-----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, NFkDZi7kY1MvyoVh5Y+nYrtjzN2B0EYBjpqsFrcoJfTESuZNwJviDsQfXuS06kIO ESuD5GP3z7B7aePihP53qw== 0000931763-99-000782.txt : 19990325 0000931763-99-000782.hdr.sgml : 19990325 ACCESSION NUMBER: 0000931763-99-000782 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JDN REALTY CORP CENTRAL INDEX KEY: 0000916836 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 581468053 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-12844 FILM NUMBER: 99570719 BUSINESS ADDRESS: STREET 1: 359 EAST PACES FERRY ROAD STREET 2: STE 400 CITY: ATLANTA STATE: GA ZIP: 30305 BUSINESS PHONE: 4042623252 MAIL ADDRESS: STREET 1: 3359 EAST PACES FERRY RD STREET 2: STE 400 CITY: ATLANTA STATE: GA ZIP: 30305 10-K405 1 JDN REALTY FORM 10-K405 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ___________. Commission file number 1-12844 ---------------------------------------------- JDN REALTY CORPORATION ---------------------- (Exact name of registrant as specified in its charter) Maryland 58-1468053 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 359 East Paces Ferry Road, Suite 400, Atlanta, GA 30305 - --------------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (404) 262-3252 -------------- Registrant's telephone number, including area code Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock, $.01 Par Value New York Stock Exchange ---------------------------- ----------------------- Preferred Stock, $.01 Par Value New York Stock Exchange ------------------------------- ----------------------- Securities registered pursuant to Section 12(g) of the Act: None ---- (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during 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 ------- ------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the shares of common stock of the Registrant (based on the closing price of these shares on the New York Stock Exchange on March 2, 1999) held by non-affiliates was approximately $675,913,794. The number of shares outstanding of the Registrant's common stock, $0.01 par value, was 33,231,247 on March 2, 1999. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- Documents incorporated by reference and the part of Form 10-K into which the document is incorporated: Portions of the Registrant's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 19, 1999 are incorporated into Part III of this Form 10-K. TABLE OF CONTENTS Form 10-K Item No. Report Page - ------- ----------- PART I 1. Business.................................................. 1 2. Properties................................................ 8 3. Legal Proceedings......................................... 12 4. Submission of Matters to a Vote of Security Holders....... 12 PART II 5. Market for Registrant's Common Equity and Related Shareholder Matters............................... 13 6. Selected Financial Data................................... 14 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 15 7A. Quantitative and Qualitative Disclosures About Market Risk 24 8. Financial Statements and Supplementary Data............... 24 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................... 24 PART III 10. Directors and Executive Officers of the Registrant........ 25 11. Executive Compensation.................................... 25 12. Security Ownership of Certain Beneficial Owners and Management................................................ 25 13. Certain Relationships and Related Transactions............ 25 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...................................... 26 PART I Item 1. Business - ------------------- BACKGROUND JDN Realty Corporation is a real estate company specializing in the development and asset management of retail shopping centers anchored by value- oriented retailers. When referred to herein, the term "Company" represents JDN Realty Corporation and its wholly-owned subsidiaries. As of December 31, 1998, the Company owned and operated, either directly or indirectly through affiliated entities or joint ventures, 91 shopping center properties containing approximately 12.1 million square feet of gross leasable area ("Company GLA") located in 14 states, primarily in the southeastern United States, with the highest concentrations in Georgia, North Carolina, and Tennessee. As of December 31, 1998, the Company, either directly or indirectly through affiliated entities or joint ventures, had 36 projects under construction. The principal tenants of the Company's properties include Wal-Mart, Lowe's, and Kroger. As of December 31, 1998, no single property accounted for 10% or more of the Company's total assets or total revenues. The Company was incorporated under Maryland law in 1993 and has elected to be treated as a real estate investment trust ("REIT") for federal income tax purposes. The Company holds an interest in JDN Development Company, Inc. ("Development Company"), which is structured such that the Company owns 99% of the economic interest while J. Donald Nichols, the Company's Chairman and Chief Executive Officer, owns the remaining 1% and controls Development Company's operations and activities through his voting common stock ownership. Current tax law restricts the ability of REITs to engage in certain activities, such as the sale of certain properties and third-party fee development. Because it is not a REIT, Development Company may engage in real estate development activities such as sales of all or portions of development projects. As of December 31, 1998, the Company had invested $9.2 million in Development Company in the form of equity capital, $113.7 million in the form of secured notes receivable and $28.1 million in the form of unsecured advances. The Company's business objective is to increase funds from operations per share and maximize shareholder value by: . development of new shopping centers anchored by strong shopping center retailers, . redevelopment and expansion of its existing or newly acquired properties, . effective leasing and management of its properties and ground leasing of adjacent outparcels and . acquisition of existing shopping centers. DESCRIPTION OF BUSINESS Development The Company's primary growth strategy is to develop, on assignment, shopping centers anchored by value-oriented retailers. Through December 31, 1998, the Company and its founders had developed or jointly developed 151 shopping center projects, of which 99 have been built on assignment from Wal-Mart. The Company's primary development relationships continue to be with Wal-Mart and Lowe's with additional significant relationships with Kroger, Target and Home Depot. Management believes that the Company's relationships with these and other value-oriented retailers provide the Company with a superior selection of potential anchor tenants for its shopping centers. Management believes that the selection of the initial tenants for a shopping center project is among the most important factors in determining the initial success and long-term viability of a project. The Company's assignment-based development strategy is designed to reduce the risks associated with development by ensuring that a significant shopping center retailer is committed before the Company 1 spends substantial time or money on a project. Typically, the Company has signed leases or has commitments from shopping center retailers for 80% to 90% of the planned shopping center square footage prior to the purchase of land and the commencement of construction. After obtaining an assignment from a significant retailer in a particular market, the Company generally: . Performs preliminary demographic, traffic and economic studies that indicate particular locations, and estimates preliminary costs associated with those potential sites; . Contacts other major shopping center retailers that the Company believes would be interested in the same market to seek a development assignment; . Obtains an option on the proposed site; . Estimates costs by evaluating soil, water, sewer, environmental and traffic factors, as well as any other costs associated with the particular site; . Develops a site plan, taking into account the physical constraints of the property and the physical requirements of the shopping center retailers, that can be translated into economic terms to set rental rates for anchor tenants; . Reviews the local rental market to determine demand for and pricing of local tenant space; . Contacts potential outparcel users for the site to determine demand for and pricing of outparcels; . Performs financial analyses to confirm that the development meets internal return-on-cost criteria; . After the Company obtains a signed lease or a commitment from a significant shopping center retailer, the Company purchases the land and oversees construction of the shopping center. By adhering to a disciplined development philosophy that mitigates development risks, the Company has generally been able to deliver projects on a timely basis that meet budgeted returns. The Company has historically concentrated its development activities in the Southeast as a result of attractive shopping center development opportunities with major anchor retailers in this region. The Company continues to actively pursue development opportunities within the Southeast based on assignments from major retailers. The Company is also pursuing development opportunities outside the Southeast in areas such as the Midwest, Southwest and California as the result of increased tenant interest and opportunities in these areas with local developers in the form of strategic alliances. Strategic alliances have evolved with local developers who have development opportunities in their local markets. The Company typically owns these projects and compensates the strategic alliance partners on a fee basis. During 1998, the Company, either directly or indirectly through Development Company and joint ventures, completed all or portions of 20 development projects. These projects added approximately 1.8 million square feet of Company GLA to the Company's operating portfolio of shopping center properties and cost approximately $146.1 million. The annualized aggregate unleveraged return on cost for these 20 projects was 11.3%. As of December 31, 1998, the Company, either directly or indirectly through Development Company and joint ventures, had begun construction of a total of 36 projects which when completed are expected to add approximately 3.2 million square feet of Company GLA to the Company's operating portfolio of shopping center properties. Redevelopment and Expansion The Company's objective of continued growth includes the selective redevelopment, retenanting and expansion of existing or recently acquired shopping centers to increase cash flows and property values. Management is active in its tenants' expansion plans as changing demographics and increased sales 2 warrant expansion or relocation. Redevelopment projects have included adding anchor tenants, changing the tenant mix and reconfiguring shopping centers. The Company has worked closely with several anchor tenants to enlarge their stores and enhance merchandising capabilities at existing and recently acquired properties. During 1998, the Company completed the redevelopment of four shopping centers as follows: . In its Topeka, Kansas shopping center, the Company relocated Bauersfeld Grocery from a 42,000 square foot store to a 47,860 square foot store. The Company is in the process of re-leasing the newly vacated space. . In its Canton, Georgia shopping center, the Company relocated Ingles from a 27,200 square foot store to a 62,603 square foot store which was previously a dark Wal-Mart store. The Company is in the process of re-leasing the newly vacated space. . In its Lexington, Virginia and South Boston, Virginia shopping centers, Wal-Mart completed its expansion from discount stores with approximately 65,000 square feet to Supercenters of approximately 175,000 square feet. In conjunction with these expansions, the Company relocated an aggregate of 25,800 square feet of shop space and expanded the shop space at these centers by an aggregate of 22,600 square feet. At December 31, 1998, the Company and Development Company had three redevelopment projects under way: . In its Cartersville, Georgia shopping center, the Company is relocating a 27,200 square foot Ingles into a 60,000 square foot store. Ingles is relocating into space previously occupied by a dark Wal-Mart. . In its Chamblee, Georgia shopping center, the Company is in the process of relocating and expanding a grocery store into vacated space and upgrading the shopping center. . In Milwaukee, Wisconsin, Development Company is relocating a 21,090 square foot Walgreens out of an existing predominately vacant mall and replacing the mall with a 120,000 square foot Wal-Mart. Asset Management The Company's in-house leasing, property management and asset management teams work together to attract and retain national, regional and local tenants and to maintain productive relationships with these tenants. Further, the Company's strong relationships with national and regional non-anchor tenants have contributed to a majority of the non-anchor retail space of each development project being leased prior to completion. The leasing staff seeks a complementary mix of financially qualified tenants. The Company's leasing professionals analyze the financial condition of each retail prospect, evaluate the prospect's business plan and suitability as a tenant in a particular center and recommend the prospect to management. This process increases long-term occupancy and reduces tenant turnover. Successful initial leasing and tenant retention enables the Company to reduce the cost of re-leasing and to maintain occupancy levels. During 1998, on a "same property" basis, the Company achieved the following results: . Net operating income increased 0.6% for the year ended December 31, 1998 as compared to the year ended December 31, 1997, primarily as a result of leasing of vacant space, rental increases from existing tenants and higher percentage rent payments. . At December 31, 1998, the properties were 98.2% leased as compared to 98.1% at December 31, 1997. 3 . Annualized base rent per leased square foot increased to $7.29 as of December 31, 1998 from $7.22 as of December 31, 1997. As of December 31, 1998, the Company's operating portfolio of 91 shopping center properties was 96.4% leased. The Company also seeks to increase shareholder value from its existing portfolio by reviewing properties for disposition. The Company's disposition strategy focuses on selling assets that management believes (1) have reached their maximum earnings potential, (2) have tenants with which the Company has high concentrations and (3) are located in geographic areas with which the Company has high concentrations. The Company also believes that the disposition of assets represents an effective means for it to generate additional capital. The Company intends to utilize different strategies for dispositions, including tax minimizing like-kind exchanges. While the Company has not sold significant assets over the past five years, the Company expects to more aggressively access the disposition market in the future. Acquisitions The Company also seeks to increase its funds from operations per share and shareholder value through selective acquisition activity. The Company intends to continue to acquire, for long-term investment, high-quality, well- located shopping centers with attractive initial yields and strong prospects for future cash flow growth and capital appreciation. The Company's strategy focuses on properties to which its development, leasing and property management teams can add value through redevelopment or expansion, leasing of vacant space or increasing rental rates over time. During 1998, the Company acquired the following 11 shopping center properties: Acquisition Company Purchase Location Date GLA Price - ------------------ ----------- --------- ------------ Milwaukee, WI 2/04/98 383,967 $ 13,262,000 Milwaukee, WI 2/04/98 190,142 10,706,000 Milwaukee, WI 2/04/98 143,454 11,937,000 Milwaukee, WI 2/04/98 217,093 16,527,000 Milwaukee, WI 2/04/98 160,533 6,081,000 Fayetteville, NC 2/23/98 204,291 12,870,000 Antioch, TN 3/31/98 51,533 3,538,000 Franklin, TN 3/31/98 54,411 4,412,000 Chamblee, GA 5/29/98 175,971 11,320,000 Lynchburg, VA 6/22/98 270,767 18,300,000 Denver, CO 10/7/98 244,640 38,148,000 --------- ------------ 2,096,802 $147,101,000 ========= ============ As of December 31, 1998, the Company was pursuing other acquisition opportunities in the ordinary course of business, which are not subject to definitive agreements. In an effort to close these and other acquisitions, the Company may utilize various means which could include, for example, assumption of indebtedness, purchase of mortgage loans or issuance of partnership units in "Down REIT" structures. Tenants As of December 31, 1998, the Company and Development Company had the following significant tenants: 4 Percent of Percent of Company Annualized Tenant GLA Base Rent - ----------------------------------------------------------------------------- Wal-Mart 23.0% 16.6% Lowe's 12.4% 13.1% No other tenants account for more than 10% of Company GLA or annualized base rent in 1998. The loss of any of these tenants or the inability of any of them to pay rent could have an adverse effect on the Company's business. The tenant base of the Company, Development Company and affiliated entities had the following characteristics as of December 31, 1998: Percent of Percent of Company Annualized Type of Tenant GLA Base Rent - ----------------------------------------------------------------------------- Anchor 76.2% 68.8% Non-anchor 20.2% 31.2% Unleased 3.6% 0.0% ------------- ------------- Total 100.00% 100.00% ============= ============= National 72.1% 69.0% Regional 15.2% 16.8% Local 9.1% 14.2% Unleased 3.6% 0.0% ------------- ------------- Total 100.00% 100.00% ============= ============= Competition The Company competes with commercial developers, real estate companies and other real estate owners for development and acquisition opportunities in all of its market areas. Certain of these competitors may have greater capital and other resources than those of the Company. The operations of each shopping center in the Company's portfolio are subject to competition from similar shopping centers in their respective locations. Management believes that the Company is well-positioned to compete effectively for development and acquisition opportunities and is generally well-positioned to compete in markets in which its shopping center properties are located. Environmental Matters The Company is subject to numerous federal, state and local environmental regulations that apply to the development, ownership and operation of real property. In developing shopping centers, the Company engages environmental consultants to determine whether flood plains, wetlands or environmentally sensitive areas are part of the property to be developed. If flood plains are identified, any necessary governmental permits or consents are sought and, if required, development and construction is planned so that flood plain areas are preserved or alternative flood plain capacity is created in conformance with federal and local flood plain management requirements. Stormwater discharge from a construction facility is evaluated in connection with the requirements for stormwater permits under the Clean Water Act, which this is an evolving program in most states. 5 Management anticipates that general stormwater permits will be applicable to the Company's activities and individual permits will not be required for existing or new developments. Four shopping centers acquired in February 1998 contain friable asbestos elbow fitting insulation on mechanical systems throughout the shopping centers and may contain other asbestos containing materials. These materials will be inspected for damage or disturbance periodically and adequate remediation will be performed in the event of any repairs or renovations on the affected area. Some of the buildings on the Company's properties were built when low concentrations of non-friable asbestos were commonly used in building materials such as roof flashings and vinyl floor tile and may contain non-friable asbestos building materials. Management believes that buildings that contain limited amounts of friable asbestos, which is subject to monitoring by the Company, and materials that contain low concentrations of non-friable asbestos, when properly managed and maintained generally do not impose any environmental hazard. The Company's properties may also be affected by materials that contain polychlorinated bipheynis ("PCBs"), such as electrical transformers, owned by other parties located on the Company's properties. Management does not believe that the presence of such materials will result in removal costs that would have a material adverse effect on the Company's financial condition or results of operations in the event of any future major repairs or renovation activities. Any one or more of the Company's shopping centers can potentially be negatively impacted, either through physical contamination or by virtue of an adverse effect on property values by the release of hazardous or toxic substances emanating from areas adjacent to or near the centers. Several of the centers are adjacent to or near areas that either contain or have contained above-ground or underground petroleum storage tanks that either have or may have released petroleum products into the soil or groundwater. At least five of the Company's shopping center properties at one time contained underground storage tanks that were used to store petroleum products. Soil and groundwater contamination has been the subject of remediation efforts and has been documented at one of these sites. The Company's general policy is to obtain a new or updated environmental assessment each time it develops or acquires a property. The Company had Phase I environmental assessments conducted on each property on which it began construction during 1998. The Company had Phase I or Phase II environmental assessments on all except one property it acquired during 1998. The terms of all agreements for purchase and sale of properties the Company has acquired or will acquire contain or are expected to contain representations related to the sellers' knowledge of existing environmental conditions. Generally, sellers do not assume responsibility for any liability relating to existing adverse environmental conditions that are not known to the seller. Moreover, because the terms of the Company's leases with its shopping center tenants do not give the Company control over the day-to-day operational activities of the tenants, no assurance can be given that any lessee of a property owned or to be owned by the Company has not and will not create a hazardous environmental condition. The Company has not been notified by any governmental authority of any material noncompliance, environmental claim or liability in connection with any of its shopping centers. The Company has not been notified of any claim for personal injury or property damage by a private party in connection with any of its properties as a result of environmental conditions. The Company is not aware of any other environmental condition or liability with respect to any of its properties that management believes would have a material adverse effect on the Company's financial position or results of operations. Employees As of March 1, 1999, the Company and Development Company employed 94 full- time individuals and one part-time individual, including executive, administrative and field personnel. 6 Executive Officers
Name Age Positions with the Company ---- --- -------------------------- J. Donald Nichols 58 Chairman and Chief Executive Officer Elizabeth L. Nichols 45 President and Director William J. Kerley 43 Senior Vice President, Chief Financial Officer, Secretary, Treasurer Jeb L. Hughes 47 Senior Vice President, Development of JDN Development Company, Inc. Laurie A. Farris 36 Vice President and Director of Acquisitions John D. Harris, Jr. 39 Vice President, Controller and Assistant Secretary David L. Henzlik 36 Vice President, Leasing Leilani L. Jones 37 Vice President and Director of Property Management and Assistant Secretary C. Sheldon Whittelsey, IV 37 Vice President, Development
The following is a biographical summary of the experience of the executive officers of the Company: J. Donald Nichols. Mr. Nichols has served as Chairman and Chief Executive Officer of the Company since its formation in December 1993. In 1978, Mr. Nichols formed JDN Enterprises, Inc., the Company's predecessor ("Enterprises"), for the purpose of developing shopping centers anchored primarily by Wal-Mart. He served as President of Enterprises from its inception until 1989, at which time Mr. Nichols became Chairman. Mr. Nichols served as Chairman of Enterprises until he assumed his current position with the Company. Elizabeth L. Nichols. Ms. Nichols has served as President of the Company since its formation in December 1993. Ms. Nichols joined Enterprises in 1980, where she arranged permanent and construction financing, performed market due diligence and site acquisition, and negotiated leases. Ms. Nichols organized the formation of Enterprises' in-house property management and leasing departments in 1984. Ms. Nichols was Vice President of Finance for Enterprises from 1982 until 1989, when she became President. Ms. Nichols served as President of Enterprises until she assumed her current position with the Company. Mr. Nichols and Ms. Nichols are husband and wife. William J. Kerley. Mr. Kerley has served as Senior Vice President and Chief Financial Officer of the Company since May 1998. From the Company's inception in December 1993 to May 1998, Mr. Kerley served as Chief Financial Officer, Secretary and Treasurer of the Company. Mr. Kerley served as Chief Financial Officer of Enterprises from August 1993 to December 1993. From 1989 to 1993, Mr. Kerley was a consultant to Enterprises and other real estate and operating companies in the southeastern United States. Jeb L. Hughes. Mr. Hughes has served as Senior Vice President, Development of Development Company since May 1998. From May 1996 to May 1998, Mr. Hughes served as Vice President, Development of Development Company. Mr. Hughes joined Enterprises in 1989 and managed the development and construction of shopping centers for Enterprises until it was merged into the Company in 7 December 1993. Mr. Hughes was self-employed and acted as a consultant to Development Company from January 1994 to May 1996. Laurie A. Farris. Ms. Farris has served as Vice President and Director of Acquisitions since joining the Company in June 1997. From August 1991 to June 1997, Ms. Farris served as Vice President, Senior Commercial Real Estate Underwriter and Portfolio Manager of First Union National Bank in Nashville, Tennessee. Ms. Farris is a Certified Commercial Investment Member ("CCIM"). John D. Harris, Jr. Mr. Harris has served as Vice President and Controller of the Company since May 1998. From July 1994 to May 1998, Mr. Harris served as Controller of the Company. From 1984 to July 1994, Mr. Harris was employed by the Atlanta, Georgia, office of Ernst & Young, most recently holding the position of Senior Manager, where he specialized in serving real estate and entrepreneurial companies. Mr. Harris is a certified public accountant. David L. Henzlik. Mr. Henzlik joined Enterprises in 1989 as a leasing agent and has served as Vice President, Leasing of the Company since March 1995. Leilani L. Jones. Ms. Jones has served as Vice President and Director of Property Management of the Company since its formation in December 1993 and as Assistant Secretary since May 1997. Ms. Jones joined Enterprises in 1985 and served as Vice President and Director of Property Management from 1990 until December 1993. Ms. Jones is a Certified Property Manager and a CCIM. C. Sheldon Whittelsey, IV. Mr. Whittelsey has served as Vice President, Development of the Company since its formation in December 1993. Mr. Whittelsey joined Enterprises in 1986 where he was involved in site acquisition, development and outparcel sales. Financial Information About Industry Segments The Company is in the business of development, redevelopment, asset management and acquisition of shopping centers. The Company considers its activities to consist of a single industry segment. See the Consolidated Financial Statements and Notes thereto included in Item 8 of this Annual Report on Form 10-K for certain information required in Item 1. Item 2. Properties - ------------------- The Company's corporate headquarters are located in a building it owns at 359 East Paces Ferry Road, Suite 400, Atlanta, Georgia 30305. The Company coordinates most of its corporate activities from its headquarters, although the Company also maintains offices in Nashville, Tennessee; Charlotte, North Carolina; Birmingham, Alabama; Los Angeles, California; and Bentonville, Arkansas. As of December 31, 1998, the Company owned and operated, either directly or indirectly through affiliated entities or joint ventures, 91 shopping center properties totaling approximately 12.1 million square feet of gross leasable area. The following table sets forth information on these properties as of December 31, 1998: 8
JDN REALTY CORPORATION OPERATING PORTFOLIO DECEMBER 31, 1998 Year Built/ Renovated Total Company Percent Location or Expanded GLA (1) GLA Leased Anchor Stores - ------------------------------------------------------------------------------------------------------------------------------------ ALABAMA Decatur 1965/1996 122,956 122,956 87.8% Food World Gadsden 1979 131,044 85,341 93.9% rld(2), Public Wholesale, Food World(2), Eckerd Opelika 1993/1995 306,225 306,225 100.0% 100.0% Wal-Mart, Lowe's, Winn-Dixie, Goody's, CVS COLORADO Denver 1997 244,640 244,640 98.6% King Soopers, Homeplace, OfficeMax, Just for feet PetsMart FLORIDA Brandon 1997 243,204 115,949 97.9% Lowe's(2), Jumbo Sports Fort Walton Beach 1986 21,900 21,900 65.8% Wal-Mart(2) Gulf Breeze 1998 172,058 3,426 0.0% Wal-Mart(2) Ocala 1984/1991 151,338 151,338 98.2% Wal-Mart, Winn Dixie Tallahassee 1990/1994 265,304 109,055 98.9% Wal-Mart(2), Lowe's GEORGIA Alpharetta 1998 129,044 129,044 100.0% Lowe's Buford 1998 353,251 353,251 98.9% Wal-Mart, Lowe's Canton 1983 127,854 127,854 75.3% Ingles, CVS Canton (5) 1996 238,026 238,026 100.0% Wal-Mart Cartersville 1984 52,240 52,240 87.0% Ingles, Eckerd Cartersville 1995 375,828 375,828 100.0% Wal-Mart, Lowe's Chamblee 1976 175,971 175,971 87.0% Winn Dixie, CVS Conyers (4) 1996 420,816 119,698 100.0% Wal-Mart(2), Home Depot(2),Rhodes Cordele 1997 176,054 176,054 100.0% Wal-Mart Cumming 1997 428,754 297,655 95.4% Wal-Mart(2),Home Depot(2), Goody's, Office Max Eastman 1990 82,907 41,604 100.0% Wal-Mart(2), Food Lion Fayetteville 1990 156,063 156,063 91.3% Cub Foods, Cinemark Movies, C Fort Oglethorpe 1973/1992 176,903 176,903 97.6% Kmart, Albertson's, CVS Griffin 1986 172,546 64,772 93.7% Wal-Mart(2), Winn-Dixie LaFayette 1990 73,648 73,648 85.5% Food Lion, Goody's LaGrange 1984 62,990 62,990 100.0% Wal-Mart Lawrenceville 1998 10,126 10,126 100.0% CVS Lawrenceville 1990 89,064 89,064 97.2% Winn-Dixie, Eckerd Lawrenceville 1989/1995 277,078 277,078 98.5% Wal-Mart, Kroger, Regal Cinemas Lilburn 1990 73,951 73,951 100.0% Kroger Lilburn 1997 132,847 132,847 100.0% Lowe's Loganville 1995 95,277 91,197 96.9% Kroger Madison 1989 106,100 106,100 91.1% Wal-Mart, Ingles, Advance Auto Marietta 1997 151,047 151,047 95.8% Lowe's Newnan 1995 426,725 360,669 100.0% Wal-Mart, Lowe's, Uptons(2) Peachtree City 1997 10,800 10,800 100.0% Pike Nurseries Riverdale 1989 80,186 22,401 100.0% Kroger(2) Rome 1980 38,506 38,506 100.0% Big Lots Stockbridge 1988 162,779 162,779 97.7% Kmart, Ingles Stockbridge 1997 10,800 10,800 100.0% Pike Nurseries Suwanee 1997 43,393 43,393 53.8% Pike Nurseries Tucker 1998 199,549 64,905 100.0% Wal-Mart(2) Union City 1986 181,956 100,004 100.0% Wal-Mart(2), Ingles, Drug Emporium Warner Robins (3) 1997 145,939 145,939 100.0% Lowe's Woodstock 1995 170,942 170,942 100.0% Wal-Mart Woodstock 1997 132,847 132,847 100.0% Lowe's Woodstock 1997 11,020 11,020 100.0% Pike Nurseries 9
JDN REALTY CORPORATION OPERATING PORTFOLIO DECEMBER 31, 1998 Year Built/ Renovated Total Company Percent Location or Expanded GLA (1) GLA Leased Anchor Stores - ------------------------------------------------------------------------------------------------------------------------------------ KANSAS Topeka 1976 125,657 125,657 57.1% Bauersfeld's Grocery KENTUCKY Lexington 1998 340,029 23,392 100.0% - Richmond 1992 229,314 158,042 100.0% Kmart, Lowe's(2), Food Lion, Rite Aid MISSISSIPPI Jackson 1996 326,519 107,980 98.6% Target(2), Home Depot(2), Office Depot, PetsMart, Fred's Jackson 1997 159,684 51,301 71.9% Office Depot, Home Depot(2) NORTH CAROLINA Asheville 1996 186,970 186,970 100.0% Food Lion, Circuit City, Carmike Cinemas, OfficeMax, Michael's Fayetteville 1985 204,291 204,291 91.3% Circuit City,Staples, TJ Maxx, General Cinemas, Discovery Zone Greensboro 1997 464,756 342,215 99.6% Target(2), Kohl's, Kroger, Homeplace, Babies 'R Us, PetsMart Greenville 1996 329,818 232,818 100.0% Target(2), Kroger, TJ Maxx, Circuit City, Barnes & Noble, Reading China Hendersonville 1988/1995 133,052 133,052 99.1% Wal-Mart, Ingles Rockingham 1988 168,776 168,776 100.0% Wal-Mart, Lowe's, Harris Teeter Wallace 1989 118,991 118,991 95.5% Wal-Mart, Wilson's Wilmington 1991 169,432 169,432 99.4% Wal-Mart, Winn-Dixie Wilmington 1998 262,191 139,941 89.0% Target(2), Marshalls, PetsMart, OfficeMax OHIO Burlington 1991/1995 356,181 159,359 100.0% Lowe's, Sam's Club(2), Wal-Mart(2) Gallipolis 1998 212,158 212,158 91.5% Wal-Mart PENNSYLVANIA Monaca 1997 150,010 150,010 94.9% Lowe's SOUTH CAROLINA Charleston 1991 196,049 196,049 99.5% Wal-Mart, Food Lion Cheraw 1990 111,029 45,099 100.0% Wal-Mart(2), Food Lion Lake City 1991 135,962 135,962 100.0% Wal-Mart, I.G.A. Sumter 1987 158,293 19,143 100.0% Wal-Mart(2), Kroger(2) TENNESSEE Antioch 1990 51,533 51,533 94.0% Food Lion, Walgreen's Chattanooga 1992 214,579 214,579 100.0% Kmart, Albertson's Columbia 1993 68,948 68,948 100.0% Albertson's Farragut 1991 71,311 71,311 94.7% BI-LO Franklin 1983 186,000 18,000 100.0% Big Lots(2) Franklin 1990 54,411 54,411 84.9% Food Lion, Eckerd Goodlettsville 1987 84,945 84,945 100.0% Kroger Memphis 1993 64,223 64,223 94.0% Kroger Murfreesboro 1972/1993 117,750 117,750 100.0% Albertson's Murfreesboro 1972/1994 71,028 71,028 100.0% Kroger Murfreesboro 1998 202,291 79,291 100.0% Target(2),TJ Maxx, Books-a-Million, Party City Nashville 1998 200,084 200,084 100.0% Wal-Mart Tullahoma 1989 79,404 79,404 94.5% BI-LO
10 JDN REALTY CORPORATION OPERATING PORTFOLIO DECEMBER 31, 1998
Year Built/ Renovated Total Company Percent Location or Expanded GLA (1) GLA Leased Anchor Stores - ------------------------------------------------------------------------------------------------------------------------------------ VIRGINIA Chester 1977/1978 116,311 116,311 100.0% Ukrop's, Rite-Aid Lexington 1989/1997 94,370 94,370 95.8% Wal-Mart Lynchburg 1990 315,767 270,767 84.4% Goody's, Cinemark Movies, Staples, TJ Maxx, Circuit City Midlothian 1985 79,408 79,408 92.7% Food Lion, CVS South Boston 1989/1997 90,330 90,330 100.0% Wal-Mart WISCONSIN Brookfield 1967 190,142 190,142 98.7% Homegoods, Burlington Coat Factory, TJ Maxx, OfficeMax Brown Deer 1967 217,093 217,093 100.0% TJ Maxx, Kohl's, OfficeMax, Michael's Brown Deer 1989 143,454 143,454 100.0% Pick 'N Save, Homegoods Milwaukee 1962 160,533 160,533 100.0% Kohl's, Pick 'N Save Milwaukee 1951 106,409 106,409 100.0% Movies 10, Dunham's, Walgreen's West Allis (6) 1968 383,967 383,967 100.0% Kohl's, Pick 'N Save, Homegoods, Walgreen's TOTAL 15,315,949 12,097,775 96.4% ====================================================================================================================================
(1) Total GLA includes anchor stores that are not owned by the Company. (2) Anchor store that is not owned by the Company. (3) Lowe's store owned by Development Company. Remainder of center owned by the Company. (4) Property owned by a joint venture which is 72% owned by Development Company and 28% owned by unaffiliated third parties. (5) Wal-Mart store owned by Development Company. Remainder of center owned by the Company. (6) Property owned by a joint venture which is approximately 82.5% owned by the Company and approximately 17.5% owned by unaffiliated third parties. 11 Item 3. Legal Proceedings - -------------------------- The Company is, from time to time, a party to legal proceedings which arise in the ordinary course of its business. The Company is not currently involved in any litigation nor, to management's knowledge, is any litigation threatened against the Company, the outcome of which would, in management's judgement based on information currently available, have a material adverse effect on the financial position or results of operations of the Company. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ No matter was submitted to a vote of security holders during the fourth quarter of 1998. 12 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters - ------------------------------------------------------------------------------ The Company's common shares are traded on the New York Stock Exchange ("NYSE") under the symbol "JDN." The following table sets forth the high and low trading prices per common share and the distributions declared per common share (each as adjusted for the Company's three-for-two stock split in June 1998) for the periods indicated, as reported by the NYSE: Distributions Declared Per High Low Share ---- ---- ------------- 1997 First Quarter $ 19.4167 $ 16.8333 $ 0.3167 Second Quarter 20.9167 17.5000 0.3333 Third Quarter 22.7083 20.2500 0.3333 Fourth Quarter 23.3333 20.0000 0.3333 1998 First Quarter 23.0000 20.4167 0.3333 Second Quarter 23.0000 20.4167 0.3600 Third Quarter 23.1250 18.6250 0.3600 Fourth Quarter 22.7500 19.4375 0.3600 The Company intends to pay regular quarterly distributions to common shareholders. Future distributions will be declared and paid at the discretion of the Board of Directors and will depend upon cash generated by operating activities, the Company's financial condition, capital requirements, annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended, distributions to the Company's preferred shareholders and such other factors as the Board of Directors deems relevant. The Company anticipates that for the foreseeable future cash available for distribution will be greater than earnings and profits due to non-cash expenses, primarily depreciation and amortization. Distributions by the Company to the extent of its current and accumulated earnings and profits for federal income tax purposes are taxable to shareholders as ordinary dividend income. Distributions in excess of earnings and profits generally are treated as a non- taxable return of capital. Such distributions have the effect of deferring taxation until the sale of a shareholder's common stock. In order to maintain its qualification as a REIT, the Company must make annual distributions to shareholders of at least 95% of its taxable income. Under certain circumstances, which management does not expect to occur, the Company could be required to make distributions in excess of cash available for distributions in order to meet such requirements. The Company currently maintains the JDN Realty Corporation Dividend Reinvestment and Stock Purchase Plan which enables its shareholders to automatically reinvest distributions as well as make voluntary cash payments towards the purchase of additional shares. As of March 3, 1999, there were 503 holders of record of the Company's common stock and approximately 18,900 beneficial holders. 13 ITEM 6. SELECTED FINANCIAL DATA - -------------------------------
Years Ended December 31, -------------------------------------------------------------------------- Pro Forma (dollars in thousands, except per share data) 1998 1997 1996 1995 1994 (1) 1994 - -------------------------------------------------------------------------------------------------------------------------------- OPERATING DATA Minimum and percentage rents $ 71,191 $ 43,346 $ 32,933 $ 27,466 $ 21,889 $ 19,013 Recoveries from tenants 10,003 4,512 3,475 3,245 2,806 2,500 Other revenue 117 147 215 651 515 512 -------------------------------------------------------------------------- Total revenues 81,311 48,005 36,623 31,362 25,210 22,025 Operating and maintenance expenses 6,439 3,201 2,586 2,231 1,878 1,618 Real estate taxes 5,316 2,540 1,817 1,970 1,504 1,321 General and administrative expenses 7,105 4,265 3,367 2,818 2,359 2,236 Depreciation and amortization 16,824 10,130 7,786 6,558 5,493 4,768 -------------------------------------------------------------------------- Total expenses 35,684 20,136 15,556 13,577 11,234 9,943 Income from operations 45,627 27,869 21,067 17,785 13,976 12,082 Interest expense, net 9,454 4,856 5,598 6,977 6,882 6,919 Income before extraordinary items 41,337 27,585 16,697 11,268 7,024 5,093 Net income 41,337 21,293 16,682 10,737 7,024 3,001 Net income attributable to common shareholders 39,996 21,293 16,682 10,737 7,024 3,001 OTHER DATA Funds from operations (2) $ 56,792 $ 37,701 $ 24,683 $ 17,234 $ 12,492 $ 9,836 Cash provided by (used in) Operating activities 56,060 41,577 26,070 18,052 11,636 9,705 Investing activities (352,096) (204,578) (83,983) (61,118) 156,620 156,620 Financing activities 284,597 171,731 57,513 45,738 147,267 147,267 Ratio of earnings to fixed charges 2.41 2.62 2.29 1.90 1.94 1.64 PER SHARE DATA (3) Net income per common share Basic $ 1.30 $ 0.92 $ 1.00 $ 0.81 $ 0.62 $ - (4) Diluted $ 1.28 $ 0.91 $ 1.00 $ 0.81 $ 0.62 $ - (4) Dividends per common share $ 1.41 $ 1.32 $ 1.25 $ 1.20 $ - $ 0.89 December 31, --------------------------------------------------------------- 1998 1997 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA Shopping center properties 91 68 48 42 38 Gross leasable area (square feet in thousands) 12,098 8,327 6,135 4,953 3,971 Percent of gross leasable area leased 96.4% 97.1% 98.2% 98.9% 97.9% December 31, --------------------------------------------------------------- (dollars in thousands) 1998 1997 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA Shopping center properties before accumulated depreciation $ 847,266 $ 535,303 $ 332,669 $ 276,818 $229,522 Shopping center properties, net 791,173 496,997 304,696 256,506 215,687 Total assets 968,922 599,753 371,986 295,868 237,008 Unsecured debt 383,092 203,011 - - - Total debt 425,563 216,602 141,882 128,839 113,332 Total liabilities and minority interest 450,877 228,165 145,447 135,882 118,837 Shareholders' equity 518,045 371,588 226,539 159,986 118,171
(1) Pro forma information represents the results of operations as if the Company's initial public offering and related transactions had been completed on January 1, 1994. (2) Funds from operations ("FFO") is defined by the National Association of Real Estate Investment Trusts, Inc. to mean net income, computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains or losses from debt restructuring and sales of property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. The Company believes that FFO is helpful to investors as a measure of the performance of an equity REIT because, along with cash provided by operating activities, investing activities and financing activities, it provides investors with an indication of the ability of the Company to make capital expenditures and to fund other cash needs. The Company's method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. FFO does not represent cash provided by operating activities, as defined by GAAP, should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of operating performance and is not indicative of cash available to fund all cash flow needs, including the Company's ability to make cash distributions. (3) Earnings per share amounts prior to 1998 have been restated to reflect a 3- for-2 common stock split effected in the form of stock dividend in June of 1998. (4) Earnings per share data for 1994 is not relevant because the results of operations include the period prior to the Company's initial public offering, which represents combined operations of partnerships and corporations. Net income per share-basic and net income per share-diluted for the period subsequent to the Company's initial public offering, March 29,1994 to December 31,1994 were each $.28. ________________________________________________________________________________ 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - -------------------------------------------------------------------------------- OF OPERATIONS - ------------- The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. OVERVIEW JDN Realty Corporation (the "Company") is a real estate development company which specializes in the development and asset management of retail shopping centers anchored by value-oriented retailers. As of December 31, 1998, the Company owned and operated, either directly or through affiliated entities or joint ventures, a total of 91 shopping center properties and had 36 retail projects under construction. The Company has elected to be taxed as a real estate investment trust ("REIT") for federal income tax purposes. The Company holds an interest in JDN Development Company, Inc. ("Development Company") which is structured such that the Company owns 99% of the economic interest while J. Donald Nichols, the Company's Chairman and Chief Executive Officer, owns the remaining 1% and controls Development Company's operations and activities through his voting common stock ownership. Current tax law restricts the ability of REITs to engage in certain activities, such as the sale of certain properties and third party fee development. Because it is not a REIT, Development Company may engage in real estate development activities such as sales of all or portions of development projects. As of December 31, 1998, the Company had invested $9.2 million in Development Company in the form of equity capital, $113.7 million in the form of secured notes receivable and $28.1 million in the form of unsecured advances. RESULTS OF OPERATIONS Comparison of the Year Ended December 31, 1998 to the Year Ended December 31, 1997. Minimum and percentage rents increased $27.8 million or 64.2% to $71.2 million for the year ended December 31, 1998 from $43.3 million for the same period in 1997. During 1998 and 1997, the Company began operations at 28 properties developed or redeveloped by the Company totaling 3.5 million square feet (the "98/97 Development Properties"). Minimum and percentage rents increased $13.5 million for the year ended December 31, 1998 over the same period in 1997 due to the 98/97 Development Properties. During 1998 and 1997, the Company acquired 21 shopping center properties from third parties totaling 3.1 million square feet of gross leasable area (the "98/97 Acquisition Properties"). Minimum and percentage rents increased $13.9 million for the year ended December 31, 1998 over the same period in 1997 as a result of the operations of the 98/97 Acquisition Properties. The remaining increase relates to higher minimum and percentage rents at existing properties. Recoveries from tenants increased $5.5 million to $10.0 million for the year ended December 31, 1998 from $4.5 million for the same period in 1997. Of this increase, $897,000 relates to the 98/97 Development Properties and $4.2 million relates to the 98/97 Acquisition Properties. The remaining increase relates to an increase in recoverable expenses at existing properties. Other revenue decreased $30,000 or 20.4% to $117,000 for the year ended December 31, 1998 from $147,000 for the same period in 1997. This decrease is the result of a reduction in revenues associated with managing and leasing fewer properties for third-party owners. Operating and maintenance expenses increased $3.2 million to $6.4 million for the year ended December 31, 1998 from $3.2 million for the same period in 1997. Of this increase, $408,000 relates to the 98/97 Development Properties and $2.7 million relates to the 98/97 Acquisition Properties. The remaining increase relates to increased expenses at existing properties. Real estate taxes increased $2.8 million to $5.3 million for the year ended December 31, 1998 from $2.5 million for the same period in 1997. Of this increase, $613,000 relates to the 98/97 15 Development Properties and $1.9 million relates to the 98/97 Acquisition Properties. The remaining increase relates to increased real estate taxes at existing properties. General and administrative expenses increased $2.8 million or 66.6% to $7.1 million for the year ended December 31, 1998 from $4.3 million for the same period in 1997. General and administrative expenses as a percentage of minimum and percentage rents increased slightly to 10.0% for the year ended December 31, 1998 from 9.8% for the year ended December 31, 1997. The increase in absolute dollars primarily reflects the cost of additional employees and other expenses associated with the increased number of properties owned and operated by the Company. Depreciation and amortization expense increased $6.7 million or 66.1% to $16.8 million for the year ended December 31, 1998 from $10.1 million for the same period in 1997. Of this increase, $2.9 million relates to the 98/97 Development Properties and $3.8 million relates to the 98/97 Acquisition Properties. Changes in depreciation and amortization expense at existing properties were not material. Interest expense, net of capitalized amounts, increased $4.6 million or 94.7% to $9.5 million for the year ended December 31, 1998 from $4.9 million for the same period in 1997. This increase results primarily from an increase in average debt balances between 1998 and 1997. Other income, net decreased $260,000 or 21.6% to $945,000 for the year ended December 31, 1998 from $1.2 million for the same period in 1997. The decrease is primarily attributable to the decreased interest income associated with the cancellation of a $10.5 million mortgage note receivable in February 1998, offset by an increase in interest income earned on an $8.0 million mortgage note receivable issued in April 1998. Equity in net income of unconsolidated entities increased $669,000 or 19.9% to $4.0 million for the year ended December 31, 1998 from $3.4 million for the same period in 1997. This increase results primarily from an increase in net gains on land sales by Development Company. Minority interest in net income of consolidated subsidiary for the year ended December 31, 1998 of $196,000 represents a third-party investors' share of the net income of a limited partnership that was formed in February 1998 to own and operate a shopping center located in Milwaukee, Wisconsin. There was no such minority interest in 1997. Net gain on real estate sales for the year ended December 31, 1998 of $379,000 represents a gain on the sale of two parcels of land, one located in Hickory, North Carolina and the other in Lexington, Virginia. Net loss on real estate sales for the year ended December 31, 1997 of $352,000 represents a loss on the sale of two parcels of land in Wilmington, North Carolina. Extraordinary items of $5.9 million for the year ended December 31, 1997 represent charges to earnings of unamortized deferred financing costs and prepayment penalties associated with the termination of a secured line of credit in May 1997 and the prepayment of a $75.0 million secured term loan in August 1997. There were no extraordinary items for the year ended December 31, 1998. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Minimum and percentage rents increased $10.4 million or 31.6% to $43.3 million for the year ended December 31, 1997 from $32.9 million for the same period in 1996. During 1997 and 1996, the Company began operations at 15 properties developed by the Company totaling 1.9 million square feet (the "97/96 Development Properties"). Minimum and percentage rents increased $5.6 million for the year ended December 31, 1997 over the same period in 1996 due to the 97/96 Development Properties. During 1997 and 1996, the Company acquired nine shopping center properties from unrelated third parties totaling 916,000 square feet of gross leasable area. In addition, during 1997, the Company acquired unaffiliated joint venture partners' interests in the limited liability companies which owned two properties located in Asheville, North Carolina and Loganville, Georgia (the "Joint Ventures") and changed its accounting for these two properties from the equity method to the consolidated method. Minimum and percentage rents increased $4.5 million for the year ended December 31, 1997 over the same period in 1996 due to the operations of the 11 properties acquired as noted above (collectively, the 16 "97/96 Acquisition Properties"). The remaining increase relates to higher rental revenues at the existing properties. Recoveries from tenants increased $1.0 million or 29.8% to $4.5 million for the year ended December 31, 1997 from $3.5 million for the same period in 1996. Of this increase, $346,000 relates to the 97/96 Development Properties and $716,000 relates to the 97/96 Acquisition Properties. The increases are offset by a decrease in recoveries at the remaining properties Other revenue decreased $68,000 or 31.6% to $147,000 for the year ended December 31, 1997 from $215,000 for the same period in 1996. This decrease is the result of a reduction in revenues associated with managing and leasing fewer properties for third-party owners. Operating and maintenance expenses increased $615,000 or 23.8% to $3.2 million for the year ended December 31, 1997 from $2.6 million for the same period in 1996. Of this increase, $236,000 relates to the 97/96 Development Properties and $387,000 relates to the 97/96 Acquisition Properties. The increases are offset by a slight decrease in operating expenses at the existing properties. Real estate taxes increased $723,000 or 39.8% to $2.5 million for the year ended December 31, 1997 from $1.8 million for the same period in 1996. Of this increase, $171,000 relates to the 97/96 Development Properties and $454,000 relates to the 97/96 Acquisition Properties. The remaining increase relates to increased taxes at the existing properties. General and administrative expenses increased $898,000 or 26.7% to $4.3 million for the year ended December 31, 1997 from $3.4 million for the same period in 1996. General and administrative expenses as a percentage of minimum and percentage rents decreased to 9.8% for the year ended December 31, 1997 from 10.2% for the year ended December 31, 1996. The increase in absolute dollars primarily reflects the cost of additional employees and other expenses associated with an increase in the number of properties owned and operated by the Company. Depreciation and amortization expense increased $2.3 million or 30.1% to $10.1 million for the year ended December 31, 1997 from $7.8 million for the same period in 1996. Of this increase, $1.2 million relates to the 97/96 Development Properties and $1.0 million relates to the 97/96 Acquisition Properties. The remaining increase relates primarily to amortization of tenant improvements, tenant allowances and leasing commissions for new tenants at existing properties. Interest expense, net of capitalized amounts, decreased $1.0 million or 17.2% to $4.9 million for the year ended December 31, 1997 from $5.9 million for the same period in 1996. This decrease is primarily attributable to the repayment of debt with proceeds from equity offerings in 1997 and 1996. Other income increased $1.1 million to $1.2 million for the year ended December 31, 1997 from $83,000 for the same period in 1996. This increase is due primarily to interest income earned on a $10.5 million mortgage note receivable executed in December 1996. Equity in net income of unconsolidated entities increased $2.0 million to $3.4 million for the year ended December 31, 1997 from $1.4 million for the same period in 1996. This increase is due to the operations of the Joint Ventures and to the operations of the four properties operated by Development Company in Canton, Georgia; Conyers, Georgia; Warner Robins, Georgia; and Steubenville, Ohio. In addition, Development Company recognized gains due to its increased land sales activity and the sale of shopping centers in Steubenville, Ohio and Winston-Salem, North Carolina. Net loss on real estate sales was $352,000 for the year ended December 31, 1997 compared to $15,000 for the year ended December 31, 1996. The 1997 loss resulted from the sale of two parcels of land located in Wilmington, North Carolina. The 1996 loss resulted from additional expenses associated with the fourth quarter 1995 sale of a shopping center located in Hickory, North Carolina. Extraordinary items of $5.9 million for the year ended December 31, 1997 represent charges to earnings of unamortized deferred financing costs and prepayment penalties associated with the termination of a secured line of credit in May 1997 and the prepayment of a $75.0 million secured term loan in August 1997. There were no extraordinary items for the year ended December 31, 1996. 17 FUNDS FROM OPERATIONS Funds from operations ("FFO") is defined by the National Association of Real Estate Investment Trusts, Inc. to mean net income, computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains or losses from debt restructuring and sales of property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. The Company believes that FFO is helpful to investors as a measure of the performance of an equity REIT because, along with cash provided by operating activities, investing activities and financing activities, it provides investors with an indication of the Company's ability to make capital expenditures and to fund other cash needs. The Company's method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. FFO does not represent cash provided by operating activities as defined by GAAP, should not be considered an alternative to net income (determined in accordance with GAAP) as an indication of operating performance and is not indicative of cash available to fund all cash flow needs, including the Company's ability to make cash distributions. The Company has presented below the calculation of FFO for the periods indicated:
Years Ended December 31, 1998 1997 1996 ------------------------------------- (in thousands) Net income attributable to common shareholders $39,996 $21,293 $16,682 Depreciation of real estate assets 15,854 9,497 7,303 Amortization of tenant allowances and tenant improvements 178 144 104 Amortization of deferred leasing commissions 283 291 255 Net (gain) loss on real estate sales (379) 352 15 Extraordinary items - 5,940 - Adjustments related to activities in unconsolidated entities 860 184 324 ------------------------------------- FFO $56,792 $37,701 $24,683 =====================================
LEASING The Company's properties were 96.4% leased as of December 31, 1998, 97.1% leased as of December 31, 1997 and 98.2% leased as of December 31, 1996. The decrease from 1997 to 1998 and from 1996 to 1997 is attributable to shop tenant vacancy at newly developed shopping centers and shopping centers with unleased space acquired by the Company as redevelopment opportunities. The 43 properties that the Company owned and operated for all of 1997 and 1998, were 98.1%, 98.4% and 98.4% leased as of December 31, 1998, 1997 and 1996, respectively. FORWARD-LOOKING STATEMENTS Management has included herein certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. When used, statements which are not historical in nature including the words "anticipate," "estimate," "should," "expect," "believe," "intend" and similar expressions are intended to identify forward-looking statements. Such statements are, by their nature, subject to certain risks and uncertainties. Among the factors that could cause actual results to differ materially from those projected are the following: business conditions and the general economy, especially as they affect interest rates; business conditions as they affect value-oriented retailers; the federal, state and local regulatory environment; availability of debt and equity capital with favorable terms and conditions; availability of new development and acquisition opportunities; changes in the financial condition or corporate strategy of the Company's primary retail tenants and in particular Wal-Mart and Lowe's; ability to complete and lease existing development and redevelopment projects on schedule and within budget; and inability of 18 the Company to maintain its qualification as a REIT. Other risks, uncertainties and factors that could cause actual results to differ materially from those projected are detailed from time to time in reports filed by the Company with the Securities and Exchange Commission, including Forms 8-K, 10-Q and 10-K. LIQUIDITY AND CAPITAL RESOURCES Sources and Uses of Funds - ------------------------- Historically, the Company's primary sources of funds have been cash generated from operating activities and proceeds from lines of credit, debt offerings and equity offerings. The Company's primary uses of funds have been development, redevelopment and acquisition of shopping center properties, distributions to shareholders, scheduled debt amortization, and capital improvements to existing shopping center properties. The Company generally has used cash generated from operating activities to fund its distributions to shareholders, scheduled debt amortization and capital improvements to existing properties. The Company has used proceeds from lines of credit to finance its development, redevelopment and acquisition activities. The Company has used proceeds from debt and equity offerings to repay outstanding indebtedness and to fund its ongoing development, redevelopment and acquisition activities. During 1998 the Company funded $159.6 million in development and redevelopment costs and advanced $75.4 million to Development Company to fund its development activities. In addition, during 1998 the Company acquired 11 shopping centers from six third-party sellers for aggregate consideration of $147.6 million. The Company funded these acquisitions with the following: . Advances under its unsecured line of credit (the "Unsecured Line of Credit") of $105.5 million; . Assumption of indebtedness of $28.6 million; . Issuance of limited partnership units valued at $3.0 million in a limited partnership formed to own and operate a shopping center; and . Cancellation of a $10.5 million mortgage loan receivable from the seller of one of the shopping center properties. As a result of this development, redevelopment and acquisition activity, the Company completed seven public capital markets transactions in 1998. In five of these transactions, the Company issued an aggregate of 3.8 million shares of its common stock which netted proceeds of $101.0 million. The Company also issued 2.0 million shares of its 9 3/8% Series A Cumulative Preferred Stock which netted proceeds of $48.2 million. In addition, the Company issued $75.0 million of 6.918% MandatOry Par Put Remarketed Securities(sm) (the "MOPPRS"). In connection with the issuance of the MOPPRS, Merrill Lynch, Pierce, Fenner and Smith Incorporated ("Merrill Lynch") purchased an option to remarket the MOPPRS on March 31, 2003. The Company's effective borrowing rate on the MOPPRS is 6.58%. During 1998, the Company entered into a Distribution Agreement with a group of agents led by Merrill Lynch relating to the proposed issue and sale from time to time of up to $505.5 million of the Company's Medium-Term Notes Due Nine Months or More From the Date of Issue (the "Medium-Term Notes Program"). The aggregate offering amount under the Medium-Term Notes Program is subject to reduction as a result of the sale by the Company of other securities described in its Prospectus dated October 30, 1997 and has been reduced by the seven offerings described above. The Medium-Term Notes program provides an additional facility for funding the Company's acquisition and development activities. As of December 31, 1998, the Company had $276.9 million registered and available for issue under the Medium-Term Notes program. 19 Indebtedness - ------------ As of December 31, 1998, the Company's indebtedness consisted of the following:
PERCENT PRINCIPAL INTEREST MATURITY OF TOTAL MONTHS TO BALANCE RATE DATE INDEBTEDNESS MATURITY ----------- -------- ---------- ------------- ---------- (in thousands) Fixed Rate Seven Year Notes $ 74,802 7.10% (1) 1-Aug-04 17.6% 67 Ten Year Notes 84,771 7.23% (1) 1-Aug-07 20.0% 103 MandatOry Par Put Remarketed Securities (2) 75,000 6.58% (1) 31-Mar-03 (2) 17.6% 51 Mortgage note payable- Richmond, Kentucky 6,290 6.88% (3) 01-Dec-03 1.5% 59 Mortgage note payable- Jackson, Mississippi 7,021 9.25% 01-Mar-17 1.6% 218 Mortgage note payable- Milwaukee, Wisconsin 5,143 7.75% 01-Aug-09 1.2% 127 ----------- -------- ------------- ---------- 253,027 7.06% 59.5% 80 Floating Rate Unsecured Line of Credit 133,500 6.88% (4) 22-May-01 31.4% 29 Revolving Line of Credit 15,019 8.50% (4) 01-Sep-99 3.5% 8 Mortgage note payable - Denver, Colorado 24,017 7.93% (5) 18-Jul-01 (5) 5.6% 31 ----------- -------- ------------- ---------- 172,536 7.17% 40.5% 27 ----------- -------- ------------- ---------- $425,563 7.10% 100.0% 58 =========== ======== ============= ==========
(1) Represents stated rate plus amortization of deferred loan costs. (2) Represents notes payable with a stated rate of 6.918% and a stated maturity date of March 31, 2013. These notes are subject to mandatory tender on March 31, 2003. (3) The interest rate on this note is adjusted on December 1 of each year. (4) Stated rate of LIBOR plus 1.00% plus amortization of deferred loan costs. (5) In December, 1998, the Company exercised its option to extend the maturity of this mortgage note payable from January 1999 to July 2001. On January 17, 1999, this mortgage note converted from a floating rate of LIBOR plus 2.75% to a fixed rate of 6.812%. During 1998, the Company amended the Unsecured Line of Credit as follows: . Increased maximum borrowings allowed from $150.0 million to $174.8 million (expandable to $200.0 million); . Extended the maturity date by one year from May 22, 2000 to May 22, 2001; . Reduced the borrowing rate from LIBOR plus 1.25% to LIBOR plus 1.00% In addition to amending the Unsecured Line of Credit, in 1998 the Company entered into a $20.0 million Revolving Loan Credit Agreement (the "Revolving Line of Credit") with Wachovia Bank, N.A. The Revolving Line of Credit is unsecured, bears interest at LIBOR plus 1.00% and matures in September 1999. The amended Unsecured Line of Credit and the Revolving Line of Credit provide the Company with additional capacity to fund its development, redevelopment and acquisition activities. As of December 31, 1998, the Company had $41.3 million available under the Unsecured Line of Credit and $5.0 million available under the Revolving Line of Credit. Derivatives and Market Risk - --------------------------- The Company is exposed to market risk from changes in interest rates on its indebtedness, which could impact its financial condition and results of operations. The Company manages its exposure to these market risks through its regular operating and financing activities. The Company manages its ratio of fixed to floating rate debt with the objective of achieving a mix that management believes is appropriate. The Company has and may from time to time in the future enter into interest rate swap agreements in which it agrees to exchange various combinations of fixed and/or variable interest rates on agreed upon notional amounts. Effective as of December 31, 1998, the Company had one interest rate 20 swap agreement as described below. Management does not foresee or expect any significant changes in its exposure to interest rate fluctuations or in how such exposure is managed in the near future. The Company intends to use derivative financial instruments as risk management tools and not for speculative or trading purposes. Under the terms of the Company's interest rate swap agreement, the Company pays a fixed rate of 6.48% and receives a variable rate equal to the rate for the one-month LIBOR rate based on the notional amount in the contract of $50.0 million. The maturity date of the swap agreement is January 1, 2001. The Company's future earnings, cash flows and fair values of financial instruments are primarily dependent upon market rates of interest such as LIBOR. Based upon consolidated indebtedness and interest rates at December 31, 1998, a hypothetical immediate 1.0% increase in interest rates would decrease future annual earnings by approximately $863,000, cash flows by approximately $1.1 million and fair value of debt by approximately $11.3 million. Future Sources and Uses of Funds - -------------------------------- As of December 31, 1998, the Company, Development Company and affiliated entities had 36 projects under construction which, when completed, are expected to add approximately 3.2 million square feet of gross leasable area which the Company expects to own. Of these projects under construction, 11 are located in Georgia, six are located in North Carolina, three are located in Florida, and two are located in Tennessee. The Company has either signed leases by tenants or commitments by retailers to occupy space in 72.0% of the total square feet of these projects. The Company estimates that additional funding needed to complete the construction of these projects is $138.2 million. Management expects to fund the remaining costs of its development projects and the costs of any future development projects or acquisitions with a combination of one or more of the following: . advances under the Unsecured Line of Credit; . advances under the Revolving Line of Credit; . issuances of securities under the Medium-Term Notes Program; . issuances of common or preferred stock; . issuances of debt securities; . issuances of limited partnership units in DownREIT structures; . advances under secured financings; . advances under term loans with financial institutions; . proceeds from the sales of assets; . proceeds from the contribution of a pool of assets to a joint venture in which the Company participates. Subsequent to December 31, 1998, the Company entered into the following transactions: . On January 13, 1999, the Company issued 500,000 shares of its common stock in a public offering which netted proceeds of approximately $10.8 million. The Company used the net proceeds to repay amounts outstanding under the Unsecured Line of Credit. . On February 17, 1999, the Company closed a $100.0 million unsecured term loan with Wachovia Bank, N.A., as agent. This term loan matures in February 2002 and the interest rate is LIBOR plus 1.40%. The Company used the net proceeds to repay amounts outstanding under the Unsecured Line of Credit. The Company is pursuing three loans with institutional investors secured by Lowe's stores in Alpharetta, Georgia, Lilburn, Georgia and Woodstock, Georgia. The Company expects these loans to close in March 1999 and to generate an aggregate of $39.2 million in proceeds to the Company. The Company expects the loan terms to provide for self-amortizing payments of principal and interest at 21 fixed interest rates between 6.55% and 6.70% per annum for the remaining terms of the respective Lowe's leases, which average between 18 and 19 years. The Company is also pursuing a joint venture with an institutional investor which could provide up to $200.0 million in capital to the Company. Under the proposed terms, the Company would contribute a pool of existing shopping centers and shopping centers under construction to the joint venture and retain an ownership interest in the joint venture. The Company is in the preliminary stages of pursuing a transaction or series of transactions of this nature and there can be no assurance that any such transactions will be consummated. In order for the Company to continue to qualify as a REIT, it must annually distribute to shareholders at least 95% of its taxable income. Management believes that the Company will meet this requirement in 1999 with cash generated from operating activities. In addition, management believes that cash generated from operating activities will be adequate to fund capital improvements to the Company's existing shopping center properties and scheduled debt amortization in 1999. In order to meet the Company's long term liquidity requirements, management anticipates that the Company's cash generated from operating activities will continue to increase as a result of new developments, redevelopments, acquisitions and improved operations at existing centers. Management anticipates that these activities will enable the Company to make distributions to shareholders, maintain and improve its properties, make scheduled debt payments, and obtain debt or equity financing for its development, redevelopment and acquisition properties. With the exception of a $7.0 million amortizing mortgage loan, all of the Company's debt requires balloon payments in the future. The Revolving Line of Credit matures in 1999; the Unsecured Line of Credit matures in 2001; a mortgage note payable of $24.0 million matures in 2001; the MOPPRS are subject to mandatory tender in 2003; a mortgage note payable of $6.3 million matures in 2003; the Seven Year Notes mature in 2004; the Ten Year Notes mature in 2007; and a mortgage note payable of $5.1 million matures in 2009. Management intends to refinance or repay these maturing debt instruments with proceeds from other sources of capital at or prior to their respective maturities. Management will evaluate various alternatives and select the best options based on market conditions at the time. Management expects to seek additional equity financing when market conditions are favorable in order to maintain its debt-to-total-market-capitalization ratio within limits acceptable to management. There can be no assurance that debt or equity markets will be favorable in the future and unfavorable markets could limit the Company's ability to expand its business or repay or refinance maturing debt. FEDERAL INCOME TAX PROPOSALS On February 1, 1999, the Clinton Administration announced its proposals for the fiscal year 2000 federal budget. These proposals contain certain provisions that, if enacted, would significantly modify the REIT-related provisions of the Internal Revenue Code of 1986, as amended (the "Code"). A summary of the significant provisions is as follows: Permit Taxable REIT Subsidiaries and Prohibit Preferred Stock Subsidiaries - -------------------------------------------------------------------------- A REIT would be permitted to operate taxable subsidiaries through which the REIT could conduct activities such as providing "noncustomary" and other currently prohibited services with respect to REIT tenants and other customers. Many REITs, including the Company, currently own interests in preferred stock or non-voting common stock subsidiaries, which conduct such activities. This proposal would prohibit such preferred stock or non-voting common stock subsidiaries by limiting a REIT's ownership in these subsidiaries to 10% of voting stock or 10% of the value of the subsidiaries. The value of all taxable REIT subsidiaries would be limited to 15% of the value of the REIT's total assets, and the value of all qualified independent contractor subsidiaries, a type of taxable REIT subsidiary, would be limited to 5% of the value of the REIT's total assets. This proposal would also prohibit deductibility of 22 intercompany interest expense between a REIT and its taxable REIT subsidiaries and impose a 100% tax on any non-arms length payments between a REIT and its taxable subsidiaries. Prohibit Closely Held REITs - --------------------------- REITs would be subject to an additional requirement for REIT qualification which would prohibit certain closely held structures. No entity or person would be permitted to own stock of a REIT possessing 50% or more of the total combined voting power of all classes of voting stock or 50% or more of the total value of all shares of all classes of stock. This requirement would not apply to ownership by a REIT of 50% or more of the stock (vote or value) of another REIT. Recognition of Built-in Gain Upon the Conversion of a C Corporation into a REIT - ------------------------------------------------------------------------------- This proposal would require immediate recognition of built-in gain of any C corporation with a value of more than $5 million which converts to REIT status. Of these proposed changes, only the change related to taxable REIT subsidiaries would directly affect the Company. If Congress enacts such a provision, the ownership structure of Development Company would change as it would be required to be restructured as a taxable REIT subsidiary. Management believes that the activities conducted by Development Company should not change. For financial reporting purposes, the Company would change its accounting for Development Company from the equity method to the consolidated method. Management does not believe, however, that these changes would modify the way the Company conducts its business and would not have a material effect on the results of operations or financial condition of the Company. These provisions represent only the Clinton Administration's proposals; no action has been initiated in Congress. At this time, it is uncertain whether Congress will enact any or all of these provisions or additional provisions. YEAR 2000 READINESS DISCLOSURE Like most businesses, the Company is reliant upon technology to operate and manage its business. Many computer systems process dates using two digits to identify the year, and some systems are unable to properly process dates beginning with the year 2000. As a result of this potential problem, the Company began to assess its exposure to this issue several years ago. As a result of its ongoing assessment, the Company believes that it has identified all of its information technology ("IT") and non-IT systems with exposure to the Year 2000 problem. The Company's critical IT systems include, but are not limited to, accounting and reporting applications and all IT hardware, such as desktop computers, laptop computers and data networking equipment. The Company's critical non-IT systems include, but are not limited to, telephone systems, fax machines, copy machines as well as HVAC systems at the Company's properties. All of the Company's accounting and reporting software has been purchased from third-party vendors. The Company has requested and received certifications from its third-party vendors that all of its critical IT software is Year 2000 compliant. The Company is currently in the process of determining its exposure to any critical non-IT systems that are not Year 2000 compliant and will develop a contingency plan if one becomes necessary. The Company is undergoing an IT systems needs assessment which may result in new accounting and reporting hardware and software being installed. The Company will ensure that all newly installed hardware and software are Year 2000 compliant. The Company cannot ensure that various third parties with which it deals will be Year 2000 compliant. Failure of various third parties such as banks, significant tenants and vendors to adequately address the Year 2000 problem could have an adverse impact on the Company's business. This impact could include the inability of the Company's banks to process receipt or disbursement of checks for a period of time, the inability to receive payments from its significant tenants for a period of time and the inability of its vendors to provide services or materials to complete its development projects on time and 23 within budget. The Company has reviewed publicly available information on the Year 2000 readiness of its banks and significant tenants and, based solely on a review of this information, has noted nothing indicating their failure to be Year 2000 compliant in all material respects. The Company is not aware of any other significant suppliers or vendors with a Year 2000 issue that would materially impact the Company's results of operations, liquidity or capital resources. There can be no assurances, however, that the systems of other companies, on which the Company relies, will be timely converted and would not have an adverse effect on the Company's systems. The Company will continue to monitor the state of Year 2000 readiness of these and other significant third parties, and will develop a contingency plan if one becomes necessary. The Company believes it has an effective program in place that will resolve the Year 2000 issues in a timely manner. Aside from catastrophic failure of banks, utility companies or governmental agencies, the Company believes that it could continue its normal business operations even if compliance by the Company or its vendors, suppliers and customers is delayed. Aside from a catastrophic failure that would affect most businesses, the Company does not believe that the Year 2000 issue will materially impact its results of operations, liquidity or capital resources. Historic costs of addressing and solving the Company's Year 2000 problems have not been, and estimated costs are not expected to be material. INFLATION The Company's leases generally contain provisions designed to mitigate the adverse impact of inflation on net income. These provisions include clauses enabling the Company to pass through to tenants certain operating costs, including real estate taxes, common area maintenance, utilities and insurance, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. Certain of the Company's leases contain clauses enabling the Company to receive percentage rents based on tenants' store sales, which generally increase as prices rise, and, in certain cases, escalation clauses, which generally increase rental rates during the terms of the leases. In addition, many of the Company's leases with non-anchor tenants are for terms of less than ten years, which permits the Company to seek increased rents as market conditions permit. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------------------------------------------------------------------- Information on quantitative and qualitative disclosure about market risk are included in Item 7 of this Form 10-K under the caption "Liquidity and Capital Resources." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ----------------------------------------------------- The financial statements and supplementary data required under Regulation S-X and listed in Item 14(a)(1) below are included in a separate section of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------- FINANCIAL DISCLOSURE - -------------------- None. 24 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ The information relating to Directors of the Company set forth in the Company's Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 19, 1999 under the caption "Election of Directors" is incorporated herein by reference. The information relating to Executive Officers of the Company is included in Item 1 of this annual report on Form 10-K under the caption "Executive Officers." The information relating to Section 16(a) beneficial ownership reporting compliance set forth in the Company's Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 19, 1999 under the caption "Security Ownership of Certain Beneficial Owners and Management" is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION - -------------------------------- The information set forth in the Company's Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 19, 1999 under the caption "Executive Compensation" is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------ The information set forth in the Company's Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 19, 1999 under the caption "Security Ownership of Certain Beneficial Owners and Management" is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- The information set forth in the Company's Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 19, 1999 under the caption "Certain Relationships and Related Transactions" is incorporated herein by reference. 25 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------- (A) (1) FINANCIAL STATEMENTS The following financial statements are included in and filed pursuant to Item 8 and are included herein on the pages indicated: Consolidated balance sheets - December 31, 1998 and 1997............................. F-1 Consolidated statements of income - Years ended December 31, 1998, 1997, and 1996.............................................. F-2 Consolidated statements of shareholders' equity - Years ended December 31, 1998, 1997, and 1996.............................................. F-3 Consolidated statements of cash flows - December 31, 1998, 1997, and 1996............ F-4 Notes to consolidated financial statements........................................... F-5 Report of Ernst & Young LLP, Independent Auditors.................................... F-17
(2) FINANCIAL STATEMENT SCHEDULES The following financial statement schedules are included in and filed pursuant to Item 14(d) and are included herein on the pages indicated: Schedule II - Valuation and Qualifying Accounts...................................... F-18 Schedule III - Real Estate and Accumulated Depreciation.............................. F-19
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. (3) EXHIBITS Exhibit Number Description -------------- ----------- 3.1 Articles of Restatement of JDN Realty Corporation (1) 3.2 Articles of Merger of JDN Enterprises, Inc. with and into the Company (2) 3.3 Amended and Restated Bylaws of the Company (10) 4 Specimen stock certificate (3) 10.1 JDN Realty Corporation 1993 Incentive Stock Plan, as amended (10) 10.2 JDN Realty Corporation 1993 Non-Employee Director Stock Option Plan (2) 10.3 Indemnification Agreement by and between J. Donald Nichols and JDN Realty Corporation, dated February 23, 1994 (2) 10.4 Indemnification Agreement by and between Elizabeth L. Nichols and JDN Realty Corporation, dated February 23, 1994 (2) 10.5 Indemnification Agreement by and between William J. Kerley and JDN Realty Corporation, dated February 23, 1994 (2) 10.6 $200,000,000 Amended and Restated Credit Agreement dated as of September 3, 1998, among JDN Realty Corporation and Wachovia Bank, N.A., as Agent (5) 26 10.7 $100,000,000 Term Loan Credit Agreement dated as of February 17, 1999 among JDN Realty Corporation, Wachovia Bank, N.A., as Agent and PNC, National Association, as Documentation Agent 10.8 Indenture, dated as of July 15, 1997, by the Company to First Union National Bank as Trustee (6) 10.9 First Supplemental Indenture, dated as of July 31, 1997, by the Company to First Union National Bank, as Trustee (6) 10.10 Second Supplemental Indenture, dated as of February 5, 1998, by the Company to First Union National Bank, as Trustee (7) 10.11 JDN Realty Corporation Dividend Reinvestment and Stock Purchase Plan (8) 10.12 JDN Realty Corporation 1995 Employee Stock Purchase Plan (4) 10.13 Employment Agreement by and between J. Donald Nichols and the Company, dated as of December 1, 1996 (9) 10.14 Employment Agreement by and between Elizabeth L. Nichols and the Company, dated as of December 1, 1996 (9) 10.15 Employment Agreement by and between William J. Kerley and the Company, dated as of December 1, 1996 (9) 10.16 Employment Agreement by and between David L. Henzlik and the Company, dated as of December 1, 1996 (9) 10.17 Employment Agreement by and between John D. Harris, Jr. and the Company dated as of May 1, 1997. (10) 10.18 Employment Agreement by and between Leilani L. Jones and the Company, dated as of May 1, 1997. (10) 12 Ratio of Earnings to Fixed Charges 21 Subsidiaries of the Company 23 Consent of Independent Auditors 27 Financial Data Schedule 99.1 Risk Factors/Cautionary Statements for Purposes of the Private Securities Litigation Reform Act of 1995 99.2 Federal Income Tax and ERISA Considerations (1) Filed as an exhibit to the Company's filing on Form 8-K dated November 7, 1996, previously filed pursuant to the Securities Exchange Act of 1934, and hereby incorporated by reference. (2) Filed as an exhibit to the Company's Registration Statement on Form S-11 (No. 33-73710) previously filed pursuant to the Securities Act of 1933 and hereby incorporated by reference. (3) Filed as an exhibit to the Company's Registration Statement on Form S-3 (No. 333-22339) previously filed pursuant to the Securities Act of 1933 and hereby incorporated by reference. (4) Filed as an exhibit to the Company's Registration Statement on Form S-8 (No. 333-1848) previously filed pursuant to the Securities Act of 1933 and hereby incorporated by reference. 27 (5) Filed as an exhibit to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1998, previously filed pursuant to the Securities Exchange Act of 1934 and hereby incorporated by reference. (6) Filed as an exhibit to the Company's filing on Form 8-K dated August 1, 1997, previously filed pursuant to the Securities Exchange Act of 1934 and hereby incorporated by reference. (7) Filed as an exhibit to the Company's filing on Form 8-K dated February 13, 1998, previously filed pursuant to the Securities Exchange Act of 1934 and hereby incorporated by reference. (8) Filed as an exhibit to the Company's Registration Statement on Form S- 3 (No. 33-90868) previously filed pursuant to the Securities Act of 1933 and hereby incorporated by reference. (9) Filed as an exhibit to the Company's annual report on Form 10-K for the year ended December 31, 1996, previously filed pursuant to the Securities Exchange Act of 1934 and hereby incorporated by reference. (10) Filed as an exhibit to the Company's filing on Form 10-K for the year ended December 31, 1997, previously filed pursuant to the Securities Exchange Act of 1934 and hereby incorporated by reference. 28 Executive Compensation Plans and Arrangements The following is a list of all executive compensation plans and arrangements filed as exhibits to this annual report on Form 10-K or incorporated herein by reference: 1. JDN Realty Corporation 1993 Incentive Stock Plan, as amended (Exhibit 10.1) 2. JDN Realty Corporation Savings and Profit Sharing Plan (Exhibit 10.3) 3. Employment Agreement, dated as of December 1, 1996, by and between J. Donald Nichols and the Company (Exhibit 10.12) 4. Employment Agreement, dated as of December 1, 1996, by and between Elizabeth L. Nichols and the Company (Exhibit 10.13) 5. Employment Agreement, dated as of December 1, 1996, by and between William J. Kerley and the Company (Exhibit 10.14) 6. Employment Agreement, dated as of December 1, 1996, by and between David L. Henzlik and the Company (Exhibit 10.15) 7. Employment Agreement, dated as of May 1, 1997, by and between John D. Harris, Jr. and the Company (Exhibit 10.16) 8. Employment Agreement, dated as of May 1, 1997, by and between Leilani L. Jones and the Company (Exhibit 10.17) 9. Indemnification Agreement, dated as of February 23, 1994, by and between J. Donald Nichols and the Company (Exhibit 10.3) 10. Indemnification Agreement, dated as of February 23, 1994, by and between Elizabeth L. Nichols and the Company (Exhibit 10.4) 11. Indemnification Agreement, dated as of February 23, 1994, by and between William J. Kerley and the Company (Exhibit 10.5) 12. JDN Realty Corporation 1995 Employee Stock Purchase Plan (Exhibit 10.10) (B) REPORTS ON FORM 8-K During the three months ended December 31, 1998, the Company filed the following reports on Form 8-K: (i) Form 8-K dated October 19, 1998 containing the following: . A Terms Agreement with Merrill Lynch, Pierce, Fenner and Smith Incorporated ("Merrill Lynch") relating to the sale by the Company to Merrill Lynch of 977,500 shares of the Company's common stock at a price of $20.6875 per share . Risk Factors/Cautionary Statements for purposes of the Private Securities Litigation Reform Act of 1995 (ii) Form 8-K dated October 30, 1998 containing the following: . Risk Factors/Cautionary Statements for purposes of the Private Securities Litigation Reform Act of 1995 . Federal Income Tax and ERISA considerations (ii) Form 8-K dated November 10, 1998 containing a Terms Agreement with SunTrust Equitable Securities Corporation ("SunTrust Equitable") relating to the sale by the Company to SunTrust Equitable of 717,500 shares of the Company's common stock at a price of $21.25 per share 29 (iii) Form 8-K/A dated December 23, 1998 containing the following: . Audited statements of revenue and certain expenses of five shopping centers pursuant to Rule 3-14 of Regulation S-X . Pro forma consolidated balance sheet and income statements of the Company pursuant to Article 11 of Regulation S-X (iv) Form 8-K dated December 23, 1998 containing the following: . Audited statements of revenue and certain expenses of eight shopping centers pursuant to Rule 3-14 of Regulation S-X . Pro forma consolidated balance sheet and income statements of the Company pursuant to Article 11 of Regulation S-X (C) EXHIBITS The response to this portion of Item 14 is submitted as a separate section of this report. (D) FINANCIAL STATEMENT SCHEDULES The response to this portion of Item 14 is submitted as a separate section of this report. 30 ITEM 8 ------ FINANCIAL STATEMENTS AND SUPPLEMENT DATA ---------------------------------------- ITEM 14(D) ---------- FINANCIAL STATEMENT SCHEDULES ----------------------------- JDN REALTY CORPORATION CONSOLIDATED BALANCE SHEETS
December 31, ------------------------------ (dollars in thousands, except per share data) 1998 1997 - ---------------------------------------------------------------------------------------------------------------------- ASSETS Shopping center properties, at cost: Land $ 153,111 $ 85,837 Buildings and improvements 619,963 397,110 Property under development 74,192 52,356 ------------------------------ 847,266 535,303 Less: accumulated depreciation and amortization (56,093) (38,306) ------------------------------ Shopping center properties, net 791,173 496,997 Cash and cash equivalents - 11,439 Rents receivable, net of allowance for doubtful accounts of $667 and $719 in 1998 and 1997, respectively 7,158 2,691 Investments in and advances to unconsolidated entity, JDN Development Company, Inc. 151,040 71,221 Deferred costs, net of amortization 4,424 4,189 Other assets 15,127 13,216 ------------------------------ $ 968,922 $ 599,753 ============================== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Unsecured notes payable $ 234,573 $ 159,511 Unsecured lines of credit 148,519 43,500 Mortgage notes payable 42,471 13,591 Accounts payable and accrued expenses 11,550 6,719 Other liabilities 10,764 4,844 ------------------------------ Total liabilities 447,877 228,165 Third party investors' interest 3,000 - Shareholders' Equity Preferred stock, par value $.01 per share - authorized 20,000,000 shares: 9 3/8% Series A Cumulative Redeemable Preferred Stock, liquidation preference $25 per share, issued and outstanding 2,000,000 and -0- shares in 1998 and 1997, respectively. 20 - Common stock, par value $.01 per share - authorized 150,000,000 shares, issued and outstanding 32,704,408 and 27,745,798 shares in 1998 and 1997, respectively 327 277 Paid-in capital 524,787 378,400 Accumulated deficit (7,089) (7,089) ------------------------------ 518,045 371,588 ------------------------------ $ 968,922 $ 599,753 ==============================
See accompanying notes. F-1 JDN REALTY CORPORATION CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, ------------------------------------------ (in thousands, except per share data) 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------- REVENUES: Minimum and percentage rents $ 71,191 $ 43,346 $ 32,933 Recoveries from tenants 10,003 4,512 3,475 Other revenue 117 147 215 ------------------------------------------ Total revenues 81,311 48,005 36,623 OPERATING EXPENSES: Operating and maintenance 6,439 3,201 2,586 Real estate taxes 5,316 2,540 1,817 General and administrative 7,105 4,265 3,367 Depreciation and amortization 16,824 10,130 7,786 ------------------------------------------ Total operating expenses 35,684 20,136 15,556 ------------------------------------------ INCOME FROM OPERATIONS 45,627 27,869 21,067 Other income (expense): Interest expense, net (9,454) (4,856) (5,868) Other income, net 945 1,205 83 Equity in net income of unconsolidated entities 4,036 3,367 1,415 ------------------------------------------ Income before minority interest in net income of consolidated subsidiary, net gain (loss) on real estate sales and extraordinary items 41,154 27,585 16,697 Minority interest in net income of consolidated subsidiary (196) - - ------------------------------------------ Income before net gain (loss) on real estate sales and extraordinary items 40,958 27,585 16,697 Net gain (loss) on real estate sales 379 (352) (15) ------------------------------------------ Income before extraordinary items 41,337 27,233 16,682 Extraordinary items - (5,940) - ------------------------------------------ Net Income 41,337 21,293 16,682 Dividends to preferred shareholders (1,341) - - ------------------------------------------ Net income attributable to common shareholders $ 39,996 $ 21,293 $ 16,682 ========================================== Income per share--basic Income before extraordinary items (net of preferred dividend) $ 1.30 $ 1.18 $ 1.00 Extraordinary items - (0.26) - ------------------------------------------ Net income attributable to common shareholders $ 1.30 $ 0.92 $ 1.00 ========================================== Income per share--diluted Income before extraordinary items (net of preferred dividend) $ 1.28 $ 1.16 $ 1.00 Extraordinary items - (0.25) - ------------------------------------------ Net income attributable to common shareholders $ 1.28 $ 0.91 $ 1.00 ==========================================
See accompanying notes. F-2 JDN REALTY CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Preferred Common Paid-in Accumulated Stock Stock Capital Deficit Total - ------------------------------------------------------------------------------------------------------------------------------ BALANCE, JANUARY 1, 1996 $ - $ 150 $ 166,925 $ (7,089) $ 159,986 Proceeds from offerings of common stock - 46 71,498 - 71,544 Distributions to common shareholders ($1.25 per share) - - (4,991) (16,682) (21,673) Net income - - - 16,682 16,682 ----------------------------------------------------------------------- BALANCE, DECEMBER 31, 1996 - 196 233,432 (7,089) 226,539 Proceeds from offerings of common stock - 81 155,707 - 155,788 Distributions to common shareholders ($1.32 per share) - - (10,739) (21,293) (32,032) Net income - - - 21,293 21,293 ----------------------------------------------------------------------- BALANCE, DECEMBER 31, 1997 - 277 378,400 (7,089) 371,588 Proceeds from offering of preferred stock 20 - 48,154 - 48,174 Proceeds from offerings of common stock - 50 102,425 - 102,475 Distributions to preferred shareholders ($0.67 per share) - - - (1,341) (1,341) Distributions to common shareholders ($1.41 per share) - - (4,192) (39,996) (44,188) Net income - - - 41,337 41,337 ----------------------------------------------------------------------- BALANCE, DECEMBER 31, 1998 $ 20 $ 327 $ 524,787 $ (7,089) $ 518,045 =======================================================================
See accompanying notes. F-3 JDN REALTY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, -------------------------------------------- (in thousands) 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 41,337 $ 21,293 $ 16,682 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 15,676 9,641 7,516 Amortization 1,758 1,540 1,774 Equity in net income of unconsolidated entities (4,036) (3,367) (1,415) Minority interest in net income of consolidated subsidiary 196 - - Net (gain) loss on real estate sales (379) 352 15 Extraordinary items - 5,940 - Changes in assets and liabilities: Rents receivable (4,467) (537) 420 Other assets (130) (174) - Accounts payable and accrued expenses 3,766 4,721 834 Other liabilities 2,339 2,168 244 -------------------------------------------- Net cash provided by operating activities 56,060 41,577 26,070 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of shopping center properties (105,453) (29,222) (6,815) Improvements to shopping center properties (1,507) (1,714) (772) Development of shopping center properties (159,590) (139,026) (48,264) Investments in and advances to JDN Development Company, Inc. (75,361) (33,031) (16,495) Other (10,185) (1,585) (11,637) -------------------------------------------- Net cash used in investing activities (352,096) (204,578) (83,983) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from mortgages and notes payable 1,060 48,508 82,251 Principal payments on mortgages and notes payable (532) (201,821) (69,208) Proceeds from unsecured lines of credit 381,420 248,715 - Principal payments on unsecured lines of credit (276,401) (205,215) - Proceeds from issuance of unsecured notes payable 76,548 159,486 - Net proceeds from issuance of common stock 101,011 155,788 71,544 Net proceeds from issuance of preferred stock 48,174 - - Distributions to common shareholders (44,188) (32,032) (26,229) Distributions to preferred shareholders (1,341) - - Deferred financing costs - (4,564) (246) Other (1,154) 2,866 (599) -------------------------------------------- Net cash provided by financing activities 284,597 171,731 57,513 -------------------------------------------- Increase (decrease) in cash and cash equivalents (11,439) 8,730 (400) Cash and cash equivalents at beginning of year 11,439 2,709 3,109 -------------------------------------------- Cash and cash equivalents at end of year $ - $ 11,439 $ 2,709 ============================================
See accompanying notes. F-4 JDN Realty Corporation Notes to Consolidated Financial Statements December 31, 1998 (dollars in thousands, except per share data) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business JDN Realty Corporation (the "Company") is a real estate company specializing in the development and asset management of retail shopping centers anchored by value-oriented retailers. The Company's shopping centers are located in 14 states, primarily in the Southeast. The Company has elected to be taxed as a real estate investment trust ("REIT"). Basis of Presentation The financial statements represent the consolidated financial statements of the Company, its wholly-owned subsidiaries and its majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Investments in Unconsolidated Entities The Company uses the equity method of accounting for investments in non- majority owned entities including those where the Company's ownership is below 20% and where the Company has the ability to exercise significant influence over operating and financial policies. Real Estate Assets Shopping center properties are stated at cost less accumulated depreciation. The Company capitalizes costs of construction, property taxes, interest and other miscellaneous costs incurred during the development period until such time as projects become operational. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets. Expenditures for maintenance and repairs are charged to operations as incurred. Renovations which improve or extend the life of the related assets are capitalized. The Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and the estimated undiscounted cash flows related to those assets are less than their carrying amounts. Deferred Costs Costs and fees associated with the Company's debt obligations are included in deferred costs in the accompanying consolidated balance sheets and are amortized over the terms of the related debt agreements. Amortization of these deferred financing costs is included in interest expense in the consolidated statements of income. Accumulated amortization totaled approximately $1,224 and $329 at December 31, 1998 and 1997, respectively. Revenue Recognition The Company leases space in its shopping centers to tenants and recognizes minimum base rentals as revenue on a straight-line basis over the terms of the operating leases. The tenants are required to pay additional rentals based on common area maintenance expenses, and the Company recognizes such rentals as the revenue is earned. In addition, certain tenants pay incremental rental amounts based on store sales and these percentage rentals are recognized as earned. The tenant base includes primarily national or regional retail chains and local retailers, and consequently the Company's credit risk is concentrated in the retail industry. Rents receivable in excess of security deposits are unsecured and are subject to credit losses to this extent. F-5 Net Gain (Loss) on Real Estate Sales Net gain (loss) on real estate sales relates to the sale of parcels of land. The applicable gain or loss is recognized at closing, when the earnings process is deemed to be complete, which generally coincides with the receipt of cash. Interest Costs Interest costs incurred during the development period of projects are capitalized and depreciated over the life of the building. Interest costs capitalized were $6,401, $4,650, and $1,993 for the years ended December 31, 1998, 1997, and 1996, respectively. Interest payments totaled $21,766, $11,407 and $10,293 during the years ended December 31, 1998, 1997 and 1996, respectively. Interest Rate Swaps The Company enters into interest rate swap agreements to hedge certain elements of its exposure to increasing rates on its floating rate debt. These agreements involve the exchange of amounts based on fixed interest rates for amounts based on variable interest rates over the lives of the agreements without an exchange of the notional amounts upon which the payments are based. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment to interest incurred. The fair value of the interest rate swap agreements and changes in the fair value as a result of changes in market interest rates are not recognized in the financial statements. Stock-Based Compensation The Company uses the intrinsic value method for valuing its awards of stock options and restricted stock and recording the related compensation expense, if any. See Note 13 for pro forma disclosures using the fair value method as described in Financial Accounting Standards Board ("FASB") Statement No. 123, Accounting for Stock-Based Compensation ("Statement 123"). Income Taxes The Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Code") and began operating as such on March 27, 1994. As a result, the Company is not subject to federal income taxes to the extent that it distributes annually at least 95% of its taxable income to its shareholders and satisfies certain other requirements defined in the Code. Accordingly, no provision was made for federal income taxes in the accompanying consolidated financial statements. The Company declared distributions per share of $1.41, $1.32, and $1.25 during the years ended December 31, 1998, 1997, and 1996, respectively, and these distributions are summarized as follows:
Years ended December 31, 1998 1997 1996 ------------------------------------ Ordinary income $ 1.35 $ 0.97 $ 1.05 Return of capital 0.06 0.35 0.20 Long-term capital gains - - - ------------------------------------ $ 1.41 $ 1.32 $ 1.25 ====================================
F-6 Per Share Data Basic and diluted earnings per share are calculated in accordance with FASB Statement No. 128, Earnings per Share ("Statement 128"). Earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to the requirements of Statement 128. In May 1998, the Company declared a 3-for-2 stock split, which was effected in the form of a stock dividend, to shareholders of record on June 19, 1998. All share and per share information have been restated to reflect the stock split. Statements of Cash Flows The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Use of Estimates The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. New Accounting Standard In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities ("Statement 133"). The Company expects to adopt Statement 133 effective January 1, 2000. Statement 133 will require the Company to recognize all derivatives on the balance sheet at fair value. The Company does not anticipate that the adoption of Statement 133 will have a significant effect on its results of operations or financial position. Reclassifications Certain amounts as previously reported have been reclassified to conform to the current year's presentation. 2. UNSECURED NOTES PAYABLE Unsecured Notes Payable consisted of the following:
December 31, 1998 1997 -------------------------------------- Seven Year Notes $ 74,802 $ 74,767 Ten Year Notes 84,771 84,744 MandatOry Par Put Remarketed Securities 75,000 - -------------------------------------- $ 234,573 $ 159,511 ======================================
The Seven Year Notes represent unsecured notes payable issued in a public offering with a face amount of $75,000, a stated interest rate of 6.80% and a maturity date of August 1, 2004. The Ten Year Notes represent unsecured notes payable issued in a public offering with a face amount of $85,000, a stated interest rate of 6.95% and a maturity date of August 1, 2007. Interest on the Seven Year Notes and Ten Year Notes is payable semi-annually in arrears on each February 1 and August 1. The MandatOry Par Put Remarketed Securities ("MOPPRS") represent unsecured notes payable issued in a public offering in 1998 with a face amount of $75,000, a stated interest rate of 6.918% and a maturity date of March 31, 2013. Interest on the MOPPRS is payable semi-annually in arrears on each March 31 and September 30. In connection with the issuance of the MOPPRS, the Company sold an option to remarket the MOPPRS on March 31, 2003 to the agent. On March 31, 2003 the MOPPRS are subject to mandatory tender. F-7 The Seven Year Notes, the Ten Year Notes and the MOPPRS were issued under Supplemental Indentures and an Indenture which contain covenants customary for notes of these types, including limitations on total indebtedness of the Company, limitations on secured debt, maintenance of minimum interest coverage ratios and maintenance of minimum ratios of unencumbered assets to unsecured debt. 3. UNSECURED LINES OF CREDIT Unsecured Lines of Credit consisted of the following:
December 31, 1998 1997 ------------------------------------ Unsecured Line of Credit $ 133,500 $ 43,500 Revolving Line of Credit 15,019 - ------------------------------------ $ 148,519 $ 43,500 ====================================
The Unsecured Line of Credit represents a $174,750 (expandable to $200,000) unsecured line of credit with a bank group which closed in May 1997 and was amended in September 1998. The Company may borrow amounts under the Unsecured Line of Credit up to an amount equal to 60% of the value of all Eligible Unencumbered Stabilized Properties, as defined, plus 50% of the cost of all Construction in Progress, as defined. The Unsecured Line of Credit contains covenants customary for credit facilities with similar terms and maturities, including limitations on secured debt, maintenance of minimum interest coverage ratios and maintenance of minimum ratios of unencumbered assets to unsecured debt. Interest on the Unsecured Line of Credit is LIBOR plus 1.00% and is payable monthly. At December 31, 1998, the Company had the ability to draw an additional $41,250 under the Unsecured Line of Credit, and the weighted average interest rate on amounts outstanding under the Unsecured Line of Credit was 6.58%. The Unsecured Line of Credit matures in May 2001. The Revolving Line of Credit represents a $20,000 unsecured line of credit with a bank which closed in September 1998. The Company may borrow on a daily basis amounts of up to $20,000 under the Revolving Line of Credit at an interest rate of LIBOR plus 1.00%. At December 31, 1998, the Company had the ability to draw an additional $4,981 under the Revolving Line of Credit, and the weighted average interest rate on the amount outstanding was 8.31%. The Revolving Line of Credit matures in September 1999. 4. MORTGAGE NOTES PAYABLE The Company's Mortgage Notes Payable consisted of the following:
December 31, 1998 1997 - ------------------------------------------------------------------------------------------------------ Mortgage note payable- Richmond, Kentucky $ 6,290 $ 6,429 Mortgage note payable- Jackson, Mississippi 7,021 7,162 Mortgage note payable- Milwaukee, Wisconsin 5,143 - Construction note payable - Denver, Colorado 24,017 - --------- --------- $ 42,471 $ 13,591 ========= ==========
The mortgage notes payable for Richmond, Kentucky, Jackson, Mississippi and Milwaukee, Wisconsin are amortizing notes payable secured by shopping centers owned and operated at those respective locations with aggregate net book values of $27,959 at December 31, 1998. At December 31, 1998, the weighted average interest rate of these three notes was 8.02%, and aggregate monthly payments of principal and interest on these three notes was $174. These notes mature in 2003, 2017 and F-8 2009, respectively. The Company assumed the Jackson, Mississippi note in connection with an acquisition in 1997. The Company assumed the Milwaukee, Wisconsin note in connection with an acquisition in 1998. The construction note payable represents a construction loan assumed in connection with the acquisition of a shopping center in Denver, Colorado in 1998 which is secured by the shopping center with a net book value of $33,460 at December 31, 1998. As of December 31, 1998, the construction loan carried an interest rate of LIBOR plus 2.75%, or 7.93%. On January 17, 1999, this loan converted to a fixed rate of 6.81% with monthly payments of principal and interest of $169 payable through maturity in 2001. 5. DEBT MATURITIES As of December 31, 1998, principal payments on the Company's Unsecured Notes Payable, Unsecured Lines of Credit, and Mortgage Notes Payable are due as follows: 1999 $ 15,651 2000 681 2001 158,254 2002 798 2003 81,278 Thereafter 168,901 ---------- $ 425,563 ==========
6. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company maintains an interest rate swap agreement as a hedge against increasing rates on its floating rate debt. Under the terms of the agreement, the Company pays a fixed rate of 6.48% and receives a variable rate equal to the rate for the one-month LIBOR rate based on the notional amount in the contract of $50,000. This interest rate swap agreement matures on January 1, 2001. Based upon amounts that the Company would have paid to terminate the swap transaction on December 31, 1998, the fair value of the swap transaction was estimated to be a liability of $1,468 at December 31, 1998. Based upon borrowing rates management believes are available to the Company for loans with similar terms and average maturities, the fair value of the Company's Unsecured Notes Payable, Unsecured Lines of Credit and Mortgage Notes Payable was estimated to be $419,117 at December 31, 1998. 7. PREFERRED STOCK On September 17, 1998, the Company issued 2,000,000 shares of its 9 3/8% Series A Cumulative Redeemable Preferred Stock (the "Series A Preferred Stock"), par value $0.01 per share, with a liquidation preference of $25.00 per share. The Series A Preferred Stock has no stated maturity but is redeemable at the Company's option on or after September 15, 2003 for $25.00 per share plus accumulated, accrued and unpaid dividends. Dividends on the Series A Preferred Stock are cumulative from the date of original issue and are payable quarterly on or about the last day of March, June, September and December of each year, when and as declared. Holders of the Series A Preferred Stock have no voting rights except with respect to certain extraordinary events affecting the rights of the holders of the Series A Preferred Stock. The Series A Preferred Stock is not convertible or exchangeable for any other securities or property of the Company. 8. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED ENTITIES The Company owns 1% of the outstanding voting common stock and 100% of the outstanding non-voting common stock of JDN Development Company, Inc. ("Development Company"). J. Donald Nichols, the Company's Chairman and Chief Executive Officer, owns the remaining 99% of the outstanding voting common stock of Development Company. The Company accounts for its investment F-9 in Development Company on the equity method because management believes that it is able to exercise significant influence over the operating and financial policies of Development Company. In 1996 and for a portion of 1997, the Company also owned 50% economic interests in two joint ventures formed for the purpose of developing shopping centers in Loganville, Georgia, and Asheville, North Carolina (the "Joint Ventures"). During 1997, the Company purchased all the interests of its third party joint venture partners in the Joint Ventures. Combined summarized financial information on Development Company and the Joint Ventures is as follows:
December 31, 1998 1997 ----------------------------- Assets Operating properties $ 54,166 $ 47,740 Property under development 117,156 46,333 ----------------------------- Total real estate 171,322 94,073 Other assets 18,557 12,952 ----------------------------- $189,879 $107,025 ============================= Liabilities Mortgage notes payable $ 26,058 $ 28,980 Notes and advances payable to JDN Realty Corporation 141,795 62,858 Other liabilities 10,379 6,644 ----------------------------- 178,232 98,482 Equity 11,647 8,543 ----------------------------- $189,879 $107,025 =============================
Years Ended December 31, 1998 1997 1996 -------------------------------------------- Rental revenues $ 4,297 $ 4,619 $ 2,969 Operating expenses (1,876) (1,689) (654) -------------------------------------------- Income from operations 2,421 2,930 2,315 Interest expense (4,545) (3,791) (1,313) Net gain on real estate sales 7,293 7,579 2,358 Other income (expense), net 64 (725) (795) -------------------------------------------- Income before income tax expense 5,233 5,993 2,565 Income tax expense (2,129) (2,220) (549) -------------------------------------------- Net income $ 3,104 $ 3,773 $ 2,016 ============================================
Income (losses) from sitework development contracts associated with sales of land parcels are included in net gain on real estate sales. Changes in estimates associated with these contracts increased net gain on real estate sales in 1996 by approximately $1,153 and increased net income by approximately $679. The Company's share of this increase was $672, which is included in equity in net income of unconsolidated entities in the accompanying statements of income for the year ended December 31, 1996. 9. OPERATING LEASES Shopping center properties are leased to tenants under operating leases with expiration dates extending to the year 2056. As of December 31, 1998, approximate future minimum rentals due under noncancellable operating leases, excluding tenant reimbursements of operating expenses and additional F-10 rentals based on tenants' sales volume, and were as follows: - ------------------------------------------------------------------------------- 1999 $ 80,909 2000 77,314 2001 71,614 2002 67,006 2003 62,591 Thereafter 591,555 ---------- $ 950,989 ========== As of December 31, 1998, Wal-Mart Stores, Inc., a national retailer, was an anchor in 33 of the Company's shopping centers. Wal-Mart was a tenant of the Company in 22 of the shopping centers and an unrelated party owned Wal-Mart's portion of the center in the remaining 11 shopping centers. Rentals from this significant tenant were approximately 16%, 19%, and 22% of total minimum and percentage rents for the years ended December 31, 1998, 1997, and 1996, respectively. As of December 31, 1998, Lowe's Companies, Inc., a national retailer, was an anchor in 15 of the Company's shopping centers. Lowe's was a tenant of the Company in 12 of the shopping centers and an unrelated party owned Lowe's portion of the center in the remaining three shopping centers. Rentals from this significant tenant were 12%, 10%, and 11% of total minimum and percentage rent for the years ended December 31, 1998, 1997, and 1996, respectively. There were no other tenants which represented more than 10% of the Company's total minimum and percentage rent in any year presented. 10. EXTRAORDINARY ITEMS In 1997, the Company terminated and satisfied in full a $75,000 secured term loan which was scheduled to mature in 2001. The Company charged unamortized deferred financing costs and prepayment penalties related to this loan of $5,539 to earnings as a component of extraordinary items. Also in 1997, the Company terminated a $40,000 secured line of credit with a bank which was scheduled to mature in June 1998. The Company charged unamortized deferred financing costs of $401 related to this line of credit to earnings as a component of extraordinary items. 11. INCENTIVE STOCK PLAN The Company maintains the JDN Realty Corporation 1993 Incentive Stock Plan (the "Incentive Stock Plan") which provides for the issuance of options to purchase shares of the Company's common stock, restricted shares of common stock and stock appreciation rights to individuals providing services to the Company, its subsidiaries and affiliated entities at the discretion of the Compensation Committee of the Board of Directors. Under the Incentive Stock Plan, the exercise price of options granted will not be less than the fair market value of the shares on the date of grant for incentive stock options and will not be less than 50% of the fair market value of the shares on the date of grant for non- qualified stock options. No options have been granted under the Incentive Stock Plan with exercise prices below fair market value. The options generally expire 10 years from the date of grant. Generally all options, other than options granted in 1995, vest one-third after six months and one-third after each of the two successive twelve-month periods thereafter. Options granted in 1995 were scheduled to vest nine years after the grant date; however, the vesting period accelerated because certain performance measures were met. F-11 The following is a summary of option activity under the Incentive Stock Plan:
Weighted Average Number of Shares Option Price Option Price Underlying Options Per Share Per Share - ---------------------------------------------------------------------------------------------------------------- Options outstanding, January 1, 1996 1,381,220 $13.50 to $15.50 $ 14.337 Granted - - - Exercised - - - Forfeited (12,000) $15.50 15.50 ----------------------------------------------------------------- Options outstanding, December 31, 1996 1,369,220 $13.50 to $15.50 $ 14.327 Granted 1,413,750 $19.25 to $20.75 20.746 Exercised (49,500) $14.667 to $15.50 14.742 Forfeited - - - ----------------------------------------------------------------- Options outstanding, December 31, 1997 2,733,470 $13.50 to $20.75 $ 17.639 Granted 10,000 21.3125 21.3125 Exercised (23,500) 13.50 to 20.75 15.50 Forfeited (5,000) 21.75 21.75 ----------------------------------------------------------------- Options outstanding, December 31, 1998 2,714,970 $13.50 to $21.3125 $ 17.672 ================================================================= Options exercisable, December 31, 1998 1,766,970 $13.50 to $20.75 $ 16.021 =================================================================
Effective February 27, 1998, the Company amended the Incentive Stock Plan to, among other things, provide for issuances of restricted stock thereunder. Concurrently, the Company adopted the JDN Realty Corporation Deferred Bonus Plan pursuant to the Incentive Stock Plan (the "Deferred Bonus Plan") which established a program to provide incentive compensation to certain key employees in the form of a bonus that can be deferred at the election of the employee, the value of which is tied to the equity value of the Company. An eligible employee may elect to defer all or a specified (which must be at least 25%) portion of the receipt of cash bonus payments awarded by the Company and to receive restricted stock in lieu thereof under the Incentive Stock Plan. On March 1, 1998, the Company issued 111,312 shares of restricted stock under the Deferred Bonus Plan. The restricted stock issued in 1998 vests one- fourth on March 1, 1999 and one-fourth on each successive March 1 thereafter. As of December 31, 1998, 775,866 shares were available for the Company to award in any combination of options, restricted stock or stock appreciation rights under the Incentive Stock Plan. 12. DIRECTORS STOCK PLAN The Company maintains the JDN Realty Corporation 1993 Non-Employee Director Stock Option Plan (the "Directors Plan") which provides for the issuance of options to purchase shares of the Company's common stock or the granting of shares of common stock to members of the Company's board of directors who are not employees of the Company. The Directors Plan initially provided that 4,500 options be granted automatically to each non-employee director serving the Company on January 1 of each year. The exercise price of each option equaled the fair market value of the shares on the date of grant. The options expire 10 years from the date of grant and vest in the following manner: (1) one-third two years after the date of grant, (2) one-third three years after the date of grant, and (3) one-third four years after the date of grant. In November 1998, the Company amended the Directors Plan as follows with respect to future grants: (1) increased the number of options granted automatically to 15,000 options to each non-employee director serving the Company on January 1 of each year; (2) changed the option vesting period to the following: (a) one-third six months after the date of grant, (b) one-third 18 months after the date of grant, and (c) one-third 30 months after the date of grant; and (3) provided for the F-12 awarding of $10 in value of common stock to each non-employee director on the first day of each calendar quarter beginning January 1, 1999. The following is a summary of option activity under the Directors Plan:
Weighted Average Number of Shares Option Price Option Price Underlying Options Per Share Per Share - ----------------------------------------------------------------------------------------------------------- Options outstanding, January 1, 1996 27,000 $13.333 to $14.667 $ 14.00 Granted 13,500 14.917 14.917 Exercised - - - Forfeited - - - ----------------------------------------------------------------- Options outstanding, December 31, 1996 40,500 $13.333 to $14.917 $14.306 Granted 18,000 $18.417 18.417 Exercised - - - Forfeited - - - ----------------------------------------------------------------- Options outstanding, December 31, 1997 58,500 $13.333 to $18.417 $15.571 Granted 18,000 $21.584 21.584 Exercised (3,000) $13.333 13.333 Forfeited - - - ----------------------------------------------------------------- Options outstanding, December 31, 1998 73,500 $13.333 to $21.584 $17.135 =================================================================
As of December 31, 1998, 373,500 shares were available for award under the Directors Plan in any combination of options or shares of common stock. 13. PRO FORMA DISCLOSURES ON STOCK BASED COMPENSATION Pro forma information regarding net income and earnings per share is required by Statement 123 using an acceptable fair value method for all stock based compensation granted by the Company subsequent to December 31, 1994. The Company estimated the fair value for this stock based compensation at the date of grant using a Black-Scholes option pricing model with the following weighted- average assumptions for 1998, 1997 and 1996: risk-free interest rate of 5.71%, 6.18%, and 6.39%, respectively; dividend yield of 7.24%, 6.43% and 6.80%, respectively; volatility factor of the expected market price of the Company's common stock of 0.16, 0.16, and 0.15, respectively, and a weighted-average expected life of the options of 5, 5 and 9 years, respectively. For purposes of pro forma disclosures, the estimated fair value of stock based compensation is amortized to expense over the applicable vesting periods. On a pro forma basis, assuming that the Company utilized the fair value method of accounting for stock based compensation, net income and net income per share information was as follows:
Years Ended December 31, 1998 1997 1996 -------------------------------------- Net income $40,057 $20,505 $16,623 Net income attributable to common shareholders 38,716 20,505 16,623 Net income attributable to common shareholders per share: Basic 1.26 0.89 1.00 Diluted 1.24 0.87 0.99
14. PROFIT SHARING PLAN The Company offers to employees the JDN Realty Corporation Savings and Profit Sharing Plan (the "Profit Sharing Plan"), a defined contribution plan, which is intended to qualify under Section F-13 401(a) and 401(k) of the Code. Employees who have completed six months of service with the Company may participate in the Profit Sharing Plan. Participants may contribute up to 20% of their base salary to the Profit Sharing Plan and any matching contribution by the Company is discretionary. During the years ended December 31, 1998, 1997 and 1996, the Company contributed $48, $36 and $25, respectively, to the Profit Sharing Plan. 15. EMPLOYEE STOCK PURCHASE PLAN The Company maintains the JDN Realty Corporation 1995 Employee Stock Purchase Plan (the "ESPP") which is intended to qualify as an "Employee Stock Purchase Plan" within the meaning of Section 423 of the Code. The ESPP authorizes the sale of up to 150,000 shares of common stock to eligible employees of the Company at a 15% discount from the market price. During 1998, 1997 and 1996, the Company issued 1,755, 1,248, and -0- shares, respectively, under the ESPP. 16. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN The Company maintains the JDN Realty Corporation Dividend Reinvestment and Stock Purchase Plan (the "DRIP"). The DRIP allows shareholders to automatically reinvest cash dividends in and make optional cash purchases of shares of the Company's common stock. As of December 31, 1998, 24,112 shares had been issued under the DRIP and 725,888 were reserved for issuance. 17. COMMITMENTS AND CONTINGENCIES As of December 31, 1998, the Company guaranteed all or portions of three loans of Development Company or its subsidiaries in the amount of $21,031. The loans are secured by property owned by Development Company or its subsidiaries and are due in 1999. As of December 31, 1998, the Company had executed construction contracts on 19 of its development sites and had approximately $18,186 in costs remaining to be incurred under these contracts. The Company is, from time to time, a party to legal proceedings, which arise in the ordinary course of its business. The Company is not currently involved in any litigation, and, to management's knowledge, no litigation is threatened against the Company, the outcome of which would, in management's judgment based on information currently available, have a material adverse effect on the results of operations or financial condition of the Company. F-14 18. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
Years Ended December 31, 1998 1997 1996 ----------------------------------------- Numerator: Income before extraordinary items $41,337 $27,233 $16,682 Extraordinary items - (5,940) - ----------------------------------------- Net income 41,337 21,293 16,682 Dividends to preferred shareholders (1,341) ----------------------------------------- Net income attributable to common shareholders $39,996 $21,293 $16,682 ========================================= Denominator (in thousands): Weighted-average shares outstanding 30,788 23,066 16,629 Unvested restricted stock outstanding (87) - - ----------------------------------------- Denominator for basic earnings per share 30,701 23,066 16,629 Dilutive effect of stock options and unvested restricted stock 527 416 90 ----------------------------------------- Denominator for diluted earnings per share 31,228 23,482 16,719 ========================================= Income per share--basic: Income before extraordinary items (net of preferred dividends) $ 1.30 $ 1.18 $ 1.00 Extraordinary items - (0.26) - ----------------------------------------- Net income attributable to common shareholders $ 1.30 $ 0.92 $ 1.00 ========================================= Income per share--diluted: Income before extraordinary items (net of preferred dividends) $ 1.28 $ 1.16 $ 1.00 Extraordinary items - (0.25) - ---------------------------------------- Net income attributable to common shareholders $ 1.28 $ 0.91 $ 1.00 ========================================
The Company is the general partner in a limited partnership that issued limited partnership units valued at $3,000 in a limited partnership formed to own and operate a shopping center in Milwaukee, Wisconsin. Subject to certain conditions, the limited partnership units became exchangeable for cash or 139,535 shares of the Company's common stock beginning in February 1999. Using the "if-converted" method, the effect of these units is antidilutive; therefore, they have been excluded from the computation of earnings per share. 19. SUBSEQUENT EVENTS During January 1999, the Company issued 500,000 shares of its common stock in a public offering netting proceeds of $10,903 which were used to repay outstanding indebtedness. During February 1999, the Company closed a $100,000 unsecured term loan (the "Term Loan") with a bank group. The Term Loan matures in February 2002, and interest on the Term Loan is payable monthly at LIBOR plus 1.40%. F-15 20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following is a summary of the unaudited quarterly financial information for the years ended December 31, 1998 and 1997:
Quarters First Second Third Fourth - ---------------------------------------------------------------------------------------------------------- 1998 Revenues $ 17,046 $ 19,209 $ 20,617 $ 24,439 Net income $ 9,112 $ 10,053 $ 10,555 $ 11,617 Net income attributable to common shareholders $ 9,112 $ 10,053 $ 10,386 $ 10,445 Income per common share: Basic Basic $ 0.31 $ 0.33 $ 0.34 $ 0.32 DilutedDiluted $ 0.31 $ 0.32 $ 0.33 $ 0.32 1997 Revenues $ 10,279 $ 10,916 $ 12,338 $ 14,473 Income before extraordinary item $ 5,503 $ 6,726 $ 7,078 $ 7,926 Net income $ 5,503 $ 6,325 $ 1,539 $ 7,926 Income per common share--basic Income before extraordinary item $ 0.27 $ 0.29 $ 0.31 $ 0.31 Net income $ 0.27 $ 0.27 $ 0.07 $ 0.31 Income per common share--diluted Income before extraordinary item $ 0.27 $ 0.29 $ 0.30 $ 0.31 Net income $ 0.27 $ 0.27 $ 0.07 $ 0.31
F-16 REPORT OF INDEPENDENT AUDITORS SHAREHOLDERS AND BOARD OF DIRECTORS JDN REALTY CORPORATION We have audited the accompanying consolidated balance sheets of JDN Realty Corporation as of December 31, 1998 and 1997 and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of JDN Realty Corporation at December 31, 1998 and 1997 and the consolidated results of its operations and cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Atlanta, Georgia February 26, 1999 F-17 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS JDN REALTY CORPORATION (In thousands)
- --------------------------------------------------------------------------------------------------------------------------- COL.A COL.B COL.C COL.D - --------------------------------------------------------------------------------------------------------------------------- Additions --------------------------------------- Balance at Beginning Charged to Costs Charged to Other Description of Period and Expenses Accounts - Describe Deductions - Describe - --------------------------------------------------------------------------------------------------------------------------- Year ended December 31, 1998: Deduct from asset accounts: Allowance for Doubtful Accounts $ 719 $ 386 $ 438(1) ============== ========== =========== Year ended December 31, 1997: Deduct from asset accounts: Allowance for Doubtful Accounts $ 410 $ 619 $ 310(1) ============== ========== =========== Year ended December 31, 1996: Deduct from asset accounts: Allowance for Doubtful Accounts $ 277 $ 350 $ 217(1) ============== ========== =========== - ----------------------------------------------------- COL.A COL.E - ----------------------------------------------------- Balance at End Description of Period - ----------------------------------------------------- Year ended December 31, 1998: Deduct from asset accounts: Allowance for Doubtful Accounts $ 667 ======== Year ended December 31, 1997: Deduct from asset accounts: Allowance for Doubtful Accounts $ 719 ======== Year ended December 31, 1996: Deduct from asset accounts: Allowance for Doubtful Accounts $ 410 ========
(1) Write-off of uncollectible rents receivable. F-18 Schedule III - Real Estate and Accumulated Depreciation JDN Realty Corporation December 31, 1998 (In thousands)
- --------------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D - --------------------------------------------------------------------------------------------------------------- Cost Captilized --------------- Subsequent to ------------- Initial cost to Company Acquisition ----------------------- ----------- Buildings and Description Encumbrances Land Improvements Improvements - --------------------------------------------------------------------------------------------------------------- Operating Property: - ------------------ Southland Plaza (Decator, AL) $ - $ 1,013 $ 5,802 $ 208 East Side Plaza (Gadsden, AL) - 130.00 - 2,325.00 Pepperell Corners (Opelika, AL) - 2,062 11,676 117 Pepperell Corners Phase II (Opelika, AL) - 744 1,628 (33) University Hills (Denver, CO) 24,017 15,272 17,017 3,314 Brandon Lake Village (Brandon, FL) - 3,627 7,110 - White Sands (Fort Walton, FL) - 452 - 1,141 Gulf Breeze Marketplace (Gulf Breeze, FL) - 362 - 40 Ocala West Shopping Center (Ocala,FL) - 839 4,920 213 Capital West (Tallahassee, FL) - 2,040 - 4,862 Alpharetta Lowe's (Alpharetta, GA) - 5,859 6,800 - Buford Lowe's (Buford, GA) - 3,620 19,555 - Riverplace (Canton, GA) - 2,926 4,478 1,476 River Pointe (Canton, GA) - 570 2,301 212 Bartow Marketplace (Cartersville, GA) - 3,513 16,669 164 Felton's Crossing (Cartersville, GA) - 177 - 3,254 Chamblee Plaza (Chamblee, GA) - 1,698 9,913 (8) Cordele Marketplace (Cordele, GA) - 603 8,164 314 Cumming Marketplace (Cumming, GA) - 4,154 15,250 1,286 Dodge County (Eastman, GA) - 172 - 2,317 - ------------------------------------------------------------------------------------------------------------------------------------ COL. E COL. F COL. G COL. H - ------------------------------------------------------------------------------------------------------------------------------------ Gross Ammount at which Carried at close of Period ------------------------------------------------- Buildings and Accumulated Date of Date Description Land Improvements Total Depreciation Construction Acquired - ------------------------------------------------------------------------------------------------------------------------------------ Operating Property: - ------------------ Southland Plaza (Decator, AL) $ 1,013 $ 6,010 $ 7,023 $ 378 1963 1996 East Side Plaza (Gadsden, AL) 130.00 2,325.00 2,455.00 1,109.00 1979 1980 Pepperell Corners (Opelika, AL) 2,062 11,793 13,855 1,774 1993 1994 Pepperell Corners Phase II (Opelika, AL) 744 1,595 2,339 190 1995 1995 University Hills (Denver, CO) 15,272 20,331 35,603 2,139 1997 1998 Brandon Lake Village (Brandon, FL) 3,627 7,110 10,737 58 1997 1998 White Sands (Fort Walton, FL) 452 1,141 1,593 348 1986 1985 Gulf Breeze Marketplace (Gulf Breeze, FL) 562 40 402 3 1998 1998 Ocala West Shopping Center (Ocala,FL) 839 5,133 5,972 196 1984 1997 Capital West (Tallahassee, FL) 2,040 4,862 6,902 1,311 1990 1989 Alpharetta Lowe's (Alpharetta, GA) 5,859 6,800 12,659 33 1998 1998 Buford Lowe's (Buford, GA) 3,620 19,555 23,175 97 1998 1998 Riverplace (Canton, GA) 2,926 5,954 8,880 1,167 1983 1983 River Pointe (Canton, GA) 370 2,513 2,883 170 1996 1996 Bartow Marketplace (Cartersville, GA) 3,513 16,833 20,346 1,466 1995 1995 Felton's Crossing (Cartersville, GA) 177 5,254 3,431 1,390 1984 1983 Chamblee Plaza (Chamblee, GA) 1,698 9,905 11,603 182 1976 1998 Cordele Marketplace (Cordele, GA) 603 8,478 9,081 186 1997 1997 Cumming Marketplace (Cumming, GA) 4,154 16,536 20,690 560 1997 1997 Dodge County (Eastman, GA) 172 2,317 2,489 621 1990 1986
F-19 Schedule III - Real Estate and Accumulated Depreciation JDN Realty Corporation December 31, 1998 (In thousands)
- ----------------------------------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D - ----------------------------------------------------------------------------------------------------------------------------------- Cost Capitalized ---------------- Subsequent to ------------- Initial Cost to Company Acquisition ----------------------- ----------- Buildings and Description Encumbrances Land Improvements Improvements - ----------------------------------------------------------------------------------------------------------------------------------- Operating Property: - ------------------- Banks Station (Fayetteville, GA) - 1,522 9,603 240 Bruno's Plaza (Ft. Oglethorpe, GA) - 1,092 6,193 109 Ellis Crossing (Griffin, GA) - 302 - 2,483 North Main Street (LaFayette, GA) - 123 - 3,156 LaGrange Wal-Mart (LaGrange, GA) - 183 - 1,420 CVS (Lawrenceville, GA) - 925 1,138 - Five Folks Village (Lawrenceville, GA) - 1,245 7,065 109 Lawrenceville Town Center (Lawrenceville, GA) - 3,270 17,037 446 Five Folks Crossing (Lilburn, GA) - 930 5,287 39 Pleasant Hill Lowe's(Lilburn, GA) - 3,643 6,413 184 Midway Plaza (Loganville, GA) - 1,356 6,400 97 Beacon Heights (Madison, GA) - 549 - 4,284 Garrison Ridge Xing (Marietta, GA) - 3,587 8,440 (3) Newman Crossing (Newman, Ga) - 3,750 17,745 323 Pike's Nursery (Peachtree City, GA) - 1,008 1,004 - Merchant Square (Riverdale, GA) - 191 - 1,368 Freeway Junction (Stockbridge, GA) - 979 5,550 260 Pike Nurseries (Stockbridge, GA) - 963 1,039 44 Noble Farm Plaza (Suwanee, GA) - 1,536 3,389 33 Cofer Crossing (Tucker, GA) - 1,348 1,167 13 - ------------------------------------------------------------------------------------------------------------------------------------ COL. E COL. F COL. G COL. H - ------------------------------------------------------------------------------------------------------------------------------------ Gross Amount at which Carried at close of Period ------------------------------------------------- Buildings and Accumulated Date of Date Description Land Improvements Total Depreciation Construction Acquired - ------------------------------------------------------------------------------------------------------------------------------------ Operating Property: - ------------------- Banks Station (Fayetteville, GA) 1,522 9,843 11,365 1,514 1990 1994 Bruno's Plaza (Ft. Oglethorpe, GA) 1,092 6,302 7,394 862 1973 1994 Ellis Crossing (Griffin, GA) 302 2,483 2,785 989 1986 1985 North Main Street (LaFayette, GA) 123 3,156 3,279 862 1990 1988 LaGrange Wal-Mart (LaGrange, GA) 183 1,420 1,603 647 1984 1983 CVS (Lawrenceville, GA) 925 1,138 2,065 - 1998 1998 Five Folks Village (Lawrenceville, GA) 1,245 7,174 8,419 1,084 1990 1994 Lawrenceville Town Center (Lawrenceville,GA) 3,270 17,483 20,753 2,677 1989 1994 Five Folks Crossing (Lilbrun, GA) 930 5,326 6,256 802 1990 1994 Pleasant Hill Lowe's (Librun, GA) 3,643 6,597 10,240 246 1997 1997 Midway Plaza (Loganville, GA) 1,356 6,497 7,853 603 1995 1997 Beacon Heights (Madison, GA) 549 4,284 4,833 1,258 1989 1987 Garrison Ridge Xing (Marietta, GA) 3,587 8,437 12,024 268 1997 1997 Newman Crossing (Newman, GA) 3,750 18,068 21,818 1,514 1995 1995 Pike's Nursery (Peachtree City, GA) 1,008 1,004 2,012 48 1997 1997 Merchant Square (Riverdale, GA) 191 1,368 1,559 402 1989 1989 Freeway Junction (Stockbridge, GA) 979 5,810 6,789 729 1988 1994 Pike Nurseries (Stockbridge, GA) 963 1,083 2,046 51 1997 1997 Noble Farm Plaza (Suwanee, GA) 1,536 3,422 4,958 64 1997 1997 Cofer Crossing (Tucker, GA) 1,348 1,180 2,528 - 1998 1998
F-20 Schedule III - Real Estate and Accumalated Depreciation JDN Realty Corporation December 31, 1998 (In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------ COL.A COL.B COL.C COL.D - ------------------------------------------------------------------------------------------------------------------------------------ Cost Capitalized ---------------- Subsequent to ------------- Initial Cost to Company Acquisition ----------------------- ----------- Buildings and Description Encumbrances Land Improvements Improvements - ------------------------------------------------------------------------------------------------------------------------------------ Operating Property: - ------------------ Shannon Square (Union City, GA) - 195 - 4,323 Warner Robins Place (Warner Robins, GA) - 203 907 26 Pike's Nursery (Woodstock, GA) - 1,323 1,102 - Woodstock Place (Woodstock, GA) - 1,692 - 7,652 Woodstock Project (Woodstock, GA) - 4,047 7,210 - Suttons North Plaza (Topeka, KS) - 270 1,660 1,440 South Farm Marketplace (Lexington, KY) - 1,002 298 - Carriage Gate (Richmond, KY) 6,290 1,398 7,944 47 Junction S/C (Jackson, MS) 7,021 1,361 7,858 79 Metro Station (Jackson, MS) - 521 3,382 - River Hills S/C (Asheville, NC) - 3,125 13,376 169 Cross Pointe Centre (Fayetteville, NC) - 1,931 10,840 483 Wendover Place S/C (Greensboro, NC) - 7,212 15,136 8,002 University Commons (Greenville, NC) - 3,557 17,529 234 East Ridge Crossing (Hendersonville, NC) - - - 4,314 Pineridge Crossing (Rockingham, NC) - 203 - 7,223 Island Creek Crossing (Wallace, NC) - 665 3,842 381 Myrtle Grove (Wilmington, NC) - 1,877 - 8,852 New Center (Wilmington, NC) - 2,649 10,479 383 Tri-State Plaza (Burlington, OH) - 1,563 6,210 210 - ------------------------------------------------------------------------------------------------------------------------------- COL.E COL.F COL.G COL.H - ------------------------------------------------------------------------------------------------------------------------------- Gross Amount at which Carried at close of Period ------------------------------------ Buildings and Accumulated Date of Date Description Land Improvements Total Depreciation Construction Acquired - --------------------------------------------------------------------------------------------------------------------------------- Operating Property: - -------------------- Shannon Square (Union City, GA) 195 4,323 4,518 1,477 1986 1984 Warner Robins Place (Warner Robins, GA) 203 933 1,136 40 1997 1997 Pike's Nursery (Woodstock, GA) 1,323 1,102 2,425 58 1997 1997 Woodstock Place (Woodstock, GA) 1,692 7,652 9,344 1,099 1985 1982 Woodstock Project (Woodstock, GA) 4,047 7,210 11,257 239 1997 1997 Suttons North Plaza (Topeka, KS) 270 3,100 3,370 77 1976 1997 South Farm Marketplace (Lexington, KY) 1,002 298 1,300 - 1998 1998 Carriage Gate (Richmond, KY) 1,398 7,991 9,389 1,100 1992 1994 Junction S/C (Jackson, MS) 1,361 7,937 9,298 455 1996 1997 Metro Station (Jackson, MS) 521 3,382 3,903 64 1997 1998 River Hills S/C (Asheville, NC) 3,125 13,545 16,670 788 1996 1997 Cross Pointe Centre (Fayetteville, NC) 1,931 11,323 13,254 292 1985 1998 Wendover Place S/C (Greensboro, NC) 7,212 23,158 30,350 702 1997 1997 University Commons (Greenville, NC) 3,557 17,763 21,320 1,165 1996 1996 East Ridge Crossing (Hendersonville, NC) - 4,314 4,314 1,329 1988 1988 Pineridge Crossing (Rockingham, NC) 203 7,223 7,426 2,042 1988 1986 Island Creek Crossing (Wallace, NC) 665 4,223 4,888 591 1989 1994 Myrtle Grove (Wilmington, NC) 1,877 8,852 10,729 2,119 1991 1988 New Center (Wilmington, NC) 2,649 10,862 13,511 151 1998 1998 Tri-State Plaza (Burlington, OH) 1,563 6,420 7,983 772 1995 1995
F-21 Schedule III - Real Estate and Accumulated Depreciation JDN Realty Corporation December 31, 1998 (In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------ COL. A COL. B COL. C COL. D - ----------------------------------------------------------------------------------------------------------------------------------- Cost Capitalized ---------------- Subsequent to ------------- Initial Cost to Company Acquisition ----------------------- ----------- Building and Description Encumbrances Land Improvements Improvements - ------------------------------------------------------------------------------------------------------------------------------------ Operating Property: - --------------------- Walmart (Gallipolis, OH) - 1,307 10,587 18 Township Marketplace (Monaco, PA) - 1,635 10,105 1,811 Ashley Crossing (Charleston, SC) - 1,821 10,354 180 Chesterfield Commons (Cheraw, SC) - 127 - 2,166 Kelley Corners (Lake City, SC) - 415 5,310 121 Merchants Walk (Sumler, SC) - 130 - 799 Millcreek Commons (Antioch, TN) - 530 3,092 17 Overlook at Hamilton Place (Chattanooga, TN) - 1,595 12,725 209 Columbia Bruno's Village (Columbia, TN) - 673 3,859 17 Farragut Pointe (Farragut, TN) - 731 4,165 21 Alexander Plaxa (Franklin, TN) - 24 - 486 Battlewood Shopping Center (Franklin, TN) - 662 3,822 (3) Northcreek Commons (Goodlettsville, TN) - 743 4,311 207 Country Bridge (Memphis, TN) - 750 4,29? 59 Memorial Village (Murfreesboro, TN) - 991 5,636 152 Plaza South S/C (Murfreesboro, TN) - 523 3,088 149 Towne Center (Murfreesboro, TN) - 2,594 6,822 - The Marketplace (Nashville, TN) - 2,175 10,495 13 Cherokee Square (Tullahoma, TN) - 503 2,868 33 Bermuda Square S/C (Chester, VA) - 1,302 7,534 257 - ----------------------------------------------------------------------------------------------------------------------------------- COL. A COL. E COL. F COL. G COL. H - ----------------------------------------------------------------------------------------------------------------------------------- Gross Amount at which Carried at close of Period ------------------------------------------------ Buildings and Accumulated Date of Date Description Land Improvements Total Depreciation Construction Acquired - ----------------------------------------------------------------------------------------------------------------------------------- Operating Property: - --------------------- Walmart (Gallipolis, OH) 1,307 10,605 11,912 168 1998 1998 Township Marketplace (Monaco, PA) 1,635 11,916 13,551 422 1997 1997 Ashley Crossing (Charleston, SC) 1,821 10,534 12,355 1,594 1991 1994 Chesterfield Commons (Cheraw, SC) 127 2,166 2,293 622 1990 1986 Kelley Corners (Lake City, SC) 415 5,431 5,846 836 1991 1994 Merchants Walk (Sumler, SC) 130 799 929 313 1987 1986 Millcreek Commons (Antioch, TN) 530 3,109 3,639 74 1990 1998 Overlook at Hamilton Place (Chattanooga, TN) 1,595 12,934 14,529 1,918 1992 1994 Columbia Bruno's Village (Columbia, TN) 673 3,876 4,549 532 1993 1994 Farragut Pointe (Farragut, TN) 731 4,186 4,917 636 1991 1994 Alexander Plaxa (Franklin, TN) 24 486 510 84 1983 1983 Battlewood Shopping Center (Franklin, TN) 662 3,819 4,481 90 1990 1998 Northcreek Commons (Goodlettsville, TN) 743 4,518 5,261 425 1987 1995 Country Bridge (Memphis, TN) 750 4,355 5,103 656 1993 1994 Memorial Village (Murfreesboro, TN) 991 5,788 6,779 793 1972 1994 Plaza South S/C (Murfreesboro, TN) 523 3,237 3,760 282 1990 1997 Towne Center (Murfreesboro, TN) 2,594 6,822 9,416 47 1998 1998 The Marketplace (Nashville, TN) 2,175 10,508 12,683 56 1998 1998 Cherokee Square (Tullahoma, TN) 503 2,901 3,404 444 1989 1994 Bermuda Square S/C (Chester, VA) 1,302 7,791 9,093 301 1977 1997
F-22 Schedule III- Real Estate and Accumulated Depreciation JDN Realty Corporation December 31, 1998 (In thousands)
- ----------------------------------------------------------------------------------------------------------------------------------- COL.A COL. B COL. C COL.D - ------------------------------------------------------------------------------------------------------------------------------------ Cost Capitalized ------------ Subsequent to --------------- Initial Cost to Company Acquisition ------------------------ ------------ Buildings and Description Encumbrances Land Improvements Improvements - --------------------------------------------------------------------------------------------------------------------------------- Operating Property - ------------------ Candlers Station: (Lynchburg, VA) - 2,745 15,601 59 Genito Crossing (Midlothian, VA) - 823 4,812 11 Lexington Commons (Lexington, VA) - 882 4,548 885 Tri-Rivers S/C (South Boston,VA) - 502 4,414 183 Shoppers World (Brookfield, WI) - 1,989 12,025 3 Brown Deer Center (Brown Deer, WI) - 1,790 10,230 (4) Market Place of Brown Deer (Brown Deer, WI) 5,143 1,641 9,497 - Point Luomiz (Milwaukee, WI) - 912 5,331 3 West Allis Center (Milwaukee WI) - 2, 479 14,885 3 Atlanta Headquarters - 495 - 3,605 ----------------------------------------------------------------------------- Total Operating Property 42,475 146,418 526,876 93,087 ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- Land Under Ground Lease Charleston, South Carolina - 362 - - ----------------------------------------------------------------------------- Total Land Under Ground Lease - 362 - - ---------------------------------------------------------------------------- Undeveloped Land: - ---------------- --------------------------------------------------------------------------- Garden, Alabama - 55 - - Cumming, Georgia - 2,778 - - Eastman, Georgia - 69 - - Fayedleville, Georgia - 150 - - LaFayette, Georgia - 84 - - Lawrenceville, Georgia - 293 - - Madison, Georgia - 22 - - Warner Robins, Georgia - 235 - - Golf Breeze, Florida - 1,393 - - Rockingham, North Carolina - 300 - - Wallace, North Carolina - 251 - - Gallipolis, Ohio - 158 - - Charleston, South Carolina - 179 - - Lenington, Virginia - 164 - - ---------------------------------------------------------------------------- - 6,331 - - ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Subtotal 42,478 153,131 526,876 93,087 ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- COL.E COL.F - ----------------------------------------------------------------------------------------------------------------------------------- Gross Amount at which Carried at close of Period ------------------------------------------------ Buildings and Accumulated Description Land Improvement Total Depreciation - ------------------------------------------------------------------------------------------------------------------------------------ Operating Property - ------------------ Candlers Station: (Lynchburg, VA) 2,745 15,660 18,405 250 Genito Crossing (Midlothian, VA) 823 4,823 5,646 192 Lexington Commons (Lexington, VA) 882 5,433 6,315 1,060 Tri-Rivers S/C (South Boston, VA) 502 4,597 5,099 227 Shoppers World (Brookfield, WI) 1,989 12,030 14,019 314 Brown Deer Center (Brown Deer, WI) 1,790 10,226 12,016 270 Market Place of Brown Deer (Brown Deer, WI) 1,641 9,437 11,078 249 Point Luomiz (Milwaukee, WI) 912 5,334 6,246 141 West Allis Center (Milwaukee, WI) 2,479 14,886 17,367 389 Atlanta Headquarters 495 5,603 6,100 150 ----------------------------------------------------------------------------- Total Operating Property 146,418 619,963 766,381 56,093 ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- Land Under Ground Lease Charleston, South Carolina 362 - 362 - ----------------------------------------------------------------------------- Total Land Under Ground Lease 362 - 362 - ----------------------------------------------------------------------------- Undeveloped Land: - ---------------- ----------------------------------------------------------------------------- Garden, Alabama 55 - 55 - Cumming, Georgia 2,778 - 2,778 - Eastman, Georgia 69 - 69 - Fayedleville, Georgia 150 - 150 - LaFayette, Georgia 84 - 84 - Lawrenceville, Georgia 293 - 293 - Madison, Georgia 22 - 22 - Warner Robins, Georgia 235 - 235 - Golf Breeze, Florida 1,393 - 1,393 - Rockingham, North Carolina 300 - 300 - Wallace, North Carolina 251 - 251 - Gallipolis, Ohio 158 - 158 - Charleston, South Carolina 179 - 179 - Lenington, Virginia 164 - 164 - ----------------------------------------------------------------------------- 6,331 - 6,331 - ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- Subtotal 155,181 619,963 773,074 56,093 ----------------------------------------------------------------------------- COL.G COL.H --------------------------------------------------------------------------------- Date of Date Description Construction Acquired - ---------------------------------------------------------------------------------------------------------- Operating Property - ------------------ Candlers Station: (Lynchburg, VA) 1990 1998 Genito Crossing (Midlothian, VA) 1985 1997 Lexington Commons (Lexington, VA) 1989 1988 Tri-Rivers S/C (South Boston, VA) 1989 1997 Shoppers World (Brookfield, WI) 1967 1998 Brown Deer Center (Brown Deer, WI) 1967 1998 Market Place of Brown Deer (Brown Deer, WI) 1989 1998 Point Luomiz (Milwaukee, WI) 1962 1998 West Allis Center (Milwaukee, WI) 1968 1998 Atlanta Headquarters 1955 1997 ---------------------------------- Total Operating Property
F-23 SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION JDN REALTY CORPORATION DECEMBER 31, 1998 (IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------------ COL. A COL. B COL. C COL. D - ------------------------------------------------------------------------------------------------------------------------------------ Cost Capitalized ---------------- Subsequent to ------------- Initial Cost to Company Acquisition ----------------------- ----------- Building and Description Encumbrances Land Improvements Improvements - ------------------------------------------------------------------------------------------------------------------------------------ Property under Development ------------------------------------------------------------------------------------------------------- Early Acquisition Cost - - - 162 - Nacogdoches, TX - 753 935 - Asheville/Pallosa, NC - - 809 - Redevelop -- Topeka, KS - - 4 - Urving, TX - - 25 - Scottsboro, AL - 581 365 - Manfreesboro, TN - 924 2,506 - Greensboro North, NC - - 1,447 - Buford, GA - 1,162 1,804 - Macon, GA - 1,100 5,689 - Brandon Publix, FL - 2,603 5,682 - Nashville Charlotte, TN - 3,261 (87) - Redev-Milwaukee, WI - - 5 - Colombus, GA - 2,015 1,472 - Beaver Valley II, PA - 2,678 4,997 - Stone Mountain, GA - 5,951 4,383 - Milwaukee S. Gate, WI - - 173 - Goodletisville, TN - - - - Hendersonville, TN - 3,355 4,651 - Greensboro Ph II, NC - 1,302 342 - Tucker, GA - 1,754 2,582 - Lexington S. Farm, KY - - 887 - Battlewood, SC - - 9 - Opelika, AL - 2,600 74 - University Hills, CO - - 2,083 - Eastman, GA - - 1 - Lafayette, GA - - 1 - Tupelo, MS - - 28 - Winston Salem, NC - 814 1,907 - Redev-Ft Oglethorpe, GA - - 5 - Redev-Chamblee, GA - - 113 - Redev-Cartersville, GA - - 285 - ------------------------------------------------------------------------------------------------------ Total Property under Development - 30,853 43,339 - ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ Total $ 42,471 $ 183,964 $ 570,215 $ 93,087 ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ COL. E COL. F - ------------------------------------------------------------------------------------------------------------------------------------ Gross Amount at which Carried at close of Period ------------------------------------------------ Buildings and Accumulated Description Land Improvements Total Depreciation - ----------------------------------------------------------------------------------------------------------------------------------- Property under Development ------------------------------------------------------------------------------------------------------- Early Acquisition Cost - - 162 162 - Nacogdoches, TX 753 935 1,688 - Asheville/Pallosa, NC - 809 809 - Redevelop -- Topeka, KS - 4 4 - Urving, TX - 25 25 - Scottsboro, AL 581 365 946 - Manfreesboro, TN 924 2,506 3,430 - Greensboro North, NC - 1,447 1,447 - Buford, GA 1,162 1,804 2,966 - Macon, GA 1,100 5,689 6,789 - Brandon Publix, FL 2,603 5,682 8,285 - Nashville Charlotte, TN 3,261 (87) 3,174 - Redev-Milwaukee, WI - 5 5 - Colombus, GA 2,015 1,472 3,487 - Beaver Valley II, PA 2,678 4,997 7,675 - Stone Mountain, GA 5,951 4,383 10,334 - Milwaukee S. Gate, WI - 173 173 - Goodletisville, TN - - - - Hendersonville, TN 3,355 4,651 8,006 - Greensboro Ph II, NC 1,302 342 1,644 - Tucker, GA 1,754 2,582 4,336 - Lexington S. Farm, KY - 887 887 - Battlewood, SC - 9 9 - Opelika, AL 2,600 74 2,674 - University Hills, CO - 2,083 2,083 - Eastman, GA - 1 1 - Lafayette, GA - 1 1 - Tupelo, MS - 28 28 - Winston Salem, NC 814 1,907 2,721 - Redev-Ft. Oglethorpe, GA - 5 5 - Redev-Chamblee, GA - 113 113 - Redev-Cartersville, GA - 285 285 - ------------------------------------------------------------------------------------------------------- Total Property under Development 30,853 43,339 74,192 - ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- Total $ 185,964 $ 663,302 $ 847,266 $ 56,093 --------------------------------------------------------------------------------------------------------- ------------------------------------ COL G COL H ------------------------------------ Date of Date Description Construction Acquired - -------------------------------------------------------------------------- Property under Development Early Acquisition Cost - Nacogdoches, TX Asheville/Pallosa, NC Redevelop -- Topeka, KS Urving, TX Scottsboro, AL Manfreesboro, TN Greensboro North, NC Buford, GA Macon, GA Brandon Publix, FL Nashville Charlotte, TN Redev-Milwaukee, WI Colombus, GA Beaver Valley II, PA Stone Mountain, GA Milwaukee S. Gate, WI Goodletisville, TN Hendersonville, TN Greensboro Ph II, NC Tucker, GA Lexington S. Farm, KY Battlewood, SC Opelika, AL University Hills, CO Eastman, GA Lafayette, GA Tupelo, MS Winston Salem, NC Redev-Ft. Oglethorpe, GA Redev-Chamblee, GA Redev-Cartersville, GA
F-24 Schedule III - Real Estate and Accumulated Depreciation JDN Realty Corporation December 31, 1998 (In thousands) (1) Estimated useful life of building. (2) Estimated useful life of sign. (3) Aggregate cost for Federal Income tax purposes of $315,851. (4) Reconciliation of "Real Estate and Accumulated Depreciation";
Years Ended December 31, 1998 1997 1996 --------------------------------- Investment in Real Estate Balance at beginning of year $ 535,303 $ 332,669 $ 276,818 Additions/Improvements 308,437 203,086 56,538 Deductions (18,310) (452) (687) ------------------------------------ Balance at end of year $ 825,430 $ 535,303 $ 332,669 ==================================== Accumulated Depreciation Balance of beginning of year $ 38,306 $ 27,973 $ 20,312 Additions charged to costs and expenses 19,010 9,932 7,739 Other Additions - 401 - Deductions (1,223) - (78) ------------------------------------ Balance at end of year $ 56,093 $ 38,306 $ 27,973 ====================================
F-25 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. JDN REALTY CORPORATION Dated: March 23, 1999 By: /s/ J. Donald Nichols ---------------------- J. Donald Nichols Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ J. Donald Nichols Chairman and Chief Executive Officer March 23, 1999 - ----------------------------- J. Donald Nichols /s/ Elizabeth L. Nichols President and Director March 23, 1999 - ----------------------------- Elizabeth L. Nichols /s/ William J. Kerley Senior Vice President and - ----------------------------- William J. Kerley Chief Financial Officer March 23, 1999 /s/ John D. Harris, Jr. Vice President and Controller March 23, 1999 - ----------------------------- John D. Harris, Jr. /s/ Haywood D. Cochrane, Jr. Director March 23, 1999 - ----------------------------- Haywood D. Cochrane, Jr. /s/ William B. Greene Director March 23, 1999 - ----------------------------- William B. Greene /s/ Craig Macnab Director March 23, 1999 - ----------------------------- Craig Macnab
Signature Title Date --------- ----- ---- /s/ Robert P. Corker, Jr. Director March 23, 1999 - ----------------------------- Robert P. Corker, Jr. /s/ William G. Byrnes Director March 23, 1999 - ----------------------------- William G. Byrnes
Item 14(c) ---------- EXHIBITS -------- EXHIBIT INDEX Exhibit Number Description - -------------- ----------- 3.1 Articles of Restatement of JDN Realty Corporation (1) 3.2 Articles of Merger of JDN Enterprises, Inc. with and into the Company (2) 3.3 Amended and Restated Bylaws of the Company (10) 4 Specimen stock certificate (3) 10.1 JDN Realty Corporation 1993 Incentive Stock Plan, as amended (10) 10.2 JDN Realty Corporation 1993 Non-Employee Director Stock Option Plan (2) 10.3 Indemnification Agreement by and between J. Donald Nichols and JDN Realty Corporation, dated February 23, 1994 (2) 10.4 Indemnification Agreement by and between Elizabeth L. Nichols and JDN Realty Corporation, dated February 23,1994 (2) 10.5 Indemnification Agreement by and between William J. Kerley and JDN Realty Corporation, dated February 23, 1994 (2) 10.6 $200,000,000 Amended and Restated Credit Agreement dated as of September 2, 1998 among JDN Realty Corporation and Wachovia Bank N.A., as Agent (5) 10.7 $100,000,000 Term Loan Credit Agreement dated as of February 17, 1999 among JDN Realty Corporation, Wachovia Bank, N.A., as Agent and PNC, National Association, as Documentation Agent 10.8 Indenture, dated as of July 15, 1997, by the Company to First Union National Bank as Trustee (6) 10.9 First Supplemental Indenture, dated as of July 31, 1997, by the Company to First Union National Bank, as Trustee (6) 10.10 Second Supplemental Indenture, dated as of February 5, 1998, by the Company to First Union National Bank, as Trustee (7) 10.11 JDN Realty Corporation Dividend Reinvestment and Stock Purchase Plan (8) 10.12 JDN Realty Corporation 1995 Employee Stock Purchase Plan (4) 10.13 Employment Agreement by and between J. Donald Nichols and the Company, dated as of December 1, 1996 (9) 10.14 Employment Agreement by and between Elizabeth L. Nichols and the Company, dated as of December 1, 1996 (9) 10.15 Employment Agreement by and between William J. Kerley and the Company, dated as of December 1, 1996 (9) 10.16 Employment Agreement by and between David L. Henzlik and the Company, dated as of December 1, 1996 (9) 10.17 Employment Agreement by and between John D. Harris, Jr. and the Company dated as of May 1, 1997. (10) 10.18 Employment Agreement by and between Leilani L. Jones and the Company, dated as of May 1, 1997. (10) 12 Ratio of Earnings to Fixed Charges 21 Subsidiaries of the Company 23 Consent of Independent Auditors 27 Financial Data Schedule 99.1 Risk Factors/Cautionary Statements for Purposes of the Private Securities Litigation Reform Act of 1995 99.2 Federal Income Tax and ERISA considerations (1) Filed as an exhibit to the Company's filing on Form 8-K dated November 7, 1996, previously filed pursuant to the Securities Exchange Act of 1934, and hereby incorporated by reference. (2) Filed as an exhibit to the Company's Registration Statement on Form S- 11 (No. 33-73710) previously filed pursuant to the Securities Act of 1933 and hereby incorporated by reference. (3) Filed as an exhibit to the Company's Registration Statement on Form S- 3 (No. 333-22339) previously filed pursuant to the Securities Act of 1933 and hereby incorporated by reference. (4) Filed as an exhibit to the Company's Registration Statement on Form S- 8 (No. 333-1848) previously filed pursuant to the Securities Act of 1933 and hereby incorporated by reference. (5) Filed as an exhibit to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1998, previously filed pursuant to the Securities Exchange Act of 1934 and hereby incorporated by reference. (6) Filed as an exhibit to the Company's filing on Form 8-K dated August 1, 1997, previously filed pursuant to the Securities Exchange Act of 1934 and hereby incorporated by reference. (7) Filed as an exhibit to the Company's filing on Form 8-K dated February 13, 1998, previously filed pursuant to the Securities Exchange Act of 1934 and hereby incorporated by reference. (8) Filed as an exhibit to the Company's Registration Statement on Form S- 3 (No. 33-90868) previously filed pursuant to the Securities Act of 1933 and hereby incorporated by reference. (9) Filed as an exhibit to the Company's annual report on Form 10-K for the year ended December 31, 1996, previously filed pursuant to the Securities Exchange Act of 1934 and hereby incorporated by reference. (10) Filed as an exhibit to the Company's filing on Form 10-K for the year ended December 31, 1997, previously filed pursuant to the Securities Exchange Act of 1934 and hereby incorporated by reference. EX-10.7 2 TERM LOAN CREDIT AGREEMENT EXHIBIT 10.7 $100,000,000 TERM LOAN CREDIT AGREEMENT dated as of February 17, 1999 among JDN REALTY CORPORATION The Banks Listed Herein, WACHOVIA BANK, N.A., as Agent and PNC BANK, NATIONAL ASSOCIATION, as Documentation Agent TABLE OF CONTENTS CREDIT AGREEMENT ARTICLE I DEFINITIONS.............................................. 1 SECTION 1.01. Definitions.............................................. 1 SECTION 1.02. Accounting Terms and Determinations...................... 16 SECTION 1.03. References............................................... 16 SECTION 1.04. Use of Defined Terms..................................... 17 SECTION 1.05. Terminology.............................................. 17 ARTICLE II. CREDITS.................................................. 17 SECTION 2.01. Commitments to Lend Loans................................ 17 SECTION 2.02. Method of Borrowing Loans................................ 17 SECTION 2.03. Term Notes............................................... 19 SECTION 2.04. Maturity of Loans........................................ 20 SECTION 2.05. Interest Rates........................................... 20 SECTION 2.06. Optional Prepayments..................................... 22 SECTION 2.07 Mandatory Prepayments.................................... SECTION 2.08. General Provisions as to Payments........................ 23 SECTION 2.09. Computation of Interest and Fees......................... 24 ARTICLE III. CONDITIONS.TO BORROWINGS................................. 25 SECTION 3.01. Conditions to First Borrowing............................ 25 ARTICLE IV. REPRESENTATIONS AND WARRANTIES........................... 27 SECTION 4.01. Corporate Existence and Power............................ 27 SECTION 4.02. Corporate and Governmental Authorization; No............. 27 SECTION 4.03. Binding Effect........................................... 27 SECTION 4.04. Financial Information.................................... 27 SECTION 4.05. No Litigation............................................ 28 (i) SECTION 4.06. Compliance with ERISA.................................... 28 SECTION 4.07. Compliance with Laws; Payment of Taxes................... 28 SECTION 4.08. Guarantors and Subsidiaries.............................. 28 SECTION 4.09. Investment Company Act................................... 29 SECTION 4.10. Public Utility Holding Company Act....................... 29 SECTION 4.11. Ownership of Property.................................... 29 SECTION 4.12. No Default............................................... 29 SECTION 4.13. Full Disclosure.......................................... 29 SECTION 4.14. Environmental Matters.................................... 29 SECTION 4.15. Capital Stock............................................ 30 SECTION 4.16. Margin Stock............................................. 30 SECTION 4.17. Insolvency............................................... 30 SECTION 4.18. Insurance................................................ 31 SECTION 4.19. Real Estate Investment Trust............................. 31 SECTION 4.20. Y2K Plan................................................. 31 ARTICLE V. COVENANTS................................................ 32 SECTION 5.01. Information.............................................. 32 SECTION 5.02. Inspection of Property, Books and Records................ 34 SECTION 5.03. Maintenance of Existence................................. 34 SECTION 5.04. Dissolution.............................................. 34 SECTION 5.05. Consolidations, Mergers and Sales of Assets.............. 34 SECTION 5.06. Use of Proceeds.......................................... 35 SECTION 5.07. Compliance with Laws; Payment of Taxes................... 35 SECTION 5.08. Insurance................................................ 36 SECTION 5.09. Change in Fiscal Year.................................... 36 SECTION 5.10. Maintenance of Property.................................. 36 (ii) SECTION 5.11. Environmental Notices.................................... 36 SECTION 5.12. Environmental Matters.................................... 36 SECTION 5.13. Environmental Release.................................... 37 SECTION 5.14. Transactions with Affiliates............................. 37 SECTION 5.15. Restricted Payments...................................... 37 SECTION 5.16. Loans or Advances........................................ 37 SECTION 5.17. Investments.............................................. 38 SECTION 5.18. [Intentionally Deleted].................................. 38 SECTION 5.19. Restrictions on Ability of Guarantors to Pay Dividends............................................... 38 SECTION 5.20. Ratio of Total Consolidated Liabilities to Gross Asset Value............................................. 39 SECTION 5.21. Ratio of Total Secured Debt to Gross Asset Value......... 39 SECTION 5.22. Ratio of EBITDA to Consolidated Interest Expense......... 39 SECTION 5.23. Ratio of Unencumbered Assets to Unsecured Funded Debt.................................................... 39 SECTION 5.24. Ratio of Unsecured Net Operating Income to Unsecured Interest Expense.............................. 39 SECTION 5.25. Guarantees............................................... 39 SECTION 5.26. Additional Revolving Credit.............................. 39 SECTION 5.27. Ownership................................................ 39 SECTION 5.28. Status as a REIT......................................... 39 SECTION 5.29. Guaranty by the Initial Guarantor; New Subsidiaries Become Guarantors....................................... 39 ARTICLE. VI DEFAULTS................................................. 40 SECTION 6.01. Events of Default........................................ 40 SECTION 6.02. Notice of Default........................................ 44 ARTICLE VII. AGENT.................................................... 44 (iii) SECTION 7.01. Appointment; Powers and Immunities....................... 44 SECTION 7.02. Reliance by Agent........................................ 45 SECTION 7.03. Defaults................................................. 45 SECTION 7.04. Rights of Agent and its Affiliates as a Bank............. 45 SECTION 7.05. Indemnification.......................................... 46 SECTION 7.06 Consequential Damages.................................... 46 SECTION 7.07. Payee of Term Note Treated as Owner...................... 46 SECTION 7.08. Nonreliance on Agent and Other Banks..................... 46 SECTION 7.09. Failure to Act........................................... 47 SECTION 7.10. Resignation or Removal of Agent.......................... 47 ARTICLE VIII. CHANGE IN CIRCUMSTANCES; COMPENSATION.................... 47 SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair.................................................. 47 SECTION 8.02. Illegality............................................... 48 SECTION 8.03. Increased Cost and Reduced Return........................ 49 SECTION 8.04. Base Rate Loans Substituted for Euro-Dollar Loans................................................... 50 SECTION 8.05. Compensation............................................. 50 ARTICLE IX. MISCELLANEOUS............................................ 51 SECTION 9.01. Notices.................................................. 51 SECTION 9.02. No Waivers............................................... 51 SECTION 9.03. Expenses; Documentary Taxes.............................. 51 SECTION 9.04. Indemnification.......................................... 52 SECTION 9.05. Setoff; Sharing of Setoffs............................... 52 SECTION 9.06. Amendments and Waivers................................... 53 SECTION 9.07. No Margin Stock Collateral............................... 54 SECTION 9.08. Successors and Assigns................................... 54 (iv) SECTION 9.09. Confidentiality.......................................... 57 SECTION 9.10. Representation by Banks.................................. 57 SECTION 9.11. Obligations Several...................................... 57 SECTION 9.12. Georgia Law.............................................. 58 SECTION 9.13. Severability............................................. 58 SECTION 9.14. Interest................................................. 58 SECTION 9.15. Interpretation........................................... 59 SECTION 9.16. Waiver of Jury Trial; Consent to Jurisdiction............ 59 SECTION 9.17. Counterparts............................................. 59 SECTION 9.18. Source of Funds -- ERISA................................. 59 (v) EXHIBIT A Form of Term Note EXHIBIT B Form of Opinion of Counsel for the Borrower and Initial Guarantor EXHIBIT C Form of Opinion of Special Counsel for the Agent EXHIBIT D Form of Assignment and Acceptance EXHIBIT E Form of Notice of Borrowing EXHIBIT F Form of Compliance Certificate EXHIBIT G Form of Closing Certificate EXHIBIT H Form of Officer's Certificate for Borrower EXHIBIT I Form of Guaranty EXHIBIT J Form of Contribution Agreement EXHIBIT K Form of Borrowing Base Certificate EXHIBIT L List of Eligible Properties Schedule 4.08 Subsidiaries Schedule 4.14 Environmental Matters Schedule 5.17 Existing Investments Schedule 5.25 Existing Guarantees (vi) TERM LOAN CREDIT AGREEMENT TERM LOAN CREDIT AGREEMENT dated as of February 17, 1999 among JDN Realty Corporation, the BANKS listed on the signature pages hereof, WACHOVIA BANK, N.A., as Agent and PNC BANK, NATIONAL ASSOCIATION, as Documentation Agent. The parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions. The terms as defined in this Section 1.01 ----------- shall, for all purposes of this Agreement and any amendment hereto (except as herein otherwise expressly provided or unless the context otherwise requires), have the meanings set forth herein: "Adjusted London Interbank Offered Rate" has the meaning set forth in Section 2.05(c). "Affiliate" of any relevant Person means (i) any Person that directly, or indirectly through one or more intermediaries, controls the relevant Person (a "Controlling Person"), (ii) any Person (other than the relevant Person or a Subsidiary of the relevant Person) which is controlled by or is under common control with a Controlling Person, or (iii) any Person (other than a Subsidiary of the relevant Person) of which the relevant Person owns, directly or indirectly, 20% or more of the common stock or equivalent equity interests. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Agent" means Wachovia Bank, N.A., a national banking association organized under the laws of the United States of America, in its capacity as agent for the Banks hereunder, and its successors and permitted assigns in such capacity. "Agent's Letter Agreement" means that certain letter agreement, dated as of December 18, 1998, between the Borrower and the Agent relating to the structure of the Loans, and certain fees from time to time payable by the Borrower to the Agent, together with all amendments and supplements thereto. "Agreement" means this Term Loan Credit Agreement, together with all amendments and supplements hereto. "Applicable Margin" has the meaning set forth in Section 2.05(a). "Assignee" has the meaning set forth in Section 9.08(c). "Assignment and Acceptance" means an Assignment and Acceptance executed in accordance with Section 9.08(c) in the form attached hereto as Exhibit D. - --------- "Authority" has the meaning set forth in Section 8.02. "Bank" means each bank listed on the signature pages hereof as having a Commitment, and its successors and assigns. "Base Rate" means for any Base Rate Loan for any day, the rate per annum equal to the higher as of such day of (i) the Prime Rate, or (ii) one-half of one percent above the Federal Funds Rate. For purposes of determining the Base Rate for any day, changes in the Prime Rate or the Federal Funds Rate shall be effective on the date of each such change. "Base Rate Borrowing" means a Borrowing consisting of Base Rate Loans. "Base Rate Loan" means a Loan which bears or is to bear interest at a rate based upon the Base Rate, and is to be made as a Base Rate Loan pursuant to the applicable Notice of Borrowing, Section 2.02(f), or Article VIII, as applicable. "Base Rent" means, with respect to leases of the Properties, the minimum annual contractual rent payable thereunder, excluding common area maintenance and percentage rent. "Borrower" means JDN Realty Corporation, a Maryland corporation, and its successors and its permitted assigns. "Borrowing" means a borrowing hereunder consisting of Loans made to the Borrower. "Borrowing Base" means the sum (without duplication with respect to any Property) of each of the following, as determined by reference to the most recent Borrowing Base Certificate furnished pursuant to Section 3.01(h) or Section 5.01(i), as applicable: (i) an amount equal to the product of (w) 10 (which is the capitalization rate), times (x) 4 (which is the annualization factor), times (y) 0.60 (which is the advance rate), times (z) the Net Operating Income for the 3 month period ending on the last day of the Fiscal Quarter just 2 ended prior to the date of determination, from each Eligible Unencumbered Stabilized Property owned by the Borrower or any Guarantor for at least one Fiscal Quarter; plus (ii) an amount equal to the product of (x) the book value of each Eligible Unencumbered Stabilized Property owned by the Borrower or any Guarantor for less than a Fiscal Quarter, times (y) 0.60 (which is the advance rate); plus (iii) an amount equal to the lesser of: (A) the product of (x) 0.50 (which is the advance rate), times (y) the book value of Construction in Progress on all Eligible Properties not subject to a Mortgage and (B) $20,000,000. "Borrowing Base Certificate" means a certificate substantially in the form of Exhibit K, duly executed by an authorized officer, setting forth in --------- reasonable detail the calculations for each component of the Borrowing Base. "Capital Stock" means any nonredeemable capital stock or other ownership interest of the Borrower or any Consolidated Entity (to the extent issued to a Person other than the Borrower), whether common or preferred, and including any interest as a member in a limited liability company. "CERCLA" means the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. (S) 9601 et. seq. and its implementing regulations and amendments. "CERCLIS" means the Comprehensive Environmental Response Compensation and Liability Inventory System established pursuant to CERCLA. "Change of Law" shall have the meaning set forth in Section 8.02. "Closing Certificate" has the meaning set forth in Section 3.01(e). "Closing Date" means February 17, 1999. "Code" means the Internal Revenue Code of 1986, as amended, or any successor Federal tax code. "Commitment" means, with respect to each Bank the amount set forth opposite the name of such Bank on the signature pages hereof. "Compliance Certificate" has the meaning set forth in Section 5.01(c). 3 "Consolidated Entity" means at any date any Person the accounts of which, in accordance with GAAP, are consolidated with those of the Borrower in its consolidated financial statements as of such date. "Consolidated Interest Expense" for any period means, interest expensed in respect of Debt of the Borrower and its Consolidated Subsidiaries and the Guarantors. "Consolidated Liabilities" means the sum of (i) all liabilities that, in accordance with GAAP, should be classified as liabilities on a consolidated balance sheet of Borrower and its Consolidated Subsidiaries and the Guarantors, and (ii) to the extent not included in clause (i) of this definition, all Redeemable Preferred Stock. "Consolidated Net Income" means, for any period, the Net Income of the Borrower and its Consolidated Subsidiaries and the Guarantors determined on a consolidated basis, but excluding (i) extraordinary items and (ii) any equity interests of the Borrower or any Subsidiary in the unremitted earnings of any Person that is not a Subsidiary. "Consolidated Operating Profits" means, for any period, the Operating Profits of the Borrower and its Consolidated Subsidiaries. "Consolidated Subsidiary" means at any date any Subsidiary or other entity the accounts of which, in accordance with GAAP, would be consolidated with those of the Borrower in its consolidated financial statements as of such date. "Construction in Progress" means, for any retail Property, calculated on a consolidated basis for the Borrower and the Guarantors, the sum of (x) construction-in-progress as shown from time to time on the books and records of the Borrower and the Guarantors, maintained in accordance with GAAP, plus (y) the book value, calculated in accordance with GAAP, of any Property that (i) previously constituted construction-in-progress and (ii) has not yet become a Stabilized Property. "Contribution Agreement" means the Contribution Agreement of even date herewith in substantially the form of Exhibit J to be executed by the Borrower --------- and by the Initial Guarantor on the Closing Date and by each of the Guarantors pursuant to Section 5.29. "Control" means, with respect to any Person, the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities or otherwise. 4 "Controlled Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Code. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee under capital leases, (v) all obligations of such Person to reimburse any bank or other Person in respect of amounts payable under a banker's acceptance, (vi) all Redeemable Preferred Stock of such Person (in the event such Person is a corporation), (vii) all obligations of such Person to reimburse any bank or other Person in respect of amounts paid or to be paid or to be paid under a letter of credit or similar instrument, (viii) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person, (ix) all obligations of such Person with respect to interest rate protection agreements, foreign currency exchange agreements or other hedging arrangements (valued as the termination value thereof computed in accordance with a method approved by the International Swap Dealers Association and agreed to by such Person in the applicable hedging agreement, if any), and (x) all Debt of others Guaranteed by such Person. "Debt Rating" means at any time whichever is the lowest of the rating of the Borrower's senior unsecured, unenhanced debt (or, if no such debt exists, its issuer credit rating for debt of such type) by Moody's, S&P and Duff & Phelps (provided, that (i) if any two of such ratings are the same, such ratings -------- shall apply, and (ii) in the event of a double or greater split rating, the rating immediately above the lowest rating shall apply), or if only one of them rates the Borrower's senior unsecured, unenhanced debt, Level IV of the table contained in Section 2.05(a) shall apply. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Default Rate" means, with respect to any Loan, on any day, the sum of 2% plus the highest interest rate (including the Applicable Margin) which may be applicable to any Loans hereunder (irrespective of whether any such type of Loans are actually outstanding hereunder). 5 "Dollars" or "$" means dollars in lawful currency of the United States of America. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in Georgia are authorized by law to close. "EBITDA" means at any time the sum of the following, determined on a consolidated basis for the Borrower and the Guarantors, at the end of each Fiscal Quarter, for the applicable measuring period: (i) Consolidated Net Income; plus (ii) Consolidated Interest Expense; plus (iii) taxes on income; ---- ---- plus (iv) depreciation; plus (v) amortization; plus (vi) other non-cash charges. - ---- ---- ---- "Eligible Property" means any retail Property which is either: (i) listed on Exhibit L; or (ii) which has been approved as an Eligible Property by --------- the Required Banks, at the request of the Borrower, taking into account the following information concerning the Property provided to the Agent and the Banks by the Borrower: (x) as to all proposed Eligible Property, a physical description, applicable environmental reports, and information regarding its location, (y) as to any proposed Eligible Property which is a Stablilized Property, information regarding its age and occupancy, an operating statement and rent roll for the most recent Fiscal Quarter, and an operating budget for the current Fiscal Year and (z) as to any proposed Eligible Property which consists of Construction in Progress, information regarding its rental status, and a pro forma operating statement and rent roll (as of the time it becomes a Stabilized Property); provided, however, that under no circumstances can any Eligible Property include - -------- ------- at any time any Property which at such time is an "Eligible Property" under the Revolving Credit Agreement. "Eligible Unencumbered Stabilized Property" means any Eligible Property which (i) is not subject to a Mortgage, and (ii) is a Stabilized Property. "Environmental Authority" means any foreign, federal, state, local or regional government that exercises any form of jurisdiction or authority under any Environmental Requirement. "Environmental Authorizations" means all licenses, permits, orders, approvals, notices, registrations or other legal 6 prerequisites for conducting the business of the Borrower or any Subsidiary required by any Environmental Requirement. "Environmental Judgments and Orders" means all judgments, decrees or orders arising from or in any way associated with any Environmental Requirements, whether or not entered upon consent, or written agreements with an Environmental Authority or other entity arising from or in any way associated with any Environmental Requirement, whether or not incorporated in a judgment, decree or order. "Environmental Liabilities" means any liabilities, whether accrued, contingent or otherwise, arising from and in any way associated with any Environmental Requirements. "Environmental Notices" means notice from any Environmental Authority or by any other person or entity, of possible or alleged noncompliance with or liability under any Environmental Requirement, including without limitation any complaints, citations, demands or requests from any Environmental Authority or from any other person or entity for correction of any violation of any Environmental Requirement or any investigations concerning any violation of any Environmental Requirement. "Environmental Proceedings" means any judicial or administrative proceedings arising from or in any way associated with any Environmental Requirement. "Environmental Releases" means releases as defined in CERCLA or under any applicable state or local environmental law or regulation. "Environmental Requirements" means any legal requirement relating to health, safety or the environment and applicable to the Borrower, any Subsidiary or the Properties, including but not limited to any such requirement under CERCLA or similar state legislation and all federal, state and local laws, ordinances, regulations, orders, writs, decrees and common law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor law. Any reference to any provision of ERISA shall also be deemed to be a reference to any successor provision or provisions thereof. "Euro-Dollar Borrowing" means a Borrowing consisting of Euro-Dollar Loans. "Euro-Dollar Business Day" means any Domestic Business Day on which dealings in Dollar deposits are carried out in the London interbank market. 7 "Euro-Dollar Loan" means a Loan which bears or is to bear interest at a rate based upon the Euro-Dollar Rate, and to be made as a Euro-Dollar Loan pursuant to the applicable Notice of Borrowing. "Euro-Dollar Reserve Percentage" has the meaning set forth in Section 2.05(c). "Event of Default" has the meaning set forth in Section 6.01. "Federal Funds Rate" means, for any day, the rate per annum (rounded upward, if necessary, to the next higher 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if the day for which such rate is to -------- be determined is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to the Agent on such day on such transactions, as determined by the Agent. "Fiscal Month" means any fiscal month of the Borrower. "Fiscal Quarter" means any fiscal quarter of the Borrower. "Fiscal Year" means any fiscal year of the Borrower and the Guarantors. "Funds From Operations" means net income or loss computed in accordance with GAAP, excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. "GAAP" means generally accepted accounting principles applied on a basis consistent with those which, in accordance with Section 1.02, are to be used in making the calculations for purposes of determining compliance with the terms of this Agreement. "Gross Asset Value" means, on a consolidated basis for the Borrower and the Guarantors, the sum of (without duplication with respect to any Property): 8 (i) an amount equal to the product of (x) 10 (which is the capitalization rate), times (y) 4 (which is the annualization factor), times (z) the Net Operating Income for the 3 month period ending on the last day of the month just ended prior to the date of determination, from each Property owned by the Borrower or any Guarantor for at least one Fiscal Quarter; plus (ii) an amount equal to the book value as of the last day of the month just ended prior to the date of determination of Property owned by the Borrower or any Guarantor for less than a Fiscal Quarter; plus (iii) the book value of Construction in Progress on the last day of the Fiscal Quarter just ended. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to secure, purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to provide collateral security, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall -------- not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guarantors" means any one, or more or all, as the context shall require, of the Initial Guarantor and any Significant Subsidiary which becomes a Guarantor pursuant to Section 5.29(subject to the provisions of the last sentence of Section 5.05). "Guaranty" means the Guaranty Agreement in substantially the form of Exhibit I to be executed by the Initial Guarantor on the Closing Date and by - --------- each of the other Guarantors as required by and pursuant to Section 5.29, unconditionally and jointly and severally Guaranteeing payment of the Loans, the Term Notes and all other obligations of the Borrower to the Agent and the Banks hereunder, including without limitation all principal, interest, fees, costs, and compensation and indemnification amounts. 9 "Hazardous Materials" includes, without limitation, (a) solid or hazardous waste, as defined in the Resource Conservation and Recovery Act of 1980, 42 U.S.C. (S) 6901 et seq. and its implementing regulations and amendments, or in any applicable state or local law or regulation, (b) "hazardous substance", "pollutant", or "contaminant" as defined in CERCLA, or in any applicable state or local law or regulation, (c) gasoline, or any other petroleum product or by-product, including, crude oil or any fraction thereof, (d) toxic substances, as defined in the Toxic Substances Control Act of 1976, or in any applicable state or local law or regulation and (e) insecticides, fungicides, or rodenticides, as defined in the Federal Insecticide, Fungicide, and Rodenticide Act of 1975, or in any applicable state or local law or regulation, as each such Act, statute or regulation may be amended from time to time. "Initial Guarantor" means JDN DCI. "Interest Period" means: (1) with respect to each Euro-Dollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the first, second, third or sixth month thereafter, as the Borrower may elect in the applicable Notice of Borrowing; provided that: - -------- (a) any Interest Period (subject to paragraph (c) below) which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro- Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall, subject to paragraph (c) below, end on the last Euro-Dollar Business Day of the appropriate subsequent calendar month; and (c) no Interest Period may be selected which begins before the Maturity Date and would otherwise end after the Maturity Date; and (2) with respect to each Base Rate Borrowing, the period commencing on the date of such Borrowing and ending 30 days thereafter; provided that: -------- (a) any Interest Period (subject to paragraph (b) below) which would otherwise end on a day which is not a Domestic Business Day shall be extended to the next succeeding Domestic Business Day; and 10 (b) no Interest Period which begins before the Maturity Date and would otherwise end after the Maturity Date may be selected. "Investment" means any investment in any Person, whether by means of purchase or acquisition of obligations or securities of such Person, capital contribution to such Person, loan or advance to such Person, making of a time deposit with such Person, or assumption of any obligation of such Person or otherwise. "JDN DCI" means JDN Development Company, Inc., a Delaware corporation. "JDN Venture" means any Person formed by the Borrower or any Consolidated Entity: (i) which is not a Consolidated Entity and (ii) in which the Borrower or such Consolidated Entity owns either (x) 50% or more of the beneficial interests therein, but does not have Control thereof, or (y) 20% or more of the beneficial interests therein, but does have Control thereof. "Lending Office" means, as to each Bank, its office located at its address set forth on the signature pages hereof (or identified on the signature pages hereof as its Lending Office) or such other office as such Bank may hereafter designate as its Lending Office by notice to the Borrower and the Agent. "Lien" means, with respect to any asset, any mortgage, deed to secure debt, deed of trust, lien, pledge, charge, security interest, security title, preferential arrangement which has the practical effect of constituting a security interest or encumbrance, or encumbrance or servitude of any kind in respect of such asset to secure or assure payment of a Debt or a Guarantee, whether by consensual agreement or by operation of statute or other law, or by any agreement, contingent or otherwise, to provide any of the foregoing. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "Loans" means the loans made by the Banks to the Borrower pursuant to the terms and conditions set forth in Section 2.01, consisting of initial Loans made by the Banks on or about the Closing Date (upon satisfaction of the conditions set forth in Section 3.01) and thereafter, consisting solely of Refunding Loans, with each Loan being either a Base Rate Loan or a Euro-Dollar Loan, and references to "Loans" include Base Rate Loans or Euro-Dollar Loans, or both, as the context shall require. 11 "Loan Documents" means this Agreement, the Term Notes, the Guaranty, the Contribution Agreement, any other document evidencing, relating to or securing the Loans, and any other document or instrument delivered from time to time in connection with this Agreement, the Term Notes or the Loans, as such documents and instruments may be amended or supplemented from time to time. "London Interbank Offered Rate" has the meaning set forth in Section 2.05(c). "Margin Stock" means "margin stock" as defined in Regulations T, U or X. "Material Adverse Effect" means, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences, whether or not related, a material adverse change in, or a material adverse effect upon, any of (a) the financial condition, operations, business, properties or prospects of the Borrower and the Guarantors taken as a whole, (b) the rights and remedies of the Agent or the Banks under the Loan Documents, or the ability of the Borrower or the Guarantors to perform its obligations under the Loan Documents to which it is a party, as applicable, or (c) the legality, validity or enforceability of any Loan Document. "Maturity Date" means whichever is applicable of (i) February 15, 2002, or (ii) the date the Agent declares the Term Notes to be immediately due and payable in full during the existence of an Event of Default pursuant to Section 6.01. "Moody's" means Moody's Investor Service, Inc. "Mortgage" means (i) with respect to any referenced Property, a mortgage, deed to secure debt, deed of trust or similar instrument encumbering such Property, and (ii) with respect to the owner of any referenced Property, a pledge of any of its capital stock or partnership interests. "Multiemployer Plan" shall have the meaning set forth in Section 4001(a)(3) of ERISA. "Net Income" means, as applied to any Person for any period, the aggregate amount of net income of such Person for such period, as determined in accordance with GAAP. "Net Operating Income" means, for any Property, calculated on a consolidated basis for the Borrower and the Guarantors, the sum of the following derived from such Property: 12 (i) Property revenues, less (ii) Property expenses (excluding depreciation, amortization and debt service), less (iii) a management fee equal to 3% of Base Rent, and less (iv) a capital reserve equal to $0.15 for each leasable square foot. "Non-Recourse Mortgage Debt" means Debt secured by a Mortgage on Property, which the Borrower has determined in good faith is by its terms non- recourse, except for customary exclusions for environmental liability, misapplication or fraudulent application of rent after default, insurance proceeds and condemnation awards and other customary exclusions. "Notice of Borrowing" has the meaning set forth in Section 2.02. "Officer's Certificate" has the meaning set forth in Section 3.01(f). "Operating Profits" means, as applied to any Person for any period, the operating income of such Person for such period, as determined in accordance with GAAP. "Participant" has the meaning set forth in Section 9.08(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Performance Pricing Determination Date" has the meaning set forth in Section 2.05(a). "Person" means an individual, a corporation, a partnership, an unincorporated association, a limited liability corporation, a limited liability partnership, a trust or any other entity or organization, including, but not limited to, a government or political subdivision or an agency or instrumentality thereof. "Plan" means at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (i) maintained by a member of the Controlled Group for employees of any member of the Controlled Group or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which a member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding 5 plan years made contributions. "Prime Rate" refers to that interest rate so denominated and set by Wachovia from time to time as an interest 13 rate basis for borrowings. The Prime Rate is but one of several interest rate bases used by Wachovia. Wachovia lends at interest rates above and below the Prime Rate. "Properties" means all real property owned, leased or otherwise used or occupied by the Borrower or any Guarantor, wherever located. "Quarterly Period" means a 3 month period (or portion thereof) ending on each March 31, June 30, September 30 and December 31 after the Closing Date and prior to the Maturity Date. "Redeemable Preferred Stock" of any Person means any preferred stock issued by such Person which is at any time prior to the Maturity Date either (i) mandatorily redeemable (by sinking fund or similar payments or otherwise) or (ii) redeemable at the option of the holder thereof. "Refunding Loan" means a new Loan made on the day on which an outstanding Loan is maturing or a Base Rate Borrowing is being converted to a Euro-Dollar Borrowing, to the extent that the proceeds thereof are used entirely for the purpose of paying such maturing Loan or Loan being converted. "Regulation T" means Regulation T of the Board of Governors of the Federal Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. "Regulation X" means Regulation X of the Board of Governors of the Federal Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. "Required Banks" means at any time Banks holding at least 66 2/3% of the aggregate outstanding principal amount of the Loans. "Restricted Payment" means (i) any dividend or other distribution on any shares of the Borrower's Capital Stock (except dividends payable solely in shares of its Capital Stock) or (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of the Borrower's Capital Stock (except shares acquired upon the conversion thereof into other shares of its Capital Stock) or (b) any option, 14 warrant or other right to acquire shares of the Borrower's Capital Stock. "Revolving Credit Agreement" means the Amended and Restated Credit Agreement dated as of September 2, 1998, among the Borrower, the banks listed on the signature pages thereof and Wachovia Bank, N.A., as Agent, as it may be amended or supplemented from time to time. "S&P" means Standard & Poor's Ratings Group, a division of McGraw- Hill, Inc. "Significant Subsidiary" means any Subsidiary which either (x) has assets which constitute more than 5% of Gross Asset Value at the end of the most recent Fiscal Quarter, or (y) contributed more than 5% of Consolidated Operating Profits during the most recent Fiscal Quarter and the 3 Fiscal Quarters immediately preceding such Fiscal Quarter (or, with respect to any Subsidiary which existed during the entire 4 Fiscal Quarter period but was acquired by the Borrower during such period, which would have contributed more than 5% of Gross Asset Value during such period had it been a Subsidiary for the entire period). "Stabilized Property" means at any time retail Properties (i) which are at least 90% leased (pursuant to written leases which have been signed by both landlord and tenant and under which the payment of Base Rent has commenced) or (ii) are at least 80% occupied by tenants which have accepted the premises and signed (together with the landlord) a lease, and with respect to which the date for the commencement of payment of Base Rent has been established. "Subsidiary" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower; provided, however, that -------- ------- "Subsidiary" shall not include any JDN Venture. "Taxes" has the meaning set forth in Section 2.08(c). "Term Notes" means the promissory notes of the Borrower substantially in the form of Exhibit A evidencing the obligation of the Borrower to repay the --------- Loans, together with all amendments, consolidations, modifications, renewals and supplements thereto. "Third Parties" means all lessees, sublessees, licensees and other users of the Properties, excluding those users of the Properties in the ordinary course of the Borrower's business and on a temporary basis. 15 "Transferee" has the meaning set forth in Section 9.08(d). "Total Consolidated Liabilities" means at any time, for the Borrower and the Guarantors, determined on a consolidated basis, the sum of (i) Consolidated Liabilities, plus (ii) all Debt Guaranteed by the Borrower or any Guarantor, plus (iii) the face amount of all letters of credit issued for the account of the Borrower or any Guarantor. "Total Secured Debt" means at any time, for the Borrower and the Guarantors, determined on a consolidated basis, the sum of the following, but only if any Property, or ownership interest of the owner thereof, is subject to a Mortgage with respect thereto: (i) all indebtedness for borrowed money; (ii) the deferred purchase price of Property; (iii) all capital leases in which the Borrower is the tenant; (iv) all obligations to reimburse any bank or other Person in respect of amounts paid or to be paid under a letter of credit or similar instrument; and (v) all Guarantees of Debt of Persons other than the Borrower and the Guarantors. "Unencumbered Assets" means at any time, for the Borrower and the Guarantors, determined on a consolidated basis, the sum (without duplication with respect to any Property) of the following: (i) an amount equal to the product of (x) 10 (which is the capitalization rate), times (y) 4 (which is the annualization factor), times (z) the Net Operating Income for the 3 month period ending on the last day of the Fiscal Quarter just ended prior to the date of determination, from each Property not subject to a Mortgage and owned by the Borrower or any Guarantor for at least one Fiscal Quarter; plus (ii) an amount equal to the book value of each Property not subject to a Mortgage and owned by the Borrower or any Guarantor for less than a Fiscal Quarter; plus (iii) an amount equal to the book value of Construction in Progress on all Properties not subject to a Mortgage. "Unencumbered Stabilized Properties" means at any time, all Stabilized Properties not subject to a Mortgage. "Unfunded Vested Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the present value of all vested nonforfeitable benefits under such Plan exceeds (ii) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan, but only to the extent that 16 such excess represents a potential liability of a member of the Controlled Group to the PBGC or the Plan under Title IV of ERISA. "Unsecured Funded Debt" means at any time, for the Borrower and the Guarantors, determined on a consolidated basis, the sum of the following, but only if any Property, or ownership interest of the owner thereof, is not subject to a Mortgage with respect thereto: (i) all indebtedness for borrowed money; (ii) the deferred purchase price of Property; (iii) all capital leases in which the Borrower is the tenant; (iv) all obligations to reimburse any bank or other Person in respect of amounts paid or to be paid under a letter of credit or similar instrument; and (v) all Guarantees of Debt of Persons other than the Borrower and the Guarantors. "Unsecured Interest Expense" means at any time that portion of Consolidated Interest Expense attributable to Unsecured Funded Debt. "Unsecured Net Operating Income" means at any time all Net Operating Income attributable to Unencumbered Stabilized Properties. "Wachovia" means Wachovia Bank, N.A., a national banking association, and its successors. "Wholly Owned Subsidiary" means any Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by the Borrower. "Y2K Plan" has the meaning set forth in Section 4.20. "Year 2000 Compliant and Ready" means that (a) the Borrower's and its Subsidiaries hardware and software systems with respect to the operation of its business and its general business plan will: (i) handle date information involving any and all dates before, during and/or after January 1, 2000, including accepting input, providing output and performing date calculations in whole or in part; (ii) operate, accurately without interruption on and in respect of any and all dates before, during and/or after January 1, 2000 and without any change in performance; (iii) store and provide date input information without creating any ambiguity as to the century and; (b) the Borrower has developed alternative plans to ensure business continuity in the event of the failure of any or all of items (i) through (iii) in clause (a) above in this definition. SECTION 1.02. Accounting Terms and Determinations. Unless otherwise ----------------------------------- specified herein, all terms of an accounting character used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial 17 statements required to be delivered hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants or otherwise required by a change in GAAP) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks unless with respect to any such change concurred in by the Borrower's independent public accountants or required by GAAP, in determining compliance with any of the provisions of this Agreement or any of the other Loan Documents: (i) the Borrower shall have objected to determining such compliance on such basis at the time of delivery of such financial statements, or (ii) the Required Banks shall so object in writing within 30 days after the delivery of such financial statements, in either of which events such calculations shall be made on a basis consistent with those used in the preparation of the latest financial statements as to which such objection shall not have been made (which, if objection is made in respect of the first financial statements delivered under Section 5.01 hereof, shall mean the financial statements referred to in Section 4.04). SECTION 1.03. References. Unless otherwise indicated, references in ---------- this Agreement to "Articles", "Exhibits", "Schedules", "Sections" and other Subdivisions are references to articles, exhibits, schedules, sections and other subdivisions hereof. SECTION 1.04. Use of Defined Terms. All terms defined in this -------------------- Agreement shall have the same defined meanings when used in any of the other Loan Documents, unless otherwise defined therein or unless the context shall require otherwise. SECTION 1.05. Terminology. All personal pronouns used in this ----------- Agreement, whether used in the masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural, and the plural shall include the singular. Titles of Articles and Sections in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement. ARTICLE II THE CREDITS SECTION 2.01. Commitments to Lend Loans. Each Bank severally agrees, ------------------------- on the terms and conditions set forth herein, to make Loans to the Borrower on or about the Closing Date in the amount of its Commitment; provided that all -------- advances of the Loans by the Banks shall be made in a single funding on or about the Closing Date (when all conditions have been satisfied), in an aggregate amount not to exceed the aggregate Commitments, and thereafter, all Loans shall be made only as Refunding Loans. 18 Each Borrowing under this Section shall be in an aggregate principal amount of (x) for Base Rate Loans, $5,000,000 or any larger integral multiple of $1,000,000, and (y) for Euro-Dollar Loans, $10,000,000 or any larger integral multiple of $1,000,000 and shall be made from the several Banks ratably in proportion to their respective Commitments. Once repaid, Borrowings may not be reborrowed pursuant hereto except as Refunding Loans. SECTION 2.02. Method of Borrowing Loans. For all Loans: ------------------------- (a) The Borrower shall give the Agent notice (a "Notice of Borrowing"), which shall be substantially in the form of Exhibit E, prior to --------- 11:00 A.M. (Atlanta, Georgia time) on the same Domestic Business Day as each Base Rate Borrowing and at least 3 Euro-Dollar Business Days before each Euro- Dollar Borrowing, specifying: (i) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing, (ii) the aggregate amount of such Borrowing, (iii) whether the Loans comprising such Borrowing are to be Base Rate Loans or Euro-Dollar Loans, and (iv) in the case of a Euro-Dollar Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. (b) Upon receipt of a Notice of Borrowing, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share of such Borrowing and such Notice of Borrowing, once received by the Agent, shall not thereafter be revocable by the Borrower. (c) Not later than 11:00 A.M. (Atlanta, Georgia time), as to Euro- Dollar Borrowings, and 2:00 P.M. (Atlanta, Georgia time), as to Base Rate Borrowings, on the date of the initial advance of the Loans, each Bank shall (except as provided in paragraph (d) of this Section) make available its ratable share of such Borrowing, in Federal or other funds immediately available in Atlanta, Georgia, to the Agent at its address determined pursuant to Section 9.01. Unless the Agent determines that any applicable condition specified in Article III has not been satisfied, the Agent will make the funds so received from the Banks available to the Borrower at the Agent's aforesaid address. Unless the Agent receives notice from a Bank, at the Agent's address referred to in or specified pursuant to Section 9.01, no later than 4:00 P.M. (local time at such address) on the date prior to the initial advance of the Loans stating that such Bank will not make a Loan in connection with such Borrowing, the Agent shall be entitled to 19 assume that such Bank will make a Loan in connection with such Borrowing and, in reliance on such assumption, the Agent may (but shall not be obligated to) make available such Bank's ratable share of such Borrowing to the Borrower for the account of such Bank. If the Agent makes such Bank's ratable share available to the Borrower and such Bank does not in fact make its ratable share of such Borrowing available on such date, the Agent shall be entitled to recover such Bank's ratable share from such Bank or the Borrower (and for such purpose shall be entitled to charge such amount to any account of the Borrower maintained with the Agent), together with interest thereon for each day during the period from the date of such Borrowing until such sum shall be paid in full at a rate per annum equal to the rate at which the Agent determines that it obtained (or could have obtained) overnight Federal funds to cover such amount for each such day during such period, provided that (i) any such payment by the Borrower of such -------- Bank's ratable share and interest thereon shall be without prejudice to any rights that the Borrower may have against such Bank and (ii) until such Bank has paid its ratable share of such Borrowing, together with interest pursuant to the foregoing, it will have no interest in or rights with respect to such Borrowing for any purpose hereunder. If the Agent does not exercise its option to advance funds for the account of such Bank, it shall forthwith notify the Borrower of such decision. (d) All Loans other than the initial advance of the Term Loans shall be made as Refunding Loans. (e) Notwithstanding anything to the contrary contained in this Agreement, no Euro-Dollar Borrowing may be made if there shall have occurred a Default or an Event of Default, which Default or Event of Default shall not have been cured or waived, and all Refunding Loans shall be made as Base Rate Loans (but shall bear interest at the Default Rate, if applicable). (f) In the event that a Notice of Borrowing fails to specify whether the Loans comprising such Borrowing are to be Base Rate Loans or Euro-Dollar Loans, such Loans shall be made as Base Rate Loans. If the Borrower is otherwise entitled under this Agreement to repay any Loans maturing at the end of an Interest Period applicable thereto with the proceeds of a new Borrowing, and the Borrower fails to repay such Loans using its own moneys and fails to give a Notice of Borrowing in connection with such new Borrowing, a new Borrowing shall be deemed to be made on the date such Loans mature in an amount equal to the principal amount of the Loans so maturing, and the Loans comprising such new Borrowing shall be Base Rate Loans. (g) Notwithstanding anything to the contrary contained herein, there shall not be more than 8 Euro-Dollar Borrowings outstanding at any given time. 20 SECTION 2.03. Term Notes. (a) The Loans of each Bank shall be ---------- evidenced by a single Term Note payable to the order of such Bank for the account of its Lending Office in an amount equal to the original principal amount of such Bank's Commitment. (b) Upon receipt of each Bank's Term Note pursuant to Section 3.01, the Agent shall deliver such Term Note to such Bank. Each Bank shall record, and prior to any transfer of its Term Note shall endorse on the schedules forming a part thereof appropriate notations to evidence, the date, amount and maturity of, and effective interest rate for, each Loan made by it, the date and amount of each payment of principal made by the Borrower with respect thereto, and such schedules of each such Bank's Term Note shall constitute rebuttable presumptive evidence of the respective principal amounts owing and unpaid on such Bank's Term Note; provided that the failure of any Bank to make, or error -------- in making, any such recordation or endorsement shall not affect the obligation of the Borrower hereunder or under the Term Notes or the ability of any Bank to assign its Term Note. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Term Note and to attach to and make a part of any Term Note a continuation of any such schedule as and when required. SECTION 2.04. Maturity of Loans. (a) Each Loan included in any ----------------- Borrowing shall mature, and the principal amount thereof shall be due and payable, on the last day of the Interest Period applicable to such Borrowing. (b) Notwithstanding the foregoing, the outstanding principal amount of the Loans, if any, together with all accrued but unpaid interest thereon, if any, shall be due and payable on the Maturity Date. SECTION 2.05. Interest Rates. (a) "Applicable Margin" means (x) for -------------- any Base Rate Loan, 0.00% and (y) for each Euro-Dollar Loan, (1) until the first Performance Pricing Determination Date after the Closing Date, the percentage set forth in Level III of the table below, and (2) thereafter, the percentage determined on each Performance Pricing Determination Date by reference to the table set forth below as to such type of Loan and the Debt Rating for the quarterly or annual period ending immediately prior to such Performance Pricing Determination Date; provided, that if there is no Debt Rating from at least two -------- of the rating agencies, the Applicable Margin for Euro-Dollar Loans shall be based upon Level IV of the table below. =============================================================== Level I Level II Level III Level IV =============================================================== 21 =============================================================== Debt Rating *BBB+ BBB BBB- **BBB- and/1/ and/1/ and/1/ and/1/ Baa/3/ Baa/1/ Baa/2/ Baa/3/ --------------------------------------------------------------- Applicable Margin 1.10% 1.25% 1.40% 1.85% =============================================================== In determining the amounts to be paid by the Borrower pursuant to Sections 2.05(b) and 2.05(c), the Borrower and the Banks shall refer to the Borrower's Debt Rating from time to time. For purposes hereof, "Performance Pricing Determination Date" shall mean each date on which the Debt Rating changes. Each change in interest and fees as a result of a change in Debt Rating shall be effective only for Loans (including Refunding Loans) which are made on or after the relevant Performance Pricing Determination Date. All determinations hereunder shall be made by the Agent unless the Required Banks shall object to any such determination. The Borrower shall promptly notify the Agent of any change in the Debt Rating. (b) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day plus the Applicable Margin. Such interest shall be payable for each Interest Period on the last day thereof. Any overdue principal of and, to the extent permitted by applicable law, overdue interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the Default Rate. (c) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the Applicable Margin plus the applicable Adjusted London Interbank Offered Rate for such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than 3 months, at intervals of 3 months after the first day thereof. Any overdue principal of and, to the extent permitted by law, overdue interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the Default Rate. The "Adjusted London Interbank Offered Rate" applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upwards, if necessary, to the next higher 1/100th of 1%) by dividing (i) the applicable London ________________________ /1/ if applicable * Greater than or Equal to ** Less Than 22 Interbank Offered Rate for such Interest Period by (ii) 1.00 minus the Euro- Dollar Reserve Percentage. The "London Interbank Offered Rate" applicable to any Euro-Dollar Loan means for the Interest Period of such Euro-Dollar Loan, the rate per annum determined on the basis of the offered rate for deposits in Dollars of amounts equal or comparable to the principal amount of such Euro-Dollar Loan offered for a term comparable to such Interest Period, which rates appear on the Telerate Page 3750 effective as of 11:00 A.M., London time, 2 Euro-Dollar Business Days prior to the first day of such Interest Period, provided that if no such offered -------- rates appear on such page, the "London Interbank Offered Rate" for such Interest Period will be the arithmetic average (rounded upward, if necessary, to the next higher 1/100th of 1%) of rates quoted by not less than 2 major banks in New York City, selected by the Agent, at approximately 10:00 A.M., New York City time, 2 Euro-Dollar Business Days prior to the first day of such Interest Period, for deposits in Dollars offered by leading European banks for a period comparable to such Interest Period in an amount comparable to the principal amount of such Euro-Dollar Loan. "Euro-Dollar Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage. (d) The Agent shall determine each interest rate applicable to the Loans hereunder. The Agent shall give prompt notice to the Borrower and the Banks by telecopier of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (e) After the occurrence and during the continuance of an Event of Default, the principal amount of the Loans (and, to the extent permitted by applicable law, all accrued interest thereon) may, at the election of the Required Banks, bear interest at the Default Rate. SECTION 2.06. Optional Prepayments. (a) The Borrower may, upon at -------------------- least 1 Domestic Business Days' notice to the Agent, prepay any Base Rate Borrowing in whole at any time, or from time to time in part in amounts aggregating at least $25,000,000 or any 23 larger integral multiple of $25,000,000 (or any lesser amount equal to the outstanding balance of such Borrowing), by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Base Rate Loans of the several Banks included in such Base Rate Borrowing. (b) Upon 3 Domestic Business Day's prior written notice, the Borrower may prepay any Euro-Dollar Borrowing in whole at any time, or from time to time in part in amounts aggregating at least $25,000,000 or any larger integral multiple of $25,000,000 (or any lesser amount equal to the outstanding balance of such Borrowing), by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment, plus the amount of compensation determined to be due pursuant to Section 8.05, if such prepayment is not made on the last of an Interest Period. Each such optional prepayment shall be applied to prepay ratably the Euro-Dollar Loans of the several Banks included in such Euro-Dollar Borrowing. (c) Upon receipt of a notice of prepayment pursuant to this Section 2.06, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share of such prepayment and such notice, once received by the Agent, shall not thereafter be revocable by the Borrower. SECTION 2.07. Mandatory Prepayments. On each date on which the --------------------- aggregate principal amount of the Loans outstanding exceeds the Borrowing Base on such date (including, without limitation, because an Eligible Property included in the most recent Borrowing Base Certificate has become subject to a Mortgage), the Borrower shall so notify the Agent of the amount of such excess and repay or prepay such principal amount of the outstanding Loans (together with interest thereon and any amount due under Section 8.05(a)) as may be necessary so that after such payment the aggregate unpaid principal amount of the Loans does not exceed the Borrowing Base on such date; provided, however, -------- ------- that upon the request of the Borrower, the Borrower shall have 30 days in which to identify and obtain approval of the Required Banks, pursuant to the provisions of the definition of "Eligible Property"), a substitute Eligible Property, and upon any such approval, such Eligible Property shall be included in the computation of the Borrowing Base, and no prepayment shall be required except to the extent the Borrowing Base, as so computed, still exceeds the aggregate principal amount of the Loans outstanding. Each such payment or prepayment shall be applied ratably to the Loans of the Banks outstanding on the date of payment or prepayment in the following order of priority: (i) first, to Base Rate Loans, and (ii) secondly, to Euro-Dollar Loans. SECTION 2.08. General Provisions as to Payments. (a) The Borrower --------------------------------- shall make each payment of principal of, and interest 24 on, the Loans and of fees hereunder, not later than 11:00 A.M. (Atlanta, Georgia time) on the date when due, in Federal or other funds immediately available in Atlanta, Georgia, to the Agent at its address referred to in Section 9.01. The Agent will distribute to each Bank its ratable share of each such payment received by the Agent for the account of the Banks, such payment to be distributed by the Agent (x) by 2:00 P.M. on the date of receipt by the Agent, provided that such payment was received by the Agent by 1:00 P.M. (Atlanta, Georgia time), and (y) by 2:00 P.M. (Atlanta, Georgia time) on the date following the date of receipt by the Agent, if such payment was received by the Agent after 1:00 P.M. (Atlanta, Georgia time). If the Agent shall fail to make such distribution within the time required by the immediately preceding sentence, such distribution shall be made together with interest thereon, for each day during the period from the date such distribution should have been so made until the date such distribution actually is made, at a rate per annum equal to the Federal Funds Rate. (b) Whenever any payment of principal of, or interest on, the Base Rate Loans or of fees hereunder shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro- Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. (c) All payments of principal, interest and fees and all other amounts to be made by the Borrower pursuant to this Agreement with respect to any Loan or fee relating thereto shall be paid without deduction for, and free from, any tax, imposts, levies, duties, deductions, or withholdings of any nature now or at anytime hereafter imposed by any governmental authority or by any taxing authority thereof or therein excluding in the case of each Bank, taxes imposed on or measured by its net income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Bank is organized or any political subdivision thereof and, in the case of each Bank, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction of such Bank's applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, imposts, levies, duties, deductions or withholdings of any nature being "Taxes"). In the event that the Borrower is required by applicable law to make any such withholding or deduction of Taxes with respect to any Loan or fee or other amount, the Borrower shall pay such deduction or withholding to the applicable taxing authority, shall promptly furnish to any Bank in respect of which such deduction or withholding is made all receipts and other documents evidencing such payment and shall pay to such Bank additional amounts as may be necessary in order that the 25 amount received by such Bank after the required withholding or other payment shall equal the amount such Bank would have received had no such withholding or other payment been made. Each Bank which is not organized under the laws of the United States or any state thereof agrees, as soon as practicable after receipt by it of a request by the Borrower to do so, to file all appropriate forms and take other appropriate action to obtain a certificate or other appropriate document from the appropriate governmental authority in the jurisdiction imposing the relevant Taxes, establishing that it is entitled to receive payments of principal and interest under this Agreement and the Term Notes without deduction and free from withholding of any Taxes imposed by such jurisdiction; provided that if it is -------- unable, for any reason, to establish such exemption, or to file such forms and, in any event, during such period of time as such request for exemption is pending, the Borrower shall nonetheless remain obligated under the terms of the immediately preceding paragraph. In the event any Bank receives a refund of any Taxes paid by the Borrower pursuant to this Section 2.08(c), it will pay to the Borrower the amount of such refund promptly upon receipt thereof; provided that if at any -------- time thereafter it is required to return such refund, the Borrower shall promptly repay to it the amount of such refund. Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower and the Banks contained in this Section 2.08(c) shall be applicable with respect to any Participant, Assignee or other Transferee, and any calculations required by such provisions (i) shall be made based upon the circumstances of such Participant, Assignee or other Transferee, and (ii) constitute a continuing agreement and shall survive the termination of this Agreement and the payment in full or cancellation of the Term Notes. SECTION 2.09. Computation of Interest and Fees. Interest on Base Rate -------------------------------- Loans shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). Interest on Euro-Dollar Loans shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed, calculated as to each Interest Period from and including the first day thereof to but excluding the last day thereof. Commitment fees and any other fees payable hereunder shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). ARTICLE III CONDITIONS TO BORROWINGS 26 SECTION 3.01. Conditions to First Borrowing. The obligation of each ----------------------------- Bank to make a Loan on the occasion of the first Borrowing is subject to the satisfaction of the conditions set forth in this Section 3.01, including receipt by the Agent of the following (as to the documents described in paragraphs (a), (c), (d) and (e) below, in sufficient number of counterparts for delivery of a counterpart to each Bank and retention of one counterpart by the Agent): (a) from each of the parties hereto of either (i) a duly executed counterpart of this Agreement signed by such party or (ii) a facsimile transmission of such executed counterpart, with the original to be sent to the Agent by overnight courier); (b) a duly executed Term Note and a Guaranty duly executed by the Initial Guarantor and a Contribution Agreement duly executed by the Borrower and the Initial Guarantor; (c) an opinion letter of McCullough Sherrill, LLP, counsel for the Borrower and the Initial Guarantor, dated as of the Closing Date, substantially in the form of Exhibit B and covering such additional matters --------- relating to the transactions contemplated hereby as the Agent or any Bank may reasonably request; (d) an opinion of Jones, Day, Reavis & Pogue, special counsel for the Agent, dated as of the Closing Date, substantially in the form of Exhibit C --------- and covering such additional matters relating to the transactions contemplated hereby as the Agent may reasonably request; (e) a certificate (the "Closing Certificate") substantially in the form of Exhibit G, dated as of the Closing Date, signed by a principal --------- financial officer of the Borrower, to the effect that, to the best of his or her knowledge, (i) no Default has occurred and is continuing on the date of the first Borrowing and (ii) the representations and warranties of the Borrower contained in Article IV are true on and as of the date of the first Borrowing hereunder; (f) all documents which the Agent or any Bank may reasonably request relating to the existence of the Borrower and the Initial Guarantor, the corporate authority for and the validity of this Agreement, the Term Notes, the Guaranty and the Contribution Agreement, and any other matters relevant hereto, all in form and substance satisfactory to the Agent, including, without limitation, a certificate of each of the Borrower and the Initial Guarantor substantially in the form of Exhibit H (the "Officer's --------- Certificate"), signed by the Secretary or an Assistant Secretary of the Borrower and the Initial Guarantor, respectively, and as to the names, true 27 signatures and incumbency of the officer or officers of the Borrower or Initial Guarantor authorized to execute and deliver the Loan Documents, and certified copies of the following items for each of the Borrower and Initial Guarantor (i) a certificate of the Secretary of State of the State of its incorporation as to its good standing as a corporation incorporated therein, and (ii) the action taken by its Board of Directors authorizing the execution, delivery and performance of the Loan Documents to which it is a party; (g) a Notice of Borrowing; (h) receipt of the initial Borrowing Base Certificate, showing the Borrowing Base as of last day of the Fiscal Quarter ending prior to the Closing Date; (i) receipt by the Agent of all fees payable to the Agent on the Closing Date (i) for the sole account of the Agent pursuant to the Agent's Letter Agreement and (ii) for the ratable account of the Banks pursuant to the Summary of Terms and Conditions attached to the Agent's Letter Agreement (and the Offering Memorandum sent to the Banks); (j) the fact that, immediately before and after such funding, no Default shall have occurred and be continuing; and (k) the fact that the representations and warranties of the Borrower contained in Article IV of this Agreement shall be true on and as of the date of such funding. In addition, if the Borrower desires funding of a Euro-Dollar Loan on the Closing Date, the Agent shall have received, the requisite number of days prior to the Closing Date, a funding indemnification letter satisfactory to it, pursuant to which (i) the Agent and the Borrower shall have agreed upon the interest rate, amount of Borrowing and Interest Period for such Euro-Dollar Borrowing, and (ii) the Borrower shall indemnify the Banks from any loss or expense arising from the failure to close on the anticipated Closing Date identified in such letter or the failure to borrow such Euro-Dollar Borrowing on such date. ARTICLE IV REPRESENTATIONS AND WARRANTIES Each of the Borrower and (by incorporation by reference in the Guaranty) the Guarantors, as expressly stated, represents and warrants that: 28 SECTION 4.01. Corporate Existence and Power. Each of the Borrower and ----------------------------- the Guarantors is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, is duly qualified to transact business in every jurisdiction where, by the nature of its business, such qualification is necessary, and has all corporate powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.02. Corporate and Governmental Authorization; No -------------------------------------------- Contravention. The execution, delivery and performance by the Borrower of this - ------------- Agreement, the Term Notes and the other Loan Documents and by the Guarantors of the Guaranty (i) are within the Borrower's or such Guarantor's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) require no action by or in respect of or filing with, any governmental body, agency or official, (iv) do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by- laws of the Borrower or any Guarantor or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any Guarantor and (v) do not result in the creation or imposition of any Lien on any asset of the Borrower or any of Guarantor. SECTION 4.03. Binding Effect. This Agreement constitutes a valid and -------------- binding agreement of the Borrower enforceable in accordance with its terms, and the Term Notes, the Guaranty and the other Loan Documents, when executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of the Borrower and the Guarantors party thereto, enforceable in accordance with their respective terms, provided that the enforceability hereof -------- and thereof is subject in each case to general principles of equity and to bankruptcy, insolvency and similar laws affecting the enforcement of creditors' rights generally. SECTION 4.04. Financial Information. (a) The consolidated balance --------------------- sheets of the Borrower and the consolidated financial position of JDN DCI as of December 31, 1997 and the related consolidated statements of income, shareholders' equity and cash flows for the Fiscal Year then ended, reported on by Ernst & Young LLP, copies of which have been delivered to each of the Banks, and the unaudited consolidated financial statements of the Borrower for the interim period ended September 30, 1998, copies of which have been delivered to each of the Banks, fairly present, in conformity with GAAP, the consolidated financial position of the Borrower and its Consolidated Subsidiaries and JDN DCI as of such date and their consolidated results of operations and cash flows for such periods stated. (b) Since December 31, 1997, there has been no event, act, condition or occurrence having a Material Adverse Effect. 29 SECTION 4.05. No Litigation. There is no action, suit or proceeding ------------- pending, or to the knowledge of the Borrower threatened, against or affecting the Borrower, any Guarantor or any Subsidiary before any court or arbitrator or any governmental body, agency or official which could have a Material Adverse Effect or which in any manner draws into question the validity of or could impair the ability of the Borrower or any Guarantor to perform its obligations under, this Agreement, the Term Notes, the Guaranty or any of the other Loan Documents. SECTION 4.06. Compliance with ERISA. (a) The Borrower and each member --------------------- of the Controlled Group have fulfilled their obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and are in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and have not incurred any liability to the PBGC or a Plan under Title IV of ERISA. (b) Neither the Borrower nor any member of the Controlled Group is or ever has been obligated to contribute to any Multiemployer Plan. SECTION 4.07. Compliance with Laws; Payment of Taxes. To the best of -------------------------------------- the Borrower's knowledge, the Borrower and each Guarantor and each Subsidiary is in compliance with all applicable laws, regulations and similar requirements of governmental authorities, except where such compliance is being contested in good faith through appropriate proceedings. There have been filed on behalf of the Borrower and each Guarantor and each Subsidiary all material Federal, state and local income, excise, property and other tax returns which are required to be filed by them and all taxes due pursuant to such returns or pursuant to any assessment received by or on behalf of the Borrower and each Guarantor and each Subsidiary have been paid, except in all cases, for any such tax, assessment, fine or penalty that is being contested in good faith through appropriate proceedings.. The charges, accruals and reserves on the books of the Borrower and each Guarantor and each Subsidiary in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate. SECTION 4.08. Guarantors and Subsidiaries. Each of the Guarantors and --------------------------- the Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, is duly qualified to transact business in every jurisdiction where, by the nature of its business, such qualification is necessary, and has all corporate powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, except where failure to so qualify or be in good standing would not have or cause a Material Adverse Effect. The Borrower has no Subsidiaries except for those Subsidiaries listed on Schedule 4.08, 30 which accurately sets forth each such Subsidiary's complete name and jurisdiction of organization. SECTION 4.09. Investment Company Act. Neither the Borrower nor any ---------------------- Guarantor or Subsidiary is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.10. Public Utility Holding Company Act. Neither the ---------------------------------- Borrower nor any Guarantor or Subsidiary is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. SECTION 4.11. Ownership of Property. Each of the Borrower, the --------------------- Guarantors and the Subsidiaries has title to its properties sufficient for the conduct of its business. SECTION 4.12. No Default. To the best of Borrower's knowledge, ---------- neither the Borrower nor any Guarantor or Subsidiary is in default under or with respect to any agreement, instrument or undertaking to which it is a party or by which it or any of its property is bound which could have or cause a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. SECTION 4.13. Full Disclosure. All information heretofore furnished --------------- by the Guarantors or the Borrower to the Agent or any Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Guarantors or the Borrower to the Agent or any Bank will be, true, accurate and complete in every material respect or based on reasonable estimates on the date as of which such information is stated or certified. The Borrower and the Guarantors have disclosed to the Banks in writing any and all facts which could have or cause a Material Adverse Effect. SECTION 4.14. Environmental Matters. (a) Except as set forth in --------------------- Schedule 4.14, to the best of the Borrower's knowledge, neither the Borrower nor any Guarantor or Subsidiary is subject to any Environmental Liability which could have or cause a Material Adverse Effect and none of the Guarantors, the Borrower or any Subsidiary has been designated as a potentially responsible party under CERCLA or under any state statute similar to CERCLA. None of the Properties has been identified on any current or proposed (i) National Priorities List under 40 C.F.R. (S) 300, (ii) CERCLIS list or (iii) any list arising from a state statute similar to CERCLA. (b) Except as set forth in Schedule 4.14, to the best of the Borrower's knowledge, no Hazardous Materials have been or are being used, produced, manufactured, processed, treated, recycled, 31 generated, stored, disposed of, managed or otherwise handled at, or shipped or transported to or from the Properties or are otherwise present at, on, in or under the Properties, or, to the best of the knowledge of the Borrower, at or from any adjacent site or facility, except for Hazardous Materials, such as cleaning solvents, pesticides and other materials used, produced, manufactured, processed, treated, recycled, generated, stored, disposed of, managed, or otherwise handled in the ordinary course of business in material compliance with all applicable Environmental Requirements. (c) Except as set forth in Schedule 4.14, to the best of the Borrower's knowledge, each of the Borrower and its Subsidiaries and Affiliates has procured all Environmental Authorizations necessary for the conduct of its business, and is in compliance with all Environmental Requirements in connection with the operation of the Properties and the Borrower's, and each of its Subsidiary's and Affiliate's, respective businesses. SECTION 4.15. Capital Stock. All Capital Stock, debentures, bonds, ------------- notes and all other securities of and interests in the Borrower and its Subsidiaries presently issued and outstanding or effective are validly and properly issued or effective in all material respects in accordance with all applicable laws, including, but not limited to, the "Blue Sky" laws of all applicable states and the federal securities laws. The issued shares of or other interests constituting Capital Stock of the Borrower's Wholly Owned Subsidiaries are owned by the Borrower free and clear of any Lien or adverse claim. At least a majority of the issued shares of capital stock of or other interests in each of the Borrower's other Subsidiaries (other than Wholly Owned Subsidiaries) is owned by the Borrower, and all such shares or other interests which are owned by the Borrower are owned by it free and clear of any Lien or adverse claim. SECTION 4.16. Margin Stock. Neither the Borrower nor any Guarantor or ------------ Subsidiary is engaged principally, or as a significant part of its business, in the business of purchasing or carrying any Margin Stock, and no part of the proceeds of any Loan will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock (other than loans to employees for the purchase of Capital Stock pursuant to options granted by the Borrower), or be used for any purpose which violates, or which is inconsistent with, the provisions of Regulation T, U or X. SECTION 4.17. Insolvency. After giving effect to the execution and ---------- delivery of the Loan Documents and the making of the Loans under this Agreement: (i) the Borrower will not (x) be "insolvent," within the meaning of such term as used in O.C.G.A. (S) 18-2-22 or as defined in (S) 101 of the "Bankruptcy Code", or Section 2 of either the "UFTA" or the "UFCA", or as defined or used 32 in any "Other Applicable Law" (as those terms are defined below), or (y) be unable to pay its debts generally as such debts become due within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA or Section 6 of the UFCA, or (z) have an unreasonably small capital to engage in any business or transaction, whether current or contemplated, within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA or Section 5 of the UFCA; and (ii) the obligations of the Borrower under the Loan Documents and with respect to the Loans will not be rendered avoidable under any Other Applicable Law. For purposes of this Section 4.17, "Bankruptcy Code" means Title 11 of the United States Code, "UFTA" means the Uniform Fraudulent Transfer Act, "UFCA" means the Uniform Fraudulent Conveyance Act, and "Other Applicable Law" means any other applicable law pertaining to fraudulent transfers or acts voidable by creditors, in each case as such law may be amended from time to time. SECTION 4.18. Insurance. Each of the Borrower, the Guarantors and the --------- Subsidiaries has (either in the name of the Borrower or in such Subsidiary's own name), or has caused its tenants to obtain (or, for tenants approved by the Agent, to provide self-insurance with respect thereto), with financially sound and reputable insurance companies, all-risk insurance in at least such amounts and against at least such risks (including on all its property, and public liability and worker's compensation) as are usually insured against in the same general area by companies of established repute engaged in the same or similar business. SECTION 4.19. Real Estate Investment Trust. The Borrower has ---------------------------- elected to be treated and is qualified under Sections 856 through 860, inclusive, of the Code as a real estate investment trust. SECTION 4.20. Y2K Plan. The Borrower has developed and has delivered -------- to the Agent and the Banks a comprehensive plan (the "Y2K Plan") for insuring that the Borrower's and its Subsidiaries' software and hardware systems which impact or affect in any way the business operations of the Borrower and its Subsidiaries' will be Year 2000 Compliant and Ready. The Borrower and its Subsidiaries' have met the Y2K Plan milestones such that all hardware and software systems will be Year 2000 Compliant and Ready in accordance with the Y2K Plan. 33 ARTICLE V COVENANTS The Borrower and (by incorporation by reference in the Guaranty) the Guarantors agree that, so long as any Bank has any Commitment hereunder or any amount payable hereunder or under any Term Note remains unpaid: SECTION 5.01. Information. The Borrower will deliver to each of the ----------- Banks: (a) as soon as available and in any event within 90 days after the end of each Fiscal Year, either (i) an executed copy of the Annual Report on Form 10K for such Fiscal Year, or (ii) a consolidated balance sheet of the Borrower and the Guarantors as of the end of such Fiscal Year and the related consolidated statements of income, shareholders' equity and cash flows for such Fiscal Year, setting forth in each case in comparative form the figures for the previous fiscal year, in either case audited by Ernst & Young LLP or other independent public accountants of nationally recognized standing, with such audit opinion to be free of exceptions and qualifications not acceptable to the Required Banks; (b) as soon as available and in any event within 45 days after the end of each of the first 3 Fiscal Quarters of each Fiscal Year, either (i) an executed copy of the Quarterly Report on Form 10Q for such Fiscal Quarter, or (ii) a consolidated balance sheet of the Borrower and the Guarantors as of the end of such Fiscal Quarter and the related statement of income and statement of cash flows for such Fiscal Quarter and for the portion of the Fiscal Year ended at the end of such Fiscal Quarter, setting forth in each case in comparative form the figures for the corresponding Fiscal Quarter and the corresponding portion of the previous Fiscal Year, all certified (subject to normal year-end adjustments) as to fairness of presentation, GAAP and consistency by the chief financial officer or the chief accounting officer of the Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in paragraphs (a) and (b) above, a certificate, substantially in the form of Exhibit F (a "Compliance Certificate"), of the --------- chief financial officer or the chief accounting officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Sections 5.05, 5.15, 5.16, 5.17, 5.20 through 5.25, inclusive, on the date of such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the 34 details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (d) simultaneously with the delivery of each set of annual financial statements referred to in paragraph (a) above, a statement of the firm of independent public accountants which reported on such statements to the effect that nothing has come to their attention to cause them to believe that any Default existed under Sections 5.20 through 5.24, inclusive, or Section 6.01(e) or (f) on the date of such financial statements; (e) within 5 Domestic Business Days after the Borrower becomes aware of the occurrence of any Default, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (f) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (g) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and annual, quarterly or monthly reports which the Borrower shall have filed with the Securities and Exchange Commission; (h) if and when any member of the Controlled Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA, a copy of such notice; or (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate or appoint a trustee to administer any Plan, a copy of such notice; (i) within 45 days after the end of each Fiscal Quarter, a Borrowing Base Certificate as of the last day of the Fiscal Quarter just ended, and, prior to the date of any removal or addition of any Property from the Borrowing Base, a Borrowing Base Certificate as of such date, giving effect to such removal or addition; (j) simultaneously with the delivery of each set of financial statements referred to in paragraphs (a) and (b) 35 above, operating statements for each Eligible Property for the period covered by such financial statements; and (k) from time to time such additional information regarding the financial position or business of the Borrower and the Guarantors as the Agent, at the request of any Bank, may reasonably request. SECTION 5.02. Inspection of Property, Books and Records. The Borrower ----------------------------------------- and the Guarantors will (i) keep proper books of record and account in which full, true and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its business and activities; and (ii) permit representatives of any Bank at such Bank's expense prior to the occurrence of a Default and at the Borrower's expense after the occurrence of a Default to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants. The Borrower and the Guarantors agree to cooperate and assist in such visits and inspections, in each case at such reasonable times and as often as may reasonably be desired. SECTION 5.03. Maintenance of Existence. The Borrower shall and the ------------------------ Guarantors will each maintain its corporate existence and carry on its business in substantially the same manner and in substantially the same fields as such business is now carried on and maintained. SECTION 5.04. Dissolution. Neither the Borrower nor any of the ----------- Guarantors shall suffer or permit dissolution or liquidation either in whole or in part or redeem or retire any shares of its own stock or that of any Guarantor, except an established stock repurchase program of which the Agent has been notified or through corporate reorganization to the extent permitted by Section 5.05. SECTION 5.05. Consolidations, Mergers and Sales of Assets. Neither ------------------------------------------- the Borrower nor any of the Guarantors will consolidate or merge with or into, or acquire all or substantially all of the assets or stock of any other Person, or sell, lease or otherwise transfer all or any substantial part of its assets to, any other Person, provided that: -------- (i) the Borrower may merge with another Person if (x) such Person was organized under the laws of the United States of America or one of its states, (y) the Borrower is the corporation surviving such merger and (z) immediately after giving effect to such merger, no Default shall have occurred and be continuing; 36 (ii) Guarantors may merge with one another, and the Guarantors may sell, lease or otherwise transfer assets to the Borrower; (iii) the foregoing limitation on the acquisition of all or substantially all the assets or stock of another Person shall not prohibit, during any Fiscal Quarter, the acquisition of all or substantially all of the assets or stock of another Person unless the aggregate assets or stock acquired in a single acquisition or series of related acquisitions of all or substantially all of the assets or stock of another Person by the Borrower and the Guarantors during such Fiscal Quarter constituted more than 20% of Gross Asset Value at the end of the most recent Fiscal Quarter immediately preceding such Fiscal Quarter; and (iv) the foregoing limitation on the sale, lease or other transfer of assets shall not prohibit, during any Fiscal Quarter, a transfer of assets (in a single transaction or in a series of related transactions) unless the aggregate assets to be so transferred, when combined with all other assets transferred, by the Borrower and the Guarantors during such Fiscal Quarter and the immediately preceding 3 Fiscal Quarters, constituted more than 20% of Gross Asset Value at the end of the most recent Fiscal Quarter immediately preceding such Fiscal Quarter. In the case of any Guarantor which transfers substantially all of its assets pursuant to clause (iv) of the preceding sentence, and in the case of any Guarantor the stock of which is being sold and with respect to which clause (iv) would have been satisfied if the transaction had been a sale of assets of such Guarantor, such Guarantor may dissolve and shall be entitled to obtain from the Agent a written release from the Guaranty, provided that it can demonstrate to -------- the reasonable satisfaction of the Agent that (A) it has repaid in full all Debt owed to the Borrower or any other Guarantor and (B) such sale was for cash and in the case of an asset transfer, the net cash proceeds received in connection therewith are being distributed to the Borrower as part of such dissolution, and upon obtaining such written release, it shall no longer be a Guarantor for any purpose hereunder. SECTION 5.06. Use of Proceeds. The proceeds of the Loans may be used --------------- for general corporate purposes; provided, however, that no portion of the -------- ------- proceeds of the Loans will be used by the Borrower or any Subsidiary (i) in connection with, whether directly or indirectly, any tender offer for, or other acquisition of, stock of any corporation with a view towards obtaining control of such other corporation, unless such tender offer or other acquisition is to be made on a negotiated basis with the approval of the Board of Directors of the Person to be acquired, and the provisions of Section 5.17 would not be violated, (ii) directly or 37 indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any Margin Stock, or (iii) for any purpose in violation of any applicable law or regulation. SECTION 5.07. Compliance with Laws; Payment of Taxes. The Borrower -------------------------------------- and the Guarantors will, and will cause each member of the Controlled Group to, comply with applicable laws (including but not limited to ERISA), regulations and similar requirements of governmental authorities (including but not limited to PBGC), except where the necessity of such compliance is being contested in good faith through appropriate proceedings diligently pursued, and except where the failure to comply would not have or be reasonably expected to cause a Material Adverse Effect. The Borrower and the Guarantors will pay promptly when due all taxes, assessments, governmental charges, claims for labor, supplies, rent and other obligations which, if unpaid, might become a lien against the Property of the Borrower or any Guarantor, except liabilities being contested in good faith and against which the Borrower is maintaining accruals and reserves which the Borrower believes are reasonable in accordance with GAAP. SECTION 5.08. Insurance. The Borrower and the Guarantors will --------- maintain (either in the name of the Borrower or in such Guarantor's own name), or will cause its tenants to obtain, with financially sound and reputable insurance companies (or, for tenants which have been approved in writing by the Agent self insurance), all-risk insurance on all its property in at least such amounts and against at least such risks (including on all its property, and public liability and worker's compensation) as are usually insured against in the same general area by companies of established repute engaged in the same or similar business. SECTION 5.09. Change in Fiscal Year. The Borrower and each of the --------------------- Guarantors agrees that it will not change its Fiscal Year without the consent of the Required Banks. SECTION 5.10. Maintenance of Property. The Borrower and each ----------------------- Guarantor shall maintain all of its Properties and assets in good condition, repair and working order, ordinary wear and tear excepted. SECTION 5.11. Environmental Notices. The Borrower and each Guarantor --------------------- shall furnish to the Banks and the Agent prompt written notice of all Environmental Liabilities, pending, threatened or anticipated Environmental Proceedings, Environmental Notices, Environmental Judgments and Orders, and Environmental Releases at, on, in, under or in any way affecting the Properties or any adjacent property, and all facts, events, or conditions that could lead to any of the foregoing. SECTION 5.12. Environmental Matters. The Borrower and the Guarantors --------------------- will not, and will not permit any Third Party to, 38 use, produce, manufacture, process, treat, recycle, generate, store, dispose of, manage at, or otherwise handle, or ship or transport to or from the Properties any Hazardous Materials except for Hazardous Materials such as cleaning solvents, pesticides and other similar materials used, produced, manufactured, processed, treated, recycled, generated, stored, disposed, managed, or otherwise handled in minimal amounts in the ordinary course of business in compliance with all applicable Environmental Requirements. SECTION 5.13. Environmental Release. The Borrower and each Guarantor --------------------- agrees that upon the occurrence of an Environmental Release at or on any of the Properties it will act immediately to investigate the extent of, and to take appropriate remedial action to eliminate, such Environmental Release, whether or not ordered or otherwise directed to do so by any Environmental Authority. SECTION 5.14. Transactions with Affiliates. Neither the Borrower nor ---------------------------- any of the Guarantors shall enter into, or be a party to, any transaction with any Affiliate of the Borrower or such Guarantor (which Affiliate is not the Borrower or a Guarantor), except as permitted by law and in the ordinary course of business and pursuant to reasonable terms which are no less favorable to Borrower or such Subsidiary than would be obtained in a comparable arm's length transaction with a Person which is not an Affiliate. SECTION 5.15. Restricted Payments. The Borrower's Restricted Payments ------------------- in any calendar year shall not exceed 95% of Funds from Operations for such period, unless the Borrower must pay out an amount in excess of 95% of Funds from Operations to permit the Borrower to preserve its status as a real estate investment trust under the applicable provision of the Code. SECTION 5.16. Loans or Advances. Neither the Borrower nor any of the ----------------- Guarantors shall make loans or advances to any Person except as permitted by Section 5.17 and except: (i) loans or advances to employees and directors not exceeding $10,000,000 in the aggregate principal amount outstanding at any time; (ii) deposits required by government agencies or public utilities; (iii) loans or advances from the Borrower to a Guarantor or from a Guarantor to the Borrower or another Guarantor; and/or (iv) other loans and advances by the Borrower and the Guarantors to any JDN Venture which (x) are evidenced by notes (and, if requested by the Agent, acting at the direction of the Required Banks, with such notes, together with any related 39 mortgage, have been assigned to and pledged with the Agent, for the benefit of itself and the Banks, as security for the payment of all obligations of the Borrower to the Agent and the Banks hereunder) and (y) are in an amount which, together with Investments permitted by clause (vi) of Section 5.17, do not exceed 15% of Gross Asset Value as of the end of the most recent Fiscal Quarter; provided that after giving effect to the making of any loans, advances or - -------- deposits permitted by this Section, and no Default shall be in existence or be created thereby. SECTION 5.17. Investments. Investments of the Borrower as of the ----------- Closing Date (other than in Subsidiaries, which are set forth in Schedule 4.08), are set forth on Schedule 5.17. Neither the Borrower nor any of the Guarantors shall make Investments after the Closing Date in any Person except as permitted by Section 5.16 and except Investments in: (i) direct obligations of the United States Government maturing within one year; (ii) certificates of deposit issued by a commercial bank whose credit is satisfactory to the Agent; (iii) commercial paper rated A1 or the equivalent thereof by S&P or P1 or the equivalent thereof by Moody's and in either case maturing within 6 months after the date of acquisition; (iv) tender bonds the payment of the principal of and interest on which is fully supported by a letter of credit issued by a United States bank whose long-term certificates of deposit are rated at least AA or the equivalent thereof by S&P and Aa or the equivalent thereof by Moody's,; and (v) Investments consisting of the acquisition of all or substantially all of the assets or stock of another Person permitted by Section 5.05(iii); and/or (vi) other Investments by the Borrower and the Guarantors in an amount which, (x) together with loans and advances permitted by clause (iv) of Section 5.16, do not exceed 15% of Gross Asset Value as of the end of the most recent Fiscal Quarter, and (y) with respect to Investments in Persons over which, after giving effect to such Investment, the Borrower or the Guarantors do not have Control, do not exceed 5% of Gross Asset Value as of the end of the most recent Fiscal Quarter; provided, however, immediately after giving effect to the making of any - ----------------- Investment, no Default shall have occurred and be continuing. 40 SECTION 5.18. [Intentionally Deleted]. SECTION 5.19. Restrictions on Ability of Guarantors to Pay Dividends. ------------------------------------------------------ The Borrower shall not permit any Guarantor to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Guarantor to (i) pay any dividends or make any other distributions on its Capital Stock or any other interest or (ii) make or repay any loans or advances to the Borrower or the parent of such Guarantor. SECTION 5.20. Ratio of Total Consolidated Liabilities to Gross Asset ------------------------------------------------------ Value. The ratio of Total Consolidated Liabilities to Gross Asset Value shall at - ----- all times be equal to or less than 0.55 to 1.0. SECTION 5.21. Ratio of Total Secured Debt to Gross Asset Value. The ------------------------------------------------ ratio of Total Secured Debt to Gross Asset Value shall at all times be equal to or less than 0.40 to 1.0. SECTION 5.22. Ratio of EBITDA to Consolidated Interest Expense. The ------------------------------------------------ ratio of EBITDA to Consolidated Interest Expense for the Fiscal Quarter just ended and the 3 immediately preceding Fiscal Quarters will not be less than 2.0 to 1.00, calculated at the end of each Fiscal Quarter. SECTION 5.23. Ratio of Unencumbered Assets to Unsecured Funded Debt. ----------------------------------------------------- The ratio of Unencumbered Assets to Unsecured Funded Debt shall at all times be equal to or greater than 1.75 to 1.00. SECTION 5.24. Ratio of Unsecured Net Operating Income to Unsecured ---------------------------------------------------- Interest Expense. The ratio of Unsecured Net Operating Income to Unsecured - ---------------- Interest Expense shall at all times be equal to or greater than 1.75 to 1.0. SECTION 5.25. Guarantees. Neither the Borrower nor any Guarantor will ---------- create, assume or suffer to exist any Guarantees of Debt of other Persons, except (i) Guarantees in existence on May 23, 1997 in the aggregate amount as of February 17, 1999 of $__________ and set forth on Schedule 5.25, (ii) Guarantees of Debt of the Borrower or other Guarantors and (iii) other Guarantees in an aggregate amount not exceeding at any time 10% of Gross Asset Value as of the last day of the Fiscal Quarter just ended. SECTION 5.26. Additional Revolving Credit. Neither the Borrower nor --------------------------- any Guarantor will create, assume or suffer to exist any Debt for money borrowed pursuant to revolving credit arrangements, except (i) Debt under the Revolving Credit Agreement and (ii) other Debt of such type not to exceed at any time a maximum of $25,000,000 of principal and commitments. 41 SECTION 5.27. Ownership. The Borrower shall at all times own 99% of --------- the capital stock of JDN DCI. SECTION 5.28. Status as a REIT. The Borrower shall at all times ---------------- maintain its status as a real estate investment trust under the Code. SECTION 5.29. Guaranty by the Initial Guarantor; New Subsidiaries to ------------------------------------------------------ Become Guarantors. The Initial Guarantor shall become a Guarantor on the - ----------------- Closing Date, as contemplated in Section 3.01. Any Subsidiary acquired or created after the Closing Date, must become a Guarantor promptly upon becoming a Significant Subsidiary, in each case by (x) executing and delivering to the Agent a counterpart of the Guaranty and a counterpart of the Contribution Agreement (which the Borrower agrees to execute when the Initial Guarantor executes it), thereby becoming a party to each of them, (y) delivering to the Agent an opinion of counsel to such Subsidiary, in substantially the form and substance of Exhibit B, but limited to such Subsidiary and the Guaranty and --------- Contribution Agreement, and excluding paragraph 2 thereof, and (z) delivering to the Agent documents pertaining to the Subsidiary reasonably requested by the Agent of the types described in paragraph (f) of Section 3.01, but relating to the Guaranty and the Contribution Agreement. ARTICLE VI DEFAULTS SECTION 6.01. Events of Default. If one or more of the following ----------------- events ("Events of Default") shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal of any Loan or shall fail to pay any interest on any Loan within 5 Domestic Business Days after such interest shall become due, or shall fail to pay any fee or other amount payable hereunder within 5 Domestic Business Days after such fee or other amount becomes due; or (b) the Borrower shall fail to observe or perform any covenant contained in Sections 5.01(e), 5.01(i), 5.02(ii), 5.03 through 5.06, inclusive, or Sections 5.17 through 5.29, inclusive; or (c) the Borrower or any Guarantor shall fail to observe or perform any covenant or agreement contained or incorporated by reference in this Agreement (other than those covered by paragraph (a) or (b) above) or the Guaranty and such failure shall not have been cured within 30 days after the earlier to occur of (i) written notice thereof has been given to the Borrower or such Guarantor by the Agent at the request of any 42 Bank or (ii) the Borrower or such Guarantor otherwise becomes aware of any such failure; or (d) any representation, warranty, certification or statement made by the Borrower or any Guarantor in Article IV of this Agreement or the Guaranty or in any certificate, financial statement or other document delivered pursuant to this Agreement or the Guaranty shall prove to have been incorrect or misleading in any material respect when made (or deemed made); or (e) the Borrower or any Guarantor shall fail to make any payment in respect of Debt in an aggregate principal amount outstanding in excess of $5,000,000 (other than the Term Notes) when due or within any applicable grace period; or (f) any event or condition shall occur which results in the acceleration of the maturity of Debt in an aggregate principal amount outstanding in excess of $5,000,000 of the Borrower or any Guarantor (including, without limitation, any required mandatory prepayment or "put" of such Debt to the Borrower or any Guarantor) or enables (or, with the giving of notice or lapse of time or both, would enable) the holders of such Debt or commitment or any Person acting on such holders' behalf to accelerate the maturity thereof or terminate any such commitment (including, without limitation, any required mandatory prepayment or "put" of such Debt to the Borrower or any Guarantor); provided, however, that -------- ------- there shall be excluded from the foregoing any Non-Recourse Mortgage Debt which, on a cumulative basis since May 23, 1997, together with Non-Recourse Mortgage Debt of JDN Ventures permitted by the proviso in paragraph (g) below, does not exceed $20,000,000 in aggregate principal amount; or (g) failure of any JDN Venture to make any payment when due, including payment of principal or interest (whether by acceleration or otherwise), on any obligation of such JDN Venture, the aggregate outstanding principal amount of which (whether or not then due) exceeds $5,000,000, or there shall occur any event or condition which results in the acceleration of the maturity of such obligation (including, without limitation, any required mandatory prepayment of "put" to such JDN Venture or to the Borrower or any Guarantor) or the termination of any commitment pertaining thereto; provided, however, that there shall be excluded from -------- ------- the foregoing any Non-Recourse Mortgage Debt which, on a cumulative basis since May 23, 1997, together with Non-Recourse Mortgage Debt of the Borrower and the Guarantors permitted by the proviso in paragraph (f) above, does not exceed $20,000,000 in aggregate principal amount; or 43 (h) the Borrower or any Guarantor shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally, or shall admit in writing its inability, to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; or (i) an involuntary case or other proceeding shall be commenced against the Borrower or any Guarantor seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Guarantor under the federal bankruptcy laws as now or hereafter in effect; or (j) the Borrower or any member of the Controlled Group shall fail to pay when due any material amount which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans shall be filed under Title IV of ERISA by the Borrower, any member of the Controlled Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any such Plan or Plans or a proceeding shall be instituted by a fiduciary of any such Plan or Plans to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed within 30 days thereafter; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any such Plan or Plans must be terminated; (k) one or more judgments or orders for the payment of money in an aggregate amount in excess of $5,000,000 shall be rendered against the Borrower or any Guarantor and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; or (l) a federal tax lien shall be filed against the Borrower or any Guarantor under Section 6323 of the Code or a 44 lien of the PBGC shall be filed against the Borrower or any Subsidiary under Section 4068 of ERISA and in either case such lien shall remain undischarged for a period of 25 days after the date of filing; or (m) (i) any Person or two or more Persons acting in concert, other than J. Donald Nichols, Elizabeth L. Nichols or their immediate family members, or trusts or other entities established for the benefit of any of them, shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 20% or more of the outstanding shares of the voting stock of the Borrower; or (ii) as of any date a majority of the Board of Directors of the Borrower consists of individuals who were not either (A) directors of the Borrower as of the corresponding date of the previous year, (B) selected or nominated to become directors by the Board of Directors of the Borrower of which a majority consisted of individuals described in clause (A), or (C) selected or nominated to become directors by the Board of Directors of the Borrower of which a majority consisted of individuals described in clause (A) and individuals described in clause (B); or (n) the occurrence of any event, act, occurrence, or condition which the Required Banks determine has caused a Material Adverse Effect. then, and in every such event, the Agent shall, if requested by the Required Banks, by notice to the Borrower declare the Term Notes (together with accrued interest thereon), and all other amounts payable hereunder and under the other Loan Documents, to be, and the Term Notes (together with accrued interest thereon), and all other amounts payable hereunder and under the other Loan Documents shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower together with interest at the Default Rate accruing on the principal amount thereof from and after the date of such Event of Default; provided that if any Event of Default specified in paragraph (h) or -------- (i) above occurs with respect to the Borrower, without any notice to the Borrower or any other act by the Agent or the Banks, the Term Notes (together with accrued interest thereon) and all other amounts payable hereunder and under the other Loan Documents shall automatically and without notice become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower together with interest thereon at the Default Rate accruing on the principal amount thereof from and after the date of such Event of Default. Notwithstanding the foregoing, the Agent shall have available to it all other remedies at law or equity, and shall exercise any one or all of them at the request of the Required Banks. Following acceleration of the Term 45 Notes by the Agent, nothing contained in this Agreement shall limit the right of a Bank from initiating or conducting any litigation or collection proceedings, or from exercising any other rights or remedies, with respect to the Term Note on which it is named as payee. SECTION 6.02. Notice of Default. The Agent shall give notice to the ----------------- Borrower of any Default under Section 6.01(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. 46 ARTICLE VII THE AGENT SECTION 7.01. Appointment; Powers and Immunities. Each Bank hereby ---------------------------------- irrevocably appoints and authorizes the Agent to act as its agent hereunder and under the other Loan Documents with such powers as are specifically delegated to the Agent by the terms hereof and thereof, together with such other powers as are reasonably incidental thereto. The Agent: (a) shall have no duties or responsibilities except as expressly set forth in this Agreement and the other Loan Documents, and shall not by reason of this Agreement or any other Loan Document be a trustee for any Bank; (b) shall not be responsible to the Banks for any recitals, statements, representations or warranties contained in this Agreement or any other Loan Document, or in any certificate or other document referred to or provided for in, or received by any Bank under, this Agreement or any other Loan Document, or for the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or any other document referred to or provided for herein or therein or for any failure by the Borrower to perform any of its obligations hereunder or thereunder; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder or under any other Loan Document except to the extent requested by the Required Banks, and (d) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other Loan Document or any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, except for its own gross negligence or wilful misconduct. The Agent may employ agents and attorneys-in- fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The provisions of this Article VII are solely for the benefit of the Agent and the Banks, and the Borrower shall not have any rights as a third party beneficiary of any of the provisions hereof. In performing its functions and duties under this Agreement and under the other Loan Documents, the Agent shall act solely as agent of the Banks and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Borrower. The duties of the Agent shall be ministerial and administrative in nature, and the Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Bank. SECTION 7.02. Reliance by Agent. The Agent shall be entitled to rely ----------------- upon any certification, notice or other communication (including any thereof by telephone, telecopier, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants or other experts selected by the Agent. As 47 to any matters not expressly provided for by this Agreement or any other Loan Document, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and thereunder in accordance with instructions signed by the Required Banks, and such instructions of the Required Banks in any action taken or failure to act pursuant thereto shall be binding on all of the Banks. SECTION 7.03. Defaults. The Agent shall not be deemed to have -------- knowledge of the occurrence of a Default or an Event of Default (other than the nonpayment of principal of or interest on the Loans) unless the Agent has received notice from a Bank or the Borrower specifying such Default or Event of Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default or an Event of Default, the Agent shall give prompt notice thereof to the Banks. The Agent shall give each Bank prompt notice of each nonpayment of principal of or interest on the Loans whether or not it has received any notice of the occurrence of such nonpayment. The Agent shall (subject to Section 9.06) take such action hereunder with respect to such Default or Event of Default as shall be directed by the Required Banks, provided that, unless and until the Agent -------- shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Banks. SECTION 7.04. Rights of Agent and its Affiliates as a Bank. With -------------------------------------------- respect to the Loans made by the Agent and any Affiliate of the Agent, Wachovia in its capacity as a Bank hereunder and any Affiliate of the Agent or such Affiliate in its capacity as a Bank hereunder shall have the same rights and powers hereunder as any other Bank and may exercise the same as though Wachovia were not acting as the Agent, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include Wachovia in its individual capacity and any Affiliate of the Agent in its individual capacity. The Agent and any Affiliate of the Agent may (without having to account therefor to any Bank) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with the Borrower (and any of the Borrower's Affiliates) as if Wachovia were not acting as the Agent, and the Agent and any Affiliate of the Agent may accept fees and other consideration from the Borrower (in addition to any agency fees and arrangement fees heretofore agreed to between the Borrower and the Agent) for services in connection with this Agreement or any other Loan Document or otherwise without having to account for the same to the Banks. SECTION 7.05. Indemnification. Each Bank severally agrees to --------------- indemnify the Agent, to the extent the Agent shall not have been reimbursed by the Borrower, ratably in accordance with its Commitment, for any and all liabilities, obligations, losses, 48 damages, penalties, actions, judgments, suits, costs, expenses (including, without limitation, counsel fees and disbursements) or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement or any other Loan Document or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (excluding, unless an Event of Default has occurred and is continuing, the normal administrative out of pocket costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or any such other documents; provided that no Bank shall be liable for any of the foregoing -------- to the extent they arise from the negligence or wilful misconduct of the Agent. SECTION 7.06 Consequential Damages. THE AGENT SHALL NOT BE --------------------- RESPONSIBLE OR LIABLE TO ANY BANK, THE BORROWER OR ANY OTHER PERSON OR ENTITY FOR ANY PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. SECTION 7.07. Payee of Term Note Treated as Owner. The Agent may deem ----------------------------------- and treat the payee of any Term Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof shall have been filed with the Agent and the provisions of Section 9.08(c) have been satisfied. Any requests, authority or consent of any Person who at the time of making such request or giving such authority or consent is the holder of any Term Note shall be conclusive and binding on any subsequent holder, transferee or assignee of that Term Note or of any Term Note or Term Notes issued in exchange therefor or replacement thereof. SECTION 7.08. Nonreliance on Agent and Other Banks. Each Bank agrees ------------------------------------ that it has, independently and without reliance on the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the other Loan Documents. The Agent shall not be required to keep itself (or any Bank) informed as to the performance or observance by the Borrower of this Agreement or any of the other Loan Documents or any other document referred to or provided for herein or therein or to inspect the properties or books of the Borrower or any other Person. Except for notices, reports and other documents and information expressly required to be furnished to the Banks by the Agent hereunder or under the other Loan Documents, the Agent shall not have any duty or responsibility 49 to provide any Bank with any credit or other information concerning the affairs, financial condition or business of the Borrower or any other Person (or any of their Affiliates) which may come into the possession of the Agent. SECTION 7.09. Failure to Act. Except for action expressly required of -------------- the Agent hereunder or under the other Loan Documents, the Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction by the Banks of their indemnification obligations under Section 7.05 against any and all liability and expense which may be incurred by the Agent by reason of taking, continuing to take, or failing to take any such action. SECTION 7.10. Resignation or Removal of Agent. Subject to the ------------------------------- appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving notice thereof to the Banks and the Borrower and the Agent may be removed at any time with or without cause by the Required Banks. Upon any such resignation or removal, the Required Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Banks and shall have accepted such appointment within 30 days after the retiring Agent's notice of resignation or the Required Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent. Any successor Agent shall be a bank which has a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article VII shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent hereunder. ARTICLE VIII CHANGE IN CIRCUMSTANCES; COMPENSATION SECTION 8.01. Basis for Determining Interest Rate Inadequate or ------------------------------------------------- Unfair. If on or prior to the first day of any Interest Period: - ------ (a) the Agent determines that deposits in Dollars (in the applicable amounts) are not being offered in the relevant market for such Interest Period, or 50 (b) the Required Banks advise the Agent that the London Interbank Offered Rate as determined by the Agent will not adequately and fairly reflect the cost to such Banks of funding the Euro-Dollar Loans for such Interest Period, the Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Banks to make Euro-Dollar Loans specified in such notice shall be suspended. Unless the Borrower notifies the Agent at least 2 Domestic Business Days before the date of any Borrowing of such Euro-Dollar Loans for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, such Borrowing shall instead be made as a Base Rate Borrowing. SECTION 8.02. Illegality. If, after the date hereof, the adoption of ---------- any applicable law, rule or regulation, or any change therein or any existing or future law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof (any such agency being referred to as an "Authority" and any such event being referred to as a "Change of Law"), or compliance by any Bank (or its Lending Office) with any request or directive (whether or not having the force of law) of any Authority shall make it unlawful or impossible for any Bank (or its Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify the Agent, the Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans shall be suspended. Before giving any notice to the Agent pursuant to this Section, such Bank shall designate a different Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such Bank shall determine that it may not lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans to maturity and shall so specify in such notice, the Borrower shall immediately prepay in full the then outstanding principal amount of each Euro-Dollar Loan of such Bank, together with accrued interest thereon and any amount due such Bank pursuant to Section 8.05(a). Concurrently with prepaying each such Euro-Dollar Loan, the Borrower shall borrow a Base Rate Loan in an equal principal amount from such Bank (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and such Bank shall make such a Base Rate Loan. SECTION 8.03. Increased Cost and Reduced Return. (a) If after the --------------------------------- date hereof, a Change of Law or compliance by any Bank 51 (or its Lending Office) with any request or directive (whether or not having the force of law) of any Authority: (i) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Euro-Dollar Loan any such requirement included in an applicable Euro-Dollar Reserve Percentage) against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Lending Office); or (ii) shall impose on any Bank (or its Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Euro-Dollar Borrowings, its Term Notes or its obligation to make Euro-Dollar Borrowings; and the result of any of the foregoing is to increase the cost to such Bank (or its Lending Office) of making or maintaining any Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Lending Office) under this Agreement or under its Term Notes with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If any Bank shall have determined that after the date hereof the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof, or compliance by any Bank (or its Lending Office) with any request or directive regarding capital adequacy (whether or not having the force of law) of any Authority, has or would have the effect of reducing the rate of return on such Bank's capital as a consequence of its obligations hereunder to a level below that which such Bank could have achieved but for such adoption, change or compliance (taking into consideration such Bank's policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank, the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction. (c) Each Bank will promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the 52 additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. (d) The provisions of this Section 8.03 shall be applicable with respect to any Participant, Assignee or other Transferee, and any calculations required by such provisions shall be made based upon the circumstances of such Participant, Assignee or other Transferee. SECTION 8.04. Base Rate Loans Substituted for Euro-Dollar Loans. If ------------------------------------------------- (i) the obligation of any Bank to make or maintain any Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03, and the Borrower shall, by at least 5 Euro- Dollar Business Days' prior notice to such Bank through the Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer apply: (a) all Loans which would otherwise be made by such Bank as Euro- Dollar Loans shall be made instead as Base Rate Loans (in all cases interest and principal on such Loans shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and (b) after each of its Euro-Dollar Loans has been repaid, all payments of principal which would otherwise be applied to repay such Euro-Dollar Loans shall be applied to repay its Base Rate Loans instead. SECTION 8.05. Compensation. Upon the request of any Bank, delivered ------------ to the Borrower and the Agent, the Borrower shall pay to such Bank such amount or amounts as shall compensate such Bank for any loss, cost or expense incurred by such Bank as a result of: (a) any payment or prepayment (pursuant to Section 2.06, 6.01, 8.02 or otherwise) of a Euro-Dollar Borrowing on a date other than the last day of an Interest Period for such Loan; or (b) any failure by the Borrower to prepay a Euro-Dollar Borrowing on the date for such prepayment specified in the relevant notice of prepayment hereunder; or (c) any failure by the Borrower to borrow a Euro-Dollar Borrowing on the date for the Euro-Dollar Borrowing of which such Euro-Dollar Borrowing is a part specified in the applicable Notice of Borrowing delivered pursuant to Section 2.02; 53 such compensation to include, without limitation, if such Euro-Dollar Borrowing is a Euro-Dollar Loan, an amount equal to the excess, if any, of (x) the amount of interest which would have accrued on the amount so paid or prepaid or not prepaid or borrowed for the period from the date of such payment, prepayment or failure to prepay or borrow to the last day of the then current Interest Period for such Euro-Dollar Borrowing (or, in the case of a failure to prepay or borrow, the Interest Period for such Euro-Dollar Borrowing which would have commenced on the date of such failure to prepay or borrow) at the applicable rate of interest for such Euro-Dollar Borrowing provided for herein over (y) the amount of interest (as reasonably determined by such Bank) such Bank would have paid on deposits in Dollars of comparable amounts having terms comparable to such period placed with it by leading banks in the London interbank market. ARTICLE IX MISCELLANEOUS ------------- SECTION 9.01. Notices. All notices, requests and other communications ------- to any party hereunder shall be in writing (including telecopier or similar writing) and shall be given to such party at its address or telecopier number set forth on the signature pages hereof or such other address or telecopier number as such party may hereafter specify for the purpose by notice to each other party. Each such notice, request or other communication shall be effective (i) if given by telecopier, when such telecopy is transmitted to the telecopier number specified in this Section and the confirmation is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Agent under Article II or Article VIII shall not be - -------- effective until received. SECTION 9.02. No Waivers. No failure or delay by the Agent or any ---------- Bank in exercising any right, power or privilege hereunder or under any Term Note or other Loan Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.03. Expenses; Documentary Taxes. The Borrower shall pay (i) --------------------------- all out-of-pocket expenses of the Agent, including fees and disbursements of special counsel for the Agent, in connection with the preparation of this Agreement and the other Loan Documents, any waiver or consent hereunder or thereunder or any amendment hereof or thereof or any Default or alleged Default hereunder or thereunder and (ii) if a Default occurs, all 54 out-of-pocket expenses incurred by the Agent and the Banks, including fees and disbursements of counsel, in connection with such Default and collection and other enforcement proceedings resulting therefrom, including out-of-pocket expenses incurred in enforcing this Agreement and the other Loan Documents. The Borrower shall indemnify the Agent and each Bank against any transfer taxes, documentary taxes, assessments or charges made by any Authority by reason of the execution and delivery of this Agreement or the other Loan Documents. SECTION 9.04. Indemnification. The Borrower shall indemnify the --------------- Agent, the Banks and each Affiliate thereof and their respective directors, officers, employees and agents from, and hold each of them harmless against, any and all losses, liabilities, claims or damages to which any of them may become subject, insofar as such losses, liabilities, claims or damages arise out of or result from any actual or proposed use by the Borrower of the proceeds of any extension of credit by any Bank hereunder or breach by the Borrower of this Agreement or any other Loan Document or from any investigation, litigation (including, without limitation, any actions taken by the Agent or any of the Banks to enforce this Agreement or any of the other Loan Documents) or other proceeding (including, without limitation, any threatened investigation or proceeding) relating to the foregoing, and the Borrower shall reimburse the Agent and each Bank, and each Affiliate thereof and their respective directors, officers, employees and agents, upon demand for any expenses (including, without limitation, legal fees) incurred in connection with any such investigation or proceeding; but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or wilful misconduct of the Person to be indemnified. SECTION 9.05. Setoff; Sharing of Setoffs. (a) The Borrower hereby -------------------------- grants to the Agent and each Bank a lien for all indebtedness and obligations owing to them from the Borrower upon all deposits or deposit accounts, of any kind, or any interest in any deposits or deposit accounts thereof, now or hereafter pledged, mortgaged, transferred or assigned to the Agent or any such Bank or otherwise in the possession or control of the Agent or any such Bank for any purpose for the account or benefit of the Borrower and including any balance of any deposit account or of any credit of the Borrower with the Agent or any such Bank, whether now existing or hereafter established hereby authorizing the Agent and each Bank at any time or times with or without prior notice to apply such balances or any part thereof to such of the indebtedness and obligations owing by the Borrower to the Banks and/or the Agent then past due and in such amounts as they may elect, and whether or not the collateral, if any, or the responsibility of other Persons primarily, secondarily or otherwise liable may be deemed adequate. For the purposes of this paragraph, all remittances and property shall be deemed to be in the possession of the Agent or any such 55 Bank as soon as the same may be put in transit to it by mail or carrier or by other bailee. (b) Each Bank agrees that if it shall, by exercising any right of setoff or counterclaim or resort to collateral security or otherwise, receive payment of a proportion of the aggregate amount of principal and interest owing with respect to the Term Note held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of all principal and interest owing with respect to the Term Note held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Term Notes held by the other Banks owing to such other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Term Notes held by the Banks owing to such other Banks shall be shared by the Banks pro rata; provided that (i) nothing in this Section shall impair the right of any Bank to - -------- exercise any right of setoff or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under the Term Notes, and (ii) if all or any portion of such payment received by the purchasing Bank is thereafter recovered from such purchasing Bank, such purchase from each other Bank shall be rescinded and such other Bank shall repay to the purchasing Bank the purchase price of such participation to the extent of such recovery together with an amount equal to such other Bank's ratable share (according to the proportion of (x) the amount of such other Bank's required repayment to (y) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Term Note, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of setoff or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. SECTION 9.06. Amendments and Waivers. (a) Any provision of this ---------------------- Agreement, the Term Notes or any other Loan Documents may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of the Agent are affected thereby, by the Agent); provided that, unless signed by all Banks, no -------- such amendment or waiver shall, unless signed by all Banks, (i) change the Commitment of any Bank or subject any Bank to any additional obligation, (ii) change the principal of or rate of interest on any Loan or any fees (other than fees payable to the Agent) hereunder, (iii) change the date fixed for any payment of principal of or interest on any Loan or any fees hereunder, (iv) change the amount of principal, interest or fees due on any date fixed for the payment thereof, (v) change the percentage of the Commitments or of 56 the aggregate unpaid principal amount of the Term Notes, or the percentage of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement, (vi) change the manner of application of any payments made under this Agreement or the Term Notes, (vii) release or substitute all or any substantial part of the collateral (if any) held as security for the Loans, or (viii) release any Guarantee given to support payment of the Loans, or (ix) change the definition of "Borrowing Base". (b) The Borrower will not solicit, request or negotiate for or with respect to any proposed waiver or amendment of any of the provisions of this Agreement except through the Agent, unless each Bank shall be informed thereof by the Borrower and shall be afforded an opportunity of considering the same and shall be supplied by the Borrower with sufficient information to enable it to make an informed decision with respect thereto. Executed or true and correct copies of any waiver or consent effected pursuant to the provisions of this Agreement shall be delivered by the Borrower to each Bank forthwith following the date on which the same shall have been executed and delivered by the requisite percentage of Banks. The Borrower will not, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, to any Bank (in its capacity as such) as consideration for or as an inducement to the entering into by such Bank of any waiver or amendment of any of the terms and provisions of this Agreement unless such remuneration is concurrently paid, on the same terms, ratably to all such Banks. SECTION 9.07. No Margin Stock Collateral. Each of the Banks -------------------------- represents to the Agent and each of the other Banks that it in good faith is not, directly or indirectly (by negative pledge or otherwise), relying upon any Margin Stock as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 9.08. Successors and Assigns. (a) The provisions of this ---------------------- Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that the Borrower may not -------- assign or otherwise transfer any of its rights under this Agreement. (b) Any Bank may at any time sell to one or more Persons (each a "Participant") participating interests in any Loan owing to such Bank, any Term Note held by such Bank, any Commitment hereunder or any other interest of such Bank hereunder. In the event of any such sale by a Bank of a participating interest to a Participant, such Bank's obligations under this Agreement shall remain unchanged, such Bank shall remain solely responsible for the performance thereof, such Bank shall remain the holder of any such Term Note for all purposes under this Agreement, and the Borrower 57 and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. In no event shall a Bank that sells a participation be obligated to the Participant to take or refrain from taking any action hereunder except that such Bank may agree that it will not (except as provided below), without the consent of the Participant, agree to (i) the change of any date fixed for the payment of principal of or interest on the related loan or loans, (ii) the change of the amount of any principal, interest or fees due on any date fixed for the payment thereof with respect to the related loan or loans, (iii) the change of the principal of the related loan or loans, (iv) any change in the rate at which either interest is payable thereon or (if the Participant is entitled to any part thereof) fee is payable hereunder from the rate at which the Participant is entitled to receive interest or fee (as the case may be) in respect of such participation, (v) the release or substitution of all or any substantial part of the collateral (if any) held as security for the Loans, or (vi) the release of any Guarantee given to support payment of the Loans. Each Bank selling a participating interest in any Loan, Term Note, Commitment or other interest under this Agreement shall, within 10 Domestic Business Days of such sale, provide the Borrower and the Agent with written notification stating that such sale has occurred and identifying the Participant and the interest purchased by such Participant. The Borrower agrees that each Participant shall be entitled to the benefits of Article VIII with respect to its participation in Loans outstanding from time to time. (c) Any Bank may at any time assign to one or more banks or financial institutions (each an "Assignee") all or a proportionate part of its rights and obligations under this Agreement, the Term Notes and the other Loan Documents, and such Assignee shall assume all such rights and obligations, pursuant to an Assignment and Acceptance, executed by such Assignee, such transferor Bank and the Agent (and, in the case of an Assignee that is not then a Bank, subject to clause (iii) below, by the Borrower); provided that (i) no interest may be sold -------- by a Bank pursuant to this paragraph (c) unless the Assignee shall agree to assume ratably equivalent portions of the transferor Bank's Commitment, (ii) if a Bank is assigning only a portion of its Commitment, then, the amount of the Commitment being assigned (determined as of the effective date of the assignment) shall be in an amount not less than $5,000,000, (iii) except during the continuance of a Default, no interest may be sold by a Bank pursuant to this paragraph (c) to any Assignee that is not then a Bank (or an Affiliate of a Bank) without the consent of the Borrower and the Agent, which consent shall not be unreasonably withheld, and (iv) a Bank may not have more than 3 Assignees that are not then Banks at any one time. Upon (A) execution of the Assignment and Acceptance by such transferor Bank, such Assignee, the Agent and (if applicable) the Borrower, (B) delivery of an executed copy of the Assignment and Acceptance to the Borrower and 58 the Agent, (C) payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, and (D) payment to the Agent of a processing and recordation fee in the amount of (x) $1,500, in the case of an assignment to Bank or an Affiliate thereof, and (y) $3,500, in the case of any other assignment, such Assignee shall for all purposes be a Bank party to this Agreement and shall have all the rights and obligations of a Bank under this Agreement to the same extent as if it were an original party hereto with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by the Borrower, the Banks or the Agent shall be required. Upon the consummation of any transfer to an Assignee pursuant to this paragraph (c), the transferor Bank, the Agent and the Borrower shall make appropriate arrangements so that, if required, a new Term Note is issued to each of such Assignee and such transferor Bank. (d) Subject to the provisions of Section 9.09, the Borrower authorizes each Bank to disclose to any Participant, Assignee or other transferee (each a "Transferee") and any prospective Transferee any and all financial information in such Bank's possession concerning the Borrower which has been delivered to such Bank by the Borrower pursuant to this Agreement or which has been delivered to such Bank by the Borrower in connection with such Bank's credit evaluation prior to entering into this Agreement. (e) No Transferee shall be entitled to receive any greater payment under Section 8.03 than the transferor Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 8.02 or 8.03 requiring such Bank to designate a different Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. (f) Anything in this Section 9.08 to the contrary notwithstanding, any Bank may assign and pledge all or any portion of the Loans and/or obligations owing to it to any Federal Reserve Bank or the United States Treasury as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank, provided that any payment in respect of such assigned -------- Loans and/or obligations made by the Borrower to the assigning and/or pledging Bank in accordance with the terms of this Agreement shall satisfy the Borrower's obligations hereunder in respect of such assigned Loans and/or obligations to the extent of such payment. No such assignment shall release the assigning and/or pledging Bank from its obligations hereunder. 59 SECTION 9.09. Confidentiality. Each Bank agrees to exercise --------------- commercially reasonable efforts to keep any information delivered or made available by the Borrower to it which is clearly indicated to be confidential information, confidential from anyone other than persons employed or retained by such Bank who are or are expected to become engaged in evaluating, approving, structuring or administering the Loans; provided that nothing herein shall -------- prevent any Bank from disclosing such information (i) to any other Bank, (ii) upon the order of any court or administrative agency, (iii) upon the request or demand of any regulatory agency or authority having jurisdiction over such Bank, (iv) which has been publicly disclosed, (v) to the extent reasonably required in connection with any litigation to which the Agent, any Bank or their respective Affiliates may be a party, (vi) to the extent reasonably required in connection with the exercise of any remedy hereunder, (vii) to such Bank's legal counsel and independent auditors, and (viii) to any actual or proposed Participant, Assignee or other Transferee of all or part of its rights hereunder which has agreed in writing to be bound by the provisions of this Section 9.09; provided -------- that should disclosure of any such confidential information be required by virtue of clause (ii) of the immediately preceding sentence, to the extent permitted by law, any relevant Bank shall promptly notify the Borrower of same so as to allow the Borrower to seek a protective order or to take any other appropriate action; provided, further, that, no Bank shall be required to delay -------- ------- ---- compliance with any directive to disclose any such information so as to allow the Borrower to effect any such action. SECTION 9.10. Representation by Banks. Each Bank hereby represents ----------------------- that it is a commercial lender or financial institution which makes loans in the ordinary course of its business and that it will make its Loans hereunder for its own account in the ordinary course of such business; provided that, subject -------- to Section 9.08, the disposition of the Term Note or Term Notes held by that Bank shall at all times be within its exclusive control. SECTION 9.11. Obligations Several. The obligations of each Bank ------------------- hereunder are several, and no Bank shall be responsible for the obligations or commitment of any other Bank hereunder. Nothing contained in this Agreement and no action taken by the Banks pursuant hereto shall be deemed to constitute the Banks to be a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Bank shall be a separate and independent debt, and each Bank shall be entitled to protect and enforce its rights arising out of this Agreement or any other Loan Document and it shall not be necessary for any other Bank to be joined as an additional party in any proceeding for such purpose. SECTION 9.12. Georgia Law. This Agreement and each Term Note shall be ----------- construed in accordance with and governed by the law of the State of Georgia. 60 SECTION 9.13. Severability. In case any one or more of the provisions ------------ contained in this Agreement, the Term Notes or any of the other Loan Documents should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby and shall be enforced to the greatest extent permitted by law. SECTION 9.14. Interest. In no event shall the amount of interest, and -------- all charges, amounts or fees contracted for, charged or collected pursuant to this Agreement, the Term Notes or the other Loan Documents and deemed to be interest under applicable law (collectively, "Interest") exceed the highest rate of interest allowed by applicable law (the "Maximum Rate"), and in the event any such payment is inadvertently received by any Bank, then the excess sum (the "Excess") shall be credited as a payment of principal, unless the Borrower shall notify such Bank in writing that it elects to have the Excess returned forthwith. It is the express intent hereof that the Borrower not pay and the Banks not receive, directly or indirectly in any manner whatsoever, interest in excess of that which may legally be paid by the Borrower under applicable law. The right to accelerate maturity of any of the Loans does not include the right to accelerate any interest that has not otherwise accrued on the date of such acceleration, and the Agent and the Banks do not intend to collect any unearned interest in the event of any such acceleration. All monies paid to the Agent or the Banks hereunder or under any of the Term Notes or the other Loan Documents, whether at maturity or by prepayment, shall be subject to rebate of unearned interest as and to the extent required by applicable law. By the execution of this Agreement, the Borrower covenants, to the fullest extent permitted by law, that (i) the credit or return of any Excess shall constitute the acceptance by the Borrower of such Excess, and (ii) the Borrower shall not seek or pursue any other remedy, legal or equitable , against the Agent or any Bank, based in whole or in part upon contracting for charging or receiving any Interest in excess of the Maximum Rate. For the purpose of determining whether or not any Excess has been contracted for, charged or received by the Agent or any Bank, all interest at any time contracted for, charged or received from the Borrower in connection with this Agreement, the Term Notes or any of the other Loan Documents shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread in equal parts throughout the full term of the Commitments. The Borrower, the Agent and each Bank shall, to the maximum extent permitted under applicable law, (i) characterize any non-principal payment as an expense, fee or premium rather than as Interest and (ii) exclude voluntary prepayments and the effects thereof. The provisions of this Section shall be deemed to be incorporated into each Term Note and each of the other Loan Documents (whether or not any provision of this Section is referred to therein). All such Loan Documents and communications relating to any Interest owed by the Borrower and all figures set forth therein shall, for the sole 61 purpose of computing the extent of obligations hereunder and under the Term Notes and the other Loan Documents be automatically recomputed by the Borrower, and by any court considering the same, to give effect to the adjustments or credits required by this Section. SECTION 9.15. Interpretation. No provision of this Agreement or any -------------- of the other Loan Documents shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or dictated such provision. SECTION 9.16. Waiver of Jury Trial; Consent to Jurisdiction. The --------------------------------------------- Borrower (a) and each of the Banks and the Agent irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceeding arising out of this Agreement, any of the other Loan Documents, or any of the transactions contemplated hereby or thereby, (b) submits to the nonexclusive personal jurisdiction in the State of Georgia, the courts thereof and the United States District Courts sitting therein, for the enforcement of this Agreement, the Term Notes and the other Loan Documents, (c) waives any and all personal rights under the law of any jurisdiction to object on any basis (including, without limitation, inconvenience of forum) to jurisdiction or venue within the State of Georgia for the purpose of litigation to enforce this Agreement, the Term Notes or the other Loan Documents, and (d) agrees that service of process may be made upon it in the manner prescribed in Section 9.01 for the giving of notice to the Borrower. Nothing herein contained, however, shall prevent the Agent from bringing any action or exercising any rights against any security and against the Borrower personally, and against any assets of the Borrower, within any other state or jurisdiction. SECTION 9.17. Counterparts. This Agreement may be signed in any ------------ number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 9.18. Source of Funds -- ERISA. Each of the Banks hereby ------------------------ severally (and not jointly) represents to the Borrower that no part of the funds to be used by such Bank to fund the Loans hereunder from time to time constitutes (i) assets allocated to any separate account maintained by such Bank in which any employee benefit plan (or its related trust) has any interest nor (ii) any other assets of any employee benefit plan. As used in this Section, the terms "employee benefit plan" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 62 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, under seal, by their respective authorized officers as of the day and year first above written. JDN REALTY CORPORATION (SEAL) By:________________________________________ Title: JDN Realty Corporation 359 East Paces Ferry Road Suite 400 Atlanta, Georgia 30305 Attention: William J. Kerley Chief Financial Officer Telecopier number: 404-364-6444 Confirmation number: 404-262-3252 63 COMMITMENTS WACHOVIA BANK, N.A., as Agent and - ----------- as a Bank (SEAL) $25,000,000 By:__________________________________________ Title: Lending Office -------------- Wachovia Bank, N.A. 191 Peachtree Street, N.E. Atlanta, Georgia 30303-1757 Attention: Syndications Group Telecopier number: 404-332-4005 Confirmation number: 404-332-6971 64 COMMERZBANK, A.G., ATLANTA AGENCY (SEAL) $20,000,000 By:______________________________________ Title: By:______________________________________ Title: Lending Office -------------- Commerzbank, A.G., New York Branch 2 World Financial Center New York, New York 10281 Attention: Mr. Douglas P. Traynor Telecopier number: 212-266-7565 Confirmation number: 212-266-7569 65 BANKERS TRUST COMPANY (SEAL) $15,000,000 By:______________________________________ Title: Lending Office -------------- Bankers Trust Company 130 Liberty Street, 25th Floor New York, New York 10017 Attention: Mr. Jeffrey Baevsky Telecopier number: 212-669-0764 Confirmation number: 212-250-4466 66 PNC BANK, NATIONAL ASSOCIATION (SEAL) $15,000,000 By:______________________________________ Title: Lending Office -------------- PNC Bank, National Association One PNC Plaza 249 Fifth Avenue Mail Stop P1-POPP-19-2 Pittsburgh, Pennsylvania 15222 Attention: Wayne Robertson Real Estate Banking Telecopier number: 412-762-6500 Confirmation number: 412-762-8452 67 THE BANK OF NOVA SCOTIA (SEAL) $15,000,000 By:______________________________________ Title: Lending Office -------------- Bank of Nova Scotia The Bank of Nova Scotia One Liberty Plaza New York, New York 10006 Attention: Mr. Nick Voulgaris Telecopier number: 212-225-5166 Confirmation number: 212-225-5157 68 FIRST TENNESSEE BANK NATIONAL ASSOCIATION $10,000,000 By:______________________________________ Title: Lending Office -------------- 701 Market Street Chattanooga, TN 37402 Attention: Mr. Timothy L. Collins Telecopier number: 423-757-4040 Confirmation number: 423-757-4205 TOTAL COMMITMENTS: $100,000,000 69 EXHIBIT A --------- Term Note Atlanta, Georgia February 17, 1999 For value received, JDN REALTY CORPORATION, a Maryland corporation (the "Borrower"), promises to pay to the order of __________________________________________________, a ____________________ (the "Bank"), for the account of its Lending Office, the principal sum of ___________________________________ AND NO/100 DOLLARS ($____________), or such lesser amount as shall equal the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below, on the dates and in the amounts provided in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of this Term Note on the dates and at the rate or rates provided for in the Credit Agreement. Interest on any overdue principal of and, to the extent permitted by law, overdue interest on the principal amount hereof shall bear interest at the Default Rate, as provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Wachovia Bank, N.A., 191 Peachtree Street, N.E., Atlanta, Georgia 30303-1757, or such other address as may be specified from time to time pursuant to the Credit Agreement. All Loans made by the Bank, the respective maturities thereof, the interest rates from time to time applicable thereto, and all repayments of the principal thereof shall be recorded by the Bank and, prior to any transfer hereof, endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that -------- the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This Term Note is one of the Term Notes referred to in the Term Loan Credit Agreement dated as of February 17, 1999 among the Borrower, the Banks listed on the signature pages thereof, Wachovia Bank, N.A., as Agent and PNC Bank, National Association, as Documentation Agent (as the same may be amended and modified from time to time, the "Credit Agreement"). Reference is made to the Credit Agreement for provisions for the optional and mandatory prepayment and the repayment hereof and the acceleration of the maturity hereof, as well as the obligation of the Borrower to pay all costs of collection, including reasonable attorneys fees, in 70 the event this Term Note is collected by law or through an attorney at law. The Borrower hereby waives presentment, demand, protest, notice of demand, protest and nonpayment and any other notice required by law relative hereto, except to the extent as otherwise may be expressly provided for in the Credit Agreement. IN WITNESS WHEREOF, the Borrower has caused this Term Note to be duly executed, under seal, by its duly authorized officer as of the day and year first above written. JDN REALTY CORPORATION (SEAL) By:______________________________________ Title: 71 Term Note (cont'd) Loans AND PAYMENTS OF PRINCIPAL - ---------------------------------------------------------------- Base Rate Amount Amount of or Euro- of Principal Maturity Notation Date Dollar Loan Loan Repaid Date Made By ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 72 EXHIBIT B --------- OPINION OF COUNSEL FOR THE BORROWER AND THE INITIAL GUARANTOR -------------------------------------------------- [Dated as provided in Section 3.01 of the Credit Agreement] To the Banks and the Agent Referred to Below c/o Wachovia Bank, N.A., as Agent 191 Peachtree Street, N.E. Atlanta, Georgia 30303-1757 Attn: Syndications Group Dear Sirs: We have acted as counsel for JDN Realty Corporation, a Maryland corporation (the "Borrower"), and JDN Development Company, Inc., a Delaware corporation (the "Initial Guarantor"), in connection with the Term Loan Credit Agreement (the "Credit Agreement") dated as of February 17, 1999, among the Borrower, the banks listed on the signature pages thereof, Wachovia Bank, N.A., as Agent and PNC Bank, National Association, as Documentation Agent. Terms defined in the Credit Agreement are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. We have assumed for purposes of our opinions set forth below that the execution and delivery of the Credit Agreement by each Bank and by the Agent have been duly authorized by each Bank and by the Agent. Upon the basis of the foregoing, we are of the opinion that: 73 1. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of Maryland and has all corporate powers required to carry on its business as now conducted. The Initial Guarantor is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware and has all corporate powers required to carry on its business as now conducted. 2. The execution, delivery and performance by the Borrower of the Credit Agreement and the Term Notes, and of the Guaranty by the Initial Guarantor, respectively (i) are within its corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) require no action by or in respect of, or filing with, any governmental body, agency or official, (iv) do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower or the Initial Guarantor or of any agreement, judgment, injunction, order, decree or other instrument which to our knowledge is binding upon the Borrower or the Initial Guarantor and (v) to our knowledge, except as provided in the Credit Agreement, do not result in the creation or imposition of any Lien on any asset of the Borrower or the Initial Guarantor or any of the Subsidiaries. 3. The Credit Agreement constitutes a valid and binding agreement of the Borrower, and the Guaranty constitutes a valid and binding agreement of the Initial Guarantor, in each case enforceable against it in accordance with its terms, and the Term Notes constitute valid and binding obligations of the Borrower, enforceable in accordance with its terms, except as such enforceability may be limited by: (i) bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity. 4. To our knowledge, there is no action, suit or proceeding pending, or threatened, against or affecting the Borrower before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower or the Initial Guarantor or which in any manner questions the validity or enforceability of the Credit Agreement, any Term Note or the Guaranty. 5. The Borrower is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 6. The Borrower is not a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding 74 company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. We are qualified to practice in the State of Georgia and do not purport to be experts on any laws other than the laws of the United States and the State of Georgia and this opinion is rendered only with respect to such laws, and, as expressly provided and subject to the limitations contained in the last sentence of this paragraph, the corporate law of the States of Maryland and Delaware. We have made no independent investigation of the laws of any other jurisdiction. As to (x) the opinions expressed in paragraph 1 with respect to due incorporation, valid existence and good standing in Maryland of the Borrower, our opinion is based solely on our review of the good standing certificate issued by the Secretary of State of Maryland previously delivered to you, and (y) the opinions expressed in paragraph 1 and clause (ii) of paragraph 2 with respect to the Borrower's corporate powers under Maryland law, we have relied solely on our review of Sections 2-101 through 2-104, inclusive, of the Maryland General Corporation Law, and our review of the Borrower's Articles of Incorporation and Bylaws and relevant resolutions of its Board of Directors. As to (x) the opinions expressed in paragraph 1 with respect to as to due incorporation, valid existence and good standing in Delaware of the Initial Guarantor, our opinion is based solely on our review of the good standing certificate issued by the Secretary of State of Delaware previously delivered to you, and (y) the opinions expressed in paragraph 1 and clause (ii) of paragraph 2 with respect to the Initial Guarantor's corporate powers under Delaware law, we have relied on our general understanding of the State of Delaware General Corporation Law, and our review of the Initial Guarantor's Articles of Incorporation and Bylaws and relevant resolutions of its Board of Directors. This opinion is delivered to you in connection with the transaction referenced above and may only be relied upon by you, any Assignee, Participant or other Transferee under the Credit Agreement, and Jones, Day, Reavis & Pogue without our prior written consent. Very truly yours, 75 EXHIBIT C --------- OPINION OF JONES, DAY, REAVIS & POGUE, SPECIAL COUNSEL FOR THE AGENT ----------------------------- [Dated as provided in Section 3.01 of the Credit Agreement] To the Banks and the Agent Referred to Below c/o Wachovia Bank, N.A., as Agent 191 Peachtree Street, N.E. Atlanta, Georgia 30303-175 Attention: Syndications Group Dear Sirs: We have participated in the preparation of the Term Loan Credit Agreement (the "Credit Agreement") dated as of February 17, 1999, among JDN Realty Corporation, a Maryland corporation (the "Borrower"), the banks listed on the signature pages thereof (the "Banks"), Wachovia Bank, N.A., as Agent (the "Agent") and PNC Bank, National Association, as Documentation Agent, and have acted as special counsel for the Agent for the purpose of rendering this opinion pursuant to Section 3.01(d) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. This opinion letter is limited by, and is in accordance with, the January 1, 1992 edition of the Interpretive Standards applicable to Legal Opinions to Third Parties in Corporate Transactions adopted by the Legal Opinion Committee of the Corporate and Banking Law Section of the State Bar of Georgia which Interpretive Standards are incorporated herein by this reference. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, and assuming the due authorization, execution and delivery of the Credit Agreement and each of the Term Notes by or on behalf of the Borrower, and of the Guaranty by the Initial Guarantor, we are of the opinion that the 76 Credit Agreement constitutes a valid and binding agreement of the Borrower, each Term Note constitutes valid and binding obligations of the Borrower, and the Guaranty constitutes a valid and binding agreement of the Initial Guarantor, enforceable in accordance with its terms except as: (i) the enforceability thereof may be affected by bankruptcy, insolvency, reorganization, fraudulent conveyance, voidable preference, moratorium or similar laws applicable to creditors' rights or the collection of debtors' obligations generally; (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability; and (iii) the enforceability of certain of the remedial, waiver and other provisions of the Credit Agreement, the Term Notes and the Guaranty may be further limited by the laws of the State of Georgia; provided that such additional laws do not, in our opinion, -------- substantially interfere with the practical realization of the benefits expressed in the Credit Agreement, the Term Notes and the Guaranty, except for the economic consequences of any procedural delay which may result from such laws. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction except the State of Georgia. We express no opinion as to the effect of the compliance or noncompliance of the Agent or any of the Banks with any state or federal laws or regulations applicable to the Agent or any of the Banks by reason of the legal or regulatory status or the nature of the business of the Agent or any of the Banks. This opinion is delivered to you in connection with the transaction referenced above and may only be relied upon by you and any Assignee, Participant or other Transferee under the Credit Agreement without our prior written consent. Very truly yours, 77 EXHIBIT D --------- ASSIGNMENT AND ACCEPTANCE ------------------------- Dated ____________, ____ Reference is made to the Term Loan Credit Agreement dated as of February 17, 1999 (together with all amendments and modifications thereto, the "Credit Agreement") among JDN Realty Corporation, a Maryland corporation (the "Borrower"), the Banks (as defined in the Credit Agreement), Wachovia Bank, N.A., as Agent (the "Agent") and PNC Bank, National Association, as Documentation Agent. Terms defined in the Credit Agreement are used herein with the same meaning. _________________________________________ (the "Assignor") and ________________________________________ (the "Assignee") agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, without recourse to the Assignor, and the Assignee hereby purchases and assumes from the Assignor, a ______% interest in and to all of the Assignor's rights and obligations under the Credit Agreement as of the Effective Date (as defined below) (including, without limitation, in the Loans owing to the Assignor and the Term Note held by the Assignor. 2. The Assignor (i) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto, other than that it is the legal and beneficial owner of the interest being assigned by it hereunder, that such interest is free and clear of any adverse claim and that as of the date hereof the aggregate outstanding principal amount of Loans owing to it (without giving effect to assignments thereof which have not yet become effective) is $_________________; (ii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto; and (iii) attaches the Term Note referred to in paragraph 1 above and requests that the Agent exchange such Term Note for [a new Term Note dated _____________,____ in the principal amount of $__________ payable to the order of the Assignee] [new Term Notes as follows: a (i) Term Note dated _____ 78 ___________, ____ in the principal amount of $_____________ payable to the order of the Assignor and (ii) Term Note dated _____________, ____ in the principal amount of $______________ payable to the order of the Assignee]. 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.04(a) thereof (or any more recent financial statements of the Borrower delivered pursuant to Section 5.01(a) or (b) thereof) and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is a bank or financial institution; (iv) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Bank; (vi) specifies as its Lending Office (and address for notices) the office set forth beneath its name on the signature pages hereof, (vii) represents and warrants that the execution, delivery and performance of this Assignment and Acceptance are within its corporate powers and have been duly authorized by all necessary corporate action, (viii) makes the representation and warranty contained in Section 9.18 of the Credit Agreement[, and (ix) attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Credit Agreement and the Term Notes or such other documents as are necessary to indicate that all such payments are subject to such taxes at a rate reduced by an applicable tax treaty]. 4. The Effective Date for this Assignment and Acceptance shall be __________, ____ (the "Effective Date"). Following the execution of this Assignment and Acceptance, it will be delivered to the Agent for execution and acceptance by the Agent and to the Borrower for execution by the Borrower. 5. Upon such execution and acceptance by the Agent [and execution by the Borrower] [IF REQUIRED BY THE CREDIT AGREEMENT], from and after the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent rights and obligations have been transferred to it by this Assignment and Acceptance, have the rights and obligations of a Bank thereunder and (ii) the Assignor shall, to the extent its rights and obligations have been transferred to the Assignee by this 79 Assignment and Acceptance, relinquish its rights (other than under Sections 8.03, 9.03 and 9.04 of the Credit Agreement) and be released from its obligations under the Credit Agreement. 6. Upon such execution and acceptance by the Agent [and execution by the Borrower] [IF REQUIRED BY THE CREDIT AGREEMENT], from and after the Effective Date, the Agent shall make all payments in respect of the interest assigned hereby to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments for periods prior to such acceptance by the Agent directly between themselves. 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of Georgia. [NAME OF ASSIGNOR] By:___________________________ Title: [NAME OF ASSIGNEE] By:___________________________ Title: Lending Office: [Address] WACHOVIA BANK, N.A., As Agent By:__________________________ Title: JDN REALTY CORPORATION IF REQUIRED BY THE CREDIT AGREEMENT By:__________________________ Title: 80 EXHIBIT E --------- NOTICE OF BORROWING ------------------- _____________________, ____ Wachovia Bank, N.A., as Agent 191 Peachtree Street, N.E. Atlanta, Georgia 30303-1757 Attention: Syndications Group Re: Term Loan Credit Agreement (as amended and modified from time to time, the "Credit Agreement") dated as of February 17, 1999 by and among JDN Realty Corporation, the Banks from time to time parties thereto, Wachovia Bank, N.A., as Agent and PNC Bank, National Association, as Documentation Agent. Gentlemen: Unless otherwise defined herein, capitalized terms used herein shall have the meanings attributable thereto in the Credit Agreement. This Notice of Borrowing is delivered to you pursuant to Section 2.02 of the Credit Agreement. The Borrower hereby requests a [Euro-Dollar Borrowing] [Base Rate Borrowing] in the aggregate principal amount of $___________ to be made on ______________, ____, and for interest to accrue thereon at the rate established by the Credit Agreement for [Euro-Dollar Loans] [Base Rate Loans]. The duration of the Interest Period with respect thereto shall be [1 month] [2 months] [3 months] [6 months] [30 days]. The calculation of the amounts described in Section 2.07 of the Credit Agreement is as follows/2/: (a) Borrowing Base per most recent Borrowing Base Certificate $______________ (b) Principal amount outstanding under ____________________ /2/ Limitation: If (b) exceeds (a), the excess must be prepaid, subject to the Borrower's right to identify and seek approval of a substitute Eligible Property within 30 days. 81 Loans $______________ The Borrower hereby certifies that, as of the date hereof, none of the Eligible Properties included in the most recent Borrowing Base Certificate is subject to a Mortgage. The Borrower has caused this Notice of Borrowing to be executed and delivered by its duly authorized officer this _____ day of ___________, ___. JDN REALTY CORPORATION By:_______________________________ Title: 82 EXHIBIT F --------- COMPLIANCE CERTIFICATE ---------------------- Reference is made to the Term Loan Credit Agreement dated as of February 17, 1999 (as modified and supplemented and in effect from time to time, the "Credit Agreement") by and among JDN Realty Corporation, the Banks from time to time parties thereto, Wachovia Bank, N.A., as Agent and PNC Bank, National Association, as Documentation Agent. Capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement. Pursuant to Section 5.01(c) of the Credit Agreement, _______________, the duly authorized ______________________ of the Borrower, hereby (i) certifies to the Agent and the Banks that the information contained in the Compliance Check List attached hereto is true, accurate and complete as of __________, ____, and that no Default is in existence on and as of the date hereof and (ii) restates and reaffirms that the representations and warranties contained in Article IV of the Credit Agreement are true on and as of the date hereof as though restated on and as of this date. JDN REALTY CORPORATION By:____________________________ Its: 83 COMPLIANCE CHECK LIST JDN REALTY CORPORATION -------------------------- _____________, ____ 1. Ratio of Consolidated Total Liabilities to Gross Asset Value (Section 5.20) The ratio of Total Consolidated Liabilities to Gross Asset Value shall at all times be equal to or less than 0.55 to 1.0. (a) Total Consolidated Liabilities Schedule 1 $_________ (b) Gross Asset Value Schedule 2 $_________ (c) Actual ratio of (a) to (b) ____ to 1.0 Maximum ratio 0.55 to 1.0 2. Ratio of Total Secured Debt to Gross Asset Value (Section 5.21) The ratio of Total Secured Debt to Gross Asset Value shall at all times be equal to or less than 0.40 to 1.0. (a) Total Secured Debt Schedule 3 $__________ (b) Gross Asset Value Schedule 2 $__________ (c) Actual ratio of (a) to (b) ____ to 1.0 Maximum ratio 0.40 to 1.0 3. Ratio of EBITDA to Consolidated Interest Expense (Section 5.22) The ratio of EBITDA to Consolidated Interest Expense for the Fiscal Quarter just ended and the 3 immediately preceding Fiscal Quarters will not be less than 2.0 to 1.00, calculated at the end of each Fiscal Quarter. (a) EBITDA Schedule 4 $__________ (b) Consolidated Interest Expense $__________ (c) actual ratio of (a) to (b) ____ to 1.0 84 Minimum ratio 2.0 to 1.0 4. Ratio of Unencumbered Assets to Unsecured Funded Debt (Section 5.23) The ratio of Unencumbered Assets to Unsecured Funded Debt shall at all times be equal to or greater than 1.75 to 1.00. (a) Net Operating Income from each and owned for at least one Fiscal Quarter Schedule 5 $_________ (b) 10 times (a) $_________ (c) 4 times (b) $_________ (d) book value of each Property not subject to a Mortgage and owned for less than one Fiscal Quarter $_________ (e) book value of all Construction in Progress $_________ (f) sum of (c),(d) and (f) $_________ (g) Unsecured Funded Debt Schedule 6 $_________ (h) Actual ratio of (f) to (g) ____ to 1.0 Minimum ratio 1.75 to 1.0 5. Ratio of Unsecured Net Operating Income to Unsecured Interest Expense (Section 5.24) The ratio of Unsecured Net Operating Income to Unsecured Interest Expense shall at all times be equal to or greater than 1.75 to 1.0. (a) Unsecured Net Operating Income Schedule 5 $_________ (b) Unsecured Interest Expense/2/ $_________ (c) Actual ratio of (a) to (b) ____ to 1.0 Minimum ratio 1.75 to 1.0 _____________________ /2/ Include only Consolidated Interest Expense for Fiscal Quarter attributable to Unsecured Funded Debt. 85 6 Restricted Payments (Section 5.15)/3/ The Borrower's Restricted Payments in any calendar year shall not exceed 95% of Funds from Operations for such period, unless (i) the Borrower must pay out an amount in excess of 95% of Funds from Operations to permit the Borrower to preserve its status as a real estate investment trust under the applicable provision of the Code. (a) Restricted Payments for current calendar year $__________ (b) Funds from Operations for current calendar year Schedule 7 $__________ (c) 95% of (b) $__________ Limitation: (a) may not exceed (c) 7. Guarantees (Section 5.25) Neither the Borrower nor any Guarantor will create, assume or suffer to exist any Guarantees of Debt of other Persons, except (i) Guarantees in existence on May 23, 1997 in the aggregate as of August 31, 1998 of 21,770,661, (ii) Guarantees of Debt of the Borrower or other Guarantors and (iii) other Guarantees in an aggregate amount not exceeding at any time 10% of Gross Asset Value as of the last day of the Fiscal Quarter just ended. (a) Amount Guaranteed by other Guarantees not permitted by clauses (i) and (ii) $_________ (b) Gross Asset Value Schedule 2 $_________ (c) 10% of (b) $_________ Limitation: (a) may not exceed (c) 8. Consolidations, Mergers and Sales of Assets (Section 5.05) _________________ /3/ Include this paragraph 6 and Schedule 7 only with the first Compliance Certificate furnished after the end of each Fiscal Year. Amounts included herein are for the year ended December 31, ____ 86 Neither the Borrower nor any of the Guarantors will consolidate or merge with or into, or acquire all or substantially all of the assets or stock of any other Person, or sell, lease or otherwise transfer all or any substantial part of its assets to, any other Person, provided that: -------- [(i) . . . (ii)] (iii) the foregoing limitation on the acquisition of all or substantially all the assets or stock of another Person shall not prohibit, during any Fiscal Quarter, the acquisition of all or substantially all of the assets or stock of another Person unless the aggregate assets or stock acquired in a single acquisition or series of related acquisitions of all or substantially all of the assets or stock of another Person by the Borrower and the Guarantors during such Fiscal Quarter constituted more than 20% of Gross Asset Value at the end of the most recent Fiscal Quarter immediately preceding such Fiscal Quarter; and (iv) the foregoing limitation on the sale, lease or other transfer of assets shall not prohibit, during any Fiscal Quarter, a transfer of assets (in a single transaction or in a series of related transactions) unless the aggregate assets to be so transferred, when combined with all other assets transferred by the Borrower and the Guarantors during such Fiscal Quarter and the immediately preceding 3 Fiscal Quarters, constituted more than 20% of Gross Asset Value at the end of the most recent Fiscal Quarter immediately preceding such Fiscal Quarter. (a) Aggregate amount of assets or stock acquired in a single acquisition or series of related acquisitions during Fiscal Quarter just ended $_________ (b) Gross Asset Value Schedule 2 $__________ (c) 20% of (b) $__________ Limitation: (a) may not exceed (c) (d) Aggregate amount of assets sold during Fiscal Quarter just ended $_________ (e) Aggregate amount of assets sold during 3 prior Fiscal Quarters $_________ 87 (f) Sum of (d) and (e) $_________ Limitation: (f) may not exceed (c) 9. Loans or Advances (Section 5.16) Neither the Borrower nor any of the Guarantors shall make loans or advances to any Person except as permitted by Section 5.17 and except: (i) loans or advances to employees and directors not exceeding $10,000,000 in the aggregate principal amount outstanding at any time; [(ii) . . . (iii)] (iv) other loans and advances by the Borrower and the Guarantors to any JDN Venture which (x) are evidenced by notes (and, if requested by the Agent, acting at the direction of the Required Banks, with such notes, together with any related mortgage, have been assigned to and pledged with the Agent, for the benefit of itself and the Banks, as security for the payment of all obligations of the Borrower to the Agent and the Banks hereunder) and (y) are in an amount which, together with Investments permitted by clause (vi) of Section 5.17, do not exceed 15% of Gross Asset Value as of the end of the most recent Fiscal Quarter; (a) Loans and advances to officers and directors $________ Limitation $10,000,000 (b) Other loans and advances evidenced by notes (and, if required, pledged with Agent) and not permitted by clauses (i) through (iii) $________ (c) See line (e) and "Limitation" of paragraph 10 below 10. Investments (Section 5.17) Investments of the Borrower as of the Closing Date (other than in Subsidiaries, which are set forth in Schedule 4.08), are set forth on Schedule 5.17. Neither the Borrower nor any of the Guarantors shall make Investments after the Closing Date in any Person except as permitted by Section 5.16 and except Investments in: 88 [(i) . . . (v)] (vi) other Investments by the Borrower and the Guarantors in an amount which, (x) together with loans and advances permitted by clause (iv) of Section 5.16, do not exceed 15% of Gross Asset Value as of the end of the most recent Fiscal Year, and (y) with respect to Investments in Persons over which, after giving effect to such Investment, the Borrower or the Guarantors do not have Control, do not exceed 5% of Gross Asset Value as of the end of the most recent Fiscal Year; (a) Line (b) of paragraph 9 above $_________ (b) Other Investments not permitted by clauses (i) through (v) $_________ (c) Sum of (a) and (b) $_________ (d) Gross Asset Value Schedule 2 $_________ (e) 15% of (d) $_________ Limitation: (c) may not exceed (e) (f) Investments included in line (b) in Persons over which the Borrower or the Guarantors do not have control $_________ (g) 5% of (d) $_________ Limitation: (f) may not exceed (g) 89 Schedule 1 ---------- Total Consolidated Liabilities ------------------------------ (a) Consolidated Liabilities $__________ (b) Debt Guaranteed by Borrower or any Guarantor $__________ (c) face amount of all letters of credit issued for the account of the Borrower or any Guarantor $__________ TOTAL CONSOLIDATED LIABILITIES (sum of (a) through (c) $__________ 90 Schedule 2 ---------- Gross Asset Value ----------------- (a) Net Operating Income for the 3 month period ending on the last day of the month just ended prior to the date of determination, from each Property owned by the Borrower or any Guarantor for at least one Fiscal Quarter $__________ (b) 40 times (a) $__________ (c) book value of each Property owned by the Borrower or any Guarantor for less than one Fiscal Quarter $__________ (d) book value of Construction in Progress of each Property owned by the Borrower or any Guarantor $__________ GROSS ASSET VALUE (sum of (b) through (d)) $__________ 91 Schedule 3 ---------- Total Secured Debt/4/ ------------------- - INTEREST FINAL RATE/5/ MATURITY TOTAL ---- - -------- ----- Money Borrowed - -------------- ________________________ __________ ________ $____ __ ________________________ __________ ________ $____ __ ________________________ __________ ________ $____ __ ________________________ __________ ________ $____ __ ________________________ __________ ________ $____ __ Total Money Borrowed $____ Deferred Purchase Price/6/ - ----------------------- - ________________________ __________ ________ $____ __ ________________________ __________ ________ $____ __ ________________________ __________ ________ $____ __ ________________________ __________ ________ $____ __ Total Deffered Purchase Price $____ __ ___________________ /4/ Include only the Debt secured by a Mortgage /5/ If rate is fixed, insert contract rate. If rate is floating, state that. /6/ Exclude trade accounts payable in the ordinary course of business. 92 Capital Leases in which Borrower is the Tenant - ---------------------------------------------- ________________________________________________________________ $_____ __ ________________________________________________________________ $_____ __ Total Capital Leases $_____ __ Letter of Credit Reimbursement Obligations - ----------- ________________________________________________________________ $_____ __ ________________________________________________________________ $_____ __ Total Letter of Credit Reimbursement Obligations $_____ __ Guarantees of Debt of Persons other than Borrower and Guarantors - ---------------------------------------------------------------- ________________________ __________ ________ $_____ __ ________________________ __________ ________ $_____ __ ________________________ __________ ________ $_____ __ ________________________ __________ ________ $_____ __ ________________________ __________ ________ $_____ __ TOTAL SECURED DEBT $===== 93 Schedule 4 ---------- EBITDA ------ ____ quarter ___ consolidated net income $________ less extraordinary gains ($________) plus extraordinary losses $________ plus Consolidated Interest Expense $________ plus taxes on income $________ plus depreciation and amortization $________ plus other non-cash charges $________ Total $________ ____ quarter ___ consolidated net income $________ less extraordinary gains ($________) plus extraordinary losses $________ plus Consolidated Interest Expense $________ plus taxes on income $________ plus depreciation and amortization $________ plus other non-cash charges $________ Total $________ ____ quarter ___ consolidated net income $________ less extraordinary gains ($________) plus extraordinary losses $________ plus Consolidated Interest Expense $________ plus taxes on income $________ plus depreciation and amortization $________ plus other non-cash charges $________ Total $________ ____ quarter ___ consolidated net income $________ less extraordinary gains ($________) plus extraordinary losses $________ plus Consolidated Interest Expense $________ plus taxes on income $________ plus depreciation and amortization $________ plus other non-cash charges $________ Total $________ EBITDA $________ 94 Schedule 5 ---------- Net Operating Income/7/ -------------------- - (for Fiscal Quarter just ended) ____ quarter ___ Property revenues $________ less Property expenses (excluding depreciation, amortization and debt service) ($________) less management fee (3% of gross rental income, excluding percentage rents) ($________) less capital reserve ($0.15 per leasable square foot) ($________) NET OPERATING INCOME $________ _________________________ /7/ Include only Properties not subject to a mortgage and owned for at least one Fiscal Quarter 95 Schedule 6 ---------- Unsecured Funded Debt/8/ ---------------------- - INTEREST FINAL RATE/9/ MATURITY TOTAL ---- - -------- ----- Money Borrowed - -------------- _____________________________________ ___________ ________ $______ _____________________________________ ___________ ________ $______ _____________________________________ ___________ ________ $______ _____________________________________ ___________ ________ $______ _____________________________________ ___________ ________ $______ Total Money Borrowed $______ Deferred Purchase Price/10/ - ----------------------- -- _____________________________________ ___________ ________ $______ _____________________________________ ___________ ________ $______ _____________________________________ ___________ ________ $______ _____________________________________ ___________ ________ $______ Total Deferred Purchase Price $______ Capital Leases in which the Borrower is the tenant - -------------------------------------------------- __________________________________________________________ ________ $______ __________________________________________________________ ________ $______ Total Capital Leases $______ ____________________ /8/ Include only the Debt not secured by a Mortgage /9/ If rate is fixed, insert contract rate. If rate is floating. state that. /10/ Exclude trade accounts payable in the ordinary course of businss. 96 Letter of Credit Reimbursement Obligations - ----------- _____________________________________ ___________ ________ $______ _____________________________________ ___________ ________ $______ Total Letter of Credit Reimbursement Obligations $_____ Guarantees of Debt of Persons other than Borrower and Guarantors - ---------------------------------------------------------------- _____________________________________ ___________ ________ $______ _____________________________________ ___________ ________ $______ _____________________________________ ___________ ________ $______ _____________________________________ ___________ ________ $______ _____________________________________ ___________ ________ $______ TOTAL UNSECURED FUNDED DEBT $====== 97 Schedule 7/11/ -------------- Funds from Operations/1/ ----------------------- (for Fiscal Year just ended) Net income $___________ plus depreciation and amortization of real estate assets $___________ plus net loss/(gain) on real estate sales $___________ plus loss/(gains) on extraordinary items $___________ plus depreciation of real estate assets held in unconsolidated entities $___________ FUNDS FROM OPERATIONS $___________ ___________________ /11/ Include only with the first Compliance Certificate furnished after the end of each Fiscal year. 98 EXHIBIT G --------- JDN REALTY CORPORATION CLOSING CERTIFICATE ------------------- Reference is made to the Term Loan Credit Agreement (the "Credit Agreement") dated as of February 17, 1999, among JDN Realty Corporation, the Banks listed therein, Wachovia Bank, N.A., as Agent and PNC Bank, National Association, as Documentation Agent. Capitalized terms used herein have the meanings ascribed thereto in the Credit Agreement. Pursuant to Section 3.01(e) of the Credit Agreement, ____________________, the duly authorized _____________________ of JDN Realty Corporation, hereby certifies to the Agent and the Banks that, to the best of my knowledge, (i) no Default has occurred and is continuing as of the date hereof, and (ii) the representations and warranties contained in Article IV of the Credit Agreement are true on and as of the date hereof. Certified as February 17, 1999. By:____________________________ Printed Name:_______________ Title:______________________ 99 EXHIBIT H --------- JDN REALTY CORPORATION SECRETARY'S CERTIFICATE The undersigned, __________________________________________, ________________, Secretary of JDN Realty Corporation, a Maryland corporation (the "Borrower"), hereby certifies that [s]he has been duly elected, qualified and is acting in such capacity and that, as such, [s]he is familiar with the facts herein certified and is duly authorized to certify the same, and hereby further certifies, in connection with the Term Loan Credit Agreement dated as of February 17, 1999 among the Borrower, Wachovia Bank, N.A. as Agent and as a Bank, and certain other Banks listed on the signature pages thereof, that: 1. Attached hereto as Exhibit A is a complete and correct copy of the Certificate of Incorporation of the Borrower as in full force and effect on the date hereof as certified by the Secretary of State of the State of Maryland, the Borrower's state of incorporation. 2. Attached hereto as Exhibit B is a complete and correct copy of the Bylaws of the Borrower as in full force and effect on the date hereof. 3. Attached hereto as Exhibit C is a complete and correct copy of the resolutions duly adopted by the Board of Directors of the Borrower on , 1998 approving, and authorizing the execution and delivery of, the Credit Agreement, the Term Notes and the other Loan Documents (as such terms are defined in the Credit Agreement) to which the Borrower is a party. Such resolutions have not been repealed or amended and are in full force and effect, and no other resolutions or consents have been adopted by the Board of Directors of the Borrower in connection therewith. 4. ________________________________ , who is _______________________ of the Borrower signed the Credit Agreement, the Term Notes and the other Loan Documents to which the Borrower is a party, was duly elected, qualified and acting as such at the time [s]he signed the Credit Agreement, the Term Notes and other Loan Documents to which the Borrower is a party, and [his/her] signature appearing on the Credit Agreement, the Term Notes and the other Loan Documents to which the Borrower is a party is [his/her] genuine signature. IN WITNESS WHEREOF, the undersigned has hereunto set [his/her] hand as of February 17, 1999. ___________________________________________ 100 EXHIBIT I --------- GUARANTY -------- THIS GUARANTY (this "Guaranty") is made as of February 17, 1999 by JDN DEVELOPMENT COMPANY, INC., a Delaware corporation (the "Initial Guarantor" and a "Guarantor"; the terms "Guarantor" and "Guarantors" shall include any Subsidiary of JDN Realty Corporation which becomes a Guarantor pursuant to Section 15 hereof and Section 5.29 of the Credit Agreement referred to below) in favor of the Agent, for the ratable benefit of the Banks, under the Credit Agreement referred to below; W I T N E S S E T H WHEREAS, JDN REALTY CORPORATION, a Maryland corporation (the "Borrower"), WACHOVIA BANK, N.A., as Agent (the "Agent") and PNC Bank, National Association, as Documentation Agent and certain other Banks from time to time party thereto have entered into a certain Term Loan Credit Agreement dated as of February 17, 1999 (as amended as of the date hereof and as it may be amended or modified further from time to time, the "Credit Agreement"), providing, subject to the terms and conditions thereof, for term loans to be made by the Banks to the Borrower which will the benefit the Guarantors; WHEREAS, it is required by Section 5.29 of the Credit Agreement, that the Initial Guarantor execute and deliver this Guaranty whereby it and, together with other Guarantors which become such as contemplated in Section 15 hereof, shall guarantee the payment when due of all principal, interest and other amounts that shall be at any time payable by the Borrower under the Credit Agreement, the Term Notes and the other Loan Documents; and WHEREAS, in consideration of the financial and other support that the Borrower has provided, and such financial and other support as the Borrower may in the future provide, to the Guarantors, whether directly or indirectly, and in order to induce the Banks and the Agent to enter into the Credit Agreement, the Guarantors are willing to guarantee the obligations of the Borrower under the Credit Agreement, the Term Notes, and the other Loan Documents; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 101 SECTION 1. Definitions. Terms defined in the Credit Agreement and ----------- not otherwise defined herein have, as used herein, the respective meanings provided for therein. SECTION 2. Representations and Warranties. The Guarantors ------------------------------ incorporate herein by reference as fully as if set forth herein all of the representations and warranties pertaining to the Guarantors contained in Article IV of the Credit Agreement (which representations and warranties shall be deemed to have been renewed by the Guarantors upon each Borrowing under the Credit Agreement). SECTION 3. Covenants. The Guarantors covenant that, so long as any --------- Bank has any Commitment outstanding under the Credit Agreement or any amount payable under the Credit Agreement or any Term Note shall remain unpaid, the Guarantors will fully comply with those covenants set forth in Article V of the Credit Agreement pertaining to the Guarantors, and the Guarantors incorporate herein by reference as fully as if set forth herein all of such covenants. SECTION 4. The Guaranty. The Guarantors hereby irrevocably, ------------ unconditionally and jointly and severally guarantee (i) the full and punctual payment (whether at stated maturity, upon acceleration or otherwise) of the principal of and interest on each Term Note issued by the Borrower pursuant to the Credit Agreement, and the full and punctual payment of all other amounts payable by the Borrower under the Credit Agreement, including, without limitation, all Loans and interest thereon, all compensation and indemnification amounts and fees payable pursuant to the Credit Agreement and the Agent's Letter Agreement, and (ii) the timely performance of all other obligations of the Borrower under the Credit Agreement and the other Loan Documents (all of the foregoing obligations being referred to collectively as the "Guaranteed Obligations"). Upon failure by the Borrower to pay punctually any such amount or perform such obligations, each of the Guarantors agrees that it shall forthwith on demand pay the amount not so paid at the place and in the manner specified in the Credit Agreement, the relevant Term Note or the relevant Loan Document, as the case may be, or perform such obligation in accordance with the terms and conditions therefor specified in the Credit Agreement or the other Loan Documents, and pay all costs of collection, including reasonable attorneys fees; provided that, notwithstanding the provisions of O.C.G.A. ss. 13-1-11(a)(2) to the contrary, the Guarantor shall not be obligated to pay more than the attorneys fees actually incurred in connection with such collection. SECTION 5. Guaranty Unconditional. The obligations of the Guarantor ---------------------- hereunder shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: 102 (i) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of the Borrower under the Credit Agreement, any Term Note, or any other Loan Document, by operation of law or otherwise or any obligation of any other guarantor of any of the Guaranteed Obligations; (ii) any modification or amendment of or supplement to the Credit Agreement, any Term Note, or any other Loan Document; (iii) any release, nonperfection or invalidity of any direct or indirect security, if any, for any obligation of the Borrower under the Credit Agreement, any Term Note, any Loan Document, or any obligations of any other guarantor of any of the Guaranteed Obligations; (iv) any change in the corporate structure or ownership of the Borrower or any Guarantor or any other guarantor of any of the Guaranteed Obligations, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Borrower, or any other Guarantor or any other guarantor of the Guaranteed Obligations, or its assets or any resulting release or discharge of any obligation of the Borrower, or any other Guarantor or any other guarantor of any of the Guaranteed Obligations; (v) the existence of any claim, setoff or other rights which the Guarantors may have at any time against the Borrower, any other Guarantor or any other guarantor of any of the Guaranteed Obligations, the Agent, any Bank or any other Person, whether in connection herewith or any unrelated transactions, provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; (vi) any invalidity or unenforceability relating to or against the Borrower, or any other Guarantor or any other guarantor of any of the Guaranteed Obligations, for any reason related to the Credit Agreement, any other Loan Document, or any other Guaranty, or any provision of applicable law or regulation purporting to prohibit the payment by the Borrower, or any other Guarantor or any other guarantor of the Guaranteed Obligations, of the principal of or interest on any Term Note or any other amount payable by the Borrower under the Credit Agreement, the Term Notes, or any other Loan Document; or (vii) any other act or omission to act or delay of any kind by the Borrower, any other Guarantor or 103 any other guarantor of the Guaranteed Obligations, the Agent, any Bank or any other Person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of the Guarantor's obligations hereunder. SECTION 6. Discharge Only Upon Payment In Full; Reinstatement In ----------------------------------------------------- Certain Circumstances. The Guarantors' obligations hereunder shall remain in - --------------------- full force and effect until all Guaranteed Obligations shall have been paid in full and the Commitments under the Credit Agreement shall have terminated or expired. If at any time any payment of the principal of or interest on any Term Note or any other amount payable by the Borrower under the Credit Agreement or any other Loan Document is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, the Guarantors' obligations hereunder with respect to such payment shall be reinstated as though such payment had been due but not made at such time. SECTION 7. Waiver of Notice by the Guarantors. The Guarantors ---------------------------------- irrevocably waive acceptance hereof, presentment, demand, protest and, to the fullest extent permitted by law, any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against the Borrower, any other Guarantor or any other guarantor of the Guaranteed Obligations, or any other Person. SECTION 8. Stay of Acceleration. If acceleration of the time for -------------------- payment of any amount payable by the Borrower under the Credit Agreement, any Term Note or any other Loan Document is stayed upon the insolvency, bankruptcy or reorganization of the Borrower, all such amounts otherwise subject to acceleration under the terms of the Credit Agreement, any Term Note or any other Loan Document shall nonetheless be payable by the Guarantors hereunder forthwith on demand by the Agent made at the request of the Required Banks. SECTION 9. Notices. All notices, requests and other communications to ------- any party hereunder shall be given or made by telecopier or other writing and telecopied or mailed or delivered to the intended recipient at its address or telecopier number set forth on the signature pages hereof or such other address or telecopy number as such party may hereafter specify for such purpose by notice to the Agent in accordance with the provisions of Section 9.01 of the Credit Agreement. Except as otherwise provided in this Guaranty, all such communications shall be deemed to have been duly given when transmitted by telecopier, or personally delivered or, in the case of a mailed notice, 3 Domestic Business Days after such communication is deposited in the mails with first 104 class postage prepaid, in each case given or addressed as aforesaid. SECTION 10. No Waivers. No failure or delay by the Agent or any Banks ---------- in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided in this Guaranty, the Credit Agreement, the Term Notes, and the other Loan Documents shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 11. Successors and Assigns. This Guaranty is for the benefit ---------------------- of the Agent and the Banks and their respective successors and assigns and in the event of an assignment of any amounts payable under the Credit Agreement, the Term Notes, or the other Loan Documents, the rights hereunder, to the extent applicable to the indebtedness so assigned, may be transferred with such indebtedness. This Guaranty may not be assigned by the Guarantors without the prior written consent of the Agent and the Required Banks, and shall be binding upon the Guarantors and their respective successors and permitted assigns. SECTION 12. Changes in Writing. Neither this Guaranty nor any ------------------ provision hereof may be changed, waived, discharged or terminated orally, but only in writing signed by the Guarantors and the Agent, with the consent of the Required Banks. SECTION 13. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY --------------------------------------------------------- TRIAL. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH - ----- THE LAW OF THE STATE OF GEORGIA. EACH OF THE GUARANTOR AND THE AGENT HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA AND OF ANY GEORGIA STATE COURT SITTING IN ATLANTA, GEORGIA AND FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY. THE GUARANTORS IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH ANY OF THEM MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE GUARANTORS AND THE AGENT HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 14. Taxes, etc. All payments required to be made by the ---------- Guarantor hereunder shall be made without setoff or counterclaim and free and clear of and without deduction or withholding for or on account of, any present or future taxes, 105 levies, imposts, duties or other charges of whatsoever nature imposed by any government or any political or taxing authority pursuant and subject to the provisions of Section 2.08(c) of the Credit Agreement, the terms of which are incorporated herein by reference as to the Guarantors as fully as if set forth herein, and for such purposes, the rights and obligations of the Borrower under such Section shall devolve to the Guarantors as to payments required to be made by the Guarantors hereunder. SECTION 15. Additional Guarantors; Release of Guarantors. Section 5.29 -------------------------------------------- of the Credit Agreement provides that all new Significant Subsidiaries must become Guarantors, by, among other things, executing and delivering to the Agent a counterpart of this Guaranty. Any Subsidiary which executes and delivers to the Agent a counterpart of this Guaranty shall be a Guarantor for all purposes hereunder. Under certain circumstances described in the last sentence of Section 5.05 of the Credit Agreement, Guarantors may obtain from the Agent a written release from this Guaranty pursuant to the provisions of such sentence, and upon obtaining such written release, any such Subsidiary shall no longer be a Guarantor hereunder. Each other Guarantor consents and agrees to any such release and agrees that no such release shall affect its obligations hereunder. SECTION 16. Other Waivers by the Guarantors. The Guarantors hereby ------------------------------- expressly waive, renounce, and agree not to assert, any right, claim or cause of action, including, without limitation, a claim for reimbursement, subrogation, indemnification or otherwise, against the Borrower arising out of or by reason of this Guaranty or the obligations of the Guarantors hereunder, including, without limitation, the payment or securing or purchasing of any of the Guaranteed Obligations by the Guarantors, until payment in full of the Guaranteed Obligations. The waiver, renunciation and agreement contained in the immediately preceding sentence is for the benefit of the Agent and the Banks and also for the benefit of the Borrower who may assert the benefits thereof as a third-party beneficiary, and the Guarantors may be released from such waiver, renunciation and agreement only by the execution and delivery, by the Agent, the Required Banks and the Borrower, of an instrument expressly releasing the Guarantors therefrom. IN WITNESS WHEREOF, the Initial Guarantor has caused this 106 Guaranty to be duly executed, under seal, by its authorized officer as of the date first above written. JDN DEVELOPMENT COMPANY, INC. By:___________________________________ Title: 107 EXHIBIT J --------- CONTRIBUTION AGREEMENT THIS CONTRIBUTION AGREEMENT (this "Agreement") is entered into as of February 17, 1999, by and between JDN REALTY CORPORATION, a Maryland corporation (the "Principal") and JDN DEVELOPMENT COMPANY, INC. a Delaware corporation (the "Initial Guarantor" and a "Guarantor"; the terms "Guarantor" and "Guarantors" shall include any Subsidiary of JDN Realty Corporation which becomes a Guarantor pursuant to the last paragraph hereof and Section 5.29 of the Credit Agreement referred to below). The Principal and each of the Guarantors are sometimes hereinafter referred to individually as a "Contributing Party" and collectively as the "Contributing Parties"). W I T N E S S E T H: WHEREAS, pursuant to that certain Term Loan Credit Agreement, dated as of February 17, 1999 among the Principal, the Banks party thereto, Wachovia Bank, N.A., as Agent and PNC Bank, National Association, as Documentation Agent (such agreement, as amended as of the date hereof and as the same may from time to time be amended, modified, restated or extended, being hereinafter referred to as the "Credit Agreement"; capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement), the Banks have agreed to extend term loans to the Principal; WHEREAS, it is required by Section 5.29 of the Credit Agreement that the Initial Guarantor and each Significant Subsidiary execute and deliver that certain Guaranty, dated as of even date herewith (such agreement, as the same may from time to time be amended, modified, restated or extended, being hereinafter referred to as the "Guaranty"), pursuant to which, among other things, the Initial Guarantor and, together with Significant Subsidiaries which become Guarantors as contemplated in the last paragraph hereof, have jointly and severally agreed to guarantee the "Guaranteed Obligations" (as defined in the Guaranty); and WHEREAS, the Principal owns most of the beneficial interests in the Initial Guarantor, and each Guarantor other than the Initial Guarantor is a direct or indirect subsidiary of the Principal and is engaged in businesses related to those of the Principal and each other Guarantor, and each of the Guarantors will derive direct or indirect economic benefit from the effectiveness and existence of the Credit Agreement; NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, and to induce each Guarantor to enter into the Guaranty, it is agreed as follows: 108 To the extent that any Guarantor shall, under the Guaranty, make a payment (a "Guarantor Payment") of a portion of the Guaranteed Obligations, then, without limiting its rights of subrogation against the principal, such Guarantor shall be entitled to contribution and indemnification from, and be reimbursed by, each of the other Contributing Parties in an amount, for each such Contributing Party, equal to a fraction of such Guarantor Payment, the numerator of which fraction is such Contributing Party's Allocable Amount and the denominator of which is the sum of the Allocable Amounts of all of the Contributing Parties. As of any date of determination, the "Allocable Amount" of each Contributing Party shall be equal to the maximum amount of liability which could be asserted against such Contributing Party hereunder with respect to the applicable Guarantor Payment without (i) rendering such Contributing Party "insolvent" within the meaning of Section 101(31) of the Federal Bankruptcy Code (the "Bankruptcy Code") or Section 2 of either the Uniform Fraudulent Transfer Act (the "UFTA") or the Uniform Fraudulent Conveyance Act (the "UFCA"), (ii) leaving such Contributing Party with unreasonably small capital, within the meaning of Section 548 of the Bankruptcy Code or Section 4 of the UFTA or Section 5 of the UFCA, or (iii) leaving such Contributing Party unable to pay its debts as they become due within the meaning of Section 548 of the Bankruptcy Code or Section 4 of the UFTA or Section 6 of the UFCA. This Agreement is intended only to define the relative rights of the Contributing Parties, and nothing set forth in this Agreement is intended to or shall impair the obligations of the Guarantors, jointly and severally, to pay any amounts, as and when the same shall become due and payable in accordance with the terms of the Guaranty. The parties hereto acknowledge that the rights of contribution and indemnification hereunder shall constitute assets in favor of each Guarantor to which such contribution and indemnification is owing. This Agreement shall become effective upon its execution by each of the Contributing Parties and shall continue in full force and effect and may not be terminated or otherwise revoked by any Contributing Party until all of the Guaranteed Obligations shall have been indefeasibly paid in full (in lawful money of the United States of America) and discharged and the Credit Agreement and financing arrangements evidenced and governed by the Credit Agreement shall have been terminated. Each Contributing Party agrees that if, notwithstanding the foregoing, such Contributing Party shall have any right under applicable law to terminate or revoke this Agreement, and such Contributing Party shall attempt to exercise such right, then such termination or revocation shall not be effective until a written notice of such revocation or 109 termination, specifically referring hereto and signed by such Contributing Party, is actually received by each of the other Contributing Parties and by the Agent at its notice address set forth in the Credit Agreement. Such notice shall not affect the right or power of any Contributing Party to enforce rights arising prior to receipt of such written notice by each of the other Contributing Parties and the Agent. If any Bank grants additional loans to the Principal or takes other action giving rise to additional Guaranteed Obligations after any Contributing Party has exercised any right to terminate or revoke this Agreement but before the Agent receives such written notice, the rights of each other Contributing Party to contribution and indemnification hereunder in connection with any Guarantor Payments made with respect to such loans or Guaranteed Obligations shall be the same as if such termination or revocation had not occurred. Section 5.29 of the Credit Agreement provides that new Significant Subsidiaries must become Guarantors by, among other things, executing and delivering to the Agent a counterpart of the Guaranty and of this Contribution Agreement. Any Subsidiary which executes and delivers to the Agent a counterpart of the Guaranty and of this Contribution Agreement shall be a Guarantor for all purposes hereunder. Under certain circumstances described in the last sentence of Section 5.05 of the Credit Agreement, Guarantors may obtain from the Agent a written release from the Guaranty pursuant to the provisions of such sentence, and upon obtaining such written release, any such Subsidiary shall no longer be a Guarantor or Contributing Party hereunder, and such release shall automatically and without further action constitute a release by each other Contributing Party of all obligations of such Subsidiary hereunder. Each other Guarantor consents and agrees to any such release and agrees that no such release shall affect its obligations hereunder, except as to the Subsidiary so released. 110 IN WITNESS WHEREOF, each Contributing Party has executed and delivered this Agreement, under seal, as of the date first above written. JDN REALTY CORPORATION (SEAL) By:_________________________________ Title: JDN DEVELOPMENT COMPANY, INC. (SEAL) By:_________________________________ Title: 111 EXHIBIT K --------- BORROWING BASE CERTIFICATE Reference is made to the Term Loan Credit Agreement dated as of February 17, 1999 (as modified and supplemented and in effect from time to time, the "Credit Agreement") among JDN Realty Corporation, the Banks from time to time parties thereto, Wachovia Bank, N.A., as Agent and PNC Bank, National Association, as Documentation Agent. Capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement. Pursuant to Section [3.01(h)][5.01(i)] of the Credit Agreement, _______________, the duly authorized _______________ of the Borrower, hereby (i) certifies to the Agent and the Banks that the calculation of the Borrowing Base contained in this Borrowing Base Certificate is true, accurate and complete in all material respects as of _______________, ______. The calculation of the Borrowing Base is as follows: (a) Net Operating Income for the 3 month period ending on the last day of the Fiscal Quarter just ended prior to the date of determination, from each Eligible Unencumbered Stabilized Property $______________ (b) 10 times (a) $______________ (c) 4 times (b) $______________ (d) 0.60 times (c) $______________ (e) book value of Construction in Progress on all Eligible Properties $______________ (f) 0.50 times (e) $______________ (g) lesser of (f) and $20,000,000 $______________ BORROWING BASE: sum of (d), plus (g) $______________ ---- JDN REALTY CORPORATION By:______________________________ Its: 112 EXHIBIT L --------- LIST OF ELIGIBLE PROPERTIES --------------------------- JDN REALTY CORPORATION
Total GLA in Year Built New to Property GLA Borrowing Renovated or Borrowing Number Shopping Center Name Location (Sq.Ft.) Base Expanded Base? ------ -------------------- -------- -------- ---- -------- ----- 210 Brandon Lakes Village Brandon, FL 243,204 243,204 1997 Yes 220 White Sands Fort Walton, FL 21,900 21,900 1986 Yes 320 Ellis Crossing Griffin, GA 172,546 64,772 1986 Yes 344 Towne Center Lawrenceville, GA 277,078 277,078 1995 Yes 343 CVS Lawrenceville, GA 10,125 10,125 1998 Yes 347 Midway Shopping Loganville, GA 95,277 91,197 1995 Yes Center 370 Merchant's Square Riverdale, GA 80,186 22,401 1989 Yes 376 Pike Nursersies Stockbridge, GA 10,800 10,800 1997 Yes 379 Village at Noble Farms Suwanee, GA 43,393 43,393 1997 Yes 387 Lowe's Warner Robins, GA 145,939 14,364 1997 Yes 880 Sutton's North Plaza Topeka, KS 125,657 125,657 1998 Yes 420 East Ridge Crossing Hendersonville, NC 133,052 133,052 1995 Yes 849 South Farm Lexington, KY 340,029 23,392 1998 Yes 140 Metro Station Jackson, MS 159,684 51,301 1997 Yes 410 Cross Pointe Fayetteville, NC 204,291 204,291 1985 Yes 505 Ashley Crossing Charleston, SC 196,049 196,409 1991 Yes 610 Farragut Pointe Farragut, TN 71,311 71,311 1991 Yes 622 Battlewood S/C Franklin, TN 54,411 54,411 1990 Yes 640 Country Bridge S/C Memphis, TN 64,223 64,223 1993 Yes 651 Plaza South S/C Murfreesboro, TN 71,028 71,028 1994 Yes 750 Lexington Crossing Lexington, VA 201,220 201,220 1997 Yes 755 Candlers Station Lynchburg, VA 315,767 270,767 1990 Yes 761 Genito Crossing Midlothian, VA 79,408 79,408 1985 Yes 2784 West Allis Center West Allis, WI 383,967 383,967 1968 Yes ____ Township Makeplace Monaca, PA 150,010 150,010 1997 Yes ------- ------- Total 3,650,555 2,879,681
113 Schedule 4.08 ------------- Subsidiaries - ------------ Name Jurisdiction of Incorporation - ---- ----------------------------- JDN Realty AL, Inc. Alabama JDN Realty Corporation GP, Inc. Delaware JDN of Pennsylvania Realty Corporation Delaware JDN Realty LP, Inc. Delaware JDN West Allis Associates, Limited Partnership Georgia JDN Realty Investment, L.P. Georgia Black Cherry Limited Liability Company Colorado 114 Schedule 4.14 ------------- Environmental Matters --------------------- The Borrower discloses the existence of the following: (i) a remediation agreement (relating to a leaking, underground storage tank) entered into between the State of Georgia and the owner of the Stop 'n' Go site adjacent to the QuikTrip parcel located at the Borrower's Lawrenceville Property; (ii) a remediation agreement (relating to soil and groundwater contamination) entered into between the State of North Carolina and the owner of a tract adjoining the Borrower's Greenville, North Carolina Property; and (iii) a limited Phase II environmental assessment recommendation that impacted soils be remediated at the Greensboro, North Carolina Property (but the Borrower has no knowledge that any soil or water on or adjacent to any Property is contaminated by any Hazardous Material. 115 Schedule 5.17 ------------- Existing Investments/12/ ------------------------ As of February 17, 1999 Investment Amount ---------- ------ 1% of Voting Common Stock of JDN Development Company, Inc. $ 100 100% of Non-Voting Common Stock of JDN Development Company, Inc. $ 4,043,822 Mortgage Loans to JDN Development Company, Inc. $113,701,000 Advances to JDN Development Company, Inc. $ 28,094,173 Duck Creek, L.L.C $ 8,000,000 Denver Urban Renewal Authority Bonds $ 1,730,204 Cumming Sewer Authority Bonds $ 1,342,673 __________________ /12/Exclude Subsidiaries, which are set forth on Schedule 4.08. 116 Schedule 5.25 ------------- Existing Guarantees ------------------- In Effect on February 17, 1999 Entity/Instrument Amount ----------------- ------ JDN Development Company, Inc. Construction loan - Canton, GA $ 9,449,908 Construction loan - Warner Robins, GA $ 7,207,118 ------------ Sub-Total $ 16,657,026 Dogwood Drive, LLC 50% of Construction loan $ 4,340,674 ------------ Total: $ 20,997,700 ============ __________________ 117 EX-12 3 RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 RATIO OF EARNINGS TO FIXED CHARGES
Years Ended December 31, 1998 1997 1996 1995 1994 ---------- ---------- --------- --------- ------- FIXED CHARGES: Interest Expense (including amortization of deferred debt cost) $18,026 $ 9,525 $ 9,414 $ 8,747 $ 7,276 Interest Capitalized 6,401 4,650 1,993 1,538 343 --------- -------- ------- -------- ------- Total Fixed Charges $24,427 $14,175 $11,407 $10,285 $ 7,619 ========= ======== ======= ======== ======= EARNINGS: Net income before net gain (loss) on real estate sales and extraorinary items $40,958 $27,585 $16,682 $10,782 $ 5,227 Fixed Charges 24,427 14,175 11,407 10,285 7,619 Capitalized Interest (6,401) (4,650) (1,993) (1,538) (343) --------- -------- ------- -------- ------- Total Earnings $58,984 $37,110 $26,096 $19,529 $12,503 ========= ======== ======= ======== ======= Ratio of Earnings to Fixed Charges 2.41 2.62 2.29 1.90 1.64
EX-21 4 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Name State of Incorporation ---- ---------------------- JDN Development Company, Inc. Delaware JDN of Pennsylvania Realty Corporation Delaware JDN Realty Corporation GP, Inc. Delaware JDN Realty LP, Inc. Delaware JDN of Alabama Realty Corporation Alabama JDN Development LP, Inc. Delaware WHF, Inc. Georgia Dogwood Drive, L.L.C. Georgia JDN West Allis Associates Limited Partnership Georgia JDN Realty Investment, L.P. Georgia JDN Development Investment, L.P. Georgia JDN Real Estate Development, L.P. Georgia JDN Realty AL, Inc. Alabama Black Cherry Limited Liability Company Colorado EX-23 5 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-38611) of JDN Realty Corporation and the related Prospectus, the Registration Statement (Form S-3 No. 33-90868) pertaining to the JDN Realty Corporation Dividend Reinvestment and Stock Purchase Plan and in the related Prospectus, the Registration Statement (Form S-8 No. 333-1848) pertaining to the JDN Realty Corporation 1993 Incentive Stock Plan, the JDN Realty Corporation 1993 Non-Employee Director Stock Option Plan, and the JDN Realty Corporation 1995 Employee Stock Purchase Plan and in the related Prospectus of our report dated February 27, 1999, with respect to the consolidated financial statements and schedules of JDN Realty Corporation included in the Annual Report (Form 10- K) for the year ended December 31, 1998. ERNST & YOUNG LLP Atlanta, Georgia March 23, 1999 EX-27 6 FINANCIAL DATA SCHEDULE
5 1,000 YEAR YEAR DEC-31-1998 DEC-31-1997 JAN-01-1998 JAN-01-1997 DEC-31-1998 DEC-31-1997 0 11,439 0 0 7,158 2,691 0 0 0 0 0 0 847,266 535,303 56,093 38,306 968,922 599,753 0 0 234,573 159,511 0 0 20 0 327 277 517,698 371,311 968,922 599,753 0 0 81,311 48,005 0 0 0 0 35,684 20,136 0 0 9,454 4,856 40,958 27,585 0 0 40,958 27,585 0 0 0 5,940 0 0 39,996 21,293 1.30 0.92 1.28 0.91
EX-99.1 7 RISK FACTORS/CAUTIONARY STATEMENTS EXHIBIT 99.1 RISK FACTORS/CAUTIONARY STATEMENTS FOR PURPOSES OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Management of JDN Realty Corporation may from time to time make certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. When making statements which are not historical in nature, including the words "anticipate," "estimate," "should," "expect," "believe," "intend" and similar expressions, we intend to identify forward-looking statements. Such statements are, by their nature, subject to certain risks and uncertainties. Among the factors that could cause actual consolidated results from operations to differ materially from those that the Company projects in forward- looking statements are the following: SIGNIFICANT RELIANCE ON MAJOR TENANTS; RISK OF TENANT BANKRUPTCY Major Tenants. As of December 31, 1998, each of Wal-Mart and Lowe's leased more than 10% of the gross leaseable area that the Company owned directly. Wal-Mart and Lowe's also each accounted for more than 10% of the Company's total minimum rent. No other single tenant accounts for more than 10% of the Company's gross leaseable area or more than 10% total minimum rent in 1998. If the financial condition or corporate strategy of any of the Company's major tenants changes, these changes could have an adverse impact on the Company, such as reducing distributions. The following is a list of examples of changes that could have a material adverse effect on income and funds from operations and, consequently, could reduce distributions: - Wal-Mart or Lowe's could become unable to complete and lease existing development and redevelopment projects on schedule and within budget; - Wal-Mart or Lowe's could become unable to pay rent as it becomes due; - Wal-Mart or Lowe's could fail to renew leases as they expire; and - Wal-Mart or Lowe's could discontinue providing or provide significantly fewer assignments of development projects to the Company, and the Company could be unable to replace the income from these assignments with economically advantageous assignments from other value-oriented retail anchor tenants. Other Tenants. The bankruptcy or insolvency of a major tenant or a number of smaller tenants may have an adverse impact on the properties affected and on the income that those properties produce. DEPENDENCE ON AND INFLUENCE OF EXECUTIVE OFFICERS AND DIRECTORS The Company depends on the efforts of its executive officers, and particularly J. Donald Nichols and Elizabeth L. Nichols. The loss of their services could have an adverse effect on the operations of the Company. J. Donald Nichols, Elizabeth L. Nichols and the other directors and executive officers of the Company have substantial influence on the affairs of the Company. For example, the directors may amend the investment and financing policies of the Company without a vote of the holders of the Common Stock. Any such amendments could result in decisions that are detrimental to the value of the Company. RISK OF DEBT FINANCING The Company is subject to a variety of risks associated with debt financing. Examples of these risks include the following: - the Company's cash provided by operating activities may be insufficient to meet required payments of principal and interest; - the Company may be unable to pay or refinance indebtedness on its properties; - if prevailing interest rates or other factors at the time of refinancing result in higher interest rates on refinancing, then the Company's interest costs would increase, which may adversely affect the Company's costs and related returns on its development and redevelopment activities, cash provided by operating activities and the ability to make distributions or payments to holders of the Company's securities; - if the Company is unable to secure refinancing of indebtedness on acceptable terms, the Company may be forced to dispose of properties upon disadvantageous terms, which may result in losses to the Company and may adversely affect the Company's funds from operations; and - if a property or properties are mortgaged to secure payment of indebtedness and the Company is unable to meet mortgage payments, the mortgagee may foreclose upon the property or otherwise compel the Company to transfer the property to the mortgagee, resulting in a loss of income and asset value to the Company. In addition, in June 1998 the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System issued a supervisory letter which addressed the subject of lending standards for business loans. The supervisory letter noted, among other things, a significant increase in bank lending to REITs and concluded that bank examiners should increase their understanding of REITs and related lending and credit risks associated with 2 lending to REITs. Management is uncertain of the future effects of the supervisory letter on the Company. Any changes in bank lending practices as a result of the supervisory letter may affect the Company's ability to successfully negotiate new credit facilities. Company policy currently prohibits the Company from incurring debt (secured or unsecured) in excess of 60% of total market capitalization. The Board of Directors can change this limitation without approval of the holders of the Company's common stock. The Charter and Bylaws of the Company do not limit the amount of borrowings the Company can incur. REAL ESTATE INVESTMENT RISKS General Risks. Real property investments are subject to varying degrees of risk. Among the factors that may affect real estate values and the income generated from real estate investments are the following: - changes in the general economic climate; - local conditions (such as an oversupply of or a reduction in demand for shopping center space in an area); - the quality and philosophy of management; - competition from other available space; - the ability of the owner to provide adequate maintenance and insurance; - variable operating costs (including real estate taxes); - costs associated with federal, state and local government laws and regulations (including, for example, environmental, zoning and other land use laws and regulations); - changes in business conditions and the general economy as they affect interest rate levels; - the availability of financing; and - potential liability under and changes in environmental and other laws. Dependence on rental income from real property. Because rental income from real property represents substantially all of the Company's total revenues, the inability of a significant number of the Company's tenants to meet their obligations to the Company, or the inability of the Company to lease on economically favorable terms a significant amount of space in its properties could adversely affect the Company. In the event of default by a tenant, the Company may experience delays in enforcing, and incur substantial costs to enforce its rights as landlord. In addition, although circumstances may cause a reduction in income from the investment, there is generally no reduction in certain significant expenditures associated with ownership of real estate (such as mortgage payments, real estate taxes and maintenance costs). 3 Operating Risks. The Company's shopping center properties are subject to all operating risks common to shopping center developments and are particularly subject to the risks of changing economic conditions that affect value-oriented retailers and the retail industry as a whole. Such risks include the following: - competition from other shopping center developments and developers; - excessive building of comparable properties or increases in unemployment in the areas in which the Company's properties are located (either of which might adversely affect occupancy or rental rates); - increases in operating costs due to inflation and other factors (which increases may not necessarily be offset by increased rents); - inability or unwillingness of lessees to pay rent increases; - changes in general economic conditions or consumer preferences that affect the demand for value-oriented retailers or that result in the merger of or closings by such retailers; - the availability of debt and equity capital with favorable terms and conditions; - future enactment of laws regulating public places (including present and possible future laws relating to access by disabled persons); and - limitation by local rental markets of the extent to which rents may be increased to meet increased expenses without decreasing occupancy rates. Any of the above may adversely affect the Company's ability to make distributions or payments to holders of its securities. Illiquidity of Real Estate. Equity real estate investments are relatively difficult to convert to cash and therefore may tend to limit the ability of the Company to react promptly in response to changes in economic or other conditions. Further, restrictions applicable to REITS may affect the Company's ability to sell properties without adversely affecting returns to holders of the Company's securities. Inability to Rent Unleased Space. Many factors, including certain covenants found in some leases with existing tenants that restrict the use of other space at a property, may affect the ability of the Company to rent unleased space. There can be no assurance that any tenant whose lease expires in the future will renew such lease or that the Company will be able to re-lease space on economically advantageous terms. In addition, the Company may incur costs in making improvements or repairs to a property that are required by a new tenant. Effect of Uninsured Loss on Performance. The Company carries comprehensive liability, fire, flood, extended coverage and rental loss insurance with policy specifications and insured limits that are customary for similar properties. Certain types of losses (such as from wars or earthquakes), however, are either uninsurable or insurable only at costs which are not economically justifiable. If an uninsured loss occurs, although the Company would continue to 4 be obligated to repay any recourse mortgage indebtedness on the property, the Company may lose both its invested capital in, and anticipated profits from, the property. Competition. Numerous commercial developers, real estate companies and other owners of real estate (including those that operate in the region in which the Company's properties are located) compete with the Company in seeking land for development, properties for acquisition and tenants for properties. Certain of these competitors may have greater capital and other resources than the Company. Potential Environmental Liability and Cost of Remediation. As an owner of real property, the Company may become liable for the costs of removal or remediation of certain hazardous or toxic substances at, under or disposed of in connection with such property. Also, the Company may become liable for certain other potential costs relating to hazardous or toxic substances (including government fines and injuries to persons and adjacent property). Various federal, state and local environmental laws may impose liability without regard to whether the owner knew of, or was responsible for, the presence or disposal of such substances and may impose liability on the owner in connection with the activities of an operator of the property. The cost of any required remediation, removal, fines or personal or property damages and the owner's liability therefor could exceed the value of the property. In addition, the presence of such substances, or the failure to properly dispose of or remediate such substances, may adversely affect the owner's ability to sell or rent such property or to borrow using such property as collateral which, in turn, would reduce the owner's revenues. Americans with Disabilities Act. The Company's properties and any additional developments or acquisitions must comply with Title III of the Americans with Disabilities Act. Compliance with the ADA's requirements may require removal of structural, architectural or communication barriers to handicapped access and utilization in certain public areas of the Company's properties. Noncompliance could result in injunctive relief, imposition of fines or an award of damages to private litigants. If the Company must make changes to bring any of the properties into compliance with the ADA, expenses associated with such changes could adversely affect the Company's ability to make expected distributions. The Company believes that its competitors face similar costs to comply with the requirements of the ADA. RISKS INHERENT IN DEVELOPMENT AND ACQUISITION ACTIVITIES Developing or expanding existing shopping centers is an integral part of the Company's strategy for maintaining and enhancing the value of its shopping center portfolio. While the Company's policies with respect to its activities are intended to limit some of the risks otherwise associated with those activities (including not commencing construction on a project prior to obtaining a commitment from an anchor tenant), the Company nevertheless will incur certain risks, including risks related to delays in construction and lease-up, costs of materials, financing availability, volatility in interest rates, labor availability and the failure of properties to perform as expected. 5 LIMITATIONS ON POTENTIAL CHANGES IN CONTROL Certain provisions of the Company's Charter and Bylaws and Maryland law may make a change in the control of the Company more difficult, even if a change of control were in the shareholders' interest. These provisions include the following: - the limitation on ownership of the Company's capital stock by any single holder (other than the Nichols, their immediate family and certain affiliates) to (a) 8% of either the number or the value of the outstanding shares of common stock and (b) 8% of either the number or the value of the outstanding shares of preferred stock; - the staggered terms of the Company's Board of Directors; - super-majority voting in certain situations; - business combination provisions under Maryland law; and - the ability of the Company's Board of Directors to issue stock without shareholder approval. ADVERSE TAX CONSEQUENCES Tax Liabilities of Failure to Qualify as a REIT. The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Code") for federal income tax purposes. We can provide no assurance, however, that the Company will continue to operate in a manner enabling it to remain so qualified. Qualification as a REIT involves the application of highly technical and complex Code provisions which have only a limited number of judicial or administrative interpretations. Also, the determination of various factual matters and circumstances not entirely within the Company's control may impact its ability to qualify as a REIT. In addition, new legislation, regulations, administrative interpretations or court decisions may significantly change the tax laws with respect to the qualification as a REIT or the federal income tax consequences of such qualification. If in any taxable year the Company does not qualify as a REIT, it would be taxed as a corporation and, in computing its taxable income, the Company would not be able to deduct distributions to the holders of the Company's capital stock. In addition, unless entitled to relief under certain statutory provisions, the Company could not elect REIT status for the four taxable years following the year during which qualification was lost. This treatment would reduce the net earnings of the Company available for investment or distribution or payment to holders of its securities because of the additional tax liability to the Company for the year or years involved. In addition, the Company would no longer be required by the Code to make any distributions. Among the requirements to qualify as a REIT, the Company must distribute at least 95% of its taxable income to its shareholders each year. Possible timing differences between receipt of income and payment of expenses and the inclusion and deduction of such amounts in determining taxable income, could require the Company to reduce its dividends below the level necessary to maintain its qualification as a REIT, which would have material adverse tax consequences. 6 Other REIT Taxes. Although qualified for REIT taxation, certain transactions or other events could lead to the Company being taxed at rates ranging from 4% to 100% on certain income or gains. We may amend or supplement from time to time in other filings with the Securities and Exchange Commission these risks, uncertainties and factors that could cause actual consolidated results from operations to differ materially from projections in forward-looking statements made by or on behalf of the Company. 7 EX-99.2 8 FEDERAL INCOME TAX & ERISA CONSIDERATIONS EXHIBIT 99.2 FEDERAL INCOME TAX AND ERISA CONSIDERATIONS The following discussion addresses the material federal tax considerations relevant to the taxation of the Company and summarizes the material federal income tax consequences relevant to certain shareholders. This discussion is for general information only, is not exhaustive of all possible tax considerations and is not intended as and should not be construed as tax advise. The actual tax consequences of holding particular securities being issued by the Company may vary in light of a prospective holder's particular facts and circumstances. Certain holders, such as tax-exempt entities, insurance companies and financial institutions, are generally subject to special rules which are not addressed fully herein. In addition, the following discussion does not discuss issues under any foreign, state or local tax laws except as expressly stated. The tax treatment of a holder of any of the securities offered by the Company will vary depending upon the terms of the particular securities acquired by such holder, as well as his particular situation, and this discussion does not attempt to address aspects of federal income taxation relating to holders of particular securities. Any additional federal income tax considerations relevant to holders of particular securities will be provided in the applicable Prospectus and/or Prospectus Supplement relating thereto. The following general summary of the federal income tax rules governing a REIT and its shareholders is based on the Code, Treasury Regulations, generally available judicial decisions, rulings and other administrative interpretations, all of which are subject to change, and possibly retroactively. Because many provisions of the Code have been revised substantially by recent legislation, including the Taxpayer Relief Act of 1997 (the "1997 Act") and the Internal Revenue Service Restructuring and Reform Act of 1998 (the "1998 Act"), very few Treasury Regulations, judicial decisions, rulings or other administrative pronouncements have been issued interpreting many of the revisions to the Code. Waller Lansden Dortch & Davis, A Professional Limited Liability Company ("WLDD"), has acted as tax counsel to the Company and has reviewed this summary and has rendered an opinion that the description of the law and the legal conclusions contained herein are correct in all material respects, and that the discussion hereunder fairly summarizes the federal income tax considerations that are likely to be material to the Company and a holder of securities of the Company. However, investors should be aware that Congress continues to consider new tax bills. Accordingly, no assurance can be given that future legislation, administrative regulations, rulings, or interpretations or court decisions will not alter significantly the tax consequences described below or that such changes or decisions will not be retroactive. The Company has not requested, nor does it presently intend to request, a ruling from the Internal Revenue Service (the "IRS") with respect to any of the matters discussed below. An opinion of counsel is not binding on the IRS, and no assurance can be given that the IRS will not challenge the Company's eligibility for taxation as a REIT. Because the provisions governing REITs are highly technical and complex, no attempt is made in the following discussion to discuss in detail all of the possible tax consequences applicable to the Company or its shareholders. It is also important to note that the application of federal income tax laws and applicable regulations may be subject to varying interpretations and could result in a charge to the Company at a later date upon final determination by taxing authorities. ACCORDINGLY, THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING AND EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT THE APPLICABLE PROSPECTUS AND/OR PROSPECTUS SUPPLEMENT, AS WELL AS WITH HIS OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES TO HIM OF THE ACQUISITION, OWNERSHIP AND SALE OF THE COMPANY'S SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS. It is the opinion of WLDD that the Company is organized and is operating in conformity with the requirements for qualification and taxation as a REIT commencing with the Company's taxable year ending December 31, 1994, and its method of operation will enable it to continue to meet the requirements for qualification and taxation as a REIT under the Code. It must be emphasized that this opinion is based on various assumptions and is conditioned upon certain representations made by the Company as to factual matters including, but not limited to, those set forth below in this discussion and those concerning its business and properties as set forth in any applicable Prospectus and/or Prospectus Supplement. Moreover, such qualification and taxation as a REIT depends upon the Company's ability to meet, through actual annual operating results, the various income, asset, distribution, stock ownership and other tests discussed below, the results of which will not be reviewed by WLDD. Accordingly, no assurance can be given that the actual results of the Company's operations for any one taxable year will satisfy such requirements. If the Company ceases to qualify as a REIT, and the relief provisions do not apply, the Company's income that is distributed to shareholders would be subject to the "double taxation" on earnings (once at the corporate level and again at the shareholder level) that generally results from investment in a corporation. Failure to maintain qualification as a REIT would force the Company to reduce significantly its distributions and possibly incur substantial indebtedness or liquidate substantial investments in order to pay the resulting corporate taxes. In addition, the Company, once having obtained REIT status and having lost such status, would not be eligible to elect REIT status for the four subsequent taxable years, unless its failure to maintain its qualification was due to reasonable cause and not willful neglect, and certain other requirements were satisfied. In order to elect to again be taxed as a REIT, just as with the original election, the Company would be required to distribute all of its earnings and profits accumulated in any non-REIT taxable year. The Company intends to conduct its affairs so that the assets of the Company will not be deemed to be "plan assets" of any individual retirement account, employee benefit plan subject 2 to Title I of ERISA, or other qualified retirement plan subject to Section 4975 of the Code which acquires its shares. TAXATION OF THE COMPANY The Company elected to be taxed as a REIT for federal income tax purposes commencing with the taxable year ending December 31, 1994. The Company has continued its REIT election since that time and intends to continue such election. The Company believes that it is organized and has operated in a manner so as to qualify for taxation as a REIT, and the Company intends to continue to operate in such a manner. However, no assurance can be given that the Company has operated in a manner so as to qualify for taxation as a REIT or that it will continue to operate in such a manner. Generally, if the Company continues to qualify for taxation as a REIT, it will not be subject to federal income tax on income or capital gains that it distributes in a timely manner to shareholders. However, notwithstanding the Company's qualification as a REIT, the Company will be subject to federal income tax as follows: First, the Company will be taxed at regular corporate rates on any undistributed "real estate investment trust taxable income," including undistributed net capital gains. Second, under certain circumstances, the Company may be subject to the "alternative minimum tax" on its items of tax preference, if any. Third, if the Company has (i) net income from the sale or other disposition of "foreclosure property" that is held primarily for sale to customers in the ordinary course of business, or (ii) other nonqualifying income from foreclosure property, it will be subject to tax on such income at the highest corporate rate. Fourth, any net income that the Company has from prohibited transactions (which are, in general, certain sales or other dispositions of property other than foreclosure property held primarily for sale to customers in the ordinary course of business) will be subject to a 100% tax. Fifth, if the Company should fail to satisfy either the 75% or 95% gross income tests (as discussed below), and has nonetheless maintained its qualification as a REIT because certain other requirements have been met, it will be subject to a 100% tax on the net income attributable to the greater of the amount by which the Company fails the 75% or 95% gross income tests. Sixth, if the Company fails to distribute during each year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) (subject to the Section 857(b) election) 95% of its REIT capital gain net income for such year, and (iii) any undistributed taxable income from preceding periods, then the Company will be subject to a 4% federal excise tax on the excess of such required distribution over the amounts actually distributed. Seventh, to the extent that the Company recognizes gain from the disposition of an asset with respect to which there existed "built-in gain" as of January 1, 1994 and such disposition occurs within a 10-year recognition period beginning January 1, 1994, the Company will be subject to federal income tax at the highest regular corporate rate on the amount of its "net recognized built-in gain." The Company estimates that on January 1, 1994, the aggregate "built-in gain" was approximately $12.1 million. The Company may offset any net recognized built-in gain by available net operating loss carryforwards. On January 1, 1994, the Company had approximately $2.7 million in net operating loss carryforwards which expire at various dates through 2007. Management of the 3 Company will consider this tax effect when determining whether it is in the best interest of the Company to sell a specific piece of real property. Eighth, the Company could be subject to tax in certain situations and on certain transactions not presently contemplated. REQUIREMENTS FOR QUALIFICATION AS A REIT To qualify as a REIT for a taxable year under the Code, the Company must have no earnings and profits accumulated in any non-REIT year. The Company also must have in effect an election to be taxed as a REIT and must meet other requirements, some of which are summarized below, including percentage tests relating to the sources of its gross income, the nature of the Company's assets and the distribution of its income to shareholders. Such election, if properly made and assuming continuing compliance with the qualification tests described herein, will continue in effect for subsequent years. ORGANIZATIONAL REQUIREMENTS AND SHARE OWNERSHIP TESTS Section 856(a) of the Code defines a REIT as a corporation, trust or association (1) which is managed by one or more trustees or directors; (2) the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest; (3) which would be taxable, but for Sections 856 through 859 of the Code, as a domestic corporation; (4) which is neither a financial institution nor an insurance company, subject to certain provisions of the Code; (5) the beneficial ownership of which is held by 100 or more persons, determined without reference to any rules of attribution (the "share ownership test"); (6) that during the last half of each taxable year not more than 50% in value of the outstanding stock of which is owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) (the "five or fewer test"); and (7) which meets certain other tests, described below, regarding the nature of its income and assets. Section 856(b) of the Code provides that conditions (1) through (4), inclusive, must be met during the entire taxable year, and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of fewer than 12 months. The five or fewer test and the share ownership test do not apply to the first taxable year for which an election is made to be treated as a REIT. The Company has issued sufficient shares to a sufficient number of people pursuant to its initial public offering to allow it to satisfy the share ownership test and the five or fewer test. In addition, to assist in complying with the five or fewer test on an ongoing basis, the Company's Charter contains certain provisions restricting share transfers where the transferee (other than the Nichols, members of their families and certain affiliates, and certain exceptions specified in the Charter) would, after such transfer, own (a) more than 8% either in number or value of the outstanding Common Stock of the Company or (b) more than 8% either in number or value of the outstanding Preferred Stock of the Company. Pension plans and certain other tax exempt entities will have different restrictions on ownership. If, despite this prohibition, stock is acquired increasing a transferee's ownership to over 8% in value of either the outstanding Common Stock of the Company or Preferred Stock of the Company, the stock in excess of the 8% is deemed to be held in trust for transfer at a price which does not exceed what the purported transferee paid for the stock and, while held in trust, the stock is not entitled to receive dividends or to vote. In 4 addition, under these circumstances, the Company also has the right to redeem such stock. For purposes of determining whether the five or fewer test (but not the share ownership test) is met, any stock held by a qualified trust (generally pension plans, profit-sharing plans and other employee retirement trusts) generally is treated as held directly by the trust's beneficiaries in proportion to their actuarial interests in the trust, and not held by the trust. The Company is required to maintain records of the actual and constructive beneficial ownership of its shares. The 1997 Act added certain provisions to the Code that provide that if the Company timely mails demand letters to certain shareholders requesting stock ownership information be provided to the Company or the IRS, unless the Company does not know, or exercising reasonable due diligence would not have known, that the five or fewer test has in fact not been satisfied, the Company shall be deemed to have satisfied the five or fewer test. Pursuant to the 1997 Act, if the Company fails to comply with the Treasury Regulations to ascertain its ownership it will be subject to a penalty for failing to do so and will void the possible application of the deemed satisfaction of the five or fewer test of ownership. The penalty is $25,000 ($50,000 for intentional violations) for any year in which the Company does not comply with the ownership Treasury Regulations. The Company will also be required, when requested by the IRS, to send curative demand letters. In accordance with the Treasury Regulations, the Company must and will demand from certain shareholders written statements concerning the actual and constructive beneficial ownership of shares. The Company's Bylaws require such record holders to respond to such requests for information. Any shareholder who does not provide the Company with requested information concerning share ownership will be required to include certain information relating thereto with his income tax return. A list of shareholders failing to fully comply with the demand for the written statements shall be maintained as part of the Company's records required under the Code. INCOME TESTS In order to maintain qualification as a REIT, two gross income requirements must be satisfied annually by the Company. First, at least 75% of the Company's gross income (other than from certain "prohibited transactions") in each taxable year must consist of certain types of income identified in the Code, including qualifying "rents from real property"; qualifying interest on obligations secured by mortgages on real property or interests in real property; gain from the sale or other disposition of real property (including interests in real property and mortgages on real property) held for investment and not primarily for sale to customers in the ordinary course of business; income and gain from certain properties acquired by the Company through foreclosure; and income earned from certain types of qualifying temporary investments. When the Company receives new capital in exchange for its shares (other than dividend reinvestment amounts) or in a public offering of debt instruments with maturities of five years or longer, income attributable to the temporary investment of such new capital, if received or accrued within one year of the Company's receipt of the new capital, is qualified temporary investment income under the 75% gross income test. Second, at least 95% of the Company's gross income (other than from certain "prohibited transactions") in each taxable year must consist of income which qualifies under the 75% gross 5 income test as well as dividends and interest from any other source, gain from the sale or other disposition of shares and other securities which are not dealer property, any payment to the Company under an interest rate swap or cap agreement entered into as a hedge against variable rate indebtedness incurred to acquire or carry real estate assets, and any gain from the disposition of such an agreement. In order to qualify as "rents from real property" in satisfying the gross income requirements for a REIT described above, several conditions must be met related to the identity of the tenant, the computation of the rent payable, and the nature of the property leased. The Company does not anticipate receiving rents that fail to meet these conditions. In addition, the Company must not manage its properties or furnish or render services to the tenants of its properties, except through an independent contractor from whom the Company derives no income. There is an exception to this rule permitting a REIT to perform directly certain "usually or customarily rendered" tenant services of the sort which a tax-exempt organization could perform without being considered in receipt of "unrelated business taxable income." The Company self-manages the properties, but does not provide services to tenants which it believes are outside the exception. The 1997 Act added certain provisions to the Code that permit the Company to render a de minimis amount (1% of rents) of nonqualifying services to tenants, or in connection with the management of the property, and still treat other amounts received as "rents from real property." For these purposes, the value of nonqualifying services shall not be less than 150% of the Company's direct cost of providing the services. If rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to such personal property will not qualify as rents from real property. Generally, this 15% test is applied separately to each lease. The portion of rental income treated as attributable to personal property is determined according to the ratio of the tax basis of the personal property to the total tax basis of the property which is rented. The determination of what fixtures and other property constitute personal property for federal tax purposes is difficult and imprecise. Based upon allocations of value as found in the purchase agreements and/or upon review by employees of the Company, the Company believes that it currently does not have and does not believe that is likely in the future to have 15% in value of any significant portion of its real properties classified as personalty. WLDD, in rendering its opinion as to the qualification of the Company as a REIT, is relying on the conclusions of the Company and its senior management as to the proportionate value of the personalty. If, however, rent payments do not qualify, for reasons discussed above, as rents from real property for purposes of Section 856 of the Code, it will be more difficult for the Company to meet the 95% or 75% gross income tests and continue to qualify as a REIT. In order to qualify as "interest on obligations secured by mortgages on real property," the amount of interest received generally must not be based on the income or profits of any person, but may be based on a fixed percentage or percentages of receipts or sales. The Company may temporarily invest its working capital in short-term investments, including shares in other REITs or interests in REMICs. Although the Company will use its best efforts to ensure that its income generated by these investments will be of a type which satisfies 6 the 75% and 95% gross income tests, there can be no assurance in this regard. The Company has analyzed its gross income through December 31, 1998 and has determined that it has met and expects in the future to meet the 75% and 95% gross income tests, and for 1998 and prior years has met the 30% gross income test, which has been repealed for 1998 and subsequent years. The Company is and expects to continue performing third-party management services. Such income does not qualify for the 95% or 75% gross income test and the Company will continue to monitor the volume of such income to avoid violating the 95% and 75% gross income tests. The Company may, if necessary, provide such services through a non-controlled affiliated entity to avoid failing to satisfy either the 95% or 75% gross income test. The Company presently has a non-controlled affiliated entity which is engaged in development activities. If the Company fails to meet the requirements of either or both the 75% or 95% gross income tests for any taxable year, it may nevertheless qualify as a REIT for such year if it is entitled to relief under certain provisions of the Code. These relief provisions will be generally available if the Company's failure to meet such tests was due to reasonable cause and not to willful neglect, the Company attaches a schedule of the sources of its income to its return, and any incorrect information on the schedule was not due to fraud with intent to evade tax. It is not possible, however, to know whether the Company would be entitled to the benefit of these relief provisions as the application of the relief provisions is dependent on future facts and circumstances. If these relief provisions apply, a special tax generally equal to 100% is imposed upon the net income attributable to the greater of the amount by which the Company failed the 75% or 95% gross income tests. ASSET TESTS At the close of each quarter of the Company's taxable year, it must also satisfy three tests relating to the nature of its assets. First, at least 75% of the value of the Company's total assets must consist of "real estate assets" (including interests in real property, interests in mortgages on real property, shares in other qualified REITs, and certain temporary investments), cash, cash items and government securities. Second, not more than 25% of the Company's total assets may be represented, in whole or in part, by securities other than those includable in the 75% asset class. Finally, of the investments included in the 25% asset class, the value of any one issuer's securities owned by the Company may not exceed 5% of the value of the Company's total assets, and the Company may not own more than 10% of any one issuer's outstanding voting securities. If the Company meets the above requirements at the close of any quarter, it will not lose its status as a REIT because of the change in value of its assets during a subsequent quarter unless the discrepancy exists immediately after the acquisition of any security or other property which is wholly or partly the result of such acquisition. Where a failure to satisfy the above requirements results from an acquisition of securities or other property during a quarter, the failure can be cured by disposition of sufficient nonqualifying assets within 30 days after the close of such quarter. While the Company intends to meet the requirements of the asset tests described above, no assurance can be given that the Company will be able to do so. 7 The Company may own 100% of the stock of a corporation if such corporation is a "qualified REIT subsidiary." For federal tax purposes, a qualified REIT subsidiary is ignored and the assets, liabilities, income, deductions and other attributes are treated as being owned or generated directly by the Company. The Company currently has four qualified REIT subsidiaries. If the Company acquires 100% of an existing corporation, the acquired corporation will be deemed to liquidate and all of its built-in gain will be taxable. In addition, the Company would have to make distributions sufficient to eliminate any "C" corporation earnings and profits as well as sufficient distributions to meet the distribution requirements described below. DISTRIBUTION REQUIREMENTS In order to qualify as a REIT, the Company is required to distribute dividends (other than capital gain dividends) to its shareholders in an amount equal to or greater than the excess of (A) the sum of (i) 95% of the Company's "real estate investment trust taxable income," computed without regard to the dividends paid deduction and the Company's net capital gain ("net investment income") and (ii) 95% of the net income, if any, (after tax) from foreclosure property, over (B) the sum of certain non-cash income (from certain imputed rental income and income from transactions inadvertently failing to qualify as like-kind exchanges). These requirements may be waived by the IRS if the REIT establishes that it failed to meet them by reason of distributions previously made to meet the requirements of the 4% federal excise tax described below. Unlike net investment income, the Company's net capital gain need not be distributed in order for the Company to maintain its status under the Code as a REIT; however, the Company will be taxed on any net capital gain which it fails to distribute in a timely manner. A REIT may elect to retain and pay income tax on net long-term capital gains that it receives during a taxable year. If the Company makes this election, shareholders are required to include in their income as long-term capital gain their proportionate share of the undistributed long-term capital gains so designated by the Company. A shareholder will be treated as having paid his or her share of the tax paid by the Company in respect of long-term capital gains so designated by the Company, for which the shareholder will be entitled to a credit or refund. In addition, the shareholder's basis in his or her Company shares will be increased by the amount of the Company's designated undistributed long-term capital gains that are included in the shareholder's long-term capital gains, reduced by the shareholder's proportionate share of tax paid by the Company on those gains that the shareholder is treated as having paid. The earnings and profits of the Company will be reduced, and the earnings and profits of any corporate shareholder of the Company will be increased, to take into account amounts designated by the Company pursuant to this rule. The Company must pay its tax on its designated long-term capital gains within 30 days of the close of any taxable year in which it designates long-term capital gains pursuant to this rule, and it must mail a written notice of its designation to its shareholders within 60 days of the close of the taxable year. Should the Company distribute a capital gain dividend while Preferred Shares are outstanding, it will be required to designate a portion of dividends entitled to be received by holders of the Preferred Shares as capital gain dividends, thereby reducing the portion of total 8 distributions paid to holders of the Company's Common Shares which would otherwise be characterized as capital gains dividends. The Company will be subject to a nondeductible 4% federal excise tax to the extent it fails within a calendar year to make "required distributions" to its shareholders of 85% of its ordinary income and, unless the 1997 Act election is made, 95% of its capital gain net income plus the excess, if any, of the "grossed up required distribution" for the preceding calendar year over the amount treated as distributed for such preceding calendar year. For this purpose, the term "grossed up required distribution" for any calendar year is the sum of the taxable income of the Company for the taxable year (without regard to the deduction for dividends paid) and all amounts from earlier years that are not treated as having been distributed under the provision. Dividends declared in the last quarter of the year and paid during the following January will be treated as having been paid and received on December 31. The Company intends to make distributions to shareholders so that it will not incur this tax but, as noted below, various situations could make it impractical to meet the prescribed distribution schedule. It is possible that the Company, from time to time, may not have sufficient cash or other liquid assets to meet the 95% distribution requirements due to timing differences between actual receipt of income and actual payment of deductible expenses or dividends on the one hand and the inclusion of such income and deduction of such expenses or dividends in arriving at "real estate investment trust taxable income" of the Company on the other hand. The 1997 Act eliminated certain items of phantom income from the 95% distribution requirement. The problem of inadequate cash to make required distributions could also occur as a result of the repayment in cash of principal amounts due on the Company's outstanding debt, particularly in the case of "balloon" repayments or as a result of capital losses on short-term investments of working capital. Therefore, the Company might find it necessary to arrange for short-term, or possibly long-term borrowing, or new equity financing. If the Company were unable to arrange such borrowing or financing as might be necessary to provide funds for required distributions, its REIT status could be jeopardized. Under certain circumstances, the Company may be able to rectify a failure to meet the distribution requirement for a year by paying "deficiency dividends" to shareholders in a later year, which may be included in the Company's deduction for dividends paid for the earlier year. The Company may be able to avoid being taxed on amounts distributed as deficiency dividends; however, the Company may in certain circumstances remain liable for the 4% federal excise tax described above. COMPANY'S OWNERSHIP OF PARTNERSHIP INTERESTS In the case of a REIT that is a partner in a partnership, Treasury Regulations provide that the REIT is deemed to own its proportionate share of the partnership's assets and to earn its proportionate share of the partnership's income. In addition, the assets and gross income of the partnership retain the same character in the hands of the REIT for purposes of the gross income and asset tests applicable to REITs as described above. Thus, the Company's proportionate share of the assets, liabilities and items of income of the partnerships and limited liability companies in 9 which it has ownership interests will be treated as assets, liabilities and items of income of the Company for purposes of applying the REIT requirements described herein. FEDERAL INCOME TAX TREATMENT OF LEASES The availability to the Company of, among other things, depreciation deductions with respect to the facilities owned and leased by the Company depends upon the treatment of the Company as the owner of the facilities and the classification of the leases of the facilities as true leases, rather than as sales or financing arrangements, for federal income tax purposes. The Company has not requested nor received an opinion that it will be treated as the owner of the portion of the facilities constituting real property and the leases will be treated as true leases of such real property for federal income tax purposes. Based on the conclusions of the Company and its senior management as to the values of personalty, the Company has met and plans to meet in the future its compliance with the 95% distribution requirement (and the required distribution requirement) by making distributions on the assumption that it is not entitled to depreciation deductions for that portion of the leased facilities which it believes constitutes personal property, but to report the amount of income taxable to its shareholders by taking into account such depreciation. The value of real and personal property and whether certain fixtures are real or personal property are factual evaluations that cannot be determined with absolute certainty under current IRS regulations and therefore are somewhat uncertain. INCOME FROM PROHIBITED TRANSACTIONS A REIT is subject to a 100% tax on the net income derived from "prohibited transactions." A prohibited transaction is the sale or other disposition of property "held primarily for sale to customers in the ordinary course of business" which is not foreclosure property. The Company intends to hold its properties for investment with a view to long-term appreciation, to engage in the business of acquiring, developing, owning and operating its properties and to make occasional sales of its properties as are consistent with the Company's investment objectives. Whether property is held primarily for sale to customers in the ordinary course of business is a question of fact that depends on all the facts and circumstances with respect to the particular transaction. A safe harbor exception is provided for which certain sales of "real estate assets" will be deemed not to constitute a prohibited transaction. Generally, the following requirements must be met for the sale to fall within this safe harbor: - the REIT must have held the property for at least four years; - the total expenditures made by the REIT during the four-year period preceding the date of sale which are includable in the basis of the property must not exceed 30% of the net selling price of the property; - during the taxable year, (i) the REIT does not make more than seven sales of property (other than sales of foreclosure property or property that was involuntarily converted), or (ii) the total adjusted bases of property (other than sales of foreclosure property or property that was involuntarily converted) sold 10 must not exceed 10% of the total bases of all of the assets of the REIT as of the beginning of the taxable year; - if the REIT makes more than seven sales of property (other than sales of foreclosure property or property that was involuntarily converted) during the taxable year, substantially all of the marketing and development expenditures with respect to the property must be made through an "independent contractor" from whom the REIT itself does not derive or receive any income; and - if the property consists of land or improvements, not acquired through foreclosure (or deed in lieu of foreclosure), or lease termination, the REIT will not be considered to have held the property for at least four years for production of rental income. The Company may from time to time sell or exchange some of its properties for various reasons. If the above safe harbor is not met, the Company will consider all of the facts and circumstances of the particular transaction and the possible applicability of the 100% tax. The simultaneous exercise of options to acquire leased property that may be granted to certain lessees or other events could result in sales of properties by the Company that exceed the safe harbor. However, the Company believes that in such event, based on all of the facts and circumstances, it will not have held such properties primarily for sale to customers in the ordinary course of business. OTHER ISSUES With respect to property acquired from and leased back to the same or an affiliated party, the IRS could assert that the Company realized prepaid rental income in the year of purchase to the extent that the value of the leased property exceeds the purchase price paid by the Company for that property. In litigated cases involving sale-leasebacks which have considered this issue, courts have concluded that buyers have realized prepaid rent where both parties acknowledged that the purported purchase price for the property was substantially less than fair market value and the purported rents were substantially less than the fair market rentals. Because of the lack of clear precedent and the inherently factual nature of the inquiry, complete assurance cannot be given that the IRS could not successfully assert the existence of prepaid rental income in such circumstances. The value of property and the fair market rent for properties involved in sale-leasebacks are inherently factual matters and always subject to challenge. Additionally, it should be noted that Section 467 of the Code (concerning leases with increasing rents) may apply to those leases of the Company which provide for rents that increase from one period to the next. Section 467 provides that in the case of a so-called "disqualified leaseback agreement," rental income must be accrued at a constant rate. If such constant rent accrual is required, the Company would recognize rental income in excess of cash rents and as a result, may fail to meet the 95% dividend distribution requirement. "Disqualified leaseback agreements" include leaseback transactions where a principal purpose of providing increasing rent under the agreement is the avoidance of federal income tax. The IRS has issued proposed regulations under Section 467 relating to the treatment of rent and interest provided for in certain 11 leases. The proposed regulations apply to rental agreements that provide for increasing or decreasing rent. A rental agreement has increasing or decreasing rent if it requires the payment of contingent rent, other than rent that is contingent due to (1) a provision computing rent based on a percentage of the lessee's gross or net receipts; (2) adjustments based on a reasonable price index; or (3) a provision requiring the lessee to pay third-party costs. Therefore, additional rent provisions of leases containing such clauses should not be "disqualified leaseback agreements." The proposed regulations also provide that if the rent allocated to each calendar year does not vary from the average rent allocated to all calendar years by more than 10%, the lease will be deemed not motivated by tax avoidance and thus should not be a "disqualified leaseback agreement." It should be noted, however, that leases involved in sale- leaseback transactions are subject to special scrutiny under this Section. The Company, based on its evaluation of the value of the property and the terms of the leases, does not believe it has or will have in the future rent subject to the provisions of Section 467. DEPRECIATION OF PROPERTIES For tax purposes, the Company's real property acquired subsequent to its initial public offering is being depreciated over 39 years utilizing the straight-line method of depreciation and personal property is being depreciated over 5 to 15 years in accordance with applicable laws and regulations relating to different classifications of personal property. FAILURE TO QUALIFY AS A REIT If the Company fails to qualify for federal income tax purposes as a REIT in any taxable year, and the relief provisions do not apply, the Company will be subject to tax on its taxable income at regular corporate rates (plus any applicable alternative minimum tax). Distributions to shareholders in any year in which the Company fails to qualify will not be deductible by the Company nor will they be required to be made. In such event, to the extent of current or accumulated earnings and profits, all distributions to shareholders will be taxable as ordinary income and, subject to certain limitations in the Code, corporate distributees may be eligible for the dividends received deduction. Unless entitled to relief under specific statutory provisions, the Company will also be disqualified from taxation as a REIT for the following four taxable years. It is not possible to state whether in all circumstances the Company would be entitled to statutory relief from such disqualification. Failure to qualify for even one year could result in the Company's incurring substantial indebtedness (to the extent borrowings are feasible) or liquidating substantial investments in order to pay the resulting taxes. TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS As long as the Company qualifies as a REIT, distributions made to the Company's taxable domestic shareholders out of current or accumulated earnings and profits (and not designated as capital gain dividends) will be taken into account by them as ordinary income and will not be eligible for the dividends received deduction for corporations. Distributions that are designated as capital gain dividends will be taxed as long-term capital gains (to the extent that they do not exceed the Company's actual net capital gain for the taxable year) without regard to 12 the period for which the shareholder has held his or her stock. However, corporate stockholders may be required to treat up to 20% of certain capital gain dividends as ordinary income. Distributions in excess of current and accumulated earnings and profits will not be taxable to a shareholder to the extent that they do not exceed the adjusted basis of the shareholder's shares in respect of which the distributions were made, but rather will reduce the adjusted basis of such shares. To the extent that such distributions exceed the adjusted basis of a shareholder's shares in respect of which the distributions were made, they will be included in income as capital gain provided that the shares are a capital asset in the hands of the shareholder. As a result of the 1997 Act and that 1998 Act, the maximum rate of tax on net capital gains recognized by individuals and other non-corporate shareholders upon the sale or disposition of shares of the Company held for more than 12 months has been reduced to 20%, and such maximum rate is further reduced to 18% for shares sold after December 31, 2000, and held for more than five years. For 15% bracket taxpayers, the maximum rate on net capital gains is reduced to 10%, and such maximum rate is further reduced to 8% for shares sold after December 31, 2000, and held for more than five years. The maximum rate for net capital gains attributable to the sale of depreciable real property held for more than 12 months is 25% to the extent of the deductions for depreciation with respect to such property. Long-term capital gain that the Company allocates to domestic shareholders will be subject to the 25% rate to the extent that the gain does not exceed depreciation on real property that the Company sold. Capital losses recognized by a shareholder upon the disposition of shares of the Company held for more than one year at the time of disposition will be a long-term capital loss. In addition, any loss upon a sale or exchange of shares of the Company by a shareholder who has held such shares for six months or less (after applying certain holding period rules) will be treated as a long-term capital loss to the extent of distributions from the Company required to be treated by such shareholder as long-term capital gain. All or a portion of any loss realized upon a taxable disposition of shares of the Company may be disallowed if other shares of the Company are purchased (under a dividend reinvestment plan or otherwise) within 30 days before or after the disposition. A redemption of Preferred Shares of the Company will be treated under Section 302 of the Code as a dividend subject to tax at ordinary income tax rates (to the extent of the Company's current or accumulated earnings and profits), unless the redemption satisfies certain tests set forth in Section 302(b) of the Code enabling the redemption to be treated as a sale or exchange of the Preferred Shares. The redemption will satisfy such test if it (i) is "substantially disproportionate" with respect to the holder, (ii) results in a "complete termination" of the holder's stock interest in the Company, or (iii) is "not essentially equivalent to a dividend" with respect to the holder, all within the meaning of Section 302(b) of the Code. In determining whether any of these tests have been met, shares considered to be owned by the holder by reason of certain constructive ownership rules set forth in the Code, as well as shares actually owned, must generally be taken into account. Because the determination as to whether any of the alternative tests of Section 302(b) of the Code is satisfied with respect to any particular holder of the Preferred Shares will depend upon the facts and circumstances as of the time the determination is made, prospective investors are advised to consult their own tax advisors to determine such tax treatment. If a redemption of the Preferred Shares is treated as a distribution that is taxable as a dividend, the amount of the distribution would be measured by the amount of cash and the fair market value of any property received by the stockholders. The stockholder's adjusted tax basis in such redeemed Preferred Shares would be transferred to the holder's remaining stockholdings in the Company. If, however, the stockholder has no remaining stockholdings in the Company, such basis may, under certain circumstances, be transferred to a related person or it may be lost entirely. 13 The Company may be required to withhold and remit to the IRS 31% of the dividends paid to any shareholder who (a) fails to furnish the Company with a properly certified taxpayer identification number, (b) has under reported dividend or interest income to the IRS or (c) fails to certify to the Company that he or she is not subject to backup withholding. Any amount paid as backup withholding will be creditable against the shareholder's income tax liability. The Company will report to its shareholders and the IRS the amount of dividends paid during each calendar year and the amount of any tax withheld. TAXATION OF TAX-EXEMPT SHAREHOLDERS Tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts ("Exempt Organizations"), generally are exempt from federal income taxation. However, they are subject to taxation on their unrelated business taxable income ("UBTI"). While many investments in real estate generate UBTI, the IRS has ruled that dividend distributions from a REIT to an exempt employee pension trust do not constitute UBTI, provided that the shares of the REIT are not otherwise used in an unrelated trade or business of the exempt employee pension trust. Based on that ruling, amounts distributed by the Company to Exempt Organizations should generally not constitute UBTI. However, if an Exempt Organization finances its acquisition of its shares with debt, a portion of its income from the Company will constitute UBTI pursuant to the "debt-financed property" rules. In addition, in certain circumstances, a pension trust that owns more than 10% of the Company's stock is required to treat a percentage of the dividends from the Company as UBTI (the "UBTI Percentage"). The UBTI Percentage is the gross income derived by the Company from an unrelated trade or business (determined as if the Company were a pension trust) divided by the gross income of the Company for the year in which the dividends are paid. The UBTI rule applies to a pension trust holding more than 10% of the Company's stock only if (1) the UBTI Percentage is at least 5%, (2) the Company qualifies as a REIT only because the pension trust is not treated as a single issuer for purposes of the five or fewer rule, and (3) either (A) one pension trust owns more than 25% of the value of the Company's stock or (B) a group of pension trusts each individually holding more than 10% of the value of the Company's stock collectively owns more that 50% of the value of the Company's stock. The Company currently does not expect that this rule will apply. TAXATION OF FOREIGN SHAREHOLDERS The rules governing United States federal income taxation of nonresident alien individuals, foreign corporations, foreign partnerships and other foreign shareholders (collectively, "non-U.S. shareholders") are complex and no attempt will be made herein to provide more than a summary of such rules. Non-U.S. shareholders should consult with their own tax advisers to determine the impact of federal, state and local income tax laws with regard to an investment in shares of the Company, including any reporting requirements. Distributions that are not attributable to gain from sales or exchanges by the Company of "United States Real Property Interests" and not designated by the Company as capital gain dividends will be treated as dividends of ordinary income to the extent that they are made out of 14 current or accumulated earnings and profits of the Company. Generally, such distributions will be subject to a U.S. withholding tax equal to 30% of the gross amount of the distribution unless an applicable tax treaty reduces or eliminates that tax. However, if income from the investment in the shares of the Company is treated as effectively connected with the non-U.S. shareholder's conduct of a United States trade or business, the non-U.S. shareholder generally will be subject to a tax at graduated rates, in the same manner as U.S. shareholders are taxed with respect to such dividends (and may also be subject to the 30% branch profits tax in the case of a shareholder that is a foreign corporation). Any distributions in excess of current and accumulated earnings and profits of the Company will not be taxable to a non-U.S. shareholder to the extent that they do not exceed the adjusted basis of the shareholder's shares, but rather will reduce the adjusted basis of such shares. To the extent that such distributions exceed the adjusted basis of a non-U.S. shareholder's shares in the Company, they will give rise to tax liability if the non-U.S. shareholder would otherwise be subject to tax on any gain from the sale or disposition of his or her shares, as described below. If it cannot be determined at the time a distribution is made whether or not such distribution will be in excess of current and accumulated earnings and profits, the distributions will be subject to withholding at the same rate as dividends. However, amounts thus withheld are refundable if it subsequently is determined that such distribution was, in fact, in excess of current and accumulated earnings and profits of the Company. Under currently applicable Treasury Regulations, withholding agents are required to determine the applicable withholding rate pursuant to the appropriate tax treaty, and withhold the appropriate amount. New Treasury Regulations, however, have been adopted that revise in certain respects the rules applicable to non-U.S. shareholders (the "New Treasury Regulations"). The IRS has recently announced that the New Treasury Regulations are effective generally for payments made after December 31, 1999, subject to certain transition rules. Currently, dividends paid to an address in a foreign country are presumed to be paid to a resident of that country (unless the payor has knowledge to the contrary) for purposes of the 30% U.S. withholding tax applicable to certain non-U.S. shareholders and for purposes of determining the applicability of a tax treaty rate. Under the New Treasury Regulations, however, a non-U.S. shareholder who wishes to claim the benefit of an applicable treaty rate will be required to provide Form W-8 which satisfies applicable certification and other requirements, including a representation as to the holder's foreign status, the holder's name and permanent residence address, and the relevant tax treaty. Such information is subject to being reported to the IRS. A permanent residence address for this purpose generally is the address in the country where the person claims to be a resident for purposes of the country's income tax. If the beneficial holder is a corporation, then the address is where the corporation maintains its principal office in its country of incorporation. The New Treasury Regulations also provide special rules to determine whether, for purposes of determining the applicability of a tax treaty and for purposes of the 30% withholding tax described above, dividends paid to a non-U.S. shareholder that is an entity should be treated as paid to the entity or those holding an interest in that entity. In particular, in the case of a foreign partnership, the certification requirement will generally be applied to the partners of the partnership. In addition, the New Treasury Regulations will also require the partnership to provide certain information, including a United States taxpayer identification number, and will provide look-through rules for tiered partnerships. A non-U.S. shareholder that 15 is eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any excess amount withheld by filing an appropriate claim for refund with the IRS. The New Treasury Regulations contain detailed rules governing tax certifications during the transition period prior to and immediately following the effectiveness of the New Treasury Regulations. For any year in which the Company qualifies as a REIT, distributions that are attributable to gain from sales or exchanges by the Company of "United States Real Property Interests" will be taxed to a non-U.S. shareholder under the provisions of the Foreign Investment in Real Property Tax Act of 1980, as amended ("FIRPTA"). Under FIRPTA, these distributions are taxed to a non-U.S. shareholder as if such gain were effectively connected with a United States trade or business. Non-U.S. shareholders would be subject to U.S. income tax at the rates applicable to U.S. individuals or corporations, without regard to whether such distribution is designated as a capital gain dividend. Also, distributions subject to FIRPTA may be subject to a 30% branch profits tax in the hands of a foreign corporate shareholder not entitled to treaty exemption. The Company is required to withhold 35% of any distribution that could be designated by the Company as a capital gain dividend to the extent that such capital gain dividends are attributable to the sale or exchange by the Company of "United States Real Property Interests." This amount is creditable against the non-U.S. shareholder's federal tax liability. Although the law is not entirely clear on the matter, it appears that amounts designated by the Company pursuant to the 1997 Act as undistributed capital gains would be treated with respect to non-U.S. shareholders in the manner outlined in the preceding paragraph for actual distributions by the Company of capital gain dividends. Under that approach, the non-U.S. shareholders would be able to offset as a credit against their U.S. federal income tax liability resulting therefrom their proportionate share of the tax paid by the Company on such undistributed capital gains (and to receive from the IRS a refund to the extent their proportionate share of such tax paid by the Company were to exceed their actual U.S. federal income tax liability). Gain recognized by a non-U.S. shareholder upon a sale of Company shares generally will not be taxed under FIRPTA if the Company is a "domestically controlled REIT," defined generally as a REIT in which, at all times during a specified testing period, less than 50% in value of the shares were held directly or indirectly by non-U.S. persons. The Company believes that it is, and it expects to continue to be a domestically controlled REIT and, therefore, the sale of Company shares should not be subject to taxation under FIRPTA. Because the Company's stock is publicly traded, however, no assurance can be given that the Company will continue to be a domestically controlled REIT. If the Company does not constitute a domestically controlled REIT, a non- U.S. shareholder's sale of Company shares generally will still not be subject to tax under FIRPTA as a sale of U.S. Real Property Interests provided that (i) the stock is "regularly traded" (as defined by applicable Treasury Regulations) on an established securities market and (ii) the selling non- 16 U.S. shareholder held 5% or less of the Company's outstanding stock at all times during a specified testing period. If gain on the sale of shares of the Company were subject to taxation under FIRPTA, the non-U.S. shareholder would be subject to the same treatment as a U.S. shareholder with respect to such gain (subject to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals) and the purchaser of the stock could be required to withhold 10% of the purchase price and remit such amount to the IRS. Gain from the sale of Company shares that would not otherwise be subject to FIRPTA will nonetheless be taxable in the United States to a non-U.S. shareholder in two cases: (i) if the non-U.S. shareholder's investment in the Company's stock is effectively connected with a U.S. trade or business conducted by such non-U.S. shareholder, the non-U.S. shareholder will be subject to the same treatment as a U.S. stockholder with respect to such gain, or (ii) if the non-U.S. shareholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and has a "tax home" in the United States, the nonresident alien individual will be subject to a 30% tax on the individual's capital gain. 17 -----END PRIVACY-ENHANCED MESSAGE-----