan further provides that the Mortgage Note Lender will waive its entitlement to default rate interest if by certain specified 13 dates in July, 2000: (a) a Plan confirmation order is entered by the Bankruptcy Court or the Mall is sold pursuant to order of the Bankruptcy Court; (b) the general unsecured creditors (including Lend Lease--see Item 13 "Certain Relationships and Related Transactions" hereof for a description of the Trust's liabilities to Lend Lease) and the Term Loan Lender vote to accept the Plan; and (c) closing of a sale of the Mall takes place or the Mortgage Note Lender is conveyed title to the Mall property. Upon the closing of the sale or conveyance of the Mall, the Plan provides that the Mortgage Note Lender will receive payment of its secured claim first from the restricted cash accounts which are held in trust and secondly from the sales proceeds of the Mall. The Trust will deliver to an escrow agent a deed in lieu of foreclosure in favor of the Mortgage Note Lender which shall be released only in the event of a default by the Trust under the terms of the Plan or failure to meet certain July, 2000, payment deadlines (unless extended). If the proceeds from the proposed sale of the Mall are sufficient to pay all of the Trust's claims in full, the Plan provides that the Mortgage Note Lender will be entitled to a $200,000 administrative and forbearance fee. Under the Plan, the Term Loan Lender will be paid its secured claim from the proceeds remaining from the sale of the Mall, after payment of the Mortgage Note. To the extent that the Term Loan is not paid in full from such proceeds, then the deficiency will be treated as a general unsecured claim. General unsecured claims will share pro rata in the Trust's remaining funds after payment of administrative expenses, certain priority tax claims and secured claims; provided, however, the Mortgage Note Lender has agreed to fund up to $750,000 for the payment of general unsecured claims under certain conditions. The Shareholders of the Trust would retain their shares in accordance with the Declaration of Trust and in accordance with any treatment which might be set forth in any transaction relating to the issuance of the Trust's Shares that might be negotiated with ART or other entities. Counsel for ART has indicated that ART has claims against the Trust arising from the purported termination of the Revised Merger Agreement, and in connection therewith, ART has filed a proof of claim in the Trust's bankruptcy proceedings in the amount of $2,162,000. On February 3, 1998, the Trust, its trustees, and Lend Lease (its then advisor) were named as defendants in a purported class action complaint filed by a shareholder in Massachusetts State court. The complaint sought to enjoin the Merger and also sought other relief including unspecified damages. This complaint was dismissed without prejudice in 1999. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. NONE. 14 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Trading in the Trust's Shares on the New York Stock Exchange ("NYSE") terminated on May 4, 1998, as the Trust did not meet the NYSE's continued listing criteria. The Trust's Shares are currently traded on the OTC Bulletin Board System. As of April 6, 2000, the record number of shareholders of the Trust was 195. Although, the Trust does not know the exact number of beneficial holders of its Shares, it believes the number exceeds 1,000. The following table presents the high and low prices of the Trust's Shares based on the New York Stock Exchange daily composite transactions for the period January 1, 1998 through May 4, 1998. From May 4, 1998 the following table presents the high and low bid prices of the Trust's Shares based on the OTC Bulletin Board System daily composite transactions which reflect inter-dealer prices, without retail mark-up, mark-down or commissions and which may not necessarily represent actual transactions.
HIGH LOW -------- ------ Year ended December 31, 1999: First Quarter $ 0.781 $0.313 Second Quarter 0.469 0.125 Third Quarter 0.250 0.125 Fourth Quarter 0.250 0.021 Year ended December 31, 1998: First Quarter $ 2.063 $1.000 Second Quarter 1.313 0.250 Third Quarter 1.063 0.625 Fourth Quarter 0.844 0.625
There were no distributions to shareholders during 1999 and 1998, and the Trust is prohibited from making any distributions to its shareholders except as may be approved by the Bankruptcy Court. 15 ITEM 6. SELECTED FINANCIAL DATA. The following table sets forth Selected Financial Data for the Trust as of and for each of the five years in the period ended December 31, 1999. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements appearing elsewhere in this report.
AS OF AND FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------------------------ 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (In thousands, except per share data) Revenues from rental operations (a) $ 6,150 $ 6,191 $ 6,158 $ 6,174 $ 15,761 Write down of investments in real estate (b) -- -- -- -- (3,200) Income (loss) before gain on sales of real estate (c) (2,979) 150 (1,961) (1,488) (6,575) Gain on sales of real estate (d) -- -- -- -- 229 Net income (loss) (2,979) 150 (1,961) (1,488) (6,346) Total assets 45,527 45,102 45,067 46,830 48,209 Long-term obligations: Mortgage notes payable, net of imputed interest and discount 45,364 45,374 45,379 45,379 45,712 Shareholders' equity (deficit) (7,811) (4,832) (4,982) (3,021) (1,533) Per share data (e): Income (loss) per share: Income (loss) before gain on sales of real estate $ (0.31) $ 0.02 $ (0.21) $ (0.16) $ (0.71) Net income (loss) (0.31) 0.02 (0.21) (0.16) (0.68) Dividends declared -- -- -- -- --
(a) The decline in revenues from operations for 1996 is mainly attributable to the sale of Castleton Park, which accounted for revenues of $9,554,000 for the year ended December 31, 1995. (b) A write-down was recorded in 1995 related to the Trust's investment in Castleton Park to adjust the net investment to the Trust's estimate of net realizable value. As discussed in Note 2 to the financial statements, the Trust reviews its investments for impairment on a quarterly basis, and records write-downs or reserves when appropriate. (c) The 1998 and 1999 results reflect the cessation of depreciation and amortization as a result of the Trust's real estate being classified as "held for sale" as of April 1, 1998. (d) In 1995, the Trust sold its remaining interest in Castleton Park and recognized a gain on the sale of $229,000. (e) Calculation is based on 9,264,344 weighted average Shares outstanding from 1994 through 1997, 9,505,222 weighted average Shares outstanding for 1998, and 9,632,212 weighted average Shares outstanding for 1999. The Trust had 9,632,212 Shares outstanding as of December 31, 1998 and 1999. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This discussion should be read in conjunction with the financial statements and notes that appear immediately following the signatures page. 16 FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES As discussed in Item 1 under "Mortgage Debt", the Trust's Mortgage Note Lender and its Term Loan Lender granted the Trust relief through December 15, 1999, from the debt instruments' initial maturity date of December 15, 1995 through a series of extensions and forbearance arrangements. Inasmuch as the Trust was unable to obtain from its lenders additional extension and forbearance arrangements on economically acceptable terms, the Trust filed a voluntary bankruptcy petition on December 14, 1999. The funding of the Trust's operations, debt service payments, and its normal working capital needs currently are being provided pursuant to orders of the Bankruptcy Court which authorize Trust borrowings under a post-petition secured loan by its lenders, or alternatively, authorize the Trust to use cash collateral. This funding is based on budgets attached to the orders which permit the Trust to operate the Mall and to make certain capital expenditures in the ordinary course of business required to maintain or enhance the value of the Mall, including tenant allowances associated with leasing activity. One of the conditions of the Mortgage Note was the establishment of capital reserve and cash collateral accounts, which are maintained by a third-party escrow agent and from which expenditures must be approved by the Mortgage Note Lender. The balances in these accounts at December 31, 1999 amounted to $1,038,000 and $2,322,000, respectively. The Trust believes the current cash balance in these accounts, coupled with additional cash flows projected to be generated from operations, will be sufficient to fund the Mall's operations and capital expenditure requirements through the date of the Mall's disposition by the Trust. During 1999, the Trust generated cash flows from operating activities of $737,000 as compared to $1,597,000 in 1998. This decrease is largely attributable to certain nonrecurring receipts for certain reimbursements from ART in accordance with the Revised Merger Agreement ($367,000) and lease termination fees from a tenant ($200,000) in 1998. The 1998 cash flows from operating activities represented an increase of $1,365,000 from the $232,000 amount generated in 1997. This increase reflects the timely receipt of real estate tax ($385,000) and utility income ($288,000) recoveries for 1998, as well as the effect of the1998 nonrecurring receipts. Cash flows used in investing activities during 1999, 1998, and 1997 were $622,000, $652,000, and $546,000, respectively. These results reflect the payment of build out costs and allowances for certain tenants, as well as costs associated with routine capital items, including roof replacement and parking lot resurfacing. Cash flows used in financing activities during 1998 amounted to $407,000, which represented payments made for loan fees to the Mortgage Note Lender ($298,000) and the Term Loan Lender ($104,000), and principal payments on the Term Loan ($5,000). Cash flows used in financing activities during 1999 ($10,000) were for principal payments on the Term Loan and in 1997 ($24,000) were for payments of loan fees to the Term Loan Lender. Payments made on the Mortgage Note for 1999, 1998 and 1997 were limited to interest payments. 17 The Trust intends to sell the Mall and, therefore, has classified its real estate as held for sale at December 31, 1999 and 1998. Accordingly, the investment in real estate, including deferred leasing costs, is recorded at the lower of cost or estimated fair market value, less estimated costs to sell. Although the Trust has entered into a Purchase and Sale Agreement to sell the Mall for a price of $46,500,000, the closing of the proposed sale transaction is contingent upon the performance of due diligence procedures to the satisfaction of the prospective purchaser and Bankruptcy Court approval. The Trust will also seek Bankruptcy Court approval to sell the Mall at auction for a higher and better offer, or if a sale transaction does not close, will convey title to the Mall to the Mortgage Note Lender. In all events, however, the Trust expects to dispose of the Mall and discontinue Mall operations. RESULTS OF OPERATIONS For the year ended December 31, 1999, the Trust reported a net loss of $2,979,000 ($.31 per share) as compared to net income of $150,000 ($.02 per share) and a net loss of $1,961,000 ($.21 per share) for the years ended December 31, 1998 and 1997, respectively. The Trust's revenues for 1999 were $6,150,000, which represents a $41,000 decrease from the 1998 amount of $6,191,000. Most of the decrease represents a decline in percentage rent reflecting decreased or flat tenant sales. In 1998, however, percentage rents increased by $150,000 from 1997 as a result of increased sales by percentage-rent-paying tenants at the Mall. In addition, in 1998 the Trust recognized a non-recurring lease cancellation fee of approximately $200,000. These increases in income were substantially offset by a decrease in income in 1998 due to a non-recurring adjustment made in 1997 to record the recovery of income from one of the Mall's anchor stores. Consequently, the Trust's revenues in 1998 reflected only a $33,000 increase from the 1997 revenues of $6,158,000. Operating expenses (net of reimbursements from tenants) for 1999, 1998 and 1997 were $1,063,000, $769,000, and $1,083,000, respectively. This lower expense amount in 1998 is primarily due to greater common area maintenance expense recoveries due to a higher reimbursement ratio for 1998. The higher reimbursement ratio is attributable to a higher average occupancy ratio at the Mall as compared to both 1999 and 1997. No depreciation and amortization expense was recorded in 1999, and such expense was recorded only for three months of 1998 ($588,000) because the Trust classified the Mall asset as real estate held for sale effective April 1, 1998. Interest expense for 1999, 1998, and 1997 was $7,564,000, $4,219,000, and $4,397,000, respectively. The 1999 increase resulted from the Trust recording in December, 1999, $3,360,000 of accrued and unpaid interest at the default rate to the Mortgage Note Lender for all periods after June 15, 1998. This liability resulted from the Trust's failure to pay the Mortgage Note indebtedness upon the December 15, 1999 forbearance expiration date. The Trust has been advised that it may have defenses to the Mortgage Note Lender's claim for default rate interest for all periods prior to December 15, 1999. There can, however, be no assurance that any such defenses would be successful. Effective December 15, 1999, the Trust commenced recording interest expense at the applicable default rates for both the Mortgage Note and the Term Loan on a current basis. Interest expense decreased in 1998 compared to 1997 due to lower amortization of deferred financing costs in 1998 since the majority of these costs were fully amortized by June 1998. A full year of amortization was recognized during 1997. 18 Other expenses-net consists of portfolio management fees, other costs related to the operation of the Trust, and interest income earned on cash balances. As discussed in the liquidity section above, the Trust believes that its existing cash reserves and its anticipated cash flow generated from operations will be sufficient to meet its operating, capital and monthly debt service requirements. Due to the accrual of interest expense on the Trust's mortgage debt at default rates of interest, the Trust expects to continue reporting net losses through the date of the disposition of the Mall. Further, the Trust's future results will also be affected by, among other factors, the professional fees and other administrative expenses of its bankruptcy proceeding. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Trust generally does not enter into market risk sensitive instruments for trading purposes. The Trust has entered into debt instruments that may be affected by changes in interest rates; however, a 10% change in the fixed and variable interest rate would not have a material effect on the Trust's financial statements due to the related terms of its debt instruments. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Registrant's financial statements and supplementary data listed in Item 14(a) appear immediately following the signatures page. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. In March, 2000, the Trust filed an application in the Bankruptcy Court for authority to employ Deloitte & Touche LLP ("Deloitte") as auditors, accountants, and tax consultants. Certain parties in interest filed objections in the Bankruptcy Court to such employment, and Deloitte subsequently requested that the Trust withdraw its application to retain Deloitte. On May 18, 2000, the Trust filed a praecipe to withdraw the Deloitte employment application. Accordingly, Deloitte has ceased acting as the Trust's independent public accountants. The Trust has not replaced Deloitte. PART III ITEM 10. TRUSTEES OF THE REGISTRANT. The Trustees, their terms served and their professional interests outside the Trust are profiled below. The Trustees are elected to office at the Trust's annual meeting each year. Sylvan M. Cohen, age 85, has been a Trustee since 1988. Mr. Cohen has been Chairman and Trustee of Pennsylvania Real Estate Investment Trust, a New York Stock Exchange-listed real estate investment trust, since 1994, and also served as its Chief Executive Officer from 1994 to October 1997. He was President and Trustee since its inception in 1960. Mr. Cohen has been Of Counsel to 19 the law firm Drinker Biddle & Reath since 1995. For more than five years prior thereto, Mr. Cohen was a partner in the Philadelphia law firm of Cohen, Shapiro, Polisher, Shiekman and Cohen. Mr. Cohen is formerly a director of Fidelity Bank, Philadelphia, Pennsylvania, and is currently a director of Orleans Homebuilder, Inc. (formerly the FPA Corporation), an American Stock Exchange-listed real estate development company, and was a managing trustee of Arbor Property Trust, a New York Stock Exchange-listed real estate investment trust and successor in interest to EQK Green Acres, L.P, until it was acquired in December 1997. He formerly served as President of the National Association of Real Estate Investment Trusts and the International Council of Shopping Centers. Alton G. Marshall, age 78, has been a Trustee since the Trust's inception in 1985. Mr. Marshall has been President of Alton G. Marshall Associates, Inc. a New York City real estate investment firm since 1971. He was formerly a Senior Fellow of the Nelson A. Rockefeller Institute of Government in Albany, New York. He was also Chairman of the Board and Chief Executive Officer of The Lincoln Savings Bank, FSB from March 1984 through December 1990. From 1971 to 1981, he was President of the Rockefeller Center, Inc., a real estate, manufacturing and entertainment company. Mr. Marshall was a director of the New York State Electric & Gas Corp. He previously served as a director of the Hudson River Trust and as a managing trustee of Arbor Property Trust, until it was acquired in December 1997. He was an independent partner of Equitable Capital and Equitable Capital Retirement Fund. George R. Peacock, age 76, has been a Trustee since 1988. Mr. Peacock has been sole-owner and President of Carluke, Inc., a real estate investment consulting firm, since 1988. Mr. Peacock retired from Equitable Real Estate Investment Management, Inc. ("Equitable Real Estate"), a wholly-owned subsidiary of The Equitable Life Assurance Society of the United States ("Equitable") in August 1988 after serving as Chairman and Chief Executive Officer. Mr. Peacock is a past member of Equitable's Investment Policy Committee. Prior to his retirement, he was also a Senior Vice President of Equitable for approximately twelve years. He is also a former director of Equitable Real Estate and was a managing trustee of Arbor Property Trust until it was acquired in December 1997. Phillip E. Stephens, age 52, has been a Trustee since 1990. Mr. Stephens is the President and the Chief Executive Officer of Stephens Property Group, LLC, a developer of shopping centers in the Southeastern United States. Mr. Stephens was Chairman and Chief Executive Officer of Compass Retail, Inc., a subsidiary of Equitable Real Estate, from February 1996 to June 1997 and was President and Chief Executive Officer from January 1992 to January 1996. Mr. Stephens was Executive Vice President of the Compass Retail division of Equitable Real Estate from January 1990 to December 1991. He also served as President of Equitable Realty Portfolio Management, Inc. ("ERPM"), the Trust's Advisor and a wholly-owned subsidiary of ERE Yarmouth, Inc. (formerly Equitable Real Estate), from December 1989 to June 1997. Prior to that date and since October 1987, he was President of EQK Partners, the predecessor in interest to ERPM. Prior to that date and since its inception in September 1983, he was Senior Vice President and subsequently President of EQK Partners. He was also a managing trustee of Arbor Property Trust until it was acquired in December 1997. Robert C. Robb, Jr., age 54, has been a Trustee since 1991. Mr. Robb has been President of and a partner in the management and financial consulting firm of Lewis, Eckert, Robb & Company since 1981. Mr. Robb is currently a director of Provident Institutional Funds and 20 Brynwood Partners, a Trustee of the Medical College of Pennsylvania, Hahnemann University, and is a former director of Brinks, Inc. of Darien, Connecticut and PNC Bank, N.A., Pittsburgh, Pennsylvania. EXECUTIVE OFFICERS OF THE REGISTRANT. On January 15, 1999, certain officers of the Trust resigned from their positions. Robert Welanetz resigned as President of the Trust and as a member of the Board of Trustees and William G. Brown, Jr. resigned as Vice President and Controller of the Trust. On the same date, Samuel F. Hatcher was elected to succeed Robert Welanetz as President of the Trust and member of the Board of Trustees and Don Henry was elected to succeed William G. Brown, Jr. in his capacities. On December 13, 1999, Mr. Hatcher resigned as President of the Trust and as a member of the Board of Trustees, Mr. Henry resigned as Vice President and Controller, and Pamela P. Griffin resigned as Secretary of the Trust. All of these officers were also officers and/or employees of Lend Lease, and as hereinafter discussed, the Trust's advisory agreement with Lend Lease was terminated on that same date. Effective with these resignations and advisory agreement termination, the following officers were elected: Gregory R. Greenfield as President and Chief Executive Officer; William G. Brown, Jr. as Vice President, Treasurer and Chief Financial Officer; and Linda K. Schear as Secretary. These officers are associated with Gregory Greenfield & Associates, Ltd. which was appointed to serve as the Trust's advisor on that date. Effective January 18, 2000, and concurrently with the appointment of Newleaf Corporation as the Trust's Advisor, all of the Trust's officers resigned their positions with the Trust, and the Board of Trustees appointed the current executive officers of the Trust, each of whom is an officer of Newleaf Corporation. The term of office of each officer expires at the end of twelve months or such earlier time as they resign and their respective successor are named and approved. The following table sets forth the names and positions of the current executive officers.
Name Position ---- -------- Lloyd T. Whitaker President and Chief Executive Officer David H. Crumpton Chief Financial Officer, Vice President and Secretary
- ---------------- Lloyd T. Whitaker, age 65, has, since 1987, served as President and Chief Executive Officer of Newleaf Corporation, the Advisor to the Trust. Newleaf Corporation is engaged in the business of serving as bankruptcy trustees, examiners, financial consultants, advisors and business managers for real estate and other types of business enterprises which are in bankruptcy or which are otherwise experiencing financial difficulties. Prior to 1987, Mr. Whitaker was President and Chief Executive Officer of CMEI, Inc. (a publicly traded real estate investment trust), President of the Office Development and the Downtown Development Divisions of Cousins Properties Incorporated, and a partner in an Atlanta, Georgia law firm. David H. Crumpton, age 52, has been a Principal and Chief Financial Officer of Newleaf Corporation since May, 1987. Prior to that date and since March, 1969, he was associated with the accounting firm of Arthur Andersen & Co. where he was a Principal in its auditing group 21 and National Coordinator of the firm's real estate accounting and auditing practice. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") requires the Trust's officers and directors and persons who own more than ten percent of a registered class of the Trust's equity securities (collectively, the "Reporting Persons") to file reports of ownership and changes in ownership with the Securities and Exchange Commission and to furnish the Trust with copies of these reports. Based on the Trust's review of the copies of these reports received by it, and written representations received from Reporting Persons, the Trust believes that all filings required to be made by the Reporting Persons with respect to transactions from January 1, 1999 through December 31, 1999 were made on a timely basis, except that Forms 3 for William G. Brown, Jr. and Gregory R. Greenfield were filed late. ITEM 11. EXECUTIVE COMPENSATION. The Trust currently pays each unaffiliated Trustee a fee of $10,000 per year for serving as a Trustee and $1,000 for each day or portion of a day spent by a Trustee on the Trust's business, including meetings of the Trustees (including conference call meetings) and of any committee of Trustees which such Trustee attends. In addition, the Trust currently reimburses each of the Trustees for travel and other expenses incurred in connection with their duties as Trustee of the Trust. No salaries are paid to the officers of the Trust for acting in such capacity. The Trust's officers have been provided by the advisors to the Trust. Reference is made to Item 13 "Certain Relationships and Related Transactions" hereof which describes the compensation arrangements with advisors. 22 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table shows the beneficial shareholdings as of December 31, 1999 of all persons known by the Trust to be beneficial owners of more than 5% of its outstanding Shares (based upon filings made by such persons pursuant to Section 13(d) of the Exchange Act), of all Trustees and nominees individually, and of all Trustees and officers as a group.
Percentage of Number Outstanding Name Address of Shares Shares ---- -------- --------- -------------- Lend Lease Portfolio 3424 Peachtree Road, NE 1,685,556 17.5% Management, Inc. Suite 800 Atlanta, GA 30326 Sutter Opportunity Fund, LLC 595 Market Street 919,400 9.5% Suite 2100 San Francisco, CA 94105 Summit Venture, L.P. 717 Morten Avenue 916,900 9.4% Suite 220 Phoenix, AZ 85020 E.I. duPont de Nemours Wilmington Trust Co. 906,600 9.4% Co., Inc. Trust Fund 1100 North Market Street Wilmington, DE 19890 Maurice A. Halperin 2500 North Military Trail 847,100 8.8% Suite 225 Boca Raton, FL 33431 Sylvan M. Cohen Drinker Biddle & Reath - (2) Philadelphia National Bldg 1345 Chestnut Street Philadelphia, PA 19107 Alton G. Marshall 136 East 79th Street - (2) New York, NY 10021 George R. Peacock Monarch Plaza 1,728(1) (2) 3414 Peachtree Road, NE Suite 416 Atlanta, GA 30326 Robert C. Robb Lewis, Eckert, Robb and Co. 2,000 (2) One Plymouth Meeting Suite 425 Plymouth Meeting, PA 19462 Phillip E. Stephens Seven Piedmont Center 2,055 (2) Suite 300 Atlanta, GA 30305 All Trustees and Executive 5,783 (2) Officers as a Group (7 persons)
- ------------------------------- (1) These Shares are owned by Mr. Peacock's wife and son and Mr. Peacock disclaims beneficial ownership of these Shares. (2) The number of Shares represents less than 1% of the outstanding Shares. 23 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Lend Lease Portfolio Management, Inc., ("Lend Lease" and formerly ERE Yarmouth Portfolio Management, Inc.), a wholly-owned subsidiary of Lend Lease Real Estate Investments, Inc. (formerly ERE Yarmouth, Inc.), served as the advisor to the Trust from the Trust's inception until the termination of its advisory agreement on December 13, 1999. For the year ended December 31, 1999, Lend Lease earned portfolio management fees in the approximate amount of $186,000, of which approximately $112,500 was paid currently as described below. Effective January 1, 1990, Lend Lease agreed to reduce the rate of its annual portfolio management fees as an accommodation to the Trust's efforts to reduce its costs of operations. The basis of the fee calculation was changed from .85% to .425% of the sum of (i) the average daily per Share closing price of the Trust's Shares, multiplied by the average number of Shares outstanding on each day and (ii) the average daily outstanding balance of the Trust's long-term indebtedness. In addition, certain provisions which subordinated the payment of the fee to a specified dividend distribution were eliminated. Lend Lease agreed to forgive one-half of the total of $5,440,000 of deferred annual portfolio management fees owed by the Trust to the Advisor for the years 1985 through 1989. The remaining deferred fees of approximately $2,720,000 were intended to be paid upon the disposition of the Trust's remaining property, the Mall. Pursuant to the Mortgage Loan Modification Agreement executed in December 1995, which extended the maturity date of the Trust's mortgage indebtedness by one year, to December 15, 1996, and continuing with subsequent extension and forbearance arrangements as described in "Item 1- Business", Lend Lease agreed to an additional partial deferral of its fees. The formula for computing the fee remained unchanged as described above; however, the payment of fees in excess of $37,500 per quarter was deferred. These additional deferred fees were intended to be paid to Lend Lease upon the repayment of the Trust's mortgage indebtedness, either through a refinancing or from an application of proceeds from the sale of the Mall. In addition, the Trust accrued advisory fees to Lend Lease for advisory services for the fourth quarter of 1999, none of which was paid due to the Trust's filing of its bankruptcy petition on December 14, 1999. Inasmuch as the Shares of the Trust ceased to be traded on a market with readily available market values on May 4, 1998, the Trustees agreed on stipulated per Share values to be used for purposes of calculating the portfolio management fee. These stipulated per Share values were $0.75 per Share for the period May 4, 1998 through December 31, 1998, $0.37 per Share for the period January 1, 1999 through June 30, 1999, and $0.15 per Share for the period July 1, 1999 through the December 13, 1999 termination date of the Lend Lease advisory agreement with the Trust. In addition to the foregoing advisory fees, Lend Lease earned a refinancing fee of $50,000 in connection with the December 15, 1996 extension of debt, which does not become payable until the retirement of the Trust's mortgage debt. The aggregate amount of refinancing and advisory fees owed to Lend Lease at December 31, 1999, including all deferred amounts, was $3,142,741. The Trust has treated this amount as a general unsecured claim in the Trust's bankruptcy proceeding. On December 13, 1999, the Trust entered into an Advisory Agreement with Gregory 24 Greenfield & Associates, Ltd. ("Greenfield") whereby Greenfield was appointed advisor to the Trust. Certain parties in interest raised objections to Greenfield's appointment as advisor in connection with the Trust's bankruptcy proceedings due to prior relationships between the Trust and principals of Greenfield who had previously been officers of the Trust and Lend Lease. As a consequence, Greenfield resigned as advisor effective January 18, 2000. Greenfield was paid cash compensation of $25,000 for its advisory services. Effective January 18, 2000, Newleaf Corporation was appointed as the Trust's Advisor pursuant to an Advisory Agreement dated January 18, 2000 and an order of the Bankruptcy Court entered January 25, 2000. Newleaf Corporation is engaged in the business of serving as bankruptcy trustees, examiners, financial consultants, advisors and business managers for real estate and other types of business enterprises which are in bankruptcy or which are otherwise experiencing financial difficulties. The Newleaf Advisory Agreement provides for the Advisor to receive monthly cash compensation based on the hourly billing rates of its principals, but not to exceed a cumulative amount calculated at the rate of $35,000 per month for the first three months of services, $25,000 per month for the next six months of services, and $20,000 per month for each month thereafter. The Advisor is also entitled to earn incentive fees of not more than $70,000 in connection with the sale of the Mall and $25,000 upon the consummation of a merger or similar transaction involving the Trust and ART or other entities. The Trust has a property management agreement for the management of the Mall with Jones Lang LaSalle Americas, Inc. (formerly ERE Yarmouth Retail, Inc., formerly Compass Retail, Inc and formerly a wholly owned subsidiary of Lend Lease Real Estate Investments, Inc.) which has been in effect since June 1, 1990. On September 30, 1998, ERE Yarmouth Retail, Inc. was sold to LaSalle Partners Incorporated, which is not affiliated with the Trust or with Lend Lease. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K. (a) The following documents are filed as part of this report: 1. FINANCIAL STATEMENTS Balance Sheets at December 31, 1999 and 1998 Statements of Operations for the years ended December 31, 1999, 1998 and 1997 Statements of Shareholders' Deficit for the years ended December 31, 1999, 1998 and 1997 Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 Notes to financial statements 2. FINANCIAL STATEMENT SCHEDULE Schedule III: Real Estate and Accumulated Depreciation 25 All other schedules are omitted as the required information is inapplicable or the information is presented in the financial statements, or the related notes thereto. 3. EXHIBITS (2) None. (3) (a) Form of Amended and Restated Declaration of Trust, as amended. (2) (b) Trustees' Regulations, as amended. (2) (4) Form of certificate for Shares of Beneficial Interest. (1) (9) None. (10) (a) Form of Advisory Agreement between the Registrant and EQK Partners.( 1) (e) Property management agreement between Salomon Brothers Peachtree Properties Inc. and Equitable Real Estate Investment Management, Inc. with respect to Peachtree-Dunwoody Pavilion.( 1) (f) Form of property management agreement between the Registrant and Castleway Management Corp. with respect to Castleton Commercial Park.( 1) (k) Mortgage encumbering Harrisburg East Mall in favor of Continental Assurance Company and related documents.( 1) (m) Mortgage encumbering Harrisburg East Mall in favor of The Philadelphia Savings Fund Society and related documents.( 1) (n) Amended and Restated Zero Coupon Mortgage Note due December 1992 in the principal amount of $45,000,000.( 1) (o) Mortgage encumbering Harrisburg East Mall in favor of Salomon Brothers Realty Corp.( 2) (p) Mortgages encumbering Peachtree-Dunwoody Pavilion in favor of Salomon Brothers Realty Corp.( 2) (q) Mortgages encumbering Castleton Commercial Park in favor of Salomon Brothers Realty Corp.( 2) (r) Zero Coupon Mortgage Note due December 1992 in the principal 26 amount of $5,000,000.( 3) (s) Form of Amendments dated February 4, 1988 to Exhibits 10(o), 10(p) and 10(q).( 3) (t) Form of Mortgages securing 10(r).( 3) (u) First Amendment to Advisory Agreement dated as of December 31, 1989.( 4) (v) Form of property management agreement between Registrant and Compass Retail, a division of Equitable Real Estate Investment Management, Inc.( 5) (w) Agreement of sale dated June 25, 1991 between McCready and Keene, Inc. and the Registrant.( 6) (x) Agreement for release of collateral between The Prudential Insurance Company of America and the Registrant dated August 30, 1991.( 6) (y) Agreement of sale dated September 23, 1991 between the Wesleyan Church Corporation and the Registrant.( 6) (z) Agreement of sale dated June 24, 1992 between Computer Generation Incorporated and the Registrant.( 7) (aa) Purchase and Sale Agreement dated October 21, 1992 between Minneapolis Investment Associates L.P. and the Registrant( 7) (bb) Second Amended and Restated Note dated as of December 16, 1992 from the Registrant to The Prudential Insurance Company of America( 7) (cc) Cash Management and Security Agreement dated as of December 15, 1992, among the Registrant, The Prudential Insurance Company of America and First Union National Bank of Georgia ( 7) (dd) Amended and Restated Deed to Secure Debt and Security Agreement (Peachtree) dated as of December 16, 1992 by Successor Trustees of the Registrant as Debtor in favor of The Prudential Insurance Company of America as Secured Party( 7) (ee) Amended and Restated Open-End Mortgage and Security Agreement (Harrisburg) dated as of December 15, 1992 by Successor Trustees of the Registrant as Debtor in favor of The Prudential Insurance Company of America as Secured Party( 7) 27 (ff) Amended and Restated Mortgage and Security Agreement (Castleton) dated as of December 15, 1992 by the Registrant as Debtor in favor of The Prudential Insurance Company of America as Secured Party( 7) (gg) Absolute Assignment of Leases and Rents and Rental Collection Agreement (Peachtree) dated as of December 16, 1992 among Successor Trustees of the Registrant as Assignor, The Prudential Insurance Company of America as Assignee and First Union National Bank of Georgia as Rental Collection Agent( 7) (hh) Absolute Assignment of Leases and Rents and Rental Collection Agreement (Harrisburg) dated as of December 16, 1992 among Successor Trustees of the Registrant as Assignor, The Prudential Insurance Company of America as Assignee and First Union National Bank of Georgia as Rental Collection Agent( 7) (ii) Absolute Assignment of Leases and Rents and Rental Collection Agreement (Castleton) dated as of December 15, 1992 among the Registrant as Assignor, The Prudential Insurance Company of America as Assignee and First Union National Bank of Georgia as Rental Collection Agent( 7) (jj) Warrant Agreement dated as of December 18, 1992 between the Registrant and The Prudential Insurance Company of America ( 7) (kk) Subordination and Intercreditor Agreement dated as of December 16, 1992 among Provident National Bank, The Prudential Insurance Company of America and the Registrant ( 7) (ll) Second Amended and Restated Loan Agreement dated as of December 16, 1992 from the Registrant to Provident National Bank( 7) (mm) Amended and Restated Note dated as of December 16, 1992 from the Registrant to Provident National Bank( 7) (nn) Mortgage and Security Agreement (Castleton) dated as of December 16, 1992 between the Registrant and Provident National Bank (7) (oo) Deed to Secure Debt and Security 28 Agreement (Peachtree) dated as of December 16, 1992 between the Registrant and Provident National Bank( 7) (pp) Open-End Mortgage and Security Agreement (Harrisburg) dated as of December 16, 1992 between the Registrant and Provident National Bank( 7) (qq) Assignment of Lessor's Interest in Leases (Castleton) dated as of December 16, 1992 between the Registrant and Provident National Bank( 7) (rr) Assignment of Lessor's Interest in Leases (Peachtree) dated as of December 16, 1992 between the Registrant and Provident National Bank( 7) (ss) Assignment of Lessor's Interest in Leases (Harrisburg) dated as of December 16, 1992 between the Registrant and Provident National Bank( 7) (tt) Assignment of Cash Collateral Account and Security Agreement dated as of December 16, 1992 between the Registrant and Provident National Bank( 7) (uu) Purchase and Sale Agreement dated July 6, 1993 between Lawrence E. Cooper and the Registrant(8) (vv) Amendment dated October 1, 1993 to Exhibit 10(cc)(8) (ww) Amendment dated December 3, 1993 to Exhibits 10(ll) and 10(mm)(8) (xx) Purchase Agreement for Real Property and Escrow Instructions (9) (yy) Note, Mortgage, and Modification agreement dated December 15, 1995 between the Registrant and The Prudential (10) Insurance Company of America (zz) Mutual Estoppel and Modification Agreement dated December 15, 1995 between the Registrant and The Prudential Insurance Company of America (10) (aaa) Amended Mutual Estoppel and Modification Agreement dated December 15, 1995 between the Registrant, PNC Bank, National Association, and The Prudential Insurance Company of America (10) (bbb) Extension and Partial Paydown of loan from PNC Bank National Association, dated December 15, 1995 to EQK Investors I (10) 29 (ccc) Second Amendment to Second Amended and Restated Loan Agreement from PNC Bank National Association dated December 15, 1996 (11) (ddd) Third Amended and Restated Note from PNC Bank National Association dated December 15, 1996 (11) (eee) First Amended Note, Mortgage and Note Modification Agreement from the Prudential Insurance Company of America dated December 15, 1996 (11) (fff) Mutual Estoppel and Modification Agreement dated December 15, 1996 between the Registrant and the Prudential Insurance Company of America and PNC Bank National Association (11) (ggg) Agreement and Plan of Merger dated December 23, 1997 by and among the Registrant , American Realty Trust Inc., ART Newco, LLC, Basic Capital Management, Inc., Equitable Realty Portfolio Management Inc., and Compass Retail, Inc. (12). (hhh) Cost Sharing Agreement dated July 9, 1997 between the Registrant and American Realty Trust (12). (iii) Agreement between EQK Realty Investors I and Prudential Insurance Company of America dated April 9, 1998 (13). (jjj) Amended and Restated Agreement and Plan of Merger dated August 25, 1998 by and among the Registrant, American Realty Trust, Inc., ART Newco, LLC, Basic Capital Management, Inc., EQK Realty Investors I, and Lend Lease Portfolio Management, Inc. (13) (kkk) Agreement between EQK Realty Investors I and Prudential Insurance Company of America dated April 8, 1998 (14) (lll) Third Amendment to Second Amended and Restated Loan Agreement from PNC Bank National Association dated June 15, 1998 (14) (mmm) Fourth Amended and Restated Note from PNC Bank Association dated June 15, 1998 (14) (nnn) Mutual Estoppel and Modification Agreement dated June 15, 1998 between the Registrant and the Prudential Insurance Company of America and PNC Bank National Association (14) (ooo) Disclosure for Confession of Judgment from PNC Bank National Association dated June 15, 1998 (14) (ppp) Agreement between EQK Realty Investors I and Prudential Insurance Company of America dated November 30, 1998 (14) (qqq) Fourth Amendment to Second Amended and Restated Loan Agreement from PNC Bank National Association dated December 15, 1998 (14) (rrr) Fifth Amended and Restated Note from PNC Bank Association dated December 15, 1998 (14) (sss) Mutual Estoppel and Modification Agreement dated December 15, 1998 between the Registrant and the Prudential Insurance Company of America and PNC Bank National Association (14) (ttt) Disclosure for Confession of Judgment from PNC Bank National Association dated December 15, 1998 (14) (uuu) First Amendment to Amended and Restated Agreement and Plan of 30 Merger by among the Registrant, American Realty Trust, Inc., ART Newco, LLC, Basic Capital Management, Inc., EQK Realty Investors I, and Lend Lease Portfolio Management, Inc. (15) (vvv) Agreement between EQK Realty Investors I and Prudential Insurance Company of America dated June 14, 1999. (16) (www) Fifth Amendment to Second Amended and Restated Loan Agreement from PNC Bank National Association dated June 15, 1999. (16) (xxx) Sixth Amended and Restated Note from PNC Bank National Association dated June 15, 1999. (16) (yyy) Mutual Estoppel and Modification Agreement dated June 15, 1999 between the Registrant and the Prudential Insurance Company of America and PNC Bank Association. (16) (zzz) Disclosure for Confession of Judgment from PNC Bank National Association dated June 15, 1999. (16) (aaaa) EQK Realty Investors I Incumbency Certificate dated June 15, 1999 (16) (bbbb) First Amendment to Amended and Restated Agreement and Plan of Merger by and among the Registrant, American Realty Trust, Inc., ART Newco, LLC, Basic Capital Management, Inc., EQK Realty Investors I, and Lend Lease Portfolio Management, Inc. (17) (cccc) Advisory Agreement between the Registrant and Newleaf Corporation dated as of January 18, 2000 (dddd) Agreement for brokerage services between the Registrant and Granite Partners, L.L.C. dated February 17, 2000 (11) See Note 2 to the Financial Statements. (12) Inapplicable. (13) Inapplicable. (16) Inapplicable. (18) Inapplicable. (21) Inapplicable. (22) Inapplicable. (23) Inapplicable. (24) Inapplicable. (27) Financial Data Schedule. (28) Inapplicable. - -------------- (1) Incorporated herein by reference to exhibit filed with Registrant's Registration Statement on Form S-11, File No. 2-93936. (2) Incorporated herein by reference to exhibit filed with Registrant's Form 10-K dated for fiscal year ended December 31, 1985. (3) Incorporated herein by reference to exhibit filed with Registrant's Form 10-K dated for fiscal year ended December 31, 1987. 31 (4) Incorporated herein by reference to exhibit filed with Registrant's Form 10-K for fiscal year ended December 31, 1989. (5) Incorporated herein by reference to exhibit filed with Registrant's Form 10-K for fiscal year ended December 31, 1990. (6) Incorporated herein by reference to exhibit filed with Registrant's Form 10-K for fiscal year ended December 31, 1991. (7) Incorporated herein by reference to exhibit filed with Registrant's Form 10-K for fiscal year ended December 31, 1992. (8) Incorporated herein by reference to exhibit filed with Registrant's Form 10-K for fiscal year ended December 31, 1993. (9) Incorporated herein by reference to exhibit filed with Registrant's Form 8-K dated November 22, 1995. (10) Incorporated herein by reference to exhibit filed with Registrant's Form 10-K for fiscal year ended December 31, 1995. (11) Incorporated herein by reference to exhibit filed with Registrant's Form 10-K for fiscal year ended December 31, 1996. (12) Incorporated herein by reference to exhibit filed with Registration Statement on January 6, 1998 on Form S-4 filed by American Realty Trust, Inc. (Registration Statement Number 333-43777) (13) Incorporated herein by reference to exhibit filed with Registration Statement on September 3, 1998 on Amendment #2 to form S-4 filed by American Realty Trust, Inc. (Registration Statement Number 333-43777) (14) Incorporated herein by reference to exhibit filed with Registrant's Form 10-K for fiscal year ended December 31, 1998. (15) Incorporated herein by reference to exhibit 99.8 filed with Registration Statement on April 23, 1999 on Amendment #5 to form S-4 filed by American Realty Trust, Inc. (Registration Statement Number 333-43777). (16) Incorporated herein by reference to exhibit filed with Registrant's Form 10-Q for the quarterly period ended June 30, 1999. (17) Incorporated herein by reference to exhibit filed with Registration Statement on July 1, 1999 on Amendment #7 to form S-4 filed by American Realty Trust, Inc. (Registration Statement Number 333-43777). 32 - --------------- (b) Reports on Form 8-K A Report on Form 8-K was filed by the Trust on December 29, 1999 regarding its filing of a voluntary petition for reorganization in the United States Bankruptcy Court for the Middle District of Pennsylvania on December 14, 1999. (c) See paragraph (a) 3. above (d) See paragraph (a) 2. above 33 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 5th day of June, 2000. EQK Realty Investors I By: /s/LLOYD T. WHITAKER -------------------------------- LLOYD T. WHITAKER PRESIDENT (PRINCIPAL EXECUTIVE OFFICER) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on June 5, 2000 by the following persons on behalf of the Registrant and in the capacities indicated. SIGNATURES TITLE - ---------- ----- /s/LLOYD T. WHITAKER President (Principal Executive Officer) - ------------------------------- Lloyd T. Whitaker /s/DAVID H. CRUMPTON Vice President (Principal Financial and - ------------------------------- Accounting Officer) and Secretary David H. Crumpton /s/SYLVAN M. COHEN Trustee - ------------------------------- Sylvan M. Cohen /s/ALTON G. MARSHALL Trustee - ------------------------------- Alton G. Marshall /s/GEORGE R. PEACOCK Trustee - ------------------------------- George R. Peacock /s/ROBERT C. ROBB, JR. Trustee - ------------------------------- Robert C. Robb, Jr. /s/PHILLIP E. STEPHENS Trustee - ------------------------------- Phillip E. Stephens 34 EQK REALTY INVESTORS I BALANCE SHEETS (In thousands, except share data)
December 31, December 31, 1999 1998 ------------ ---------- ASSETS (UNAUDITED-- SEE NOTE1) Real estate held for sale $ 40,030 $ 39,360 Cash and cash equivalents: Restricted cash, held in escrow under Cash Management Agreement 3,360 3,390 Operating cash 606 471 Accounts receivable and other assets (net of allowance of $5 and $67, respectively) 1,531 1,881 ------------ ---------- TOTAL ASSETS $ 45,527 $ 45,102 ============ ========== LIABILITIES AND DEFICIT IN SHAREHOLDERS' EQUITY Liabilities: Mortgage note principal payable $ 43,794 $ 43,794 Term loan principal payable 1,570 1,580 Accrued interest on mortgage note and term loan 3,641 167 Accounts payable and other liabilities (including amounts due to Lend Lease of $3,143 and $3,069, respectively) 4,333 4,393 ------------ ---------- 53,338 49,934 ============ ========== Commitments and Contingencies (Note 7) Deficit in Shareholders' Equity: Shares of beneficial interest, without par value: 10,055,555 shares authorized, 9,632,212 shares issued and outstanding in 1999 and 1998 135,875 135,875 Accumulated deficit (143,686) (140,707) ------------ ---------- (7,811) (4,832) ------------ ---------- TOTAL LIABILITIES AND DEFICIT IN SHAREHOLDERS' EQUITY $ 45,527 $ 45,102 ============ ==========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS 35 EQK REALTY INVESTORS I STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Years Ended December 31, 1999 1998 1997 - --------------------------------------------------------------------- (UNAUDITED-- SEE NOTE1) Revenues from rental operations $ 6,150 $ 6,191 $ 6,158 Operating expenses, net of tenant reimbursements 1,063 769 1,083 Depreciation and amortization 0 588 2,181 - --------------------------------------------------------------------- Income from rental operations 5,087 4,834 2,894 Interest expense 7,564 4,219 4,397 Other expenses, net of interest income 502 465 458 - --------------------------------------------------------------------- Net income (loss) ($2,979) $ 150 ($1,961) ===================================================================== Net income (loss) per share ($ 0.31) $ 0.02 ($ 0.21) =====================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS 36 EQK REALTY INVESTORS I STATEMENTS OF SHAREHOLDERS' DEFICIT
Number of Shares of Shares Issued Beneficial Accumulated and Outstanding Interest Deficit Total - -------------------------------------------------------------------------------- (In thousands, except share data) Balance, December 31, 1996 9,264,344 $ 135,875 ($138,896) ($3,021) - -------------------------------------------------------------------------------- Net loss -- -- (1,961) (1,961) Balance, December 31, 1997 9,264,344 135,875 (140,857) ($4,982) - -------------------------------------------------------------------------------- Shares Issued 367,868 -- -- -- Net income -- -- 150 150 Balance, December 31, 1998 9,632,212 135,875 (140,707) ($4,832) - -------------------------------------------------------------------------------- (Unaudited--see Note1) Net loss -- -- (2,979) (2,979) Balance, December 31, 1999 9,632,212 $ 135,875 ($143,686) ($7,811) ================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS 37 EQK REALTY INVESTORS I STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Years ended December 31, 1999 1998 1997 - --------------------------------------------------------------------------------------------- (UNAUDITED-- SEE NOTE1) Cash flows from operating activities: Net income (loss) ($2,979) $ 150 ($1,961) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, amortization and property write-off (48) 588 2,181 Amortization of deferred financing costs 71 186 351 Changes in assets and liabilities: Increase (decrease) in accounts payable, other liabilities and accrued interest 3,414 252 198 (Increase) decrease in accounts receivable and other assets 279 421 (537) - --------------------------------------------------------------------------------------------- Net cash provided by operating activities 737 1,597 232 - --------------------------------------------------------------------------------------------- Cash flows from investing activities: Additions to real estate investments (622) (652) (546) - --------------------------------------------------------------------------------------------- Net cash used in investing activities (622) (652) (546) - --------------------------------------------------------------------------------------------- Cash flows from financing activities: Scheduled repayments of debt (10) (5) -- Payment of deferred financing costs -- (402) (24) - --------------------------------------------------------------------------------------------- Net cash used in financing activities (10) (407) (24) - --------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 105 538 (338) Cash and cash equivalents beginning of year 3,861 3,323 3,661 - --------------------------------------------------------------------------------------------- Cash and cash equivalents end of year $ 3,966 $ 3,861 $ 3,323 ============================================================================================= Supplemental disclosure of cash flow information: Interest paid $ 4,019 $ 4,058 $ 4,022 =============================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS 38 EQK REALTY INVESTORS I NOTES TO FINANCIAL STATEMENTS NOTE 1: DESCRIPTION OF BUSINESS EQK Realty Investors I, a Massachusetts business trust (the "Trust"), was formed pursuant to an Amended and Restated Declaration of Trust dated February 27, 1985, as amended on March 5, 1986, to acquire certain income-producing real estate investments. Commencing with the period beginning April 1, 1985, the Trust qualified for and elected real estate investment trust ("REIT") status under the applicable provisions of the Internal Revenue Code. On December 14, 1999, the Trust filed a voluntary petition in the United States Bankruptcy Court for the Middle District of Pennsylvania (the "Bankruptcy Court") because the Trust was unable to repay certain mortgage indebtedness upon the December 15, 1999 expiration date of forbearance and extension agreements with its lenders. The Trust is now operating as a "debtor-in-possession" pursuant to Chapter 11 of the U.S. Bankruptcy Code. On April 10, 2000, the Trust and the Mortgage Note Lender (as hereinafter defined) filed a Joint Plan of Reorganization in the Bankruptcy Court. At December 31, 1999 and 1998, the Trust's remaining real estate investment is Harrisburg East Mall (the "Mall"), a regional shopping center in Harrisburg, Pennsylvania, which is currently being actively marketed and held for sale. The Declaration of Trust provides for the Trust's existence and a maximum holding period for its real estate investments of 14 years. The Declaration of Trust further provides that this 14-year term may be extended by up to two years upon the recommendation of the Trustees and the affirmative vote of a majority of its shareholders. At a Special Meeting of Shareholders on February 23, 1999, the shareholders approved a two-year extension of the Trust's life from its initial maturity date of March 5, 1999 to March 5, 2001. Effective December 23, 1997, the Trust entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which an affiliate of American Realty Trust, Inc. ("ART") agreed to merge with and into the Trust (the "Merger"), with the Trust being the surviving entity. The Merger contemplated, among other things, a 20-year extension of the life of the Trust. The Merger Agreement was amended on August 25, 1998 and further amended on April 22, 1999 and June 4, 1999, (the "Revised Merger Agreement") to provide for, among other matters, the right of the Trust to sell the Mall and distribute proceeds of such sale to the Trust's shareholders prior to completing the Merger and a corresponding reduction in the Merger consideration to be paid to the Trust's shareholders. The Revised Merger Agreement provided for Merger consideration to be comprised entirely of ART Series F Cumulative Convertible Preferred Stock with a par value of $2.00 per share and a liquidation value of $10.00 per share (the "ART Preferred Shares"). The Revised Merger Agreement provided for the Merger to be effected by (i) ART's acquisition of 4,376,056 Shares held by four EQK shareholders (the "Selling Shareholders") and (ii) ART's receipt of 673,976 shares newly issued by the Trust (which, together with Shares currently outstanding, constitutes 39 EQK REALTY INVESTORS I NOTES TO FINANCIAL STATEMENTS "EQK Shares"), the combined effect of which would give ART an approximate 49% interest in EQK. The Selling Shareholders would receive for each EQK Share sold 0.030 of an ART Preferred Share with a corresponding liquidation value of $0.30 per EQK Share sold. The remaining shareholders would be entitled to retain their Shares at the time of the Merger, but would be compensated for the dilution in their percentage ownership interest through the receipt of 0.014 of an ART Preferred Share with a corresponding liquidation value of $0.14 per EQK Share held. In addition, ART intended (but was not legally obligated) to acquire the remaining EQK Shares from such other shareholders at some time after the third anniversary of the consummation of the Merger for not less than 0.0486 of an ART Preferred Share with a liquidation value of $0.486 for each EQK Share tendered. According to the terms of the Revised Merger Agreement, upon completion of the sale of the Mall and receipt of shareholder approval, the Merger would be completed. Because the Merger was not completed by December 15, 1998, the Revised Merger Agreement became terminable by either ART or the Trust.. In view of the Trust's bankruptcy filing, the Trust will not be able to consummate the Merger in accordance with the terms of the Revised Merger Agreement nor to make any distributions to its shareholders without Bankruptcy Court approval. Although management has had continuing discussions with representatives of ART on terms and conditions of a transaction with ART and/or its affiliates, no assurances can be provided that a new agreement will be reached, or if reached, would be approved by the Bankruptcy Court. See "Note 7-Commitments and Contingencies." Trading in the Trust's Shares on the New York Stock Exchange ("NYSE") terminated on May 4, 1998, as the Trust did not meet the NYSE's continued listing criteria. The Trust's Shares are currently traded on the OTC Bulletin Board System. The Trust's financial statements for 1998 and 1997 were previously audited by Deloitte & Touche LLP ("Deloitte") which served as the Trust's independent accountants. In March 2000, the Trust filed an application in the Bankruptcy Court for authority to employ Deloitte as its independent accountants, including serving as auditors of its 1999 financial statements. Certain parties in interest filed objections in the Bankruptcy Court to such employment, and Deloitte subsequently requested that the Trust withdraw its application to retain Deloitte. On May 18, 2000, the Trust filed a praecipe to withdraw the Deloitte employment application. Accordingly, Deloitte has ceased acting as the Trust's independent public accountants, and the 1999 financial statements are unaudited. Furthermore, the Trust has not received a currently dated auditors' report with respect to the financial statements for 1998 and 1997 that were previously audited by Deloitte. 40 EQK REALTY INVESTORS I NOTES TO FINANCIAL STATEMENTS NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CAPITALIZATION, DEPRECIATION AND AMORTIZATION Property additions are recorded at cost. Costs directly associated with major renovations and improvements, including interest on funds borrowed to finance construction, are capitalized to the point of substantial completion. Costs incurred in connection with the execution of a new lease including leasing commissions and costs associated with the acquisition or buyout of existing leases and related legal fees are deferred and amortized over the term of the new lease. Until April 1, 1998, depreciation of real estate investments was provided on a straight-line basis over the estimated useful lives of the related assets, ranging generally from 5 to 40 years. Tenant improvements were amortized over their estimated useful lives, which did not exceed the terms of the respective tenant leases. Intangible assets were amortized on a straight-line basis over their estimated useful lives. The Trust discontinued recording depreciation and amortization expense on its investment in real estate when the investment was classified as "real estate held for sale" on April 1, 1998. Deferred financing costs are included in accounts receivable and other assets on the Balance Sheets. Deferred financing costs are amortized over the life of the related debt and such amortization is included in interest expense on the Statements of Operations. VALUATION OF REAL ESTATE At December 31, 1999 and 1998, the investment in real estate was recorded at cost less accumulated depreciation through April 1, 1998. In accordance with Statement of Financial Accounting Standards No.121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF," the Trust considers, on a quarterly basis, whether events or changes in circumstances indicate that the carrying amount of its real estate investment may not be recoverable based on estimates of future undiscounted cash flows without interest expense. In the event such projected undiscounted future cash flows should be less than the depreciated cost of the property, the investment in real estate would be written down to its estimated fair market value. REVENUE RECOGNITION Minimum rents are recognized on a straight-line basis over the term of the related leases. Percentage rents, which are earned based on specified percentages of tenants' sales, are recognized on an accrual basis. NET INCOME (LOSS) PER SHARE The net income (loss) per Share calculation is based on the weighted average number of Shares outstanding during the year, which was 9,632,212 for 1999, 9,505,222 for 1998 and 9,264,344 41 EQK REALTY INVESTORS I NOTES TO FINANCIAL STATEMENTS for 1997. On March 19, 1998, The Prudential Insurance Company of America (the "Mortgage Note Lender") exercised warrants issued in 1992 for 367,868 Shares of the Trust at $.0001 per Share. (See Note 3.) Such Shares were issued to the Mortgage Note Lender on May 7, 1998, increasing the total number of issued and outstanding Shares of the Trust to 9,632,212. As such, these Shares were included in the net income per share calculation for 1999 and 1998. In 1997, the warrants, which were considered common share equivalents, were not included in the net loss per Share calculation since the effect on such calculation was anti-dilutive. INCOME TAXES The Trust has complied with all applicable provisions established by the Internal Revenue Code for maintaining its REIT status. Accordingly, no income tax provision or benefit has been recognized in the accompanying financial statements. CASH EQUIVALENTS Cash equivalents include short-term investments with a maturity of three months or less. FAIR VALUES OF FINANCIAL INSTRUMENTS The Trust values its financial instruments as required by Statement of Financial Accounting Standards No. 107, "DISCLOSURE ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS". Based on rates currently available to the Trust for comparable financial instruments, the Trust believes the carrying amounts of cash and cash equivalents, the Mortgage Note and the Term Loan approximate fair value. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current year presentation. MANAGEMENT ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 3: MORTGAGE DEBT AND RESTRUCTURING ACTIVITIES The Trust has a "Mortgage Note" obligation with the Mortgage Note Lender, which had an original maturity date of December 15, 1995. The principal balance of the Mortgage Note as of December 31, 1999 and 1998 was $43,794,000. The stated terms of the Mortgage Note provide 42 EQK REALTY INVESTORS I NOTES TO FINANCIAL STATEMENTS for monthly payments of interest only accruing at the rate of 8.88% per annum ($324,000 per month). As part of a 1992 debt restructuring, the Trust entered into a Cash Management Agreement with the Mortgage Note Lender and assigned all lease and rental receipts to the Mortgage Note Lender as additional collateral. Pursuant to this agreement, a third-party escrow agent was appointed to receive all rental payments from tenants, to deposit such funds in a cash collateral account, and to fund monthly operating expenses in accordance with a budget approved by the Mortgage Note Lender. The Cash Management Agreement also provides for the establishment of a capital reserve account, which is maintained by the escrow agent. Disbursements from this account, which is funded each month from any excess operating cash flow, are limited to capital expenditures approved by the Mortgage Note Lender. As of December 31, 1999, the third-party escrow agent held, in trust, cash balances of $2,322,000 in the cash collateral account and $1,037,000 in the capital reserve account. Under the terms of the 1992 debt restructuring transactions, the Mortgage Note Lender received warrants to purchase 367,868 Shares of the Trust at $.0001 per share. The Mortgage Note Lender exercised the warrants in 1998 and owns 367,868 of the Trust's Shares at December 31, 1999 and 1998. (See Note 2.) The Trust also has a "Term Loan" obligation with PNC Bank N.A. ("Term Loan Lender") in place since December 15, 1992, which had an original principal balance of $2,859,000. The Term Loan is collateralized by a subordinate lien on the Mall. The principal balance of the Term Loan was $1,570,000 and $1,580,000, respectively, as of December 31, 1999 and 1998. The stated terms of the Term Loan provide for an annual pay rate of 8.88%, but an annual accrual interest at a rate that re-sets periodically. The accrual interest rate is computed at the Trust's discretion at either 2 5/8% above the Euro-Rate (as defined) or 1 1/8% above the Prime Rate (as defined). The accrual rate in effect as of March 15, 2000 was 8.90%. The excess of the interest accrued over the interest paid is included in the principal balance of the Term Loan in the accompanying Balance Sheets. EXTENSIONS OF DEBT The Trust's Mortgage Note Lender and Term Loan Lender agreed to extensions of the maturity dates of the loans through June 15, 1998. Following the June 15, 1998 scheduled maturity date, the Mortgage Note Lender granted three six-month forbearance arrangements (through December 15, 1998, then through June 15, 1999, and then through December 15, 1999) wherein it agreed not to exercise remedies for non-payment of the outstanding principal balance. The Term Loan Lender also granted three six-month extensions of its maturity dates so as to coincide with such forbearance periods. The forbearance and extension arrangements were conditioned upon, among other things, the Trust continuing to make timely debt service payments in monthly amounts equal to those amounts stipulated in prior debt extension agreements, as set forth below. In consideration for the extension of the maturity date of the Mortgage Note through June 15, 1998, the Trust paid an up-front application fee of $165,000 and agreed to pay a back-end fee 43 EQK REALTY INVESTORS I NOTES TO FINANCIAL STATEMENTS of $272,900, plus interest thereon at the contract rate of 8.88% at maturity. On June 15, 1998, the Trust paid the back-end fee plus interest in the aggregate amount of $309,200 to the Mortgage Note Lender. In consideration for the extension of the maturity date of the Term Loan the Trust agreed to pay an extension fee of $23,800 in 1997 and paid additional loan fees of $88,100 to the Term Loan Lender on June 15, 1998. In consideration for the extension of the forbearance agreement relating to the Mortgage Note through June 15, 1999 and December 15, 1999, the Trust paid extension fees of $25,000 for each extension. In consideration for the extension of the maturity date of the Term Loan through June 15, 1999 and December 15, 1999, the Trust paid extension fees of $8,000 and $15,700, respectively. The Trust's expiration date of its final forbearance and extension arrangements was December 15, 1999. Inasmuch as the Trust was unable to obtain from its lenders additional forbearance and extension arrangements on economically acceptable terms, the Trust filed a voluntary bankruptcy petition on December 14, 1999. The Mortgage Note Lender has asserted that it is entitled to be paid interest at the default rate (which is 5.04% in excess of the stated 8.88% stated rate) for all periods following June 15, 1998, due to the Trust's failure to pay the Mortgage Note on the December 15, 1999, expiration date of the forbearance agreement. The Term Loan Lender may assert that it is likewise entitled to default rate interest at 5.00% in excess of the stated Term Loan Rate from the December 15, 1999, extended maturity date of the Term Loan. Accordingly, the Trust has recorded accrued and unpaid interest in the Balance Sheet as of December 31, 1999, at amounts which include $3,467,000 for the accrual of default rate interest for such periods. The Trust has been advised that it may have defenses to the Mortgage Note Lender's claim for default rate interest for all periods prior to December 15, 1999. There can, however, be no assurance that any such defenses would be successful. NOTE 4: LEASING ARRANGEMENTS The Trust leases shopping center space in the Mall generally under non-cancelable operating leases, some of which contain renewal options. The shopping center leases generally provide for minimum rentals, plus percentage rentals based upon specified percentages of the tenant retail store sales. Percentage rentals amounted to $245,000, $272,000, and $122,000 for the years ended December 31, 1999, 1998, and 1997, respectively. In addition, the tenants pay certain utility charges to the Trust. In most leases, tenants reimburse their proportionate share of real estate taxes and common area expenses. Recoveries of common area and real estate tax expenses amounted to $2,591,000, $2,418,000, and $2,299,000 for the years ended December 31, 1999, 1998, and 1997, respectively. 44 EQK REALTY INVESTORS I NOTES TO FINANCIAL STATEMENTS Future minimum rentals under existing, non-cancelable leases at December 31, 1999, are as follows:
YEARS ENDING DECEMBER 31, AMOUNT ------------------------- ------------- 2000 $4,804,000 2001 4,051,000 2002 3,649,000 2003 3,326,000 2004 2,796,000 Thereafter 7,457,000 ------------- $ 26,083,000 =============
The Limited Inc. operates seven stores at the Mall. Revenues from these tenants represented approximately 13.7%, 14.2% and 13.0% of the Mall's total revenues in 1999, 1998 and 1997, respectively. No other individual tenant, or group of affiliated tenants, contributed more than 10% to the Mall's total revenues in any of the three years in the period ended December 31, 1999. Prior to 1998, due to the temporary closure of two of the anchor stores operating at the Mall, certain tenants exercised the right, as provided for under co-tenancy provisions set forth in their respective leases, to pay percentage rent in lieu of fixed minimum rents which amounted to $228,000 for the years ended December 31, 1997. The rental payment obligations of substantially all of these tenants reverted back to fixed minimum rent upon the March 10, 1997 opening of a Lord & Taylor department store at the Mall. NOTE 5: ADVISORY AND MANAGEMENT AGREEMENTS ADVISORY AGREEMENTS Lend Lease Portfolio Management, Inc. ("Lend Lease" and formerly ERE Yarmouth Portfolio Management, Inc.), a wholly owned subsidiary of Lend Lease Real Estate Investments, (formerly ERE Yarmouth, Inc.) served as advisor to the Trust from the Trust's inception until the termination of its advisory agreement on December 13, 1999. The advisor makes recommendations to the Trust concerning investments, administration and day-to-day operations. As of December 31, 1989, the payment of portfolio management fees of $5,440,000 payable to Lend Lease had been deferred in accordance with subordination provisions contained in the original advisory agreement. Pursuant to the amended advisory agreement, Lend Lease forgave one-half, or $2,720,000, of the deferred balance. The remaining deferred fees of $2,720,000 were intended to be paid upon the disposition of the Trust's remaining property, the Mall. Under the terms of the advisory agreement with Lend Lease, as amended in December 1989, 45 EQK REALTY INVESTORS I NOTES TO FINANCIAL STATEMENTS Lend Lease was entitled to a management fee based on the average daily per share price of the Trust's shares plus the average daily balance of outstanding mortgage indebtedness. Such fee was calculated using an annual factor of 42.5 basis points (0.425%) and generally was payable monthly. Inasmuch as the Shares of the Trust ceased to be traded on a market with readily available market values on May 4, 1998, the Trustees agreed on stipulated per Share values to be used for purposes of calculating the portfolio management fee. These stipulated per share values were $0.75 per share for the period of May 4, 1998 through December 31, 1998, $0.37 per share for the period January 1, 1999 through June 30, 1999, and $0.15 per share for the period July 1, 1999 through the December 13, 1999 termination date of the Lend Lease advisory agreement with the Trust. Commencing with a December, 1995 extension of mortgage debt, the Mortgage Note Lender requested, and the Advisor agreed to, a partial deferral of payment of its fee. Although the fee continued to be accrued and computed in accordance with the formula described above, cash payments to Lend Lease were limited to $37,500 per quarter. These additional deferred fees were intended to be paid to Lend Lease upon the repayment of the Mortgage Note. In addition to the foregoing, Lend Lease earned a refinancing fee of $50,000 in connection with a December, 1996 extension of debt, which fee does not become payable until the retirement of the Trust's mortgage debt. For the years ended December 31, 1999, 1998 and 1997, accrued portfolio management fee expense to Lend Lease amounted to $186,195, $232,000, and $242,000, respectively. The aggregate amount of all refinancing and advisory fees due to Lend Lease at December 31, 1999, including all deferred amounts, was $3,142,741. The liability for these fees is included in "accounts payable and other liabilities" on the Balance Sheets, and the Trust has treated this amount as a general unsecured claim in the Trust's bankruptcy proceeding. On December 13, 1999, the Trust entered into an Advisory Agreement with Gregory Greenfield & Associates, Ltd. ("Greenfield"). Certain parties in interest raised objections to Greenfield's appointment as advisor in connection with the Trust's bankruptcy proceedings due to prior relationships between the Trust and principals of Greenfield who had previously been officers of the Trust and Lend Lease. As a consequence, Greenfield resigned as the Trust's advisor effective January 18, 2000. Greenfield was paid cash compensation of $25,000 for its advisory services. Effective January 18, 2000, Newleaf Corporation was appointed as the Trust's Advisor pursuant to an Advisory Agreement dated January 18, 2000 and an order of the Bankruptcy Court entered January 25, 2000. The Newleaf Advisory Agreement provides for the Advisor to receive monthly cash compensation based on the hourly billing rates of its principals, but not to exceed a cumulative amount calculated at the rate of $35,000 per month for the first three months of services, $25,000 per month for the next six months of services, and $20,000 per month for each month thereafter. The Advisor is also entitled to earn incentive fees of not more than $70,000 46 EQK REALTY INVESTORS I NOTES TO FINANCIAL STATEMENTS in connection with the sale of the Mall and $25,000 upon the consummation of a merger or similar transaction involving the Trust and ART or other entities. PROPERTY MANAGEMENT AGREEMENTS The Trust has a property management agreement with Jones Lang LaSalle Americas, Inc. (the "Manager" and formerly ERE Yarmouth Retail, Inc., formerly Compass Retail, Inc. and formerly a wholly-owned subsidiary of Lend Lease Real Estate Investments, Inc.), for the on-site management of the Mall. On September 30, 1998, Lend Lease Real Estate Investments, Inc. sold the Manager to LaSalle Partners, Incorporated ("LaSalle"), which is not affiliated with the Trust or Lend Lease. Management fees paid to the Manager are generally based upon a percentage of rents and certain other charges. The Manager earned management fees of $302,000, $316,000, and $307,000 for the respective years ended December 31, 1999, 1998 and 1997. NOTE 6: SHARE OWNERSHIP In connection with a debt restructuring in December 1992, the Trust issued 1,675,000 previously repurchased Shares to Lend Lease for $6,700,000, or $4.00 per Share. In total at December 31, 1999 and 1998, Lend Lease owned 1,685,556 Shares, or 17.5% of the total Shares outstanding. The Trust has available for re-issuance an additional 423,343 shares previously repurchased. Any issuance of shares in excess of the shares previously repurchased would require Bankruptcy Court approval and possibly shareholder approval. NOTE 7: COMMITMENTS AND CONTINGENCIES On February 3, 1998, the Trust, its trustees, and its Advisor were named as defendants in a purported class action complaint filed by a shareholder in Massachusetts State court. The complaint sought to enjoin the Merger and also sought other relief including unspecified damages. This complaint was dismissed without prejudice in 1999. Counsel for ART has indicated that ART has claims against the Trust arising from the purported termination of the Revised Merger Agreement, and in connection therewith, ART has filed a proof of claim in the Trust's bankruptcy proceedings in the amount of $2,162,000. NOTE 8: JOINT PLAN OF REORGANIZATION On April 10, 2000, the Trust and the Mortgage Note Lender filed a Joint Plan of Reorganization (the "Plan") in the Bankruptcy Court. The Plan provides for the allowance of a secured claim of the Mortgage Note Lender in the amount of approximately $47,478,000 plus legal fees, which amount includes accrued and unpaid interest of approximately $3,360,000 calculated at the default rate from June 15, 1998 to the December 14, 1999 bankruptcy petition date. The Plan further provides that the Mortgage Note Lender will waive its entitlement to default rate interest if, by certain specified dates in July, 2000: (a) a Plan confirmation order is entered by the 47 EQK REALTY INVESTORS I NOTES TO FINANCIAL STATEMENTS Bankruptcy Court or the Mall is sold pursuant to order of the Bankruptcy Court; (b) the general unsecured creditors (including Lend Lease) and the Term Loan Lender vote to accept the Plan; and (c) the closing of a sale of the Mall takes place or the Mortgage Note Lender is conveyed title to the Mall. Upon the closing of the sale or conveyance of the Mall, the Plan provides that the Mortgage Note Lender will receive payment of its secured claim first from the restricted cash accounts held in trust by the escrow agent pursuant to the Cash Management Agreement and secondly from the sales proceeds of the Mall. The Trust will deliver to an escrow agent a deed in lieu of foreclosure in favor of the Mortgage Note Lender which shall be released only in the event of a default by the Trust under the terms of the Plan or the Trust's failure to meet certain July, 2000, payment deadlines (unless extended). If the proceeds from the proposed sale of the Mall are sufficient to pay all of the Trust's claims in full, the Plan provides that the Mortgage Note Lender will be entitled to a $200,000 administrative and forbearance fee. Under the Plan, the Term Loan Lender will be paid its secured claim from the proceeds remaining from the sale of the Mall, after payment of the Mortgage Note. To the extent that the Term Loan is not paid in full from such proceeds, then the deficiency will be treated as a general unsecured claim. General unsecured claims will share pro rata in the Trust's remaining funds after payment of administrative expenses, certain priority tax claims, and secured claims; provided, however, the Mortgage Note Lender has agreed to fund up to $750,000 for the payment of general unsecured claims under certain conditions. The Shareholders of the Trust would retain their shares in accordance with the Declaration of Trust and in accordance with any treatment which might be set forth in any plan of merger which might be negotiated with ART or other entities. 48 NOTE 9: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of selected quarterly financial data for the years ended December 31, 1999 and 1998:
QUARTER ENDED ----------------------------------------------------------------- 1999 MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, ---- --------- -------- ------------- ------------ (in thousands, except per share amounts) Revenues from rental operations $ 1,612 $ 1,519 $ 1,454 $ 1,565 Income from rental operations 1,479 1,164 1,322 1,122 Net income (loss) (1) (2) 347 42 179 (3,547) Net income (loss) per share (2) .04 .00 .02 (.37)
QUARTER ENDED ---------------------------------------------------------------- 1998 MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, ---- --------- -------- ------------- ------------ (in thousands, except per share amounts) Revenues from rental operations $ 1,553 $ 1,337 $ 1,619 $ 1,682 Income from rental operations 760 968 1,429 1,677 Net income (loss) (1) (335) (145) 282 348 Net income (loss) per share (.04) (.02) .03 .05
(1) The 1999 and 1998 results reflect the cessation of depreciation and amortization of the Mall's assets as a result of the Trust's real estate being classified as "held for sale" as of April 1, 1998. (2) The quarter ended December 31, 1999, reflects the recording of default rate interest on the Mortgage Note from June 15, 1998, and the Term Loan from December 15, 1999, in the total amount of $3,467,000. 49 FINANCIAL STATEMENT SCHEDULE DECEMBER 31, 1999 (IN THOUSANDS) SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION (5)--(UNAUDITED)
Cost Capitialized Gross Amount Subsequent at which Carried Initial cost to Acquisition at Close of Period (3) --------------------- ---------------- --------------------------------------------- Deferred Deferred Bldg & Leasing Costs & Bldg. & Leasing Description Encumbrances Land Improve. Improvements Land Improve. Costs Total - ----------- ------------ ---- -------- ------------ ---- -------- ----- ----- Harrisburg East Mall $49,005(1) $ 4,700(2) $31,287(2) $23,753 $4,700(2) $49,318(2) $5,722(6) $59,740 Harrisburg, PA - -------------------------------------------------------------------------------------------------------------------------------- Totals $49,005 $ 4,700 $31,287 $23,753 $4,700 $49,318 $5,722 $59,740 - -------------------------------------------------------------------------------------------------------------------------------- Life on which Depreciation in Latest Accum. Income Stmt. Depreciation Date of Date is & Amort Construction Acquired Computed ------- ------------ -------- -------- Harrisburg East Mall $19,710 1969(4) 3/13/85 N.A. Harrisburg, PA - ------------------------------- Totals $19,710 - -------------------------------
(1) Encumbrances are composed of the principal amounts of a mortgage note payable constituting a first lien on the Mall and a term loan payable to a bank constituting a subordinated lien on the Mall, together with the related amounts of accrued interest thereon as of December 31, 1999. (2) Initial cost is net of imputed interest of $5,280 at date of acquisition. (3) The aggregate tax basis of the Trust's land and building is $54 million as of December 31, 1998. (4) Renovation of the Mall was completed in 1993. (5) As discussed in the Notes to Financial Statements, the Trust intends to sell the Mall and as such, its investment in real estate is presented on the balance sheets as held for sale at December 31, 1999 and 1998. This asset includes deferred leasing costs, and is carried at the lower of cost or fair value less cost to sell. Depreciation and amortization of the Mall's assets ceased beginning April 1, 1998. (6) Included in deferred leasing costs is a 1990 payment of $5,500,000 made to an anchor tenant at the Mall in exchange for the tenant relinquishing space that was subsequently converted into leasable are for mall shops.
RECONCILIATION OF GROSS CARRYING RECONCILIATION OF ACCUMULATED DEPRECIATION & AMOUNT OF REAL ESTATE: AMORTIZATION: Balance, December 31, 1996 $ 57,920 Balance, December 31, 1996 $ 16,989 Improvements and Additions 546 Depreciation & amortization expense 2,181 -------- -------- Balance, December 31, 1997 58,466 Balance, December 31, 1997 19,170 Improvements and Additions 652 Depreciation & amortization expense 588 -------- -------- Balance, December 31, 1998 59,118 Balance, December 31, 1998 19,758 Improvements and Additions 622 Retirement (48) -------- -------- Balance, December 31, 1999 $ 59,740 Balance, December 31, 1999 $ 19,710 -------- -------- -------- --------
50 EX-10.(C)(C)(C)(C) 2 ex-10_cccc.txt EXHIBIT 10.(C)(C)(C)(C) ADVISORY AGREEMENT ADVISORY AGREEMENT, dated as of January 18, 2000, between EQK REALTY INVESTORS I, a Massachusetts business trust (the "Trust"), and NEWLEAF CORPORATION, a Georgia corporation ("Adviser"). BACKGROUND The Trust was organized under a Declaration of Trust executed as of October 8, 1984, which was amended and restated as of February 27, 1985 (as amended to date, the "Declaration of Trust"). The Trust has qualified as a "real estate investment trust" ("REIT") as defined in the Internal Revenue Code of 1986, as amended (the "Code"). The Trust's sole remaining real estate asset is the Harrisburg East Mall (the "Mall"). The Trust is a party to a Merger Agreement, dated August 25, 1998, with American Realty Trust ("ART") and a subsidiary of ART (as amended to date, the "Merger Agreement"). ART has entered into an agreement (the "ART Restructuring Agreement") with Affiliates of ART, pursuant to which ART is to become a subsidiary of a new holding company. As used herein, references to ART shall include such new holding company. The first mortgage loan (the "First Mortgage Loan") on the Mall is held by The Prudential Insurance Company of America ("Prudential") and the second mortgage loan (the "Second Mortgage Loan") on the Mall is held by PNC Bank, National Association ("PNC"). On December 14, 1999, the Trust initiated Chapter 11 proceedings (the "Proceedings") before the United States Bankruptcy Court for the Middle District of Pennsylvania (the "Court"). Gregory Greenfield & Associates, Ltd. ("Greenfield") is the current adviser to the Trust. Greenfield's appointment as adviser to the Trust terminates on January 18, 2000. Newleaf Corporation has been recommended as adviser to succeed Greenfield. Lloyd T. Whitaker ("Whitaker") is president, chief executive officer, and owner of Adviser. The Trust desires to retain the Adviser to render advisory services in replacement of Greenfield. The Adviser is willing to undertake to render such services, on the terms and conditions herein set forth. Accordingly, the Trust and Adviser hereby agree as follows: 1. DEFINITIONS. As used herein, the following terms shall have the definitions set forth below. "AFFILIATE" means, as to any Person, (i) any other Person directly or indirectly controlling, controlled by or under common control with such Person, (ii) any other Person that owns beneficially, directly or indirectly, five percent (5%) or more of the outstanding capital stock, shares or equity interests -2- of such Person, or (iii) any officer, director, employee, general Partner or trustee of such Person or of any other Person controlling, controlled by or under common control with such Person (excluding trustees and persons serving in similar capacities who are not otherwise an Affiliate of such Person). "PERSON" means and includes individuals, corporations, limited partnerships, limited liability companies, general partnerships, joint stock companies or associations, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts, or other entities and governments and agencies and political subdivisions thereof. "SECURITIES" means any stock, shares, voting trust certificates, bonds, debentures, notes, or other evidences of indebtedness of in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for, receipts for, guarantees of, or warrants, options or rights to subscribe to, purchase or acquire any of the foregoing. "SHAREHOLDERS" means the holders of record of outstanding Shares. "SHARES" means Shares of Beneficial Interest, without par value, of the Trust. "TRUSTEES" means the Trustees holding office under the Declaration of Trust at any particular time. -3- "UNAFFILIATED TRUSTEE" means a Trustee who, in his individual capacity, (i) is not an Affiliate of the Adviser, (ii) does not own any interest in the Adviser, and (iii) does not perform any other services for the Trust except as Trustee. 2. DUTIES OF ADVISER. The principal duties of the Adviser shall be to supervise and make recommendations to the Trust concerning the Trust's investments and to provide administrative services with respect to the Trust and as administrator of the Trust's day-to-day affairs, in each case subject to the supervision of the Trustees. Subject to the supervision of the Trustees and consistent with the provisions of the Declaration of Trust, the Bankruptcy Code and the orders of the Court, the duties of the Adviser shall include: (a) perform or cause to be performed, on behalf of the Trust, the necessary administrative functions relating to the management of the Trust and the Trust's participation in the Proceedings, including the compliance with reporting requirements and the preparation of operating reports required to be filed therein; (b) serve as the Trust's investment and financial Adviser; (c) investigate, select (subject, where applicable, to approval by the Court), and supervise accountants, legal counsel, property managers, brokers, investors, builders, developers, banks -4- and other lenders, and others as necessary in connection with the business of the Trust and the fulfillment of the Adviser's duties hereunder; the foregoing duties shall include without limitation supervising the Trust's participation in the Proceedings, the Trust's negotiations with creditors and interest holders, the Trust's negotiations with ART and others concerning the Merger Agreement and any amendment or restatement thereof (including amendments resulting from the ART Restructuring Agreement) and related matters and the Trust's negotiations with respect to the disposition of the Mall; (d) maintain bank accounts for the Trust, and arrange for appropriate property and liability insurance coverages to protect the Trust's assets, including fidelity bonds with respect to fraudulent and negligent acts, errors and omissions, in amounts specified by the Trustees and approved by the Court, covering all the personnel handling funds and other assets of the Trust, with the Trust named as an insured party; (e) maintain books of account and appropriate records of activities on behalf of the Trust and, subject to the engagement of professional law and accounting firms when appropriate, prepare and submit all necessary financial statements, reports, tax returns, and other correspondence as required by applicable third parties, including, without limitation, the Securities and Exchange Commission, the Internal Revenue Service, and shareholders; (f) provide office space, office equipment (which space and equipment need not be separate from the Adviser's) and officer personnel (as identified below); -5- (g) obtain for the Trust the services that may be required in acquiring and disposing of investments of the Trust, disbursing and collecting the funds of the Trust, paying the debts and fulfilling the obligations of the Trust, and handling, prosecuting and settling any claim of the Trust, subject, where applicable, to approval by the Court; (h) obtain for the Trust such services as may be required for property management and other activities relating to the investment portfolio of the Trust; and (i) make available Persons to act as the officers (not on a full-time basis) of the Trust, including specifically the services of Whitaker and David H. Crumpton ("Crumpton"); provided, however, that the provision of those services shall be subject to the provision and continuation of Director and Officer liability insurance deemed adequate by the Adviser. In performing its various services under this Agreement, the Adviser may from time to time call upon and utilize various facilities, personnel and support services of other Persons including, with Court approval, one or more Affiliates of the Adviser. 3. NO PARTNERSHIP OR JOINT VENTURE. The Trust and the Adviser are not, and shall not be deemed to be, partners or joint venturers with each other, and nothing herein shall be construed so as to make them such partners or joint venturers or to impose any liability as such on either of them. -6- 4. RECORDS. The Adviser shall keep proper books of account and records relating to services performed hereunder, which books of account and records shall be accessible for inspection by the Trustees at any time during ordinary business hours. 5. REIT QUALIFICATION, ETC. Unless otherwise directed by the Court or constituting an obligation under the Bankruptcy Code, the Adviser shall refrain from any action which, in its judgment or in any judgment of the Trustees of which the Adviser has written notice, would adversely affect the qualification of the Trust as a REIT or which would violate any law, rule or regulation of any governmental body or agency having jurisdiction over the Trust or its Securities or which would otherwise not be permitted by the Declaration of Trust. 6. BANK ACCOUNTS. Subject to the requirements of Section 345 of the Bankruptcy Code, the orders of the Court, and such terms and conditions as the Trustees may direct, the Adviser may establish and maintain one or more bank accounts in its own name or in the name of the Trust and may collect and deposit into and disburse from such accounts any money on behalf of the Trust, provided that no funds in any such account shall be commingled with funds of the Adviser. The Adviser shall from time to time render appropriate account of such collections, deposits and payments to the Trustees and to the auditors of the Trust. The Adviser may, but shall not be required to, succeed to the accounts currently being maintained on behalf of the Trust. -7- 7. BOND. The Adviser shall maintain a fidelity bond with a responsible surety company, in such form and amounts as may be required by the Trustees and the Court from time to time, covering officers, employees and agents handling funds and any investment documents or records pertaining to any investments of the Trust. Such bond shall be paid for by the Trust and shall inure to the benefit of the Trust in respect of losses of any such property from acts of such officers, employees and agents through theft, embezzlement or fraud. In the event that such a bond is canceled or not renewed by the bonding company, the Adviser shall give notice thereof to the Trustees, in which event the Trustees shall have the right to terminate immediately this Agreement. 8. INFORMATION FURNISHED ADVISER. The Trustees shall at all times keep the Adviser informed concerning the investment, financial and operating policies of the Trust. The Trustees shall notify the Adviser promptly in writing of all material decisions affecting the Trust, including but not limited to any intention to sell or dispose of any existing investments. The Trust shall make available to the Adviser a certified copy of all financial statements, a signed copy of each report prepared by independent certified public accountants and such other information with regard to its affairs as the Adviser may reasonably request. 9. COMPENSATION. Subject to any required Court approval, the Trust shall pay to the Adviser as compensation for its services hereunder, the following: -8- (a) BASE FEE-HOURLY RATE. The Adviser shall charge the Trust for the services of the Adviser based on the hourly billing rates of its principals of $295.00 per hour for the services of Whitaker on behalf of the Trust and $245.00 per hour for the services of Crumpton on behalf of the Trust. The monthly fee based on such rates is referred to herein as the "Base Fee." The Trust shall pay to the Adviser a retainer of $25,000.00 upon approval of this Agreement by the Court, which retainer shall be held by the Adviser and applied as a credit against the last month's services and expenses of the Adviser with any excess being refunded to the Trust. The Base Fee shall be paid monthly in arrears within ten (10) days of receipt of a statement from the Adviser reflecting detail of services rendered. The Base Fee shall not exceed the following amounts (pro rated for any partial month) per month for the following months (each month begins on the 18th and ends on the 17th; for example, the first month begins on January 18, 2000 and ends on February 17, 2000): $35,000 per month for the first three months; $25,000 per month for the next six months; and $20,000 per month for each month thereafter. To the extent that the Base Fee for any month calculated on the basis of the billing rates specified above (the "Calculated Rate") would exceed (an "Excess Amount") the amount permitted above for that month (the "Capped Rate"), the Base Fee for that month shall equal the Capped Rate and the Excess Amount shall be carried forward and paid to the extent that the Capped Rate in any future month exceeds the Calculated Rate for that month. To the extent that the Calculated Rate in any month is less than the Capped Rate for that month (the "Shortage Amount"), the Base Fee for that month shall equal the -9- Calculated Rate and the Shortage Amount shall be carried forward and paid to the extent that the Calculated Rate in any future month exceeds the Capped Rate for that month. (b) INCENTIVE FEES. In addition to the Base Fee described in subparagraph (a) above, the Adviser shall receive an incentive fee based on the results which the Adviser obtains for the Trust based on each of two components. First, a Disposition Incentive Fee to be paid at closing of the disposition of the Harrisburg East Mall (the "Mall") (other than a disposition by foreclosure or deed in lieu of foreclosure or other transaction by which Prudential or PNC or their Affiliates receives a deed in satisfaction or partial satisfaction of their claims) equal to Forty Thousand Dollars ($40,000) plus two percent (2%) of the Success Amount; provided that the aggregate Disposition Incentive Fee shall not exceed Seventy Thousand Dollars ($70,000). The Success Amount shall equal the excess, if any, of the Net Sales Proceeds over the aggregate amount paid by the Trust in full satisfaction of the total amount then owed to Prudential and PNC. Any debt that the Mall is taken subject to is deemed to be paid by the Trust for this purpose. Net Sales Proceeds shall equal the stated sales price paid to the Trust less any commission paid by the Trust to (a) third party broker(s). Secondly, the Adviser shall receive a Merger Incentive Fee of Twenty-five Thousand Dollars ($25,000) payable in cash (if payment in cash is not practicable, payment may be made in the form of the same securities issued to Shareholders in the applicable transaction) at the closing of the Trust's merger with ART (or merger or similar transaction with another entity). If the sale of the Mall to any Person occurs after termination of this Agreement, Adviser shall nevertheless continue to be entitled to receive the Disposition Incentive Fee if it was in negotiations with the Mall purchaser during the term of this Agreement. If the merger occurs after the termination of this Agreement, Adviser shall nevertheless -10- continue to be entitled to receive the Merger Incentive Fee if it was engaged in negotiations with the merger partner (other than ART) during the term of this Agreement. 10. COMPENSATION FOR ADDITIONAL SERVICES. If the Trust shall request the Adviser (or any Affiliate or any officer or employee thereof) to render services for the Trust other than those required to be rendered by the Adviser hereunder, such additional services, if performed, will be compensated separately on terms as are approved by the Trustees and subject in all instances to approval by the Court. 11. STATEMENTS. The Adviser shall promptly furnish to the Trust monthly statements showing the computation of the compensation payable to it. 12. EXPENSES OF ADVISER. Without regard to the amount of compensation received hereunder by the Adviser, the Adviser shall bear the following expenses: (a) salaries and other employment expenses of the personnel employed by the Adviser to assist it in performing its obligations hereunder and of officers of the Trust who are provided pursuant to Paragraph 2(i) hereof; (b) rent, telephone (other than long distance charges), utilities, office furniture and equipment and other office expenses of the Adviser, except as any of such expenses relate to an office -11- maintained by the Trust separate from the office of the Adviser or are acquired or incurred to respond to a specific requirement of the Trust, requirement of the Proceeding, or order of the Court; and (c) all overhead expenses incurred by the Adviser. 13. EXPENSES OF THE TRUST. Except as expressly otherwise provided in this Agreement, the Trust shall pay all expenses relating to services of the Adviser in the performance of its duties hereunder, including without limitation all legal and accounting expenses, not assumed by the Adviser, travel and related out-of-pocket expenses incurred by officers and employees of the Adviser and officers of the Trust who are provided pursuant to Paragraph 2(i) hereof, long distance telephone charges, fax, courier, copying, mailing and other similar costs and charges. 14. OTHER ACTIVITIES OF THE ADVISER. Nothing herein contained shall prevent the Adviser from engaging in other activities, including, without limitation, the management of other investments and the rendering of advice to other investors (including other real estate programs), nor shall this Agreement limit or restrict the right of any director, officer, employee or shareholder of the Adviser or any Affiliate of the Adviser to serve as trustee, examiner, receiver, special master, financial adviser or similar role in any court proceeding, or to engage in any other business or to render services of any kind to any other Person or court, provided that no such advice or services shall disclose or utilize confidential information of the Trust or knowingly violate the Adviser's obligations to act in the best interest of the Trust. -12- 15. AGREEMENTS OF THE TRUST. The Trust shall: (a) cause individuals who are employees of or otherwise associated with the Adviser and who become officers of the Trust to be covered by the Trust's current directors and officers liability insurance policy. (b) promptly seek approval of this Agreement by the Court. (c) use reasonable efforts to cause Greenfield to assist in transition of advisory responsibilities as reasonably requested by the Adviser. 16. TRUSTEE ACTION. Wherever action on the part of the Trust or the Trustees is contemplated in this Agreement, unless otherwise provided herein, action by a majority of the Trustees, including a majority of the Unaffiliated Trustees, shall constitute the action provided for herein. 17. TERM; TERMINATION OF AGREEMENT. This Agreement shall continue in force until January 17, 2001, and thereafter may be extended from year to year by the affirmative vote or written consent of a majority of the Unaffiliated Trustees. Notice of renewal shall be given in writing by the Trust to the Adviser not less than thirty (30) days before the expiration of this Agreement or of any extension thereof. Notwithstanding any other provision to the contrary, this Agreement may be terminated without cause upon sixty (60) days' written notice by a majority of the Unaffiliated Trustees to the Adviser and, after January -13- 17, 2000, upon one hundred eighty (180) days' written notice by the Adviser to the Trust; provided that this Agreement shall automatically terminate if and when the Court shall determine not to approve the terms of this Agreement. 18. AMENDMENTS. This Agreement shall not be modified or terminated except by an instrument in writing signed by both parties hereto and approved by the Court. Any amendment to this Agreement shall require the written consent of a majority of the Unaffiliated Trustees. 19. ASSIGNMENT. The Trust may terminate this Agreement immediately in the event of its assignment by the Adviser without the consent of the Trust. Any permitted assignment of this Agreement shall bind the assignee hereunder in the same manner as the assignor is bound hereunder. 20. DEFAULT, BANKRUPTCY, ETC. At the option of the Trustees, this Agreement shall be terminated immediately upon written notice of termination by a majority of the Unaffiliated Trustees to the Adviser if any of the following events shall occur: (a) if the Adviser shall violate any provisions of this Agreement, and after written notice of such violation shall not cure such default within thirty (30) days; or (b) if the Adviser shall be adjudged bankrupt or insolvent by a court of competent jurisdiction, or any order shall be made by a court of competent jurisdiction for the appointment of a -14- receiver, liquidator or trustee of the Adviser or of all or substantially all its property by reason of the foregoing or approving any petition filed against the Adviser for its reorganization, and such adjudication or order shall remain in force or unstayed for a period of thirty (30) days; or (c) if the Adviser shall institute proceedings for voluntary bankruptcy or shall file a petition seeking reorganization under the Federal bankruptcy laws, or for relief under any law for the relief of debtors, or shall consent to the appointment of a receiver, or shall make a general assignment for the benefit of its creditors, or shall admit in writing its inability to pay its debts generally as they become due. The Adviser agrees that if any of the events specified in subsection (b) or (c) of this Section shall occur, it will give written notice thereof to the Trust promptly (but in any event not later than seven days) after the occurrence of such event. 21. ACTION UPON TERMINATION. The Adviser shall not be entitled to compensation for further services hereunder after the date of termination of this Agreement, but shall be reimbursed for all expenses and shall be paid all compensation accruing to the date of termination. The Adviser shall forthwith upon such termination: (a) pay over to the Trust all moneys collected and held for the account of the Trust pursuant to this Agreement, after deducting any accrued compensation and reimbursement for its expenses to which it is then entitled; -15- (b) deliver to the Trust a full accounting, including a statement showing all payments collected by it and a statement of all moneys held by it, covering the period following the date of the last accounting furnished to the Trust; (c) deliver to the Trust all property and documents of the Trust then in the custody of the Adviser; and (d) cooperate with the Trust and take all reasonable steps requested to assist the Trustees in making an orderly transition of the advisory function. 22. GOVERNING LAW. The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the Commonwealth of Pennsylvania as at the time in effect. 23. LIMITATIONS OF LIABILITY. The Adviser assumes no responsibility under this Agreement other than to render the services called for hereunder in good faith, and shall not be responsible for any action of the Trust in following or declining to follow any advice or recommendations of the Adviser. None of the Adviser, its shareholders, directors, officers or employees shall be liable to the Trust, the Trustees or the holders of Securities of the Trust except by reason of acts constituting bad faith, willful misfeasance, gross negligence or reckless disregard of their duties. -16- 24. NOTICES. Any communication given hereunder shall be in writing delivered at the address of the respective party at which that party most recently has established its principal office, or at such other address as a party shall have specified to the other party as the address for notices hereunder. 25. TRUSTEES' AND SHAREHOLDERS' LIABILITY. The Declaration of Trust provides that the name "EQK Realty Investors I" refers to the Trustees under the Declaration of Trust collectively as Trustees, but not individually or personally; and that no Trustee, officer, Shareholder, employee or agent of the Trust shall be held to any personal liability, jointly or severally, for any obligation of, or claim against, the Trust. All persons dealing with the Trust, in any way, shall look only to the assets of the Trust for the payment of any sum or the performance of any obligation. 26. RETENTION OF JURISDICTION. The parties hereto agree that the Court shall have exclusive jurisdiction over any dispute arising with regard to this Agreement or the interpretation of the provisions hereof. 27. EXECUTION IN COUNTERPARTS. This Agreement may be executed in counterparts and by facsimile signatures. IN WITNESS WHEREOF, the Trust and the Adviser have each caused this Agreement to be executed and delivered on its behalf as of the day first above written. -17- EQK REALTY INVESTORS I By: /s/ William G. Brown, Jr. ---------------------------- Name: William G. Brown, Jr. -------------------------- Title: Vice President ------------------------- NEWLEAF CORPORATION By: /s/ Lloyd T. Whitaker ---------------------------- Lloyd T. Whitaker, President -18- EX-10.(D)(D)(D)(D) 3 ex-10_dddd.txt EXHIBIT 10.(D)(D)(D)(D) AGREEMENT In consideration of the mutual agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, EQK Realty Investors I, debtor in possession ("Owner"), and Granite Partners, L.L.C. ("Agent") hereby agree as follows: 1. APPOINTMENT. Owner hereby appoints Agent as its exclusive agent and grants Agent the exclusive right to sell the property identified as Harrisburg East Mall, Harrisburg, Pennsylvania (the "Property"). Agent accepts the appointment and agrees to perform the service required by this Agreement and to use its best efforts to assist Owner in selling the Property at the maximum price and on a timely basis. 2. TERM. The term ("Term") of this Agreement shall commence on the date hereof and expire on August 31, 2000 ("Expiration Date") unless terminated earlier as provided below. 3. RELATIONSHIP AND AUTHORITY. Agent is the agent of Owner. Agent has no authority to enter into any agreement with any prospective purchaser, real estate broker or any other person in the name of, on behalf of, or otherwise binding upon Owner, nor may Agent subject Owner to any other obligations or liabilities. Owner has the absolute right in all events to approve or to disapprove any and all proposals regarding pricing, marketing and terms of sale of the Property. Owner reserves the right to adjust the terms and conditions of any offer made or received, including but not limited to adjustment of the offering price for the Property upward or downward. Owner further reserves the right to withdraw the Property from sale at any time. Acceptance of any offer received shall be subject to final approval of Owner at each stage of the approval process preliminary thereto, with Owner having the right in its unfettered discretion to disapprove the transaction at any stage of its investment approval process, without obligation thereafter to proceed to the next stage. 4. DUTIES AND SERVICES. Agent's duties and services are described below. Agent shall provide the organization, staff and resources to perform these duties and services on a first class professional basis appropriate for the Property. 4.1 INSPECTION. Agent shall inspect the Property to determine its physical condition, relative market appeal, quality of location, market and area trends, and potential for value enhancement prior to entering the market. 4.2 REVIEW AND ANALYSIS. Agent shall conduct an independent review of the Property's financial performance, including an analysis of historical performance, market area, competition and project cash flows. Agent shall review all leases, management agreements, cross easement and operating agreements, and other documents affecting the Property delivered to Agent by Owner. 4.3 PRICING. Agent shall propose and Owner shall establish, in its sole discretion, the sales price and other terms and conditions for the sale of the Property. Agent shall not quote a sales offering price without the express written permission of Owner. 4.4 OFFERING BROCHURE. Agent shall assemble and produce an offering brochure which is satisfactory to Owner. Owner shall assist in providing the information necessary for Agent to prepare a professional offering brochure and for a prospective purchaser to fulfill its due diligence requirements and make its decision to purchase. The brochure shall include property facts, photographs, high-quality graphics, ten-year performance cash flow projections (if requested by Owner), market competition data, descriptive area and location information, site plan, surveys, floor plans, and other relevant information. Subject to timely receipt of all required information, the brochure, together with the matters described in the three (3) preceding subparagraphs, shall be submitted to Owner for review within twenty (20) days after the date of this Agreement. 4.5 PURCHASER QUALIFICATION. Agent shall prepare a list of prospective purchasers and submit it to Owner. Owner and Agent shall work together to establish criteria for and select a limited number of qualified prospective purchasers who may receive offering material subject to Owner's approval. 4.6 MARKETING. Agent shall commence direct sales efforts on a selective basis only to the prospective purchasers approved by Owner. Agent understands that owner may desire to conduct an auction of the Property. Agent agrees to assist in the auction process including preparation of auction materials and due diligence materials, conducting of tours of the Property by interested parties, and otherwise participating in the auction process. Agent shall promote the sale of the Property to as many responsible and financially qualified potential Stalking Horses (as defined in Paragraph 4.9 below) and auction purchasers as possible. Agent shall provide prospective purchasers with additional information and coordinate site visits. 4.7 COMMUNICATIONS WITH OWNER. Agent shall promptly inform Owner of all offers and inquiries with respect to the Property. Owner will refer all inquiries to Agent. Agent will prepare and submit to Owner a weekly status report on the marketing of the Property which will include an updated list of all prospective purchasers with whom agent has made written or verbal inquiry. The report shall provide a status update on each prospective purchaser and shall rank the prospective purchasers with respect to the probability that they will enter into a contract of sale as a Stalking Horse (as defined in paragraph 4.9 below) or attend the auction as financially qualified bidders. 4.8 PRE-OFFERING DUE DILIGENCE. Agent shall perform reasonable due diligence as part of its preparations of the offering brochure in order to minimize post-due diligence repricing by any prospective purchasers. As part of this effort, Agent shall read and summarize all tenant leases and lease amendments and accurately reflect the lease terms in the offering brochure. 4.9 NEGOTIATIONS. Agent shall screen and pre-qualify all prospective purchasers and will facilitate the conduct of due diligence between such prospective purchasers and Owner, including the negotiation and execution by the initial contracting party (the "Stalking Horse") of an Owner-approved form of contract of sale, all under Owner's guidance and subject to Owner's approval. It is anticipated that the purchase price included in the Stalking Horse's contract shall be the minimally acceptable price for the Property, and shall be the floor price at an auction of the Property to be conducted under the jurisdiction of the Court (as defined in Section 12.10 below) to follow. Agent shall supervise all Property inspections and other due diligence performed by prospective purchasers. Owner reserves the unilateral right to deny any inspections. 2 4.10 CLOSING. Agent shall participate, if deemed necessary and appropriate by Owner, in the preparation for closing of the sale so as to ensure a timely closing. Agent's responsibilities in this regard shall include (i) cooperation with Owner's counsel in the preparation and execution of a contract of sale, closing checklist and closing documentation, and (ii) coordination with the property manager for the Property to secure all documents and information required for closing. 4.11 RECOMMENDATION. During the last five (5) days of the Term, if there exists no final written contract of sale for the Property, Agent shall submit to Owner a final written report of the status of the marketing of the Property, including a final list of prospective purchasers and Agent's recommendations as to Owner's most advantageous course of action with respect to the sale of the Property. The final list of prospective purchasers shall identify only those with whom Agent has had substantial negotiations (as defined herein) during the Term (and, if requested by Owner, Agent shall provide supporting documentation of such negotiations). The term "substantial negotiations" shall mean that (1) the Agent provided the offering materials, and (2) either Agent brought the prospective purchasers to the Property or Agent received one or more subsequent letters expressing further interest or requesting additional information, or prospective purchaser commenced negotiations with Owner, or Agent received a signed letter of intent (even if Owner did not sign the letter of intent). Owner shall have no obligation to accept, reject or otherwise respond to or act on Agent's recommendation. 4.12 STAFFING. Agent hereby commits to Owner the services of Richard H. Rudd, Robert E. Williamson and Alan Tantleff, ("Key Staff") and their associates or substitutes reasonably acceptable to Owner. The Key Staff shall assume primary responsibility for the initiation of all discussions with prospective purchasers on the part of Agent, and, with Owner's guidance and subject to Owner's approval, will handle all negotiations on the part of Agent with prospective purchasers. 5. FEE. Agent's sole and exclusive compensation for its services hereunder (the "Fee") will be 0.675% of the gross purchase price of the Property received by Owner at the closing of the sale of the Property, and in accordance with the following terms: The Fee shall be earned and payable if and only if the closing occurs (i) during the Term or (ii) pursuant to a Purchase and Sale Agreement which was fully executed and delivered by both Purchaser and Owner within ninety (90) days after the Term with a purchaser validly on the list provided to Owner pursuant to subparagraph 4.11 above. If the sale fails to close for any reason whatsoever, including Owner's withdrawal of the Property from the market or disapproval of the Court (as defined in Paragraph 12.10), Owner shall not be liable to Agent for the Fee or any compensation or damages in lieu thereof other than for expense reimbursement as set forth in Section 6 herein. After the end of the Term, Owner shall have no obligation or liability to Agent for the Fee, any commission or other compensation of any kind with respect to the negotiation for or sale of the Property to any person, whether directly or through another broker, except in the event of a sale described in clause (ii) of this Paragraph 5 above. After the end of the period described in said clause (ii), Owner shall have no obligation or liability to Agent for the Fee, any commission, or other compensation of any kind with respect to the negotiation for or sale of the Property to any such person identified by Agent as a prospective purchaser under this Agreement. For purposes of computation of the Fee, the gross purchase price of the Property shall include the principal amount of any loan assumed or taken subject to, the cash equivalent of all purchase money financing extended by Owner in connection with the sale, determined by discounting based upon a market rate for comparable mortgages, and the purchase price of all fixtures and personal property owned by Owner and associated with the 3 Property if sold for separate consideration. For the purposes of this Agreement, if substantially all of the ownership interests in Owner are sold to a single purchaser in a single transaction at a time when both (i) Owner retains ownership of the Property and (ii) the Property is not subject to an agreement of sale, then (y) the sale of such ownership interests shall be deemed to be a sale of the Property and (z) to the extent a Fee is due to Agent with respect to such sale under the terms of this Agreement, the Fee due to Agent with respect to such sale shall be computed solely with respect to the portion of the consideration fairly attributable to Harrisburg East Mall, Harrisburg, Pennsylvania. Notwithstanding anything contained herein to the contrary, no Fee shall be deemed earned by Agent or payable to Agent if title to the Property or the ownership interests in Owner are acquired by The Prudential Insurance Company of America ("Prudential"), PNC Bank, National Association ("PNC"), any future holders of either the mortgage held by Prudential on the Property or the mortgage held by PNC on the Property, or any of the foregoing's nominees, affiliates, successors or assigns, whether by purchase, foreclosure, deed in lieu of foreclosure or otherwise. 6. EXPENSES. Agent will prepare, for Owner's approval, a proposed budget of anticipated out-of-pocket expenses to be incurred in connection with the marketing of the Property pursuant to this Agreement (the "Budget"). Such Budget shall include Agent's representatives' travel and other direct out-of-pocket expenses. Within thirty (30) days of presentation of invoices to Owner, Owner shall reimburse Agent monthly for its direct out-of-pocket expenses included in the Budget for the preparation of the offering brochures required under subparagraph 4.4 above and in the marketing of the Property hereunder. Except as expressly provided in this paragraph, all other expenses incurred by Agent in the performance of this service hereunder shall be borne by Agent, not Owner, and Owner shall have no obligation to reimburse Agent for any costs or expenses whatsoever incurred in the performance of this Agreement. 7. INDEMNIFICATION. Owner shall Indemnify and Hold Agent Harmless with respect to Agent's activities pursuant to this Agreement, except for Agent's actions outside the scope of its authority, its negligence, willful malfeasance or bad faith. Agent shall Indemnify and Hold Owner Harmless with respect to Agent's actions outside the scope of its authority, its negligence willful malfeasance and bad faith. This provision shall not relieve either party from liability to the other for breach of this Agreement. For the purpose of this paragraph, the term "Indemnify and Hold Harmless" shall mean to hold harmless from, indemnify and defend against, and pay promptly on demand therefore, any and all claims demands, actions, causes of actions, losses, expenses (including, without limitation, attorneys fees at both trial and appellate levels), costs (including, without limitation, court costs at both trial and appellate levels), damages and all liabilities arising out of or incurred in connection with activities pursuant to this Agreement. This shall be an indemnity against alleged liability and not merely for damages. 8. LICENSING. Agent warrants and represents to Owner that Agent has all necessary real estate brokerage and any other licenses in all necessary states and agrees to maintain such licenses in full force and effect throughout the Term. Agent covenants that it shall comply with all applicable broker and other laws in dealing with prospective purchasers and with cooperating brokers. 9. TERMINATION. Either party may terminate this Agreement at any time by written notice to the other, notwithstanding any other provision in this Agreement to the contrary. If Owner terminates this agreement for cause or if Agent terminates it without cause, then Agent shall not be entitled to the Fee, any other commission or compensation or any reimbursement for expenses pursuant to paragraph 6 above under any circumstances whatsoever. The term "cause" shall mean the other party's material breach of terms of this Agreement (which breach is not cured within ten (10) days of notice thereof), actions outside the scope of its authority, negligence, willful malfeasance or bad faith. The provisions of paragraphs 2, 5, 6, 7, 8, 9 and 11 shall survive the termination of this Agreement, subject to the foregoing provisions of this paragraph. 4 10. NOTICE. Each Notice ("Notice") provided for under this Agreement shall be in writing and sent by depositing it with the United States Postal Service or any official successor thereto, certified or registered mail, return receipt requested, with adequate postage prepaid, with a nationally recognized overnight courier service which obtains receipts, addressed to the appropriate party (and marked to a particular individual's attention if so indicated), or by telecopy (with a copy sent the same day by a nationally recognized overnight carrier service which obtains receipts for next day delivery) as hereinafter provided. Each Notice shall be effective upon being so deposited, but the time period in which a response to any Notice must be given or any action taken with respect thereto shall commence to run from the date of actual receipt of the Notice by the addressee thereof, which receipt may be conclusively evidenced by the return receipt or, if sent by telecopy, as conclusively evidenced by the telecopy confirmation. Rejection or other refusal by the addressee to accept (except in the case of a telecopy notice) or the inability to deliver because of a changed address or telecopy number of which no Notice was given shall be deemed to be the receipt of the Notice sent. Any party shall have the right from time to time to change the address and/or telecopy number(s) to which copies of Notices to it shall be sent by giving to the other parties Notice thereof. Notices may be sent on behalf of a party by its counsel. The Notices shall be addressed as follows: If to Owner: EQK Realty Investors 1 c/o Newleaf Corporation 2810 Spring Road, Suite 106 Atlanta, Georgia 30339 Fax #: (770) 433-8550 Attn: Lloyd T. Whitaker with a duplicate copy to: Wolf, Block, Schorr and Solis-Cohen LLP 1650 Arch Street, 22nd Floor Philadelphia, PA 19103 Fax #: 215-977-2346 Attn: Robert A. Silverman, Esquire If to Agent: Granite Partners, L.L.C. 1177 West Loop South, Suite 1610 Houston, TX 77027 Fax #: 713-479-5010 Attn: Richard H. Rudd, Sr. 11. CONFIDENTIALITY. Agent shall maintain Owner's confidentiality in accordance with the following provisions: 11.1 PURCHASERS AND CO-BROKERS. Agent shall obtain from each prospective purchaser and co-broker a confidentiality letter regarding Confidential Information (as defined in Paragraph 11.2 below) in the form attached hereto as Exhibit "A". 11.2 DEFINITION. As used herein, "Confidential Information" means all data, reports, interpretations, forecasts, and records containing or otherwise reflecting information 5 concerning the property, whether written or oral, which is not available to the general public and which the Owner will provide to Agent in the course of this engagement, together with analysis, compilations, studies or other documents, whether prepared by Agent or others, which contain or otherwise reflect such information. Agent agrees that all Confidential Information will be held and treated by Agent, its agents and employees in confidence and will not, except as hereinafter provided, without the prior consent of Owner, be disclosed by Agent or its agents or employees, in any manner whatsoever, in whole or in part, and will not be used by Agent or its agents or employees other than in connection with this engagement. Moreover, Agent further agrees (i) to disclose Confidential Information only to its agents and employees who need to know the Confidential Information for purposes of this Agreement and (ii) Agent will be satisfied that such agents and employees will act in accordance herewith. Notwithstanding the foregoing, the following will not constitute "Confidential Information" for purposes of this Agreement: information which is in or enters the public domain other than by Agent's breach of this Agreement and information which is obtained by Agent from a third person who, insofar as is known to Agent, is not prohibited from transmitting the information to Agent by a contractual, legal or fiduciary obligation to the Owner. The written Confidential Information will be returned to the Owner promptly upon its request or the expiration or earlier termination of this Agreement. Oral Confidential Information and any written Confidential Information not so requested and returned will be, at Agent's option, held by Agent and kept subject to the terms of this agreement or destroyed. In the event that Agent is requested or required (by oral question, interrogatories, requests for information or documents, subpoena, civil investigative demand or other process) to disclose (i) any Confidential Information or (ii) any information relating to Agent's opinion, judgment or recommendations concerning the Property as developed from Confidential Information, Agent will provide Owner with prompt notice of such request or requirement so Owner may seek an appropriate protective order or waiver of Agent's compliance with the provisions of this Agreement. If, failing the entry of a protective order prior to the receipt of a waiver hereunder, Agent is, in the opinion of Agent's counsel, compelled to disclose Confidential Information, Agent may disclose that portion of the Confidential Information which Agent's counsel advises Agent that Agent is compelled to disclose. In any event, Agent will not oppose action by the Owner to obtain an appropriate protective order to other reliable assurance that confidential treatment will be accorded the Confidential Information. 12. MISCELLANEOUS. 12.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between Owner and Agent with respect to the Property. There are no prior or additional agreements, conditions or understandings except for those set forth in this Agreement. 12.2 COUNTERPART EXECUTION. This Agreement may be executed in separate counterparts. It shall be deemed fully executed when each party has signed at least one counterpart, even if no single counterpart contains the signatures of all the parties. 12.3 APPLICABLE LAW. This Agreement shall be governed by the laws of the State of Pennsylvania. 6 12.4 ASSIGNMENT. This Agreement may not be assigned by either party without the prior written consent of the other party. 12.5 SUCCESSORS AND ASSIGNS. Subject to the preceding subparagraph, this Agreement shall be binding upon the parties and their respective successors and assigns. 12.6 AUTHORITY. The individual signing this Agreement on behalf of each party represents to the other party that he has the authority to execute this Agreement subject, in the case of Owner, to Paragraph 12.10 below. 12.7 APPROVALS. In each case in which a party has a right of consent, approval or satisfaction under this Agreement, such right may be exercised in the party's sole discretion unless expressly provided to the contrary herein. 12.8 ADVERTISING. Upon the successful completion of this engagement, Agent will be entitled to advertise the sale of the property at Agent's expense with the form and content subject to Owner's reasonable approval. 12.9 ACCURACY OF INFORMATION. Owner represents to Agent that to its knowledge, the information provided to Agent with regard to Property is true and correct. If Agent, in connection with its review of such information, discovers any inaccuracy, Agent agrees to so notify Owner promptly. 12.10 BANKRUPTCY COURT APPROVAL. Owner shall submit this Agreement for approval to the United States Bankruptcy Court for the Middle District of Pennsylvania (the "Court"). In the event the Court enters an order denying such approval, this Agreement shall be null and void and the parties shall be relieved of their respective obligations hereunder. The respective parties shall use reasonable efforts to obtain Court approval hereof, including attendance at any hearings scheduled to consider such approval. 12.11 EXCULPATION. The Amended and Restated Declaration of Trust establishing Owner dated February 27, 1985, as amended (the "Declaration"), provides, and Agent agrees, that neither the Shareholders nor the Trustees (as such terms are defined in the Declaration) nor officers, employees or agents of the Trust shall, in their respective capacities as such, be personally liable, jointly or severally, for payment of the Fee earned and payable hereunder or any other amount due under this Agreement, and all persons shall look solely to Owner (as defined in the Declaration), for the payment of any amounts hereunder or the performance of any obligations under this Agreement. IN WITNESS THEREOF, the parties have caused this Agreement as of the 17th day of February, 2000. OWNER: EQK REALTY INVESTORS I By: /s/ Lloyd T. Whitaker ----------------------------------------- Name: Lloyd T. Whitaker Title: President 7 AGENT: Granite Partners, L.L.C. By: /s/ Richard H. Rudd ----------------------------------------- Name: Richard H. Rudd Title: Senior Managing Director/Principal 8 EX-27 4 ex-27.txt EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF EQK REALTY INVESTORS I FOR THE PERIOD ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1999 DEC-31-1999 3,966 0 1,536 5 0 0 0 0 45,527 0 0 0 0 135,875 (143,686) 45,527 0 6,150 0 1,063 502 0 7,564 (2,979) 0 (2,979) 0 0 0 (2,979) (.31) (.31)
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